916. Clarification regarding treatment of tax paid under section 172(3)/(4) by a non-resident engaged in shipping business
Circular No. 9 was issued by the Central Board of Direct Taxes on 9 July 2001. Its subject is 916. Clarification regarding treatment of tax paid under section 172(3)/(4) by a non-resident engaged in shipping business.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Withdraws Circular No. 730 dated 14-12-1995 and reverses its position on interest in shipping cases. Under section 172, 7.5 per cent of the freight paid or payable for carriage from an Indian port is deemed to be the non-resident's income, taxed at foreign company rates and paid before port clearance, unless satisfactory arrangements let the ship leave against a return and payment within 30 days of departure. Where the owner or charterer opts under section 172(7) to be assessed on his total income under the ordinary provisions, Circular No. 730 had said he was neither liable to interest under sections 234B and 234C nor entitled to interest under section 244A. The Board now records that the Supreme Court in A.S. Glittre D/5 I/S Garonne v. CIT held that payment under section 172(3) and (4) is on a par with advance tax instalments, so the assessee is entitled to a refund with interest, and clarifies that on a regular assessment under section 172(7) he is liable to interest under sections 234B and 234C and entitled to interest under section 244A as the case may be.
The Supreme Court decision made the earlier circular no longer legally tenable.
916. Clarification regarding treatment of tax paid under section 172(3)/(4) by a non-resident engaged in shipping business
1. The Board had earlier issued Circular No. 730 regarding treatment of tax paid under section 172(3) by a non-resident engaged in the shipping business. Under the provisions of section 172, every time a ship belonging to or chartered by a non-resident makes a voyage from a port in India, carrying passengers, livestock, mail or goods shipped at a port in India, 7.5 per cent of the amount paid or payable on account of the carriage of the passengers etc. is deemed as the income and tax is levied on such income at a rate applicable to a foreign company. The assessment and the payment is to be made before the ship is granted the port clearance. The exception is that, in suitable cases the ship may be allowed to leave provided satisfactory arrangements are made to ensure that the return of income if filed and payment of tax is made within 30 days of the departure of the ship.
2. Under the provisions of section 172(7), the non-resident owner or charterer is allowed an option to be assessed on his total income of the previous year in accordance with other provisions of the Act. When such option is exercised and an assessment is made accurately, the tax already paid under the provisions of section 172(4) by the non-resident owner or charterer would be treated as tax paid in advance for that assessment year before determining the amount of tax finally due.
3. The question that arose for consideration of the Board at the time of issue of Circular No. 730 was that when a regular assessment is made under section 143(3), read with the provisions of section 172(7), whether such an assessee would liable to levy of interest under sections 234B and 234C or not. On the other hand, in case of a refund, the question of entitlement of interest under section 244A would also rise. The Board, vide Circular No. 730, dated 14-12-1995 clarified that the assessee, who exercises his option under section 172(7) to get his total income assessed in accordance with the other provisions of the Act, is neither liable to pay interest under sections 234B and 234C, nor entitled to receive interest under section 244A of the Income-tax Act, 1961.
4. This issue has subsequently been discussed and decided by the Supreme Court in the case of A.S. Glittre D/5 I/S Garonne vs. CIT [1997] 225 ITR 739. It has been held that the payment of tax under section 172(3)/(4) is at par with advance tax instalments. Hence, in case of a regular assessment under section 172(7) the assessee is entitled to refund, as well as interest on such refund.
5. The Circular No. 730 issued by the Central Board of Direct Taxes on this issue is, under the circumstances, no longer legally tenable and is, therefore, withdrawn. It is clarified that in case of a regular assessment under section 172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and also entitled to receive interest under section 244A of the Income-tax Act, 1961 as the case may be.
Circular : No. 9/2001, dated 9-7-2001.
On the assessment of a non-resident shipping company that opted under section 172(7), or on a refund claim for freight tax paid at the port.
Source: the Income Tax Department’s own published text — its page for this instrument.
