Section 172(1)

Section 172(1) — the law in short

What the courts have decided on section 172(1), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• A.S. Glittre D/5 I/S Garonne v CIT Supreme CourtHelps taxpayer
  We paid tax on each voyage under section 172(4) and then elected under section 172(7) for a regular assessment, which came out much lower and produced a refund. The Department has refunded the tax but refused interest, saying what we paid was not advance tax. Is that right?
  No. Section 172(7) creates a legal fiction by which the payments already made under s.172(4) are treated as a payment in advance of the tax leviable for that assessment year, and the Supreme Court held that in construing that fiction all the consequences flowing from it must be assumed. The ad hoc assessment under s.172(4) is superseded and a regular assessment is made as per the provisions of the Act, so all the provisions of the Act relating to advance tax apply, and on excess payment the assessee is entitled to the excess and to interest on it.
• CIT v V.S. Dempo & Co. Pvt. Ltd. (Bombay High Court, Full Bench) — section 172 is referable to section 44B, and where it applies there is no warrant for Chapter XVII or section 195 High CourtHelps taxpayerValidity unconfirmed
  We are an Indian exporter. We paid demurrage to a foreign shipping company without deducting tax and the Assessing Officer has disallowed the whole payment under section 40(a)(i), saying section 172 is for non-residents and we are a resident. Does the payer have to be a non-resident before section 172 can be invoked?
  No. A Full Bench of the Bombay High Court answered the referred question and held that s.172 and s.44B are to be read together — s.44B enacting the special provisions for computing the profits and gains of a non-resident's shipping business and s.172 enacting the scheme for the levy and recovery of tax on the ship — and that where s.172 governs, there is no warrant for applying the provisions in Chapter XVII for collection and recovery of tax and its deduction at source under s.195. The Court overruled the view in CIT v. Orient (Goa) Private Limited to the extent contrary to that, and directed the appeals to be listed before an appropriate Division Bench.
• Statutory position — section 172: the 7.5 per cent freight levy on a non-resident's ship, the master's return, the nine-month limit in s.172(4A), and the owner's election under s.172(7) CBDT Circulars & InstructionsCuts both ways
  A foreign ship loaded our cargo at an Indian port and the Assessing Officer is demanding tax from the master before port clearance. What is the levy, what return has to be filed, is there any time limit on the officer, and can the owner ask instead to be assessed on his year's income?
  Section 172 is a self-contained levy that operates voyage by voyage: where a ship belonging to or chartered by a non-resident carries passengers, livestock, mail or goods shipped at a port in India, s.172(2) deems 7.5 per cent of the amount paid or payable for that carriage — whether paid in or out of India — to be income accruing in India, and s.172(4) makes the tax payable by the master of the ship at the rate applicable to a company that has not made the arrangements referred to in s.194. The master must furnish a return under s.172(3) before the ship's departure, though the officer may accept a return filed within thirty days of departure by an authorised person where satisfactory arrangements have been made; s.172(6) withholds port clearance until the tax is paid or arrangements made; s.172(4A) bars any assessment order under s.172(4) after nine months from the end of the financial year in which the s.172(3) return is furnished; and s.172(7) lets the owner or charterer claim, before the expiry of the assessment year relevant to the previous year in which the date of departure falls, that an assessment be made of his total income under the other provisions of the Act, in which case the s.172 payments are treated as a payment in advance of the tax.
• CBDT Circular No. 723 dated 19 September 1995 — where section 172 applies, sections 194C and 195 do not, and the shipping agent steps into the shoes of his non-resident principal CBDT Circulars & InstructionsHelps taxpayer
  We pay ocean freight and demurrage to a foreign shipping line, usually through its Indian agent, and we do not deduct tax. The Assessing Officer is disallowing the whole payment under section 40(a)(i). Is there anything from the Board on this?
  Yes, and it is directly in point. Circular No. 723 dated 19 September 1995 states that s.172 is a self-contained code for the levy and recovery of tax, ship-wise and journey-wise, that its provisions apply notwithstanding anything contained in other provisions of the Act, and that "Therefore, in such cases, the provisions of sections 194C and 195 relating to tax deduction at source are not applicable." Paragraph 5 extends that to payments routed through agents: since the agent acts on behalf of the non-resident owner or charterer, he steps into the shoes of the principal, and accordingly s.172 applies and ss.194C and 195 do not.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.