Section 172(3)

Section 172(3) — the law in short

What the courts have decided on section 172(3), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• M/s Atlantic Shipping Pvt Ltd v ITO (International Taxation) High CourtHelps taxpayerValidity unconfirmed
  Our principal's freight was exempt under Article 8, but the officer says Article 24 applies because the freight went to a London account. Who wins?
  The shipowner wins on these facts. The Gujarat High Court held that the assessee is entitled to the benefit of Article 8 of the India-Singapore treaty and that Article 24, the limitation of relief clause, does not apply, quashing the Tribunal's direction to send the matter back to the Assessing Officer to verify the Singapore tax authority's certificate.
• DIT (International Taxation) v Venkatesh Karrier Ltd — Article 8 of the India-UAE treaty ousts the section 172 levy where the ship belongs to a UAE resident High CourtHelps taxpayerValidity unconfirmed
  We are the Indian agent of a ship owned by a UAE company. We filed the section 172(3) return claiming nothing was payable because of the treaty, and the Assessing Officer taxed 7.5 per cent of the freight without explaining why. Does the treaty defeat the section 172 levy, and what does the Board say?
  On the India-UAE treaty, yes. The Gujarat High Court held that where the owner of the ship is admittedly a resident of the UAE, Article 8 of the India-UAE Double Taxation Avoidance Agreement leaves no scope for taxing the income of the ship at any Indian port, because the agreement between the two countries has ousted the jurisdiction of the Indian taxing officers to tax profits derived by the enterprise. The Court reached that conclusion on Article 8 read with two Board circulars which it described but which are not reproduced in the judgment and which I did not read in their own words: Circular No. 333 dated 2 February 1982, which the Court said states that the provisions made in a DTAA prevail over the general provisions of the Act, and Circular No. 732 dated 20 December 1995, which the Court said clarifies that where ships are owned by an enterprise of a country with which India has a treaty providing for taxation of shipping profits only in the country of residence, no tax is payable by such ships at Indian ports.
• 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. 9/2001 dated 9 July 2001 — on a regular assessment under section 172(7) the non-resident is liable to interest under sections 234B and 234C and entitled to interest under section 244A; Circular No. 730 withdrawn CBDT Circulars & InstructionsCuts both ways
  Our foreign shipping client elected under section 172(7) for a regular assessment and is now getting a refund. The Department says no interest is payable on it because of an old Board circular. Is that circular still good?
  It is not. Circular No. 9/2001 dated 9 July 2001 withdrew Circular No. 730 dated 14 December 1995 as "no longer legally tenable" in the light of the Supreme Court's decision in A.S. Glittre D/5 I/S Garonne v. CIT, and clarified that on a regular assessment under s.172(7) the non-resident assessee is liable to pay interest under sections 234B and 234C and is also entitled to receive interest under s.244A, as the case may be. Circular No. 730 had said the opposite: that an assessee exercising the s.172(7) option was neither liable to interest under ss.234B and 234C nor entitled to interest under s.244A.

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.