Section 44B

Section 44B — the law in short

What the courts have decided on section 44B, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• DIT (International Taxation) v Star Cruises (India) P Ltd Supreme CourtHelps taxpayer
  My client is the Indian agent of a foreign cruise ship that sails round trips out of Mumbai. The Assessing Officer says a cruise is entertainment and hospitality, not carriage of passengers, so s.44B does not apply and he wants the s.195 withholding worked out on 25% of the fare instead of 7.5%. Can he do that?
  It depends on the findings of fact, and on these facts he could not. The Supreme Court refused to confine 'carriage' in s.44B to movement from one port to a different port, and held that ancillary services provided on a voyage do not take the activity outside the section. The concurrent findings of the CIT(A), the Tribunal and the Bombay High Court that the non-resident ship owner was carrying passengers were left undisturbed, so the deduction under s.195 stood on the statutory presumptive rate of 7.5% of gross cruise fare receipts and not on the 25% the Assessing Officer had estimated. The Revenue's appeals were dismissed.
• 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 taxpayer
  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.
• DDIT (International Taxation) v Safmarine Container Lines NV — inland haulage charges fall within Article 8 of the India-Belgium treaty, and the domestic charge then becomes academic ITATHelps taxpayer
  Our Belgian shipping client bills its exporters a single freight covering carriage from an inland container depot to the Indian port and then to the foreign destination. The Assessing Officer has taxed the inland leg separately as business profits. Does the shipping Article cover the inland haulage?
  Under the India-Belgium treaty, on these facts, yes. The Mumbai Bench of the Tribunal dismissed the Revenue's appeal, holding that the issue was covered by a coordinate bench decision in the assessee's own case for assessment year 2001-02, reported at 120 ITD 71, which had held that inland transportation coupled with the further shipping of the cargo by the assessee from the Indian port to the foreign country is an "activity directly connected with such transportation" falling within Article 8(2)(b)(ii) of the India-Belgium agreement, and expressed its considered and respectful agreement with that view. Because the treaty allots the income exclusively to the residence State, the Tribunal held the question whether the income was chargeable under the domestic Act at all was wholly academic.
• 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.
• Statutory position — section 44BBA: the 5 per cent presumption for a non-resident operating aircraft, and the lower-profit option it does not contain CBDT Circulars & InstructionsCuts both ways
  Our foreign airline made a loss on its India operations and our books are audited. The Assessing Officer says 5 per cent of our gross collections is taxable under section 44BBA regardless. Is there any provision letting us claim the lower figure?
  Not in section 44BBA itself. Section 44BBA(1) deems 5 per cent of the aggregate of the sub-section (2) amounts to be the profits of a non-resident engaged in the business of operation of aircraft, notwithstanding sections 28 to 43A, and the section as printed contains only two sub-sections: there is no counterpart to s.44BB(3) or s.44BBB(2), which is what lets a mineral-oil contractor or a turnkey power contractor claim lower profits on audited books. Sub-section (2) takes in (a) the amount paid or payable, whether in or out of India, on account of carriage of passengers, livestock, mail or goods FROM any place in India, and (b) the amount received or deemed to be received in India on account of such carriage FROM any place outside India.
• Statutory position — section 44B: the 7.5 per cent shipping presumption, and why clause (i) and clause (ii) of sub-section (2) are not symmetrical CBDT Circulars & InstructionsCuts both ways
  We are a foreign shipping line assessed under section 44B. The Assessing Officer has included freight we collected abroad and also our demurrage. What actually goes into the "aggregate of the amounts" under section 44B(2), and does it matter where the money was received?
  It matters, but only for cargo shipped at a port OUTSIDE India. Section 44B(2) has two clauses and they are deliberately different: clause (i) takes in the amount paid or payable "whether in or out of India" on account of carriage of passengers, livestock, mail or goods shipped at any port IN India, so where the freight was collected is irrelevant for an Indian loading; clause (ii) takes in only the amount "received or deemed to be received in India" on account of carriage of goods shipped at any port OUTSIDE India, so for a foreign loading receipt in India is the condition of charge. The Explanation to sub-section (2) then provides that the amount referred to in either clause shall include amounts by way of demurrage charges or handling charges or any other amount of similar nature.

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.