High Court Of Bombay
CIT vs. Orient (Goa) (P) Ltd.
Section 40(a)(i), 44B, 172
AT GOA S.B. Deshmukh & U.D. Salvi, JJ.
Tax Appeal No. 7 of 2005
16th October, 2009
Counsel appeared :
S.R. Rivonkar, for the Appellant : M.S. Usgaonkar with Iftikar Agha, for the Respondent JUDGMENT
S.B. DESHMUKH, J. :
This appeal was admitted on the following substantial questions of law by this Court, by an order passed on 8th Aug., 2005 :
“(A) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that in view of circular issued by the CBDT, disallowance under s. 40(a)(i) of the Act was not warranted ?
(B) Whether on the facts and in the circumstances of the case, the assessee was entitled to claim deduction of the demurrage charges of Rs. 1,08,53,980 paid to foreign company, without deducting tax on it, under s. 40(a)(i) of the IT Act, in view of the Circular No. 723 dt. 19th Sept., 1995 [(1995) 128 CTR (St) 6], issued by the CBDT ?
(C) Whether on the facts and in the circumstances of the case, the assessee was entitled to claim deduction of the demurrage charges of Rs. 1,08,53,980 payable to foreign shipping company on which tax has not been deducted, in view of the provisions of s. 172(8) introduced by the Finance Act, 1997 with retrospective effect from 1st April, 1976 ?”
(D) Whether the circular issued by the CBDT, dt. 19th Sept., 1995 has any relevance in applying provisions of s. 40(a)(i) for the purpose of computation of income ?”
2. We have heard learned counsel for the respective parties. This appeal is filed on behalf of the CIT (hereinafter referred to as the “Revenue” for short). Respondent in this appeal is assessee under s. 2(7) of the IT Act, 1961 (hereinafter referred to as the “Act 1961” for short). It is not in dispute that the assessee had filed its return of income-tax on 1st Dec., 1997. Taxable income was declared as Rs. 2,10,31,738. This declaration was after claiming deduction of Rs. 2,18,99,636 on account of s. 80HHC. The return submitted by the assessee was processed under s. 143(1)(a) on 16th Dec., 1997. The assessment under s. 143(3) was completed on 16th March,2000. Addition of Rs. 4,50,528 on account of foreign tour expenses of the partners being personal expenses of the partners of the assessee company was made. A notice under s. 148 was issued by the Revenue to the assessee on 19th Jan., 2001. Learned Dy. CIT, Circle-1, Panaji passed an assessment order Annex. “A” (p. 13). The order passed by the Dy. CIT, Circle-1 Panaji (Annex. A) was challenged by filing ITA No. 73/Pnj/2002-03 before the CIT(A), Panaji, Goa. Before the learned CIT(A), ground regarding disallowance of foreign tour expenses of Rs. 4,50,528 was not pressed at the time of hearing of the appeal. This appeal has been decided by the learned CIT(A) by an order passed on 28th Aug., 2002. The appellate authority recorded a finding that disallowance made by the AO under s. 40(a)(i) is incorrect. The disallowance was directed to be deleted. In substance, on this ground, the appeal succeeded before the learned CIT(A). This order in favour of the assessee had been challenged by the present appellant-Revenue by filing ITA No. 231/Pnj/2002. This appeal was heard by the learned Tribunal and dismissed by the learned Vice President of the Tribunal, Panaji Bench by order dt. 2nd Dec., 2004 (Annex. “D”). It is this order of the Tribunal which is challenged in this appeal on behalf of the Revenue.
3. Learned counsel on behalf of the Revenue, invited our attention to s. 40(a)(i) of the Act 1961. According to him, facts of the present case are being governed by the words “or other sum chargeable under this Act” occurring in s. 40(a)(i) of the Act 1961. He further points out that amount under this clause is payable outside India. It is his submission that the assessee was under obligation to deduct the tax, in view of s. 40(a)(i) in relation to the amount payable outside India. Learned senior advocate Mr. M.S. Usgaonkar, appearing for the appellant took us to s. 172 of the Act 1961. He submitted that s. 172 of the Act 1961 starts with non obstante clause. It has overriding effect to all other provisions of the Act. He submitted that s. 172 is a complete code in itself. According to him, present is a case of occasional shipping. He also emphasized the circular issued by CBDT (Annex. “C” to the petition). This Circular bears No. 723 and dt. 19th Sept., 1995 [(1995) 128 CTR (St) 6]. He supports the judgment of the learned Tribunal, impugned in this appeal. He also relied on some judicial pronouncements, to which we shall make reference at appropriate stage.
4. We have seen the orders passed by the AO, the CIT(A) and the Tribunal which are part of the compilation i.e., the paper book of the present appeal. Polemic issue pertains to deduction of tax on Rs. 1,08,53,980, paid or payable on account of demurrage. This demurrage is payable to a nonresident company viz., Mitsui & Co. Ltd., Japan. Factually, it is not disputed by the assessee that no tax had been deducted on the amount of demurrage i.e. Rs. 1,08,53,980. The AO had called upon the assessee to explain as to why payment of demurrage, as provided, on which no tax had been deducted, should not be considered as non-deductible claim and should not be added back. In substance explanation was sought from the assessee as to why amount of Rs. 1,08,53,980, the amount on which no tax has been deducted, should not be considered as non-deductible claim and should not been added back. In fact the assessee had factually admitted before the AO that tax was not deducted on the amount of demurrage in view of s. 40(a)(i) of the Act 1961. The contention was raised that the assessee be allowed such deduction as and when payment was made. The learned AO records his agreement in his order that deduction would be admissible on the basis of actual payment of tax on the above demurrage. The AO, however, observed that the non-addition, in this respect, amounts to incorrect claim and filing inaccurate particulars of income, and therefore, directed penalty proceedings under s. 271(1)(c) of the Act 1961.
5. Our attention was drawn to the order passed by the learned CIT(A) dt. 28th Aug., 2002. The issue as regards deduction on account of demurrage, disallowed by the AO, was in question before the learned CIT(A). There the learned CIT(A) observed that the demurrages debited by the appellant therein (assessee), in the hands of recipient, are in the nature of profits of non-resident from the occasional shipping business under s. 44B, r/w s. 172 of the Act 1961. There the learned CIT(A) has also referred to sub-s. (8) of s. 172. The amended provision has been brought on statute by the Finance Act, 1997 w.e.f. 1st April, 1976. The appellate authority has also considered the CBDT Circular No. 723 dt. 19th Sept., 1995. The appellate authority allowed the appeal holding that disallowance made by the AO under s. 40(a)(i) of the Act 1961 is incorrect.
6. Learned senior advocate Mr. Usgaonkar invited our attention to the judgment of the learned Single Bench of Karnataka High Court in the matter of V.M. Salgaocar & Bros. Ltd. vs. Dy. Controller, RBI & Ors. (1991) 93 CTR (Kar) 49 : (1991) 187 ITR 381 (Kar). It is seen from the judgment that the petitioners were mine-owners, and also exporters of the ores to foreign countries, mostly to Japan and Korea. The agreement of the petitioners in the first writ petition, entered into with the foreign buyers on credit price, is referred to. Reference is also made to the letter of the Dy. Controller, RBI, Exchange Control Department, Panaji, Goa. Reference is further made to a communication dt. 11th Oct., 1988 of the Chairman, CBDT, Ministry of Finance, New Delhi. Learned senior advocate Mr. Usgaonkar has invited our attention to para 7 of the judgment of the learned Single Bench. There the scheme of s. 172 of the Act 1961 and s. 44B have been considered. Learned senior advocate, in view of this judgment, seeks dismissal of the present appeal filed by the Revenue.
7. We have given anxious consideration to the submission of the learned senior counsel. On reading of the entire judgment of the learned Single Bench, it is not possible for us to countenance the submission of the learned senior advocate that the ratio of the judgment is applicable to the facts of the case on hand. In our view, this judgment does not help the present respondent i.e., the assessee. Another judgment relied on by the learned senior advocate Mr. Usgaonkar for the respondent assessee is in the matter of CBDT & Ors. vs. Chowgule & Co. Ltd. & Ors. (1991) 98 CTR (Kar) 124 : (1991) 192 ITR 40 (Kar). There the learned Division Bench observed that “The question for consideration is whether demurrage payable to a non-resident owner or charterer of a ship for the delay in loading the ore sold to the foreigner is liable to be taxed under the provisions of the IT Act”. We have seen the facts obtaining in that case. In our view, the facts are distinguishable. The ratio of this judgment also does not help the present assessee i.e., the respondent in this appeal. We have noticed the various dates in the cited judgment. We have also considered the definition of word “demurrage” to which our attention was invited by learned senior advocate Shri Usgaonkar. Learned senior advocate also invited our attention to dictionary meaning of the word “demurrage” (Black’s Law Dictionary).
8. Sec. 172 of the Act 1961 is carefully considered by us. Chapter XV titles as “Liability in special cases”. We have no concern with sections, starting from s. 159, till s. 171 from this Chapter XV. Sec. 172 comes under sub- title “H.-Profits of non-residents from occasional shipping business”. Title of s. 172 is “Shipping business of non- residents”. For bringing a case under Chapter XV-H of the Act 1961, one has to establish a case of profits of non- residents from occasional shipping business. “Non-resident” is defined under s. 2(30), as a person who is not a “resident” and for the purpose of ss. 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of cl. (6) of s. 6. The respondent assessee is a company, incorporated under the provisions of Indian Companies Act, 1956, is fairly an admitted position. The assessee cannot be said to be nonresident. We have also taken notice of s. 6 i.e. “residence in India”. In short, respondent assessee cannot be said to be non-resident. The present appeal pertains to the respondent assessee. In our view, in the facts of the present case, the respondent assessee cannot lay fingers on s. 172, since we are not dealing with profits of non-residents. The other aspect is that such profits of nonresidents should be from occasional shipping business. It is not the case that the respondent assessee has earned some profit from occasional shipping and is a non-resident. In our view, s. 172 does not have application in relation to the respondent assessee and in the facts and circumstances of the present case. The company from Japan viz., Mitsui & Co. Ltd., Japan, recipient of demurrage amount is not before us. In other words, we are not examining the tax liability of the foreign company i.e., Mitsui & Co. Ltd., Japan. On our query to the learned senior advocate Shri Usgaonkar as to material on record for occasional shipping, part of para 3 from the judgment of the learned CIT(A) has been pointed out to us. His observations are in very few lines. We may reproduce the said portion hereinbelow. “3. We have heard the rival submissions in the light of material placed before us. Assessee claimed deduction of Rs. 1,08,53,980 being the amount of demurrage payable to Mitsui Co. Ltd., Japan. The AO opined that since the assessee did not deduct tax at source, as such the case of the assessee falls within the mischief of s. 40(a)(i) of the IT Act, 1961.” Provisions of s. 172 are to apply notwithstanding anything contained in the other provisions of the Act. Therefore, in such cases, the provisions of ss. 194C and 195 relating to TDS, are not applicable. The recovery of tax is to be regulated for voyage undertaken from any port in India by a ship, under the provisions of s. 172. In this view, these observations of the learned Vice President of Tribunal have no concern with the factual aspect that it is a case of occasional shipping, pleaded or raised by assessee. There is no dispute about interpretation of s. 172 or s. 195. Crucial point is as to how s. 172 applies to the facts of the present case wherein the respondent assessee is an Indian company, incorporated under the provisions of Indian Companies Act, 1956. In our view, the learned Vice President of the Tribunal has recorded a perverse observation/finding in para 3 regarding application of ss. 44B and 172 of the Act 1961.
We may notice that the judgment of the learned Tribunal is unreasoned and cryptic one. This judgment runs in around 20 to 25 lines. We are not oblivious of the fact, that not the form, but substance is material. The learned Tribunal seems to have referred to the circular of CBDT No. 723 dt. 19th Sept., 1995.
We have considered the submission of the learned counsel appearing for the parties pertaining to the Circular No. 723 dt. 19th Sept., 1995 by CBDT (Annex. “C”). Sec. 119 empowers the CBDT to give instructions to subordinate authorities. We have considered s. 119 of the Act 1961. We have also perused the circular Annex. C. This circular seems to have been issued by the CBDT, clarifying the scope of ss. 172, 194C and 195 of the Act 1961. Advocate on behalf of the Revenue points out from para 4 of the circular and submits that s. 172 operates in the area of computation of profits from shipping business of non-residents and there is no overlapping in the areas of operation of these sections. Learned senior advocate Shri Usgaonkar, appearing on behalf of the respondent assessee, also drew our attention to the judgment of the Hon’ble Supreme Court in the matter of CST vs. Indra Industries (2001) 168 CTR (SC) 50 : (2001) 248 ITR 338 (SC). It is a three Bench judgment of the Hon’ble Supreme Court. It has been held by the Hon’ble Supreme Court that the circulars issued by CST not binding on assessee or Court, however, binding on the Department. In the case on hand, in our view, learned CIT(A) and the learned Tribunal have wrongly interpreted the circular dt. 19th Sept., 1995 issued by the CBDT. This circular, in our opinion, cannot be considered in the facts and circumstances of the present case, in aid to the respondent assessee. The learned AO, in fact, has passed a legal, proper and reasoned order, holding that the provisions laid down under s. 40(a)(i) of the Act 1961 apply to the case on hand.
We may notice here the judgment of the Hon’ble Supreme Court in the matter of Union of India vs. Gosalia Shipping (P) Ltd. 1978 CTR (SC) 76 : (1978) 113 ITR 307 (SC). This judgment seems to be the basic judgment which is being referred to by the learned Single Bench of the Karnataka High Court. In that case, Gosalia Shipping (P) Ltd., a company incorporated under the provisions of the Indian Companies Act, 1956 indulged at the relevant time in business of clearing and forwarding and as steamship agents. Gosalia Shipping (P) Ltd., had acted as the shipping agent of “Aluminium Company of Canada Ltd.” which was a non-resident company. That nonresident company had chartered a ship “M.V. Sparto” belonging to a non-resident company called Sparto Compania Naviera of Panama. The said ship called at the port of Betul, Goa on 1st March, 1970. On 20th March, 1970, the ship had left for Canada. The ship was allowed to leave port of Betul on the basis of guarantee bond, executed by the respondent in favour of the President of India. On 15th April, 1970, the first ITO, Margao, Goa issued a demand notice to the respondent Gosalia Shipping (P) Ltd., for payment of Rs. 51,000 and odd amount, by way of income-tax. We have noticed all these facts only to say that in the case on hand, there are no pleadings or material brought on record to show that the case is governed by occasional shipping within the meaning of s. 172 of the Act, 1961 and said section applies.
12. Having considered the submissions of the learned counsel appearing for the parties, in our view, the facts of the present case, are governed by s. 40(a)(i) of the Act 1961. Order passed by the AO, in our view, is legal, proper and in accordance with the scheme of Act 1961. In view of the view which we have taken in the matter, the appeal deserves to be allowed by quashing and setting aside the order passed by the learned CIT(A) dt. 28th Aug., 2002 and the order passed by the Tribunal, Panaji dt. 2nd Dec., 2004. The same are, accordingly, quashed and set aside and the order passed by the AO stands upheld. Appeal is, accordingly, allowed and disposed of with no order as to costs.
[Citation : 325 ITR 554]
