ITAT upholds order of canceling deduction of TDS @20% on payment made by Indian company for damage of vessels [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench upheld the order of canceling deduction of Tax Deduction at Source at 20% on payment made by the Indian Company for damage of vessels

The assessee,Nirma Limited is an Indian Company applied under Section 195(2) of the Act for determining tax liability on the remittance to the Titan Shipping Limited, Marshal Islands, towards damage charges for physical damage sustained by vessels and losses caused to the owner of the vessels to the tune of USD 4,50,000/-

AO upon verifying the document found  that the damage to the vessels had happened in India during the business carried out by the ship in India.Further also observed that lump sum consideration paid by the assessee does not fall within income /receipt as defined in Section 172 of the Act. Hence  it is an income in the hands of the remitter falls under Section 5(2) of the Act and hence applying under Section 195 of the Act, particularly, when there is no DTAA between India and Marshal Islands and remitter has not provided TRC Therefore he held that 20% TDS shall be deducted under section 195 of the Income Tax Act, 1961

Aggrieved, the assessee filed further appeal before the CIT(A) who quashed the order passed by the AO under Section 195 of the Act. Thereafter the revenue  filed a second appeal before the tribunal.

During the proceedings Ashok Kumar Suthar, Counsel for assesee argued that as the agent acts on behalf of the non-resident owner or character, he steps into the shoes of the principal and accordingly provision of Section 172 of the Act only will be applicable and not the provision of Section 194C or 195 of the Act.  as per Section 172 of the Act, TDS will be @ 7.5% of the proposed amount.

Hemanshu Shah, Counsel for Revenue, supported the order of the Assessing Officer .

The tribunal observed that the income to the ship owner was within the purview and scope of the provision of Section 5(2) of the Act and the direction passed by the  AO to deduct tax at source on such payments in terms of the provision of Section 195(2) of the Act was found to be wrong,

After reviewing the facts and records, the two-member bench Of Waseem Ahmed (Accountant member ) and  Madhumita Roy,(Judicial Member) upheld the order of canceling deduction of Tax Deduction at Source at 20% on payment made by the Indian Company for damage of vessels

Hence the bench dismissed  the appeal of the revenue. 

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