No Liability arises for Payment of Income Tax by the Non-Resident receiving payment for Time Charter: ITAT [Read Order]

The Rajkot Bench of Income Tax Appellate Tribunal (ITAT) has ruled that no liability arises for payment of  Income Tax by the non- resident receiving payment for time charter.

The assessee, M/s. Terapanth Foods Limited is engaged in the business of manufacturing refined free flow iodized salt and in trading of salt and iron ore. The assessee filed its return of income declaring ‘nil’ total income.

As per the return of income the gross total income which reduced to nil after claim of set off of brought forward losses of A.Ys. 1999-2000 and 2000-2001. The return of income was processed under Section 143(1) of the Income Tax Act, 1961 on 24.08.2006.

Subsequently, the case was selected for scrutiny assessment and statutory notice under Section 143(2) of the Act was issued. In response to the statutory notice, the Ld. A.R. of the assessee attended the proceeding and furnished the details. The Assessing Officer observed that the assessee has shown turnover of Rs.38,26,34,257/- and Net Profit of Rs.83,89,524/- as per Companies Act. The assessee got its books of accounts audited as required under Section 44AB of the Act.

The Assessing Officer further observed that the assessee had paid ship hiring charges to non resident and no TDS was paid by it out of such payments. Since the assessee has not deducted tax, a show cause notice was issued to the assessee. In response to the show cause notice, the assessee furnished a reply.

The Assessing Officer made disallowance of ship hiring expenses towards on time chartered basis to non resident under Section 40(a)(i) of the Act amounting to Rs. Rs.2,16,09,181/- . The Assessing Officer further made disallowance of Rs.15,583/- in respect of weather report expenses which was provided by a British Company to the assessee.

The coram of Accountant Member, Waseem Ahmed and Judicial Member, Suchitra Kamble has noted that the CIT(A) has categorically mentioned that Section 195 of the Act would apply only if payment is made which is chargeable under Income Tax Act 1961. The Assessing Officer has not given any reason as to why the chargeability of tax under Section 172 of the Act does not cover time charter of ships for which payment is made to non-resident. The Assessing Officer totally ignored the NOCs issued by the Department allowing the ship for sailing in Indian Port as the payment is for time charter. The provisions of Section 172 of the Act has not at all indicated that there is any liability to pay tax on such receipts by the non-resident recipients. In this case, the charter ship for which payment was made to non-resident. As per the charging Section 172, no liability arises for payment of tax by the non- resident receiving payment for time charter. The ld. D.R. could not point out any discrepancy in the order of CIT(A).

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