No TDS required since Sec 172 of the Income Tax Act does not cover Payments to Non-Resident for Time Charter: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Rajkot bench has held that theprovisions of section 172 of the Income Tax Act, 1961 relating to levy andrecovery of tax from foreign shipping companiesdoes not cover payments to non-residents.

The assessee is engaged in the business of manufacturing refined free flow iodized salt and in trading of salt and iron ore. While completing the assessment proceedings, 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.

On appeal, the first appellate authority granted relief to the assessee.

While upholding the order of the first appellate authority, Accountant Member Mr. Waseem Ahmed and Judicial Member Ms. Suchitra Kamble noted 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 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 inthe order of CIT(A),” the Tribunal said.

 To Read the full text of the Order CLICK HERE

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