TMI Blog2009 (10) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... laim deduction of the demurrage charges of Rs.1,08,53,980 paid to foreign company, without deducting tax on it, under section 40(a)(i) of the Income-tax Act, in view of Circular No. 723 dated September 19, 1995 ([1995] 215 ITR (St.) 116), issued by the Central Board of Direct Taxes ? (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 section 172(8) introduced by the Finance Act, 1997 with retrospective effect from April 1, 1976 ? (D) Whether the circular issued by the Central Board of Direct Taxes dated September 19, 1995, has any relevance in applying the provisions of section 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 Commissioner of Income-tax (hereinafter referred to as the "Revenue" for short). The respondent in this appeal is the assessee under section 2(7) of the Income-tax Act, 1961 (hereinafter referred to as the "Act 1961" for short). It is not in dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 40(a)(i) in relation to the amount payable outside India. 4. Learned senior advocate Mr. M. S. Usgaonkar, appearing for the appel-lant, took us to section 172 of the Act 1961. He submitted that section 172 of the Act 1961 starts with a non obstante clause. It has overriding effect on all other provisions of the Act. He submitted that section 172 is a complete code in itself. According to him, the present is a case of occasional ship-ping. He also emphasized the circular issued by the Central Board of Direct Taxes (CBDT), (annexure C to the petition). This circular bears No. 723 and dated September 19, 1995. He supports the judgment of the learned Tri-bunal, impugned in this appeal. He also relied on some judicial pronounce-ments, to which we shall make reference at appropriate stage. 5. We have seen the orders passed by the Assessing Officer, the Commis-sioner of Income-tax (Appeals) and the Appellate Tribunal which are part of the compilation, i.e., the paper book of the present appeal. The 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 non-resident-com-pany, viz., Mitsui an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the learned single Bench of the Karnataka High Court in the matter of V. M. Salgaonkar and Brother Ltd. v. Deputy Controller reported in [1991] 187 ITR 381 (Karn). It is seen from the judgment that the peti-tioners were mineowners, and also exporters of ore 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 Deputy Controller Reserve Bank of India, Exchange Control Department, Panaji, Goa.Reference is further made to a communication dated October 11, 1988 of the Chairman, Central Board of Direct Taxes, Ministry of Finance, New Delhi. The learned senior advocate Mr. Usgaonkar has invited our atten-tion to paragraph 7 of the judgment of the learned single Bench. There the scheme of section 172 of the Act 1961 and section 44B have been con-sidered. The learned senior advocate, in view of this judgment, seeks dis-missal of the present appeal filed by the Revenue. 8. We have given anxious consideration to the submission of the learned senior counsel. On a reading of the entire judgment of the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our view, in the facts of the present case, the respondent- assessee cannot lay fingers on section 172, since we are not dealing with profits of non-residents. The other aspect is that such profits of non-residents 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, section 172 does not have application in relation to the respondent-assessee and in the facts and cir-cumstances of the present case. The company from Japan, viz., Mitsui and 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 and Co. Ltd., Japan. On our query to the learned senior advocate Shri Usgaonkar as to material on record for occasional shipping, part of paragraph 3 from the judgment of the learned Vice-President has been pointed out to us. His observations are in very few lines. We may reproduce the said portion herein below. "3. We have heard the rival sub-missions in the light of material placed before us. The assessee claimed deduction of Rs. 1,08,53,980 being the amount of demurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from shipping business of non-residents and there is no overlapping in the areas of operation of these sections. The 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 v. Indra Industries reported in [2001] 248 ITR 338 (SC). It is a three Bench judgment of the honourable Supreme Court. It has been held by the honourable Supreme Court that the circulars issued by the Commissioner of Sales Tax not binding on the assessee or court, however, binding on the Department. In the case on hand, in our view, the learned Commissioner of Income-tax (Appeals) and the learned Appellate Tribunal have wrongly interpreted the circular dated September 19, 1995, issued by the Central Board of Direct Taxes. This cir-cular, in our opinion, cannot be considered in the facts and circumstances of the present case, in aid to the respondent-assessee. The learned Assess-ing Officer, in fact, has passed a legal, proper and reasoned order, holding that the provisions laid down under section 40(a)(i) of the Act 1961 apply to the case on hand. 13. We may notice here the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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