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TMI Blog2014 (5) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeals filed by the assessee against three separate orders of ld. CIT(A) -31 Mumbai dated 15-5-2009 for assessment years 2004-05, 2005-06 and 2006-07 passed in the second round of litigation. Since the issues involved in all these nine appeals and three cross objections are common and interlinked, the same have been heard together and are being disposed of by a single consolidated order for the sake of convenience. 2. The relevant facts of the case giving rise to all these appeals and cross objections are as follows. The assessee M/s Shipping Corporation of India Limited (SCIL in short) is a Government of India Enterprise which is engaged in the business of shipping. It owns around 90 ships which are plied all over the world. In the course of its business, SCIL is also required to hire ships to meet capacity requirements where exigencies arise. Such ships are taken on charter from the non-resident owners of the ships, registered outside India. The control and operation of all these ships, which are used in international waters, vests with SCIL. SCIL was called upon by the A.O. vide letter dated 9- 11-2006 to furnish the details of ships/oil tankers/vessels taken on hire/time c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 9(1)(vi) of the Act read with Explanation 2 (iva) thereto. The ld. CIT(A) agreed with this contention raised on behalf of SCIL and held that the payments made by SCIL to the non-resident ship owners for time charter could not be considered as royalty as envisaged in clause (iva) of Explanation 2 to section 9(1)(vi) of the Act. The ld. CIT(A), however, referred to section 44B of the Act and concluded that SCI having entered into time charter arrangements with non-resident ship owners, it was a case of payment made to non-residents for carrying of the goods and amount paid by SCI to the non-resident ship owners was chargeable to tax in India as business profit u/s 44B of the Act. Having held so, the ld. CIT(A) directed the A.O. to consider the relevant Double Tax Avoidance Agreements (DTAAs) between India and foreign countries of which the non-resident ship owners were residents and allow appropriate relief, if any, to SCI as per the said DTAA. Aggrieved by the orders of the ld. CIT(A) taking this view in the first round of proceedings, which is partly in favour of the assessee, both the assessee and Revenue have preferred their respective appeals before the Tribunal and the SCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely covered in favour of the assessee by the decision of the Tribunal in assessee's own case for A.Y. 2003-04 rendered vide its order dated 15th December, 2009 passed in ITA No. 9143/Mum/2004. A copy of the said order is placed on record before us and perusal of the same shows that a similar issue has been decided by the Tribunal in favour of the assessee vide para 7 to 9 of its order which read as under:- "7. We have considered the rival submissions. Section 44B read as follows :- "Special provision for computing profits and gains of shipping business in the case of non-residents- (1) Notwithstanding anything to the contrary contained in sections 28 to 43A, in the case of an assessee, being a nonresident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". (2) The amounts referred to in sub-section (1) shall be the following, namely :- (i) the amount paid or payable (whether in or out of India) to the assessee or to any person on his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hartering activity, receipt of amounts is actually in India or by fiction deemed to be received in India. The amount should be received or deemed to be received in India by or on behalf of the SCI on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India. Admittedly in the present the amounts were paid by SCI outside India in foreign currency. 9. Thus, the receipts in the hands of the receipient could not be brought within the fold of section 44B of the Act. The findings of learned CIT(A) without taking into consideration this factual aspect in our view cannot be sustained. We therefore hold that the recipients of the payments from SCI cannot be charged to tax on the receipts from SCI U/S. 44B of the Act. Therefore the payments by the SCI were not chargeable to tax in India and therefore there was no obligation on the part of the SCI to deduct tax at source u/s. 195 of the Act. Consequently the order of learned CIT(A) to this extent is held to be not correct. The other consequential directions of learned CIT(A) are also therefore held to be not correct. The appeal of the SCI to this extent is allowed. The other issues raised by the SCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that the decision of the Special Bench of ITAT in the case of Mahindra & Mahindra (Supra) is directly applicable in the present case as there are no assessment that have been made in the hands of the payees in respect of the amount in question paid by the assessee for all three years under consideration and even the time limit for the issuing the notices u/s 148 of the Act having already come to an end, there is no course left to the Revenue for making such assessments. He contended that the orders passed by the A.O. u/s 201(1) of the Act in the present case treating SCIL as the assessee in default therefore cannot be sustained as per the decision of the Special bench of ITAT in the case of Mahindra & Mahindra (supra). 10. Although the ld. D.R. has not disputed the position that no assessments have been made in the hands of the payees in respect of the amounts in question paid by the assessee for all the three years under consideration and even the time limit for issuing notices u/s 148 of the Act having already come to an end, the Revenue is left with no course to make such assessments, he strongly objected to the contention of the ld. Counsel for the assessee that the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed by way of the said amendment in case of payments to be made to resident deductee only and not to non-resident deductee. He invited our attention to the Memorandum explaining the said amendment wherein it is clarified that no time limit is prescribed in case of payments to be made to non-resident deductees as it is administratively difficult to recover the tax from the nonresidents. He contended that although the said amendment has been made w.e.f. 1-4-2010, the intention of the parliament as explained and clarified in the Memorandum was there from the beginning itself. He pointed out that the payees in the present case are also non-residents which have not filed any return of income for the year under consideration nor paid any taxes. He contended that the orders u/s 201(1) of the Act for all the three years under consideration in the present case have been passed by the A.O. within a period of six years from the end of the relevant assessment years as prescribed in the provisions of section 201(3) of the Act and such valid orders passed within the prescribed time limit could not be held to be invalid on the basis of non-passing of assessment orders in the case of payees withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invalid by non-passing of another order of assessment in the hands of the payee. He contended that the proposition propounded by the Special Bench of ITAT in the case of Mahindra & Mahindra thus is not in line with the views expressed by the Hon'ble Apex Court in the case of Delhi Development Authority (supra) that the term assessee includes actual assessee as well as deemed assessee. He contended that it is thus clear that once an order u/s 201 is passed lawfully within time and was valid as on date of passing such order, then subsequently on happening or non-happening of any other event will not make such order void ab initio. He contended that holding of valid order to be invalid just due to passage of time wherein some action in case of payee had not been taken would be against the legal principles especially when the statute does not provide so. He relied on the decision of co-ordinate Bench of this Tribunal in the case of Merchant Shipping Services Ltd. [129 ITD 109 (Mum)] and specifically referred to the observations recorded by the Tribunal in para 31 to 33 of its order to contend that the Tribunal after taking into consideration the decision of Special Bench of ITAT in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Mahindra & Mahindra (supra). He contended that the said decision of the Special Bench is binding on the Division Bench and urged that the same should be followed by this Division Bench. As regards the reliance placed by the assessee on the amendments made in section 201(1) of the Act and the memorandum explaining such amendments, the ld. Counsel for the assessee contended that the said amendments first of all are made effective from 1-4-2010 and the same therefore are not applicable to the years under consideration. He also contended that the department is sufficiently empowered to proceed even against the non-resident to recover the tax, if any, payable by him in India even if the said non-resident does not have any existence in India. He contended that the amendments in section 201(1) of the Act relied upon by the ld. D.R., in any case, are applicable in the context of time limit available for passing order u/s 201(1) and the same are not relevant to the issue involved in the present case. 15. We have considered the rival submissions and also perused the relevant material available on record. In support of the case of the assessee on the issue under consideration, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Special Bench. Accordingly, after deciding finally the issue relating to the reasonable time limit available u/s 201(1)/201(1A) of the Act on page No. 309 of the report, the Special Bench proceeded to consider the next issue involved in the appeal of the assessee as to whether there was any liability u/s 201(1) of the Act on the assessee in the case of Mahindra & Mahindra (supra) and it was held by the Special Bench in this context that the pre-requisite condition for the application of section 195 and thereafter section 201 is that the amount paid to the non-resident is otherwise chargeable to tax under the provisions of the Act. It was held that if the amount paid or payable by the non-resident is not chargeable to tax under the regular provisions of the Act or such amount is not taxable by virtue of the provisions of the DTAA entered into by India with such other country of which the non-resident is resident in accordance with Chapter IX, then the provisions of Chapter XVII about the collection and recovery of tax are ruled out and the person responsible for paying such sum cannot be fastened with any liability for deduction of tax at source and cannot under any circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treating the assessee as in default was sustainable was directly involved in the appeal filed in the case of Mahindra & Mahindra (supra) and the same was separately and specifically decided by the Special Bench holding that no order u/s 201(1)/201(1A) of the Act can be passed when the Revenue has not taken any action against the payee and further the time limit for taking action against the payee u/s 147 has also expired. It therefore cannot be said that the observations/findings recorded by the Special Bench of the ITAT in this context are merely passing observations in the nature of obiter-dicta as sought to be contended by the ld. D.R. It also appears that the ld. D.R. has misdirected himself in assuming that the proposition propounded by the Special Bench in the case of Mahindra & Mahindra (supra) on the issue of reasonable period available for passing order u/s 201(1)/201(1A) of the Act is being relied upon by the ld. Counsel for the assessee in support of the assessee's case on the issue involved in the present appeal and accordingly has raised his contentions and has cited various judicial pronouncements relating to this issue which actually are not relevant in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Mahindra & Mahindra (supra) is concerned, which has been relied upon by the ld. Counsel for the assessee in support of the assessee's case, the same has neither been disapproved by the Hon'ble Calcutta High Court in the case of Bhura Exports Ltd. (supra) nor it has been adversely commented upon. 20. The ld. D.R. has also cited the decision of co-ordinate Bench of this Tribunal in the case of ACIT vs. Merchant Shipping Services (P.) Ltd. 128 ITD 109 (Mum) and has relied on the observations recorded by the Tribunal in para 31 to 33 of its order which read as under:- "31. Second ground raised by the assessee in its cross-objection is about the holding of the order passed by the Assessing Officer as within reasonable time. The ld. AR argued that the order under section 201(1) and 201(1A) was passed by the Assessing Officer on 12-12-2008. In the absence of any timelimit provided in the Act for the passing of such order, the ld. AR argued, that it ought to have been passed within a reasonable time. It was contended that the passing of such order after four years from the end of the financial year be held to be time-barred. On the other hand, the ld. DR argued that the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payee is the maximum time-limit within which the payer can be treated as assessee in default. With the expansion of the scope of section 147, also roping in the cases of assessment apart from reassessment, it is clear that the assessment of payee shall also include assessment made under section 147. Thus the maximum time-limit for initiating and completing the proceedings under section 201(1) has to be at par with the time-limit available for initiating and completing the reassessment. This is the view which has been canvassed by the Special Bench of the Tribunal in Mahindra & Mahindra's case (supra). 33. The learned A.R., when confronted with the above referred Special Bench order, candidly admitted that the order passed by the Assessing Officer is within the period of six years from the end of the relevant assessment year. Respectfully following the Special Bench order in Mahindra & Mahindra's case (supra), we hold that the order passed by the Assessing Officer is not timebarred. This ground is not allowed." 21. A perusal of the above observations recorded by the Tribunal clearly shows that an entirely different issue was involved for the consideration of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(1A) of the Act is also an assessee. In our opinion, this decision rendered by the Hon'ble Supreme Court is not relevant in the context of issue involved in the present case and the reliance of the ld. D.R. on the said decision in support of the Revenue's case is clearly misplaced. 23. In our opinion, the decision of the Special Bench of the ITAT in the case of Mahindra & Mahindra (supra) thus is clearly applicable in the facts of the present case and atleast in three cases cited by the ld. Counsel for the assessee namely Bombay Dyeing & Manufacturing Co. Ltd. Vs. DCIT (ITA No. 1622/Mum/2000 dtd. 14-9-2012), Crompton Greaves Ltd. Vs. DCIT (ITA No. 2210 to 2212/Mum/2000 dtd. 24-2-2012), & M/s American School of Bombay Education Trust vs. DCIT (ITA No. 3625 to 3627/Mum/07 dtd. 20- 10-2009), the division Bench of this Tribunal has followed the same to decide a similar issue involving identical facts in favour of the assessee. As such, respectfully following the decision of the Special Bench of ITAT in the case of Mahindra & Mahindra (supra) we hold that the orders passed by the A.O. u/s 201(1)/201(1A) of the Act in the present case for all the three years under consideration treati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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