TMI Blog2014 (5) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and even the time period for issuing notices u/s 148 for making such assessments have already come to an end. We accordingly uphold the impugned orders of the ld. CIT(A) giving relief to the assessee - I.T.A. No. 3672 to 3674/Mum/2008, I.T.A. No. 4142 to 4144/Mum/2008, C.O. No. 200 to 202/Mum/2008 Arising out of ITA No. 4142 to 4144/Mum/2008, I.T.A. No.4319/Mum/2009, I.T.A. No.4767 & 4768/Mum/2009 - - - Dated:- 30-5-2014 - SHRI P.M. JAGTAP, AM AND SHRI. SHRI AMIT SHUKA, JM For the Appellant : Shri Dinesh Vyas For the Respondent : Shri Ajay Kumar Shrivastava ORDER PER BENCH. : Out of these nine appeals, three appeals being ITA No. 3672 to 3674/Mum/2008 (assessee s appeals) and three appeals being ITA No. 4142 to 4144/Mum/2008 (Revenue s appeals) are cross appeals for assessment years 2004-05, 2005-06 and 2006-07 which arise from three separate orders of ld. CIT(A) -31, Mumbai dated 27-3-2008 passed in the first round of litigation while three cross objections being C.O. No. 200 to 202/Mum/2009 are filed by the assessee in respect of Revenue s appeal being ITA No. 4142 to 4144/Mum/2008. The remaining three appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments made to the non-resident entities on account of hire/time charter charges and why it should not be treated as an assessee in default u/s 201(1) of the Act. This explanation of the SCI was not found acceptable by the A.O. and he proceeded to hold, for the reasons given in the orders passed u/s 201(1)/201(1A) of the Act, that the hire/time charter charges paid by the assessee to the non-resident entities being in the nature of royalty (equipment royalty taking ship as an equipment), SCIL was required to deduct tax at source from the said payment. Accordingly, he treated SCI as assessee in default for its failure to deduct tax at source @20% on the amount remitted (grossed up) and also levied interest u/s 201(1) of the Act as under:- A.Ys Liability u/s 201 (1)(Rs) Interest u/s 201(1A)(Rs) 2004-05 23,78,48,333/- 12,44,23,133/- 2005-06 25,00,98,841/- 12,13,85,445/- 2006-07 19,34,91,367/- 5,47,12, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risk premium were liable to be considered for the purpose of computation of income of the non-resident as per the provisions of section 44-B of the Act. Accordingly, the A.O. determined 7.5% of the gross amount as income of the ship owners liable to tax in India as per the provisions of section 44B of the Act and treated SCI as the assessee in default u/s 201(1) of the Act to that extent. He also levied interest u/s 201(1A) of the Act on the amount so determined. Against the orders passed by the A.O. u/s 201(1)/201(1A) of the Act while giving effect to the orders of the ld. CIT(A) passed in the first round, SCIL again preferred its appeal before the ld. CIT(A) and after considering the submissions made on behalf of SCIL as well as the material available on record, the ld. CIT(A) dismissed the said appeals of the SCIL vide three separate orders passed on 15-5-2009. Against these orders passed by the ld. CIT(A) in the second round, SCIL has again preferred its appeal before the Tribunal being ITA No. 4319, 4767 and 4768/Mum/2009. 5. We have heard the arguments of both the sides and also perused the relevant material available on record. In its appeals being ITA No. 3672 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A voyage charter is the hiring of vessel and crew for a voyage between a load port and a discharge port. The charterer pays the vessel owner on a per-ton or lump-sum basis. The owner pays the port costs (excluding stevedoring), fuel costs and crew costs. A bareboat charter is an arrangement for the hiring of a vessel whereby no administration or technical maintenance is included as part of the agreement. The charterer pays for all operating expenses, including fuel, crew, port expenses and hull. 8. In the present appeal, there is no dispute that the chartering by SCI was a voyage charter. There is also no dispute that the chartered ships operated in international waters and payments were made to the ship owners outside India in foreign currencies. Section 44B(1) refers to an Assessee who is a non resident, who is in receipt of amounts specified in sub-section (2) of section 44B. Sub-section (2) of section 44B refers to two situations :- (1) the first situation talks about shipping of goods from a port in India. The amount paid or payable (whether in or out of India) to the Assessee or to any person, on his behalf on account of the carria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on rendered above setting aside the orders of the ld. CIT(A) on the issue of applicability of provisions of section 44B of the Act to the payments in question made by the assessee, the orders passed by the A.O. giving effect to the directions of the ld. CIT(A) pursuant to the applicability of section 44B of the Act and the further proceedings emanating from the said orders including appeals filed by SCIL being ITA No. 4319, 4767 4768/Mum/2009 have become infructuous. The said appeals are accordingly dismissed as infructuous. 8. In its appeals being ITA No. 4142 to 4144/Mum/2008, the common solitary issue raised by the Revenue is whether, on the facts and in the circumstances of the case and in law, the ld. CIT(A) is justified in holding that the payments made by the assessee to the non-resident ship owners should not be considered as royalty as envisaged in clause (iva) of Explanation 2 to section 9(i)(iv) of the income Tax Act. 9. At the time of hearing before us, the ld. Counsel for the assessee sought to support the impugned orders of the ld. CIT(A) on this issue by relying on the decision of the Special Bench of this Tribunal in the case of Mahindra Mahi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the judicial pronouncements of Hon ble Supreme Court and High Court. He contended that no doubt the decision of Special Bench of ITAT in the case of Mahindra Mahindra (supra) has been subsequently followed by the Division Benches of the Tribunal in the cases cited by the ld. Counsel for the assessee, but some important aspects relating to the application of the said decision of the Special Bench apparently were not pointed out on behalf of the department at the time hearing of the said cases. He contended that the question before the Special Bench in the case of Mahindra Mahindra (supra) was relating to the time limit available for passing order u/s 201(1) of the Act in the absence of any express provision in the Act in this regard and the question of time limit for passing an assessment order in the case of payee was never for consideration before the Special Bench. He contended that the observation recorded by the Special Bench relating to time limit available for making assessment in the hands of the payee therefore was out of context of the question referred to it and the same therefore was in the nature of obiter-dicta and not the ratio-descendi. 11. The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Act in case of payer and the assessment in case of payee are two mutually exclusive independent proceedings which operate in different spheres. According to him, section 201 of the Act is a machinery provision for fastening the liability of tax in case of default/mischief of provision of 195 whereas the assessment of non-resident payee is dependent on various factors including the nature of receipt, nature of activity, its status, its presence in India through PE, presence or absence of DTAA etc. He submitted that sometimes filing of return of income has been exempted by Act itself to some non-residents and hence passing assessment order in each case of nonresident payee is not sine qua non for enforcing the provisions of section 195 or enforcing the liability u/s 201(1) of the Act. Relying on the decision of Hon ble Bombay High Court in the case of Elbee Services [247 ITR 109(Bom)], he contended that assessment u/s 195(2) of the Act is tentative and not conclusive in so far as regular assessment of payee is concerned and the A.O. is not precluded from taking a different view in case of payee. He contended that order u/s 201(1)/201(1A) in case of payer and the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for passing order u/s 201(1) of the Act and that the Special Bench has gone beyond this issue, he submitted that the entire appeal in the case of Mahindra Mahindra was disposed of by the Special Bench of the Tribunal and not only a specific issue referred to it. He pointed out that the issue relating to the reasonable time limit for passing order u/s 201(1) of the Act in the absence of any express provision there in the statute was considered and decided by the Special Bench initially and this issue is not involved in the present case. He then referred to the page 309 of the relevant report and pointed out that the next issue considered by the Special Bench was whether the order passed u/s 201(1) of the Act within the limitation period can be sustained without establishing the chargeability of the relevant amount to tax in India in the hands of the deductee. He read out the relevant observations recorded by the Tribunal on this issue at page 313 to 318 of the report to show that this issue was decided by the Special Bench in principle on merit holding that if the chargeability of the amount to tax in India is not established in the hands of the deductee by making an assessment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Special Bench of the Tribunal in the case of Mahindra Mahindra (supra) was different relating to availability of time limit to pass an order u/s 201(1) of the Act in the absence of any express provision in the Act providing for such time limit. He has contended that the observations made by the Special Bench that no order u/s 201(1)/201(1A) of the Act can be passed where the Revenue has not taken any action against the payee within the permissible time limit thus are only passing observations and the same are in the nature of obiter-dicta which is not binding on the Division Bench. It is no doubt true that the issue specifically referred for consideration and the decision of the Special Bench in the case of Mahindra Mahindra (supra) was what should be the reasonable time for the passing of the order u/s 201(1) of the Act and it was held by the Special Bench of the ITAT that the reasonable time for initiating and completing the proceeding u/s 201(1) has to be at par with the time limit available for initiating and completing the reassessment as the assessment includes reassessment. Accordingly it was held by the Special Bench after elaborate discussion and deliberation on page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that there is a presumption of liability of the payee to tax on the income. It was held by the Special Bench precedent that it is thus clear that though the duty of deduction of tax at source was there at the time of making the payment or crediting the account of the payee, but its failure will not lead to adverse consequences by treating the person paying the income as the assessee in default if eventually either the payee is not liable to tax on such sum or he has already paid the tax due on the amount of income so received. It was held that the question of treating the person responsible for paying the income as the assessee in default by way of passing the order u/s 201(1) of the Act thus is inter alia tied with the tax liability of the payee on such sum and if the liability of the payee to tax does not exist or though the income is chargeable to tax but the liability of the payee to tax has not been determined by passing any order in his hands and further the time limit for taking action on the payee under any other provision has also passed out, in such a situation again the passing of order u/s 201(1) of the Act will be mere ritual in such a situation. The Special Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deductee and the liability to deduct tax at source being de hors the eventual liability of the nonresident, the person responsible for paying or crediting any sum can be treated as the assessee in default even without the possibility of fixing the liability to tax on the non-resident. It is observed that a similar argument was raised on behalf of the Revenue even in the case of Mahindra Mahindra (supra) but the same was rejected by the Special Bench holding the same to be fallacious. As regards the amendments made in section 201(1) of the Act which have been relied upon by the ld. D.R. in support of the Revenue s case by referring to the legislative intention explained in the relevant Board Circulars, it is observed that the said amendments are made applicable prospectively w.e.f. 1-4-2010 and as rightly submitted by the ld. Counsel for the assessee, the same cannot be applied in the present case involving assessment years 2004-05, 2005-06 2006-07. 19. As regards the reliance placed by the ld. D.R. on the decision of Hon ble Calcutta High Court in the case of Bhura Exports Ltd. Vs. ITO [246 CTR (Cal). 482], it is observed that the decision of the Special Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment of the payee or the time available for the making of the assessment of the payee. If the persons responsible is deemed to be an assessee in default after the assessment of the payee or the time available for making assessment has expired then such amount of tax will be incapable of adjustment against tax liability of the payee and would require return to such person who has been treated as assessee in default. Thus both the initiation of proceedings under section 201(1) as well as the completion of such proceedings by passing order have to be prior to the time-limit within which the tax can be determined in the hands of the payee. It cannot be beyond such period. If the payee has included the amount received from payer in his total income but the tax has not been paid in full or part then the payer can be treated as assessee in default to the extent of the non-payment of tax on the sum paid to him provided the tax is not recovered from the payee. If the payee has furnished the return of income without disclosing the sum paid by the payer on which tax was deductible as per the provisions of the Act then the tax deductible at source can be recovered from the payer by treating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax can be treated as assessee in default at any time prior to the assessment of the payee or the time available for making of the assessment of the payee. It was held by the Tribunal that both the initiation of proceedings u/s 201(1) of the Act as well as the completion of such proceedings by passing order have to be prior to the time limit within which the tax can be determined in the hands of the payee and accordingly the order passed by the A.O. u/s 201(1)/201(1A) of the Act within a period of six years was held to be not barred by time by the Tribunal following the decision of the Special Bench in the case of Mahindra Mahindra (supra). The issue raised in its cross objection filed by the assessee company in the case of Merchant Shipping Services P. Ltd. (supra) thus was entirely different from the issue involved in the present case and the reliance of the ld. D.R. on the decision rendered by the Tribunal in the said case is clearly misplaced. 22. The ld. D.R. has relied on the decision of Hon ble Supreme Court in the case of Delhi Development Authority (supra) wherein a person treated as assessee in default u/s 201(1)/201(1A) was held to be also an assessee. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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