Law:

Section:

Section 40(a)(i), read with section 172, of the Income-tax Act, 1961 - Business disallowance - Interest, etc., payable outside India - Assessee, an Indian company, claimed deduction on account of demurrage payable to a non-resident company - Assessing Officer considered same as non-deductible claim in view of section 40(a)(i), as no tax had been deducted on said amount - On appeal, Commissioner (Appeals) observed that demurrages debited by assessee in hands of recipient were in nature of profits of non-resident from occasional shipping business under section 44B, read with section 172, and, therefore, disallowance made by Assessing Officer was incorrect - Tribunal upheld order of Commissioner(Appeals) - Whether for bringing a case under section 172, one has to establish a case of profits of non-resident from occasional shipping business and since in instant case assessee had not earned profit from occasional shipping and was not a non-resident, section 172 did not have application in relation to assessee - Held, yes - Whether facts of instant case were governed by section 40(a)( i) and order passed by Assessing Officer was legal, proper and in accordance with scheme of Act - Held, yes Circulars and Notifications : CBDT Circular No. 723, dated 19-9-1995 FACTS The assessee-company claimed deduction of certain amount on account of demurrage payable to a non-resident company 'M'. As no tax had been deducted on that amount, the Assessing Officer considered said amount as non-deductible claim in view of section 40(a)( i). On appeal, the Commis-sioner (Appeals) observed that demurrages debited by the assessee in the hands of the recipient were in the nature of profits of non-resident from occasional shipping business under section 44B, read with section 172. He also referred to the provision of section 172(8) which had been brought on the statute by the Finance Act, 1997 with effect from April 1, 1976 and the CBDT Circular No. 723, dated 19-9-1995 and allowed the assessee's appeal holding that disallowance made by the Assessing Officer under section 40(a)( i) was incorrect. The Tribunal dismissed the revenue's appeal. On the revenue's appeal to the High Court : HELD…

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