Law:

Section:

Section 172, read with section 195 of the Income-tax Act, 1961 - Non-resident - Shipping business of (Demurrage charges) - Assessment years 1999-2000 and 2000-01 - Whether in view of difference of opinion between orders passed by co-ordinate Benches of Tribunal regarding applicability of section 172 in respect of demurrage paid to non-resident shipping company, matter was to be referred to Larger Bench for consideration - Held, yes [Para 13] [Matter referred to Larger Bench] FACTS â–  The assessee company filed its return claiming deduction of demurrage paid to a non-resident shipping company. â–  The assessee's case was that there was no obligation to deduct tax at source as the amount was paid to non-resident shipping company engaged in operation of ships and, therefore, governed by section 172. â–  The Assessing Officer, however, opined that assessee was required to deduct tax at source under section 195 while making payment to non-resident shipping company. In view of assessee's failure to do so, Assessing Officer disallowed payments in question. â–  Reliance was also placed upon the Circular No. 723 dated 19-9-1995 issued by CBDT which interalia provides that Section 172 is a self contained code for levy and recovery of taxes ship wise and journey wise in case of ships owned or chartered by non-residents. Therefore, the requirement of deducting tax at source would not be applicable in such a case thus the consequent disallowance of expenditure under Section 40(a)(i) was not warranted. â–  However, the CIT(A) did not accept the contention of the assessee and held section 44B would apply as it related to computation of profits and gains and from shipping business. In the above view, the appeal of the assessee was dismissed. â–  The Tribunal allowed assessee's appeal by following decision in DCIT v. Orient (Goa) (P.) Ltd. [2009] 185 Taxman 131. The impugned order specifically held that section 172 was a charging as well as a machinery provision in respect of non-resident shipping companies. It provided for determination and collection of tax. Thus Chapter XVII of the Act in respect of deducting tax at source would not apply in…

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