Freight payments made to shipping agents of Non Resident/Non Resident shipping companies: Applicability of provisions of Tax Deduction at Source
- The Assessee was a proprietary concern and engaged in the business of manufacturing of leather and cotton items. During the year under consideration, the Assessee had exported goods and made payment of Rs.6.42 lakhs towards shipping expenses in the nature of freight.
- The Assessing Officer observed that the payments made by the Assessee came within the purview of section 194C of the Income Tax Act and accordingly, the Assessee was liable to deduct tax at source on these payments.
- The Assessing Officer disallowed Rs.6.42 lakhs on the ground that the Assessee failed to deduct tax at source on payments made on account of freight as per the provisions of Section 40(a)(ia) of the Act.
- The Tribunal placed reliance upon the CBDT circular no.723 dated 19.09.1995, wherein it was stated that provisions of section 194C and 195 relating to tax deduction at source are not applicable in respect of foreign shipping companies whose income is subjected to tax under section 172 of the Act.
- Where payments were made to shipping agents of non-resident ship-owners or charterers for carriage of passengers etc., shipped at a port in India, the agent acts on behalf of the non-resident ship-owner or charterer and he steps into the shoes of the principal. Accordingly, provisions of section 172 would apply and those of Sections 194C and 195 would not apply.
- Therefore, in the present facts of the case following the circular the provisions of section 194C would not apply in the case of the Assessee.