Skip to content


Azolla Shipping Co. Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1986)15ITD438(Mum.)
AppellantAzolla Shipping Co. Ltd.
Respondentincome-tax Officer
Excerpt:
.....income-tax rules, 1962 ('the rules'). it was mentioned in this 'claim for refund of tax' that the total income of the assessee for the accounting year ending on 31-12-1975 relevant for the assessment year 1976-77 was rs. 1,10,970 and that total income-tax and supertax chargeable on that income was rs. 40,728 and that total income-tax and supertax paid under section 199 of the act was rs. 95,922. there was request for refund of rs. 55,140.4. on 3-12-1977, the assessee through its agent sent letter dated 3-12-1977 to the ito in which it was stated that in the earlier assessment order under section 172(4) the ito had applied rate of rs. 8.76 per u.s. dollar while the correct rate applicable was rs. 7.50 per u.s. dollar under rule 115 of the rules and that at the said rate the tax payable.....
Judgment:
1. The assessee, who is appellant before us, is a non-resident shipping company. The assessee filed return under Section 172(3) of the Income-tax Act ('the Act') on 3-10-1975. The ITO made assessment order under Section 172(4) on 31-3-1976. In that order, the ITO found that the total amount of freight earned on total cargo loaded was 1,97,274 U.S. Dollars, The ITO applied the rate of Rs. 8.76 per U.S. Dollar. The total amount of freight earned in Indian rupees at that rate came to Rs. 17,28,208. Section 172(2) laid down that taxable income would be 7.5 per cent of the total amount of freight earned. Consequently, the ITO assessed the taxable income at Rs. 1,29,615 being 7.5 per cent of Rs. 17,28,208. Total tax payable came to Rs. 95,267. The amount that had been paid by the assessee before the filing of the said return was Rs. 95,922. The assessment was, thus, completed on taxable income of Rs. 1,29,615 under Section 172(4).

2. Subsequently, the agent of the assessee sent a letter dated 14-10-1977 to the ITO. This letter was received by the ITO on 18-10-1977. In that letter the agent of the assessee stated that 'claim application' dated 9-10-1977 received from the assessee claiming refund under Section 172(7) was being forwarded with the said letter to the ITO. It was further mentioned therein that other connected documents would be forwarded in due course.

3. The 'claim application' mentioned in the said letter was a 'claim for refund of tax' in Form No. 30 under Rule 41 of the Income-tax Rules, 1962 ('the Rules'). It was mentioned in this 'claim for refund of tax' that the total income of the assessee for the accounting year ending on 31-12-1975 relevant for the assessment year 1976-77 was Rs. 1,10,970 and that total income-tax and supertax chargeable on that income was Rs. 40,728 and that total income-tax and supertax paid under Section 199 of the Act was Rs. 95,922. There was request for refund of Rs. 55,140.

4. On 3-12-1977, the assessee through its agent sent letter dated 3-12-1977 to the ITO in which it was stated that in the earlier assessment order under Section 172(4) the ITO had applied rate of Rs. 8.76 per U.S. Dollar while the correct rate applicable was Rs. 7.50 per U.S. Dollar under Rule 115 of the Rules and that at the said rate the tax payable would come to Rs. 81,562.95 as against Rs. 95,922 determined in the assessment order. It was further mentioned therein that the assessee was entitled to 50 per cent relief on the said tax liability of Rs. 81,562.95 amounting to Rs. 40,781.48 under the provisions of agreement of avoidance of double taxation between India and Greece vide Notification No. GSR 394 dated 17-3-1967. Hence, the assessee was entitled to refund of Rs. 55,140 being the difference between Rs. 95,922 and Rs. 40,781.48. On 13-12-1977 the assessee filed return under Section 172(7), showing the total income at Rs. 1,10,970.

5. The ITO in his order dated 21-3-1979, quoted Section 172(7) which is in the following words : (7) Nothing in this section shall be deemed to prevent the owner or charterer of a ship from claiming before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, livestock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment in advance of the tax leviable for that assessment year, and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as the case may be.

6. According to him, the said provision entitled the assessee to claim that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of the Act. However, this claim can be made by him before the end of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls. In the present case, the relevant assessment year expired on 31-3-1977 while the claim under Section 172(7) was made on 18-10-1977 and the return was filed on 13-12-1977. The claim was made after the expiry of the period mentioned in Sub-section (7) of Section 172, and as such, it was barred by time. He, therefore, directed that the return submitted by the assessee be filed. The appeal filed by the assessee against that order was dismissed by the Commissioner (Appeals) on two grounds. The first ground was that no appeal was maintainable against an order under Section 172(7). The other ground was that no assessment under Section 172(7) could be made because of the fact that the return was filed after the expiry of the relevant assessment year and as such, no relief regarding refund could be granted to the assessee. He observed that it was open to the assessee to explore administrative remedies. The assessee has now come in further appeal before us.

7. The first point that requires decision is whether the order of the 1TO refusing to entertain the claim for refund and refusing to make regular assessment was appealable. Elaborate arguments were made before us by the parties and several decisions were cited. We do not consider it necessary to record a finding on the point whether the order of the ITO in this case was appealable. We shall assume, for the purposes of this appeal, that said order was appealable. Even then, the assessee does not gain. This is because, on merits, the assessee's claim was bound to fail. We proceed to give our reasons.

8. Section 172 deals with occasional shipping. In that section special provisions have been made for levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India. Under this section, the assessment must be made in the case of every such ship. The ITO on the basis of return submitted under Section 172(3) determines the figure of freight and fare earned by the owner of charterer of the ship on passengers, livestock, mail or goods shipped at a port in India. 71/2 per cent of the said figure is deemed to be income accruing in India to the owner or charterer of the ship. On this income, tax at the rate or rates mentioned in Sub-section (4) is determined and that tax is to be paid before departure of the ship. The assessment under Section 172(4) is a summary one. It becomes final on the expiry of the assessment year relevant to the previous year in which the date of departure of ship from Indian port falls, provided the assessee does not exercise, before the expiry of the said assessment year, option referred to in Sub-section (7) of Section 172.

The option given to the non-resident ship owner or charterer under the said Sub-section is to claim that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of the Act. In substance the option is to claim regular assessment. If this option is exercised, and if the above claim is made, then the payment made under the summary assessment would be treated as a payment in advance of the tax leviable for that assessment year and the difference between the sum so paid and the amount of tax found payable by him on such regular assessment shall be paid by him or refunded to him, as the case may be.

This in substance is the scheme of Section 172 and it has been specifically provided in its Sub-section (1) that the provisions of the said section would apply to the levy and recovery of tax in the case of a ship belonging to or chartered by a non-resident notwithstanding any thing contained in any other provisions of the Act.

9. In the present case, the claim of the assessee is two-fold. The first part of the claim is to the effect that income has been wrongly assessed in the summary assessment at Rs. 1,29,615 in fact it should have been assessed at Rs. 1,10,972. The tax payable on regular assessment according to the assessee on the latter figure was Rs. 81,562.95 as against Rs. 95,267 assessed by the ITO in summary assessment. Hence, the excess tax paid on summary assessment should be refunded. It is obvious that a claim for refund of this nature can be entertained only if the assessee requires the ITO under Section 172(7) to determine his total income in accordance with the other provisions of the Act. For that purpose the assessee has to file return as required in Section 172(7). However, there is time limit for making the said claim and that time limit is date of expiry of the assessment year. If no claim envisaged under Sub-section (7) of Section 172 is made before the expiry of the relevant assessment year, the summary assessment made earlier under Sub-section (4) becomes final and the remedy to claim refund of the above nature is barred.

10. The second part of the claim is that the assessee is entitled to reduction of 50 per cent in the assessed tax. This claim is made under Clause (1) of article VI of the agreement between the Government of India and the Government of Greece for the avoidance of double taxation of income which became effective by virtue of Notification No. G.S.R.394 dated 17-3-1967. That clause is to be read subject to Clause (4).

These clauses are as follows : (1) When a resident of Greece, operating ships, derives profits from India through such operations carried on in India, such profits may be taxed in Greece as well as in India ; but the tax so charged in India shall be reduced by an amount equal to 50 per cent thereof, and the reduced amount of Indian tax payable in the profits shall be allowed as a credit against Greek tax charged in respect of as income. The credit aforesaid shall not exceed the Greek tax charged in respect of such income.

(4) The provisions of Clause (1) shall not in the case of India affect the application of Sub-sections (1) to (6) of Section 172 of the Income-tax Act, 1961, for the assessment of profits from occasional shipping or tramp steamers ; but the provisions of that clause will be applied, when an adjustment is to be made under Sub-section (7) of the aforesaid section of the Income-tax Act, 1961, in such cases.

11. The first part of Clause (4) says that the provisions of Clause (1) would not affect the application of Sub-sections (1) to (6) of Section 172. This implies that provision of reduction of 50 per cent in the tax charged mentioned in Sub-section (1) would not operate if the summary assessment is made in accordance with provisions contained in Sub-sections (1) to (6) of Section 172. It follows that if summary assessment under Section 172(4) becomes final, relief of reduction of 50 per cent in the tax charged, is not available to the assessee. The second part of Clause (4) of article VI provides that provisions of Clause (1) would be applied when an adjustment is to be made under Sub-section (7) of Section 172 in such cases. This means that if the assessee intends to claim reduction of tax charged by 50 per cent under Clause (1), he has to follow the procedure in Sub-section (7) of Section 172. As already stated, that procedure is to make a claim before the expiry of the assessment year that the total income be assessed and tax payable be determined in accordance with the other provisions of the Act. It is only when tax payable is determined on total income on regular assessment in the above manner that a claim for reduction of 50 per cent in tax charged could be made under Clause (1) of article VI. This claim is entertainable only when adjustment as contemplated in Sub-section (7) of Section 172 is made. As already stated remedy under Sub-section (7) of Section 172 is barred in the present case because of expiry of time limit for availing thereof.

Hence, the second part of the claim also could not have been entertained in the present case.

12. The learned counsel for the assessee drew our attention to Section 44B of the Act, which was inserted in the Act with effect from 1-4-1976 by the Finance Act, 1975. This section in substance provides that a non-resident engaged in the business of operation of ships is not entitled to have his income from the business computed under Sections 28 to 43A of the Act but an amount equal to 71/2 per cent of his gross receipts is deemed be his profit taxable under the Act. The gross receipts covered by this section are the fare or freight paid in or outside India on account of carriage of shipment at any Indian port and also fare and freight received in India on account of carriage or shipment at any foreign port. It was submitted that because of this section, option to be exercised under Sub-section (7) of Section 172 has become meaningless in most cases and as such, failure to exercise the option under Sub-section (7) of Section 172 within the time prescribed therein would not affect the right of the assessee to claim refund of the nature involved in this case. We do not agree with this contention. It is true that option to be exercised under Sub-section (7) of Section 172 has become meaningless in some cases but it has not become meaningless invariably in all cases. If the figure of total income of the assessee to be assessed under Section 172(7) in accordance with the provisions of the Act is the same as that on which he is assessed under Section 172(4) in summary assessment, the option for him under Section 172(7) is meaningless because the tax payable in the regular assessment would be the same as in summary assessment in view of the provisions of Section 44B under which profits are to be presumed at 71/2 per cent of gross receipts as in the case of summary assessment under Section 172(4). In such a case, it would be futile for the assessee to exercise the said option. However, if the total income of the assessee as to be determined in accordance with Section 172(7) read with Section 44B is less than the income assessed in summary assessment, the assessee has no remedy other than exercise of option before expiry of the assessment year under Section 172(7) in order to claim refund of excess of tax paid in summary assessment. Similarly, as already explained, in order to obtain refund under Clause (1) of article VI the only remedy in view of Clause (4) thereof is to claim regular assessment under Section 172(7) and then obtain necessary adjustment. Thus, the provisions of Section 172(7) have not become nugatory by insertion of Section 44B with effect from 1-4-1976 as submitted before us on behalf of the assessee.

13. Another submission was that the assessee was entitled to claim refund in question under Section 237 of the Act read with Rule 41 and that claim for refund under said provisions should not have been negatived despite the fact that remedy under Section 172(7) had become barred by time. Our attention was drawn to claim for refund made by the assessee in Form No. 30. This submission is also devoid of substance.

In Form No. 30 itself which is prescribed under Rule 41, it is specifically mentioned that the said form should be accompanied by the return of income in the prescribed form unless the claimant had already made such return. The return referred to is obviously return on which regular assessment could be made. Such a return in the present case could have only been the return filed under Sub-section (7) of Section 172 in view of provisions of Sub-section (1) thereof already referred to and since the right to file such return was barred by time, claim under the said provisions could not be entertained. Besides, as the recitals in that form indicate, the refund could be claimed under Rule 41 when the total income-tax chargeable is less than the total income-tax paid under Section 199. In the present case no income-tax has been paid under Section 199. The income-tax paid is under Section 172. In Section 199 income-tax paid under various sections is mentioned but Section 172 is not one of them. This is an additional reason for holding that claim under Rule 41, read with Section 237, was not entertainable. Besides, as already stated, in view of the express provision in Sub-section (1), read with Sub-section (7), of Section 172 the first part of the claim of refund, and in view of those provisions, read with Clause (4) of article VI, the second part of the claim of refund could not have been entertained in the present case.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //