International Taxation: Taxation of Non-residents' Shipping Business- Section 172 of the Act

Dear CA Final/CMA Final Students,

In earlier article, we understood the provisions of section 44B of the Act which deals with taxation of non-residents' Shipping Business.

Apart from that, there is one more code under the Income Tax Act governing taxation of non-residents' shipping business which has an overriding effect over all the provisions of Income Tax Act including section 44B.

Section 172of the Income Tax Act an overriding provision

Section 172 reads as under:

(1) The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply for the purpose of the 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.

(2) Where such a ship carries passengers, livestock, mail or goods shipped at a port in India, [seven and a half] per cent of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage.

(3) Before the departure from any port in India of any such ship, the master of the ship shall prepare and furnish to the [Assessing] Officer a return of the full amount paid or payable to the owner or charterer or any person on his behalf, on account of the carriage of all passengers, livestock, mail or goods shipped at that port since the last arrival of the ship thereat:

Providedthat where the [Assessing] Officer is satisfied that it is not possible for the master of the ship to furnish the return required by this sub-section before the departure of the ship from the port and provided the master of the ship has made satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf, the [Assessing] Officer may, if the return is filed within thirty days of the departure of the ship, deem the filing of the return by the person so authorised by the master as sufficient compliance with this sub-section.

(4) On receipt of the return, the [Assessing] Officer shall assess the income referred to in sub-section (2) and determine the sum payableas tax thereon at the rate or rates [in force] applicable to the total income of a foreign company and such sum shall be payable by the master of the ship.

(4A) No order assessing the income and determining the sum of tax payable thereon shall be made under sub-section (4) after the expiry of nine months from the end of the financial year in which the return under sub-section (3) is furnished:

(5) For the purpose of determining the tax payable under sub-section (4), the Assessing Officer may call for such accounts or documents as he may require.

(6) A port clearance shall not be granted to the ship until the Collector of Customs, or other officer duly authorised to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof.

(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.

(8) For the purposes of this section, the amount referred to in sub-section (2) shall include the amount paid or payable by way of demurrage charge or handling charge or any other amount of similar nature.

Analysis of section 172

Section 172 is applicable throughout the previous year which requires master of vessel to pay tax at the rate applicable to foreign company (i.e.40%) of income derived from carriage of passengers, livestock, mail or goods shipped at portin India.

For this purpose, income shall be determined at 7.5% of amount paid or payable in respect of above carriages.

Such tax has to be paid before departure and return is also required to be filed to that effect otherwise port clearance shall not be granted by the Collector of Customs subject to minor relaxation.

However, section 172(7) of the Act provides that before the end of the assessment year, if person wants to be governed by the other provisions of the Act then he can do so and in that eventuality, tax paid under section 172 shall be treated as advance tax.

Section 44B Versus Section 172 - A comparison

Which provision is to be followed- section 172 or section 44B?

You can listen me for practical application of both the provisions of Income Tax Act.

Happy Learning,
All the best.