17 November 2009
We are chattering a foreign flag vessel for coastal movement of cargo from the port of Kandla to Visakhapatnam port. The owners request for payment in US dollars they want the net amount to be paid without income tax deductions. As per circular no 723 dated 19-9-1995 says that TDS is not applicable for foreign vessels or their agents.
Can you please provide the correct clarification for the same. For us to do the necessary arrangements.
17 November 2009
The referred circular is related to section 172. As u know, section 172 is for shipping business of non-residents particularly for ship belonging to or chartered by non residents. If u are not a non resident, according to my understanding, the said circular is not applicable to u. In other words section 194C and 195 will apply subject to the terms of the charter party agreement.
17 November 2009
Expert Warrier is correct. Section 172 is applicable when charter party bills of lading for cargo loaded on foreign charter ships are issued or even shipping company issues its Liner B/L on FIO or LIFO terms in India. Before ship is allowed to leave the quay income tax payment has to be cleared as per the tonnage / freight rate charged. No P&L accounts to be made. Its based on the tonnage / revenue and therefore other sections are not applicable. the master of the ship has to prepare the chart of cargo loaded and the freight revenue and pay 7.5% of the total freight charged including surcharges and adjustments.
However, if you are doing a time charter where you hire the vessel and ply it with or without crew from the owner then the DTAA provisions will apply for ships. From what you have querried, it seems apparent that yours is a tonnage based charter rate for carrying cargo from Indian Port in which case the agent will be clearing all dues as per section 172 on behalf of the Master. This is applicable when foreign Shipping company Charges Freight at US$ /ton or cbm for actual cargo loaded. That is shipping business where you carry cargo or passengers in ships. Hiring or leasing a ship to ply in Indian waters may not be shipping business for the owner of the ship but it is shipping business for the one who hires it. The Master or the Agent in your case will be paying 7.5% tax to the Government before the ship is allowed to leave the quay at the Port of Loading. Better take the certificate and copy of evidence from them for having discharged their liabilities under this section 172.
18 November 2009
Thank you Mr. Chakrapani & Mr. Sunil but as per the clarification given by you here I need to clarify the mistake from my side that is we are hiring the vessel on Time Charter "TC" basis only so please tell me the tax deduction involved in this matter.
18 November 2009
TDS U/s 195 will apply. Please verify the country of residence of the shipowner (not necessary the flag of vessel) and see if India has the DTAA with them. There are provisions in the DTAA for taking a vessel on hire. You also check the relevant rates in force for this type of hiring ships. Apply what is most beneficial to the assessee. You may have to deduct TDS@ 20% if the ship owner is not having PAN.
Section 172 may not apply in your case as the ship owner is not doing business of SHIPPING. The business of shipping is defined as transporting by ship cargo, livestock and passengers. Here you have hired the ship from the non resident and you are doing the transportation. You are carrying your own cargo. If you carry someone elses cargo and issue the charter party b/l you are doing the Shipping Business but for your customer you are resident contractor u/s 194C. Your hiring could be with crew or without crew.
After your charter is over the ship will not be allowed to leave Indian waters unless the tax applicable (whether as per DTAA or as per IT Act) is cleared.
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