26 May 2009
I have 2 queries - 1. We had appointed a company in Japan ((as Protective Assayer)to do sampling and analysis of our cargoes which was being discharged at a port in China. Now, we need to remit fees to the protective assayer in Japan from India. Do we need to deduct TDS? FYI, none of the companies in India who are in similar trade deduct TDS.
2. When we sell goods on FOB terms to a company in China, the ship (vessel) is brought in India by the Buyer (in this case a Chinese company). For any demurrage on the vessel i.e. demurrage payable for delays in loading, do we need to deduct TDS?
28 May 2009
From the protective assayer I understand that the non resident assesses the goods for damages and sorts the fresh goods before final delivery. If this understanding is correct, you need not deduct TDS from the Income of the non resident company. Section 195 of the Act casts an obligation on an resident tax payer making payment to a non resident in respect of an income taxable in India to withhold tax at the rates applicable.
Since as per section 9 the income of a resident by way of fees for technical fees will be deemed to accrue and arise in India, the income will be taxable in India. The Assayer service are not covered with in the meaning of deeming provision under section 9 of the Act as the explanation 2 to section 9 (1) (vii) of the Act excludes any services of construction, assembly and like nature from the perview of section 9.
However As per section 90 of IT Act one can take the benefit of provision of Double taxation Avoidance Agreements ( DTAA) on the payment of royalty if the recipient of the income from technical fees is a resident of a country with whom India has a DTAA. Currently India has DTAA’s with more then 75 Countries. India has a DTAA with USA Japan and as per Japan article 12 of that treaty the tax rate is 10 %. On this no SC and EC is applied. But since the provisions of section income tax are more beneficial, the income from such services as mentioned in your query are not taxable in India, no Need to withhold tax from payments.
Ddemurrage payable for delays in loading etc. is only a statutory levy payable to an Indian Ports Authority. If supported in full by the receipt, no need to deduct TDS from such payments. Otherwise also the captain of the vessel of the buyer is under obligation to file a return of Income u/s 172 of the IT Act before leaving the Indian Port, You can ask for return filed under the Act and also the ITO of the port from which such vessel departs issues a certificate of non deduction of TDS from the payment made to vessel as freight, you can ask for that certificate also from your freight forwarder for non withholding tax on all payment to vessel. Hope this serves the purpose.In case you need further clarification, please let me know. Please read this reply in line with my under standing of the services of assayer or let me know if the understanding is not correct.
I would like to put across the following for better understanding -
Sl. 1. A protective assayer is a sampling and analysis agency. The job of the protective assayer is to remain present during the discharging of the vessel at the discharge port, draw samples, analyse & report the chemical composition of cargo and liaise with the analysis agencies of the buyer so that the samples drawn by the agencies represent the cargo and differences in results are sorted out amicably.
Sl 2 Demurrage, I am referring here, is payable to the vessel owner/ buyer. Demurrage rate is decided in advance and is covered in the contract. When one enters into a contract for international sea borne trade, one has to guarantee loading rate. Given the loading rate, the vessel owner calculates the voyage time. Any delay in loading because of lower loading rate, shall attract demurrage which is to cover for vessel's operating cost. When TDS is deducted, I belive the assumption is that there is some profit margin in the payment and accordingly the same should be taxed. However, demurrage rate is mostly to cover cost, that too, most of the times, subsidised.
In light of above, do you think, there would be any change in the taxation part of your suggestion?
CAclubindia
