Section 172 – Assessment /collection of tax of non-resident in shipping business

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A) APPLICABILITY : –

The provisions of this section shall apply for the purpose of levy and recovery of tax in case of shipping business of non-residents.

However, such provisions are applicable to non-resident only when following conditions are satisfied:

CONDITIONS :

  • Non-resident should be engaged in shipping business.
  • Ship should belong to the non-resident or chartered by non-resident.
  • Ship carries passengers, livestock, mail or goods
  • Ship carries passengers, livestock, etc. shipped at Indian port.

INCOME FOR THE PURPOSE OF SECTION 172

As per the provisions of section 172(2),
the taxable income shall be 7.5% (i.e., presumptive income)
of the amount paid or payable
to the owner or charterer or to any person on his behalf,
on account of carriage of passengers etc.
shipped at any port in India
whether that amount is paid or payable
in India or
outside India.

 

B) RETURN OF THE AMOUNT PAID TO THE NON-RESIDENT : –

Before departure
from any port in India
the master of the ship is required
to prepare and furnish to the Assessing Officer
paid or payable
to the owner or charterer or any person on this behalf
on account of the carriage
of all passengers, livestock, mail or goods
shipped at any port in India
since the last arrival of the ship thereat.

NOTE :

The return of income is, ordinarily required, to be furnished by the master of the ship before the departure of the ship, from the port in India, of the ship. However, a return may be filed by the person authorized by the master of the ship within 30 days of the departure of the ship from the port, if:

  1. the AO is satisfied that it is not possible for the master of the ship to furnish the return before ships departure and
  2. the master of the ship has made satisfactory arrangement for the filing of the return and payment of tax by any other person on this behalf.

 

C) SUMMARY ASSESSMENT – SECTION 172(4) : –

On receipt of return the Assessing Officer shall determine the tax payable on the taxable income

EXAMPLE : –

Non-resident is engaged in shipping business. It collects following freight on account of shipment of goods in India:

  1. A sum of Rs. 50 lakhs for shipment of goods from Chennai to Singapore (Freight collected in India)
  2. A sum of Rs. 30 lakhs for shipment of goods from Cochin to Malaysia (freight collected in Malaysia)

On basis of above, answer following questions:

  1. Whether non-resident is liable to file return under Section 172 before departure of ship?
  2. Compute the presumptive income of non-resident under Section 172

SOLUTION   : –

  1. Provisions for recovery and collection of tax under Section 172 are applicable to non-resident only when ship carrying passengers, livestock, etc. shipped at Indian port whether freight is paid or payable in India or outside India. Thus, master of the ship is liable to file return under Section 172 before departure of ship and pay tax on presumptive income.
  2. Presumptive income under Section 172 is as under:

 

EXAMPLE : –

Non-resident is engaged in shipping business. It collects following freight on account of various shipments:

  1. A sum of Rs 20 lakh for shipment of goods from Chennai to Singapore (Freight collected in Singapore)
  2. A sum of Rs 40 lakh for shipment of goods from Cochin to Singapore (Freight collected in India)
  3. A sum of Rs 30 lakhs for shipment of goods from Singapore to Malaysia (freight collected in Malaysia)

On basis of above, answer following questions:

  1. Compute the presumptive income of FCO under Section 172.
  2. Whether non-resident is liable pay file return under Section 172 for all freight collected before departure of ship?

SOLUTION : –

  1. Presumptive income under Section 172 is as under:

    NOTE :
    Provisions of for levy and recovery of tax shall not apply when ship carrying passengers, livestock, etc are shipped at port outside India whether freight is paid or payable in India or outside India.
  2. Non-resident is liable to file return before departure of ship only for freight of Rs 60 lakh and master of ship would be liable to pay tax on presumptive income of Rs 4.5 lakh.
    Tax on presumptive taxable income, is calculated at tax rates applicable to a foreign company (40% , excluding SC + Cess, as applicable). The master of the ship is liable for payment of such tax.

 

EXAMPLE : –

Based on facts of preceding example and assuming the assessee is a non-resident, compute the tax liability which is to be paid before departure of ship ?

SOLUTION : –

The Tax payable on presumptive income would be 40% (excluding SC + Cess), i.e Rs 1.80 lakh (Rs 4.5 lakh *40%)

Supreme Court, in A.S. Glittre v CIT (1997) 225 ITR 739 (SC) –  Assessment made under section 172(4) shall be an ‘adhoc’ assessment and will be superceded if a regular assessment is opted as per the provisions of the Act.

D) TIME LIMIT FOR PASSING THE ASSESSMENT ORDER – SECTION 172(4A):

AO shall pass the assessment order within 9 months from the end of the financial year in which the return of income under section 172(3) is filed. For determining the tax payable, Assessing Officer may call for such accounts and documents, as he may consider necessary [section 172(5)].

E) GRANT OF PORT OF CLEARANCE TO THE SHIP : –

No port clearance shall be granted to the ship
until the Collector of customs or other authorized officer,
is satisfied that : –

  • tax assessable under section 172 has been duly paid or
  • satisfactory arrangements have been made for the payment thereof [Section 172(6)].

F) OPTION TO PAY TAX AS PER NORMAL PROVISIONS OF THE IT ACT ON SHIPPING INCOME : –

The owner or charterer has the option to claim that an assessment in respect of his total income for the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of the IT Act.
However, such option should be exercised 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.

 

NOTES : –

When non-resident opts to be governed by other provisions of the IT Act
then any payment made under section 172
is to be treated as a payment of advance tax and
the difference between
the sum so paid and the amount of tax found payable
on such assessment
is to be paid by him (i.e., when tax payable > Advance tax under Section 172) or
refunded to him (i.e., when advance tax under Section 172  > Tax payable)
as the case may be.  [Section 172(7)].
The sum chargeable to tax under this section shall include amounts payable by way of demurrage charge or handling charge or any other amount of similar nature [Section 172(8)].

 

EXAMPLE : –

Mr. Paul Inc., a non-resident, was engaged in shipping business. He collects following freight during FY 2016-17:

  1. On July 1, 2016, a sum of Rs 40 lakhs for shipment of goods from Chennai.
  2. On August 7, 2016, a sum of Rs 5 lakh for shipment of goods from Mumbai.

He incurred expenses of Rs 5 lakh for his shipping business during FY 2016-17.

He also has brought forward business loss of Rs. 20,000.

Compute tax liability of Mr. Paul for FY 2016-17 ?

SOLUTION : –

Ad-hoc assessment under Section 172(4)

 

NOTE :

Master of ship had filed return and paid tax of Rs 1,39,050 during FY 2016-17. Such tax would be treated as advance tax if assessee opts for normal assessment under Section 172(7)

If Mr. Paul opts for normal assessment under Section 172(7) then tax will be computed as under : –

Comparison between provisions of Section 44B and Section 172

 

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