INCOME TAX ACT, 1961

--Business disallowance under section 40(a)(ia)--Payment to agents of foreign shipping companies on account of freight, terminal handling, etc. No deduction of TDS under section 195Assessing officer noted that the assessee had paid certain sums to different foreign shipping companies on which no taxes were deducted, therefore, he asked assessee to explain as to why said payments should not be disallowed under section 40(a)(i). Assessee submitted that payments had been made to the agents of foreign shipping companies, the income of which was not taxable in India and, therefore, no tax was required to be deducted in respect of such payments. Assessing officer, however, did not accept the contention raised and by referring to the case of CIT v. Samsung Electronics Ltd. 2010 TaxPub(DT) 832 (Karn-HC) : (2010) 320 ITR 209 (Karn), disallowed the claim under section 40(a)(ia). Held: Was not justified as the judgment was no longer a good law in view of the judgment of Supreme Court in the G. E. India Technology Centre (P) Ltd. In the present case, the payments made to the agents of foreign shipping companies were claimed to be not taxable in India and there was no material produced by assessing officer to controvert the said claim. Even the assessing officer had not disputed the claim of the assessee that the payments were not taxable. Therefore, the provisions of section 195 are not applicable. More so, the provisions of section 195 were also not applicable in view of Circular of CBDT No.723, dated 19-9-1995, as per which the levy and recovery of tax in case of ships belonging to non-resident is governed by the provision of section 172 and in such cases, the provisions of sections 194C and 195 were not applicable.

Income Tax Act, 1961 Section 40(a)(i)