Vbc Exports Ltd, Visakhapatnam vs Department Of Income Tax on 24 February, 2011

Income Tax Appellate Tribunal - Vizag

ITA 287,21,150,317,49,105,64&65/V VBC Exports Ltd VSKP IN THE INCOME TAX APPELLATE TRIBUNAL

VISAKHAPATNAM BENCH, VISAKHAPATNAM

BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER

AND

SHRI BR BASKARAN, ACCOUNTANT MEMBER

ITA No.287 & 21/Vizag/1998

Assessment Year : 1993-94 & 1994-95

M/s. VBC Exports Ltd DCIT, Spl. Range-I Visakhapatnam Vs. Visakhapatnam (Appellant) (Respondent) GIR No.V-3

ITA No.150/Vizag/1998

Assessment Year : 1994-95

DCIT, Spl. Range-I M/s. VBC Exports Ltd Visakhapatnam Vs. Visakhapatnam (Appellant) (Respondent)

ITA No.317/Vizag/2000

Assessment Year : 1995-96

DCIT, Central Circle M/s. VBC Exports Ltd Visakhapatnam Vs. Visakhapatnam (Appellant) (Respondent)

ITA No.49/Vizag/2001

Assessment Year : 1997-98

DCIT, Central Circle M/s. VBC Exports Ltd Visakhapatnam Vs. Visakhapatnam (Appellant) (Respondent)

ITA No.105/Vizag/2002

Assessment Year : 1998-99

ACIT, Circle-4(1) M/s. VBC Exports Ltd Visakhapatnam Vs. Visakhapatnam (Appellant) (Respondent)

ITA No.64/Vizag/2000

Assessment Year : 1996-97

DCIT, Central Circle M/s. VBC Exports Ltd Visakhapatnam Vs. Visakhapatnam (Appellant) (Respondent) ITA 287,21,150,317,49,105,64&65/V VBC Exports Ltd VSKP

ITA No.65/Vizag/2000

Assessment Year : 1996-97

M/s. VBC Exports Ltd DCIT, Central Circle Visakhapatnam Vs. Visakhapatnam (Appellant) (Respondent)

Appellant By: Shri J. Siri Kumar, Sr. DR

Respondent By: Shri G.V.N. Hari, CA

ORDER

Per Bench:-

These appeals are preferred by the assessee as well as the revenue against the respective order of CIT or CIT(A). Since certain issues are common, these appeals were heard together and are being disposed of through this consolidated order. We however, prefer to adjudicate them one after the other.

ITA No.287 of 1998:

2. This appeal is preferred by the assessee against the order of CIT passed u/s 263 of the Act setting aside the assessment order. This appeal pertain to the assessment year 1993-94 against the order of CIT dated 27.3.1998. This appeal was filed before the Tribunal on 18.5.1998 but it could not be disposed of for various reasons. During the course of hearing, a specific query was raised from the Ld. Counsel for the assessee as to what has happened after the order of CIT passed u/s 263 of the Act? Whether consequential order was passed by the A.O. and also as to what happened to the consequential order of the A.O.? Since the CIT has passed an order in March, 1998, the A.O. must have passed the consequential order but none of the parties are able to state the facts as to what happened to the consequential order of the A.O. We have also examined the order of the CIT passed u/s 263 and we find that the issue involved is with regard to the payment of ocean freight charges and the hire charges which was disallowed u/s 40(a)(i) of the I.T. Act. This disallowance was made by the A.O. in subsequent years. In the assessment order, this issue was not examined by the assessing officer. Since the assessee is not able to state as to what has happened to the order of CIT passed u/s 263 of the Act, we are of the view that the order of the CIT deserves to be sustained. More over, the issue of

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disallowance is required to be adjudicated by us in other appeals in which the disallowance were made by the assessing officers and the matter has traveled upto the Tribunal and we are ceased with the matter. We therefore, confirm the order of the CIT passed u/s 263 of the Act and dismiss the appeal of the assessees.

3. In the result, the appeal of the assessee is dismissed.

ITA No.21 of 1998:

4. Through this appeal the assessee has assailed the order of the CIT(A) on various grounds which are as under:

1) The Ld. CIT(A) is not justified in confirming the disallowance of interest paid on a deposit accepted amounting to Rs.30,000/-.

2) The Ld. CIT(A) is not justified in confirming addition made under the provisions of Section 68 in respect of a Deposit accepted by the company amounting to Rs.60,000/- from Smt. G. Sri Devi. The appellant most respectfully submits that the identity and genuineness of the creditor having been established the deposit and repayment thereof having been made through banking channels, the Ld. CIT(A) is not justified in confirming the impugned addition.

3) The Ld. CIT(A) is not justified in partially confirming the disallowance of Charter Hire Charges under the provisions of Section 40(a)(i), to the extent of 5% of the total sum paid. The appellant most respectfully submits that the learned CIT(A) having held in paragraph 6.2.1 of the order that the Hire Charges were paid to the Non-Resident in the form of catch in the Indian Port itself is not justified in confirming the impugned disallowance to the extent of 5% as the provisions of Section 40(a)(i) are applicable only to amounts payable outside India but not in respect of such amounts payable in India.

4) For the above and such other grounds that may be urged at the time of hearing, the appellant prays that relief as sought may be granted.

5. With regard to ground no.1, the Ld. Counsel for the assessee has submitted that this ground is covered against the assessee by the order of earlier years. In the light of admission of the assessee, we reject this ground.

6. Ground no.3 is also not pressed, therefore, the same is dismissed being not pressed. With regard to ground no.2, the Ld. Counsel for the assessee submitted that the creditor has furnished all the details of the

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deposit of Rs.60,000/- with the assessees. The relevant evidence is available at pg.nos.47 to 59 of the compilation of the assessees. The assessee has filed the confirmation letters of the creditors along with the evidence of refund of amount. The amounts were deposited under a scheme of fixed deposit with the assessee and the application form through which this amount was deposited were also filed before us.

7. The Ld. D.R. placed a heavy reliance upon the order of the CIT(A).

8. We have carefully examined the evidence filed by the assessee and we find that he has filed a sufficient evidence to prove that the creditor has deposited the aforesaid amount under the scheme of fixed deposit with the assessees and the said amount was refunded at his request on 4.10.1997 along with interest through cheque. In the light of these evidence, we are of the view that revenue has wrongly treated this deposit as an unexplained cash credit. We therefore, find no merit in the additions. Accordingly, we set aside the order of CIT(A) in this regard and direct the A.O. to delete the additions.

9. In the result, the appeal of the assessee is partly allowed.

ITA No.150 of 1998:

10. This appeal is preferred by the revenue against the order of the CIT(A) on following grounds:

1. The CIT(A) order is erroneous in law and on facts.

2. The CIT(A) erred in directing the A.O. to allow depreciation at 40% as against 20% restricted by the A.O. on trucks and buses as the assessee's main business is not of hiring of vehicles and the vehicles were hired occasionally such that these vehicles are not entitled for higher depreciation. Reliance is placed on in the case of M/s. Veneer Mills Vs. CIT (201 ITR 764) 1993 Karnataka HC and decision in Kotak Mahendra (265 ITR 114 )SC.

3. The CIT(A) is not justified in directing to allow on trawlers based on his own orders for the A.Y. 91-92 and 92-93. The AO has disallowed the depreciation as the ownership of the trawlers was not transferred to the assessee. The CIT(A) orders for these A.Y. i.e. 91-92 and 92-93

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were not accepted and second appeals were preferred against the said orders.

4. The CIT(A) is not justified in deleting the addition of Rs.1,13,05,739/- made towards trawler hire charges stating that it was paid in India following the ITAT's decision in the assessee's own case for the A.Y. 1985-86 as the facts of the case are distinguishable. In fact, the AO disallowed the claim in the absence of evidence for payment of 85% of the catch towards hire charges as per Charter party agreement in India and in fact as per the two invoices dated 25.12.1993, the payments were made outside India.

5. The CIT(A) is not justified in deleting the addition of Rs.79.05 lakhs made towards disallowance of ocean freight charges as per provisions of sec.40(a)(i) of the Act for the reasons that: a. The AO has made disallowance on the ground inconsistencies noticed n the evidences and the information furnished and the assessee has not adduced any details of the ships mode and place of payment and the details of IT particulars of M/s. ASPINWAL & Co. and that

b. The CIT(A) deleted the addition by simply following the submissions made by the AR of the assessee without giving an opportunity to the AO.

6. Any other grounds that may be urged at the time of hearing.

11. Ground nos.1&6 are general in nature and needs no independent adjudication. With regard to ground no.2, the Ld. Counsel for the assessee has invited our attention to the assessment order with the submissions that assessing officer himself has admitted in para 1.1 at pg.no.3 that the impugned vehicles were found to be used occasionally in the business of hire. He however did not allow the higher depreciation on these vehicles. The Ld. Counsel for the assessee further contended that if the assessee is able to prove that the vehicles are used for hire besides his personal use, it is entitled for the higher depreciation. Once the assessing officer has himself accepted that the impugned vehicles were occasionally used in the business of hire, he has no right to deny the higher depreciation. The Ld. D.R. has placed a reliance upon the order of the assessing officer.

12. We have examined the order of the lower authorities and we find that assessing officer himself has admitted in the assessment order that the impugned vehicles were used in the business of the hire, therefore, he has no

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moral right to deny the higher depreciation to the assessees. We have also examined the order of the CIT(A) and we find that he has properly adjudicated the issue and we find no infirmity therein. We therefore confirm his order in this regard.

13. Ground no.3 relate to depreciation on trawlers and in this regard, it was contended that the issue is squarely covered by the Tribunal's order in the assessee's own case for the assessment year 1992-93 in which the Tribunal has held that the assessee is entitled for depreciation as the trawler is in possession of the assessees for its use. While deciding this issue, the CIT(A) has followed its earlier order for the assessment year 1992-93 which has been approved by the Tribunal. Therefore, the CIT(A)'s order deserves to be confirmed.

14. The Ld. D.R. placed a reliance upon the order of the A.O.

15. Having carefully examined the order of the lower authorities and the order of the Tribunal in the A.Y. 1992-93, we find that identical issue was raised and the Tribunal has concluded that registration is not necessary to allow a depreciation. Once the assessee is in possession of the property as per Sales of the Goods Act, the assessee is entitled for depreciation. The relevant observation of the Tribunal are extracted hereunder: In this Revenue's appeal, the only dispute relates to allowance of depreciation amounting to Rs.1,15,000/- on the vessel although it was not registered in the name of the assessee and its previous owner had not cleared the liability created on the vessel in favour of Vijaya Bank. At the time of hearing the learned AR of the assessee brought to our notice that this issue is covered by various decisions of High Courts including the Full Bench decision of Delhi High Court in the case of Gowersons Publishers P. Ltd. Vs. CIT (240 ITR 191) and decided in favour of the assessee. The Ld. DR on the other hand relied on the order of the AO defending the cause of the Revenue. In page 192 of the above mentioned Full Bench decision it was observed that "if for all practical purposes the assessee has a right to enjoy a property as owner he will be deemed to be owner of the property even if a formal document conferring the title to the property in his favour is yet to be executed. In this judgement it was held that just because a person does not have a right to sell the property purchased and being utilized by him for the purpose of business, it cannot be held that 6

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such person is not entitled to depreciation. In the case of Mysore Minerals Ltd. Vs. CIT (239 ITR 775) the Hon'ble Supreme Court had held that the concept of ownership under s.32 should be given a wide meaning and that it is not the legal ownership that is required for registration but the ownership by virtue of use, possession and purchase. It was also held that for any property there can be only one owner but there cannot be two owners and that once a person had sold a property that property becomes the property of the purchaser, though transfer of the same may not be complete. It is not disputed that even though registration has not been made in the name of the assessee, the assessee is in possession of the property as per sale of Goods Act, 1930. The seller handed over the vessel to the assessee and has not claimed depreciation on the same. In this view of the matter, we uphold the order of the CIT(A) allowing depreciation as claimed by the assessee.

In the result, the Department's appeal is dismissed."

16. Since the Tribunal has taken a particular view on identical facts, we find no reason to take a contrary view, therefore, following the aforesaid order of the Tribunal, we hold that assessee is entitled for depreciation.

17. Ground No.4 relate to the addition of Rs.1,13,05,739/- made towards trawler hire charges. The brief facts borne out from the orders of lower authorities on this issue are that during the course of assessment proceedings, the A.O. has noticed that the assessee has paid hire charges of Rs.1,19,00,778/- in respect of 2 vessels to M/s. East Wide Shipping Corporation. Since the assessee has not deducted TDS thereon, the assessing officer show caused vide letter dated 28.2.1997. It was explained on behalf of the assessee that no payments were made by them in respect of hire charges of the above vessels. Under the agreement with the owner of the vessel M/s. East Wide Shipping Corporation, the owner will retain the entire catch made during the relevant voyage by operating vessel and after realising the value of the same outside India, they will retain 85% of the value and remit to the assessee 15% of the value of the catch, in foreign currency through normal banking channels. It was also contended that assessee had not made any payments to the foreign company outside India, therefore, the question of deduction of TDS does not arise. The assessee also supplied certain invoices in respect of 15% of the catch on the bill of lading relating thereto in order to show that they had sold only 15% of catch 7

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to the non-resident and that they had not paid any charter hire charges to the non-resident.

18. It was also contended before the A.O. that charter trawlers operated in the area which is not taxable territory under the Indian Income-tax Act and therefore, it is claimed that no income accrued or arised in India to the non- resident owner of the trawlers either u/s 5 or u/s 9(1) of the I.T. Act. Under these circumstances, the question of deduction of tax u/s 195 does not arise. The A.O. was not convinced with the explanation of the assessee and he invoked the provisions of section 40(a)(i) and disallowed the hire charges payment on following grounds:

a. All incomes accruing or arising whether directly or indirectly, through or from any business connection in India or through or from any property in India or through or from any asset or source of income in India or through the transfer of a capital asset situated in India.

b. From the charter agreement, it is clear that the non resident has business connection in India and income has accrued or arisen in India. It is also pertinent to mention here that the taxability of the income of the non-resident depends upon the place of accruing or arising of income. From the aforesaid agreement, it is clear that the income accrued or arose and was deemed to accrue and arise in India. Hence, there is no doubt about the taxability in India of the receipts of the non-resident towards hire charges for the trawlers used by the assessee for catch.

c. Since the assessee brought the income on the catch in its accounts and claimed expenditure towards trawler hire charges payable to non-resident, it was under statutory obligation as per the provisions of sec.40(a)(i) of the Act to deduct tax at source for claiming deduction of such expenditure in the relevant year.

d. The taxability of the aforesaid income of the non-resident in India is already confirmed by the ITAT in the assessee's own case in ITA No.1860 and 1861/Hyd/1990 dated 28.2.1995.

e. It is also pertinent to mention here that the assessee had taken shelter from the decision of the ITAT in the case of Srinivasa Sea Foods Ltd. Vs. ITO 56 ITD 64. But, in the assessee's own case, in the decision of the ITAT mentioned above, the ITAT considered the case of Srinivasa Sea Foods 8

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Ltd. Vs. ITO and held that the facts of the case were distinguishable from that of the assessee's case. Hence, there is no force in the argument of the assessee in this regard.

f. The assessee, not having deducted tax at source from the trawler hire charges at Rs.1,19,00,778 as per the provisions of sec. 40(a)(i) is not entitled to claim deduction of the said amount in the relevant assessment and the claim is rejected accordingly.

19. The assessee preferred an appeal before the CIT(A) with the submission that no income had accrued to the assessee in India in respect of the hire charges as trawlers were operated beyond the taxable territories. With regard to the reliance of the A.O. on the decision of the ITAT in their order dated 28.2.1995 in the assessee's own case for A.Y. 1985-86 in which the Tribunal has confirmed the taxability of the income, the Ld. Counsel for the assessee has submitted that said decision was based on the finding of fact that certain operations were carried out in India and that income attributable to those operations was assessable in India by the A.O. The Ld. Counsel for the assessee further made the submission before the CIT(A) that the provisions of section 40(a)(i) apply only to sums chargeable under the Act, which is payable, outside India. In this case, it is clear from the finding of the A.O. in the assessment order and also from the finding of the Tribunal in the earlier order that the proportion of catch representing hire charges is handed over at the Indian port i.e. in India and that accordingly the hire charges were paid in India. When the amount is paid to the non-resident in India, the question of disallowance thereof u/s 40(a)(i) does not arise. He has also raised an alternative argument that disallowance u/s 40(a)(i) can be made only in respect of sum chargeable under the Act i.e. taxable income attributable to the charter hire charges and not the entire charter hire charges as the non-resident has to incur substantial expenditure for operating the trawlers in respect of which hire charges are paid. He has also placed a reliance on earlier year's order of the assessee in which the A.O. has determined the taxable income at 5% to the total hire charges.

20. The CIT(A) re-examined the issue in the light of assessee's contentions. Having accepted the contention of the assessees, the CIT(A) 9

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has concluded that disallowance u/s 40(a)(i) in the relevant year is not the entire hire charges paid to the non-resident company but only the taxable income attributable to the said charter hire charges. He accordingly estimated the 5% of the total hire charges as an income chargeable to tax and disallowed the same.

21. Now the revenue is in appeal before the Tribunal. The Ld. D.R. has emphatically argued that CIT(A) has not given the basis on which he has estimated that the 5% of the total hire charges would be the sum chargeable to tax under the Act in the hands of the non-resident. He has blindly followed a view taken by the A.O. in the year 1985-86 without looking to the terms of agreement on which the trawler was hired by the assessee. The Ld. D.R. has invited our attention to the charter hire agreement appearing at pg.nos.61 to 81 of the compilation filed by the assessee. As per this agreement, vessels shall be employed in carrying on the business of fishing/processing/storage/packing as may be permissible under the approval for chartering the said fishing vessels accorded by the Government of India at the time of the delivery of this vessels to the assessee i.e. the charter for its operation. Necessary formalities are to be completed by the assessee i.e. charter. After the inspections, the vessels would be at the disposal of the charter i.e. the assessee with certain conditions. The owner has to provide training and experienced personnel on each vessel and pay for all operating cost including all wages and emoluments for the master, officers and crew of all the said fishing vessels and for all provisions fuel, oil and for deck and engine room source fishing gear for the period of time charter. The owner shall maintain the vessels in thoroughly good conditions especially hull and machinery during the period of the charter. It was further clarified that the owner shall purchase and shall establish an irrevocable revolving letter of credit in favour of the charters or make an advance payment or furnish a bank guarantee towards 15% of the value of the catch or any other arrangement mutually acceptable for the charter's share or the value of the catch. The Ld. D.R. further contended that as per the agreement, the charters i.e. the assessee was required to provide and pay for port charges, pilotage (whether compulsory or not) canal steersman, boatage, lights, the

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assistance, consular charges, etc. The most of the expenses are to be borne by the charter i.e. assessee. Therefore only 5% of the amount received by the owner on account of catch hire charges cannot be called to be the sum chargeable to tax under the Act for the purpose of disallowance u/s 40(a)(i) of the I.T. Act. The Ld. D.R. further contended that assessee has not preferred an appeal. The finding of the CIT(A) that the amount paid to the non-resident is chargeable to tax and the provisions of section 40(a)(i) are attracted, attained the finality. Now the sole issue comes at what should be the disallowance on account of non-deduction of the tax. The Ld. D.R. contended that 5% of the entire payment cannot be the reasonable amount which can be considered to be the sum chargeable to tax for the purpose of disallowance u/s 40(a)(i) of the Act.

22. The Ld. Counsel for the assessee has placed a reliance upon the judgement of the Frontier Offshore Exploration India Limited Vs. DCIT 118 ITD 494 and Transmission Corporation of A.P. Limited and others Vs. CIT 239 ITR 587 in support of the contentions that the entire payment cannot be treated to be the sum chargeable to tax under the Act for the purpose of disallowance u/s 40(a)(i) of the I.T. Act. The Ld. Counsel for the assessee further urged that in earlier years, the A.O. has adopted the 5% of the total payment as the sum chargeable to tax for the purpose of disallowance and as such the same has been rightly followed by the CIT(A). Besides, he placed a heavy reliance upon the order of the CIT(A).

23. Having heard the rival submissions and from a careful perusal of the order of the lower authorities we find that CIT(A) has taken a view after having examined the various aspects that the provisions of the section 40(a)(i) are to be attracted in this payment to the non-resident. The order of the CIT(A) is not challenged by the assessees. Therefore, finding in this regard attained the finalities. Moreover, we have also examined the provisions of the Act and we find that as per clause 40(a)(i), any payments made outside India or in India to a non-resident not being a company or to a foreign company is not allowable as expenditure unless tax is deductible at

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source. In order to understand the said provision, we extract the relevant portion as under:

Sec. 40:- Notwithstanding anything to the contrary in sections 30 to [38] the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession".-

(a) in the case of any assessee-

[(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royally, fees for technical services or other sum chargeable under this Act, which is payable,--

(A) outside India; or

(B) in India to a non-resident, not being a company or to a foreign company.

On which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200:

Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.

24. From a plain reading of the section, we find that in sub clause 1 the legislature has used the word (other sums chargeable under this Act). Meaning thereby, the entire payment which attract the provisions of section 40(a)(i) is not to be disallowed. Only the sum chargeable under this Act can be disallowed if TDS are not deducted. The entire payment made to the non- resident cannot be called to be the sum chargeable to tax under the Act. Now the question arise as to what would be the sum chargeable under the Act? In that regard, we make a reference to the provisions of section 195 which says that any person responsible for paying to non-resident not being a company or to a foreign company, any interest or any other sum chargeable under the provisions of the Act shall at the time of credit of such income to the account of the payee or at the time of payment there of in cash or by the issue of a cheque or draft or by any other mode whichever is earlier deduct income tax there of at the rates in force. The sub section 2 of section 195

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makes more clarification by saying that where the person responsible for paying any such sum chargeable under this Act to a non-resident considers that the whole of such sum would not be income chargeable in the case of the non-resident, he may make an application to the A.O. to determine by general or a special order, the appropriate portion of such sum so chargeable and upon such determination, tax shall be deducted under sub-section 1 only on that proportion of the sum which is so chargeable. The provisions of section 195 is also extracted hereunder for reference: [(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force:

Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode:

[Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O.

Explanation-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense Account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]

(2) Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the [Assessing] officer to determine, [by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.

(3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the [Assessing] Officer for the grant of a certificate authorizing him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is 13

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granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).

(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the [Assessing] Officer before the expiry of such period, till such cancellation.

(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.]

(6) The person referred to in sub-section (1) shall furnish the information relating to payment of any sum in such form and manner as may be prescribed by the Board.]

25. Having read both the sections conjointly, we find that the legislature has clarified all areas of doubt by saying that the tax is to be deducted on payment of interest or other sum chargeable under the provisions of the Act. Wherever the person responsible for paying to non-resident has any doubt about the sum which is chargeable under the provisions of the Act he has to approach the assessing officer with a request to determine the appropriate proportion of such sum so chargeable and upon such determination, tax shall be deducted on that proportion of the sum which is so chargeable. Nowhere the assessee has been given any liberty to estimate the sum chargeable in the hands of the non-resident. In the instant case, the non-resident has retained the 85% of the catch as a hire charges which was sold and sale proceeds were kept by the owner as a hire charges. It makes no difference whether hire charges are paid in cash or kind. The issue is that how much payments were made as hire charges to a non-resident. Undisputedly the catch was brought to the Indian port and 85% of the catch was retained by the owner as hire charges. The CIT(A) is giving a specific finding that hire charges were paid to the owner, non-resident in India, therefore, the provisions of section 40(a)(i) are attracted. Now the sole question arise as to how much amount of the hire charges can be called to be the sum chargeable under the provisions of this Act. In this regard, we have carefully examined the charter hire agreement and we find that owner is also required

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to incur certain expenses to maintain the master and the crew on the vessel. He was also required to make certain payments in loading and unloading and as a port charges. Therefore, the entire amount received by the owner on account of sale of 85% of catch cannot be called to be the sum chargeable under the provisions of the Act. The entire receipt cannot be called to be the income of the assessees. Only the profit element is to be taxed. The CIT(A) has estimated a 5% of the total receipt as a sum chargeable under the provisions of the Act does not appear to be reasonable. The proper course available with the assessee was to approach the assessing officer in this situation for determination of the appropriate proportion of the receipt as a sum chargeable under the provisions of the Act. But this exercise has not been done by the assessee. He has not rather deducted any TDS on the entire amount. The CIT simply estimated the 5% of the total receipt which is not the correct procedure. Before doing so CIT should have referred the matter to the A.O. for a proper determination of the appropriate amount of the total receipt as a sum chargeable under the provisions of the Act. But now it is too late to make a reference to the A.O. for doing this exercise. The assessment year involved is 1994-95. We therefore of the view that a proper estimate should be done to meet the ends of justice. Keeping in view the expenses which are to be incurred by the non-resident to maintain the vessels, we estimate the 10% of the receipt as a sum chargeable under the provisions of the Act. We therefore modify the order of the CIT(A) and direct the A.O. to adopt the 10% of the total payment worked out on 85% of catch to the non-resident as a sum chargeable under the provisions of the Act. Since no deduction has been made on this amount, the disallowance is to be made to that extent. Accordingly, the matter is remitted to the file of the A.O. for recalculation of the disallowance.

26. With regard to ground no.5 relating to disallowance of ocean freight charges as per provisions of section 40(a)(i) of the Act we find that the A.O. has noticed during the course of assessment proceedings that the assessee has paid ocean freight charges totaling to Rs.79,05,712/- to different foreign companies during the relevant year and no tax was deducted on the payments made to them. He accordingly held that the assessee has violated

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the provisions of section 40(a)(i) for which the payment of ocean freight made could not allowed as a legitimate deduction for computation of its total income for the relevant year. Accordingly disallowance was made.

27. The assessee preferred an appeal before the CIT(A) with the submission that provisions of section 40(a)(i) apply to any sum chargeable under this Act which is payable outside India on which tax has not been paid or deducted under chapter XVII B of the Act. In the case of payment of ocean freight all amounts are paid to the parties located in India as stated by the A.O. himself in part 7 of the order. He has also made a reference to the circular no.723 dated 19.9.1995 of the CBDT according to which section 172(1) provides the mode of levy and recovery of tax in case of any ship belonging to or chartered by a non-resident. It was further contended that in respect of payment to the agent of American President Lines Limited, USA and Sea-Land Service, copies of certificate issued by the assessing officer that their income from operation of ships is not taxable in India were filed. Therefore, the question of payment of tax in respect of the payment to them does not arise. With regard to the payment to Aspinwall company Limited, he filed the copies of letter issued by the agent and the certificate issued by the assessing officer that said agent is paying taxes u/s 172 of the I.T. Act. In the light of these facts, it was contended on behalf of the assessee, that the A.O. was not justified in invoking the provisions of section 40(a)(i) to the payment of ocean freight to different parties.

28. The CIT(A) re-examined the issue in the light of assessee's contention and finding force in the assessee's contention he held that the assessing officer has wrongly invoked the provisions of section 40(a)(i) to make the disallowance of the subject payment. The relevant observation of the CIT(A) are extracted hereunder:

"On going through the submissions raised on behalf of the appellant and the facts on record, I am of the opinion that the contention of the appellant on the above score must prevail. The AO has discussed the facts of the case and cited reasons for his detailed order of assessment, to make the subject disallowance. However, as I see, the crux of the disallowance is the applicability of the provisions of sec.40(a)(i) to the payment of ocean freight of

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the above sum, by the appellant to various foreign companies without any deduction of tax at source from the payments so made. Thus, the only question that survives for consideration in the present issue is whether the aforesaid payment was hit by the mischief of sec. 40(a)(i) of the Act.

Admittedly, the provisions of sec.40(a)(i) apply to any sum chargeable under the Incometax Act, 1961, which is payable outside India, on which tax has not been paid or deducted under Chapter XVII-B. A plain reading of the provisions of this section would show that two conditions are necessarily required to be satisfied in order to attract the disallowance under the said section. First, the amount is payable outside India and the second, is that tax has not been paid or deducted under Chapter XVII-B on the said amount. If either of the two conditions is not satisfied, the provisions of section, in my opinion, cannot be attracted at all. As is evident from the discussion made by the AO in detail in the order of assessment, the amounts towards ocean freights were paid to three companies viz. (1) M/s. South India Export Pvt. Ltd (2) Chakiat Agencies Pvt. Ltd. And (3) M/s. Aspinwall & Company through their agents located in outside India. Thus, it could not be said that the amounts were paid to them outside India. In this context, it will not be out of place to consider here, whether the payments in the nature of ocean freight to the above parties, came within the purview of various TDS provisions under Chapter XVII-B of the Incometax Act. Chapter XVII-B deals with deduction of tax at source. It has been clarified in CBDT's Circular No.723, dated 19.9.1995 as under:

"Since the agent acts on behalf of the non-resident ship owner and Charterer, he steps into the shoes of the principal. Accordingly, the provisions of sec.172 which provides for the mode of levy and recovery of tax in case of any ship belonging to or chartered by a non-resident and which is a self-contained section shall squarely apply to the shipping business of the non-resident, so far as the tax deduction at source from the payments made to foreign shipping companies is concerned and those of sections 194C and 195 will not apply to such payments."

I also find that the AOs, concerned have issued certificates, dated 2.4.1990 and 11.3.1991 in respect of the first two foreign companies that their income from operation of ships was not taxable in India. Thus, the question of payment of tax in respect of these two companies does not and cannot arise at all. Similarly, in respect of the third foreign company, the AO concerned has also issued certificate to the effect that the agent of the said company was paying taxes under Sec. 172 of the Act.

In view of the foregoing, the ocean freight amounting to Rs.79,05,712 paid by the appellant to the foreign companies during 17

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the relevant year was not liable for deduction of tax at source under the provisions of Chapter XVII-B of the IT Act and as such, the AO could not justifiably invoke the provisions of sec.40(a)(i) to make the disallowance of the subject payment on the ground that tax was not paid or deducted at source on the said sum. The disallowance of Rs.79,05,712 made on the above score is really without any basis and the same is deleted accordingly. (Relief: Rs.79,05,712/-)."

29. Now the revenue has preferred an appeal before us with the submission that CIT(A) has not properly appreciated the facts brought out by the assessing officer while making the disallowance. Undisputedly the payments were made to the foreign companies without deducting the tax. Therefore, the A.O. has rightly disallowed the payment u/s 40(a)(i) of the I.T. Act

30. The Ld. Counsel for the assessee on the other hand has invited our attention to the order of the A.O. as well as the CIT(A) with the submission that for invoking the provisions of section 40(a)(i) of the Act, two conditions are necessarily required to be satisfied. First, the amount is payable outside India and second is that tax has not been paid or deducted under chapter XVII B on the said amount. As discussed by the A.O., the amounts towards the ocean freight charges were paid to 3 companies M/s. South India Export Pvt. Ltd., Chakiat Agencies Pvt. Ltd. And Aspinwall and Company through their agents located in India. Therefore, it could not be said that the amounts were paid to them outside India. In the light of these facts, the basic requirement for making the disallowance u/s 40(a)(i) was not satisfied, therefore, the CIT(A) has rightly deleted the additions.

31. Having heard the rival submissions and from a careful perusal of the orders of the authorities below and documents placed on record, we find force in the contentions of the assessees. Nowhere the assessing officer has made out a case that the payments were made outside India to the foreign companies. It was rather accepted by the A.O. that payments were made through the agents of the foreign companies in India itself. Therefore, we find no justification in these additions as the requisite conditions for invoking the provisions of section 40(a)(i) was not satisfied. We however, carefully

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examined the order of CIT(A) and we find that he has examined the issue in detail in his order in the light of relevant provisions of the Act. Since we do not find any infirmity therein, we confirm his order. Accordingly, this appeal is disposed of.

32. In the result, the appeal of the revenue is partly allowed for statistical purposes.

ITA No.317 of 2008:

33. In this appeal the revenue has assailed the order of the CIT(A) on following grounds:

1. The order of the CIT(A) is erroneous in law and on facts.

2. The learned CIT(A) has erred in directing the Assessing officer to allow depreciation at 40% as against 20% restricted by the Assessing officer in his assessment order u/s 143(3) as the assessee has hired the vehicles occasionally in which circumstances, the assessee is not entitled to higher rate of depreciation at 40% as laid down in the case of Veener Mills Vs. CIT (201 ITR 764) (1993), Karnataka High Court.

3. The Ld. CIT(A) basing on his earlier order in the assessee's case for the asst. years 1991-92, 92-93 & 96-97 has erred in directing the assessing officer to allow depreciation on trawler which was disallowed on the ground that the ownership of the trawler was not transferred to the assessee. The orders of the CIT(A) for asst. years 91-92, 92-93 & 94-95 have not been accepted by the Department and appeals are pending before ITAT.

4. The CIT(A) is not justified in deleting the addition amounting to Rs.1,04,42,504/- in respect of `Ocean freight charges' disallowed as per the provisions of section 40(a)(i) of the Act.

5. The CIT(A) has simply deleted the addition of Rs.104 lakhs based on his decision for the asst. years 94-95 & 96-97 without going into the grounds on which the claim was rejected by the Assessing officer for the year under consideration.

6. The CIT(A) ought to have appreciated the fact that the Assessing officer has disallowed the claim for the detailed reasons given in the assessment order and also on the ground that the information furnished by the assessee, is not tallying with the evidences filed along with the information. Further the assessee has not produced the details of the ships, mode and place of payment and also the details of the income-tax, particulars of M/s. Aspinwal & Co.

ITA 287,21,150,317,49,105,64&65/V VBC Exports Ltd VSKP

In the circumstances, the CIT(A) ought to have confirmed the addition or in the alternative, set aside the assessment for further examination by the Assessing Officer. The CIT(A) ought not to have followed his decision for asst. years 94-95 & 96-97, in the very assessee's case, on the same issue, for the reason that the decisions of CIT(A) for these years are not accepted and they are pending with ITAT.

7. For these and such other grounds that may be urged at the time of hearing of the appeal, the order of the CIT(A) may be set aside and that of the Assessing Officer be restored.

8. The appellant craves to add, to alter, to amend or to delete any of the grounds that may be urged at the time of hearing of the appeal.

34. Ground Nos.1,7&8 are general in nature and needs no independent adjudication. Ground no.2 relate to higher depreciation on the vehicles of the assessee. This ground was already adjudicated by us in foregoing appeals in which we have confirmed the order of the CIT(A). Following the same we decide this issue in favour of the assessee and confirm the order of the CIT(A).

35. Ground no.3 relate to the depreciation on trawlers. This issue was also adjudicated by us in foregoing appeals in favour of the assessee. Following the same, we decide this issue in favour of the assessee and confirm the order of the CIT(A).

36. Ground nos.4,5&6 relate to the ocean freight charges and this issue was also discussed by us in the foregoing appeal in which we have confirmed the order of the CIT(A) and decided the issue in favour of the assessee.

37. In the result, the appeal of the revenue is dismissed.

ITA 49 of 2001:

38. In this appeal the revenue has assailed the order of the CIT(A) on following grounds:

1. The order of the CIT(A) is erroneous in law and on facts.

2. The learned CIT(A) has erred in directing the Assessing officer to allow depreciation at 40% as against 20% restricted by the 20

ITA 287,21,150,317,49,105,64&65/V VBC Exports Ltd VSKP

Assessing officer in his assessment order u/s 143(3) as the assessee has hired the vehicles occasionally in which circumstances, the assessee is not entitled to higher rate of depreciation at 40% as laid down in the case of Veener Mills Vs. CIT (201 ITR 764) (1993), Karnataka High Court.

3. The Ld. CIT(A) basing on his earlier order in the assessee's case for the asst. years 1991-92, 92-93 & 96-97 has erred in directing the assessing officer to allow depreciation on trawler which was disallowed on the ground that the ownership of the trawler was not transferred to the assessee. The orders of the CIT(A) for asst. years 91-92, 92-93, 94-95 & 95-96 have not been accepted by the Department and appeals are pending before ITAT.

4. The CIT(A) is not justified in deleting the addition amounting to Rs.1,22,14,109/- in respect of `Ocean freight charges' disallowed as per the provisions of section 40(a)(i) of the Act.

5. The CIT(A) has simply deleted the addition of Rs.122 lakhs based on his decision for the asst. years 94-95 & 96-97 without going into the grounds on which the claim was rejected by the Assessing officer for the year under consideration.

7. For these and such other grounds that may be urged at the time of hearing of the appeal, the order of the CIT(A) may be set aside and that of the Assessing Officer be restored.

8. The appellant craves to add, to alter, to amend or to delete any of the grounds that may be urged at the time of hearing of the appeal.

ITA 287,21,150,317,49,105,64&65/V VBC Exports Ltd VSKP

39. Ground nos.1,7&8 are general in nature and needs no independent adjudication.

40. Ground no.2 relate to higher depreciation on the vehicles of the assessed. This ground was already adjudicated by us in foregoing appeals in which we have confirmed the order of the CIT(A). Following the same, we decide this issue in favour of the assessee and confirm the order of the CIT(A).

41. Ground no.3 relate to the depreciation on trawlers. This issue was also adjudicated by us in foregoing appeals in favour of the assessee. Following the same, we decide this issue in favour of the assessee and confirm the order of the CIT(A).

42. Ground nos.4,5&6 relate to the ocean freight charges and this issue was also discussed by us in the foregoing appeals in which we have confirmed the order of the CIT(A) and decide the issue in favour of the assessee.

43. In the result, the appeal of the revenue is dismissed.

ITA No.105 of 2002:

44. This appeal of the revenue is preferred against the order of the CIT(A) on a solitary ground that CIT(A) has erred in deleting the addition made on account of ocean freight charges disallowed as per provisions of section 40(a)(i) of the I.T. Act. This issue is already examined by us in the foregoing appeals in which we have confirmed the order of the CIT(A). Following the same, we decide this issue in favour of the assessee and confirm the order of the CIT(A).

45. In the result, the appeal of the revenue is dismissed.

ITA 287,21,150,317,49,105,64&65/V VBC Exports Ltd VSKP

ITA 64 OF 2000:

46. In this appeal the revenue has assailed the order of the CIT(A) on following grounds which are as under:

1. The orders of CIT(A) are erroneous in law and on facts.

2. The CIT(A) erred in directing the Assessing officer to allow depreciation at 40% as against 20% restricted by the AO in his assessment order u/s 143(3) as the assessee has hired the vehicles occasionally in which circumstances, the assessee is not entitled to higher depreciation at 40% as laid down in the case of Veener Mills Vs. CIT (201 ITR 764) (1993) (Karnataka High Court).

3. The CIT(A), basing on his earlier order in the assessee's case for the asst. years 1991-92 & 1992-93, directed the AO to allow depreciation on trawler which was disallowed on the ground that the ownership of the trawler was not transferred to the assessee. Since the orders of the CIT(A) for the asst. years 1991-92 & 1992- 93 was not accepted by the Department & second appeal was preferred to keep the matter alive, second appeal is now filed on the same grounds.

4. The orders of CIT(A) in directing to delete the addition of Rs.1,13,05,739/- stating that the hire charges to the trawler were paid in India, cannot be accepted. The CIT(A) for deciding the issue in favour of the assessee, relied upon the decision of the ITAT in ITA No.1860 & 1861/Hyd/90 dated 28.2.95 in the case of VBC Exports Limited for the asst. year 1985-86. In this case, the assessee was treated as agent of M/s. Guan Watt Enterprises of Singapore (NRI company). In the impugned assessment, the charter charges were paid to a different company. Hence, the facts stated in the above ITAT's order cannot be applied to the impugned case and year of assessment.

5. The CIT(A) is not justified in giving relief to the assessee in the matter of hire charges as per reasons given below. As per clause (vi) of Charter Party Agreement dt. 17.2.92 and also as per Amended Charter Agreement dt. 1.12.92, it is mentioned that 85% of catch is to be given for Charter towards hire charges. But, where it is to be paid was not mentioned therein. The assessee also has not produced any evidence to the effect that the hire charges were paid in India. Hence, the CIT(A) is not justified in giving relief on this score.

6. As per the following invoices filed by the assessee, the payments towards Charter hire charges were made outside India:-

1. Purchase order no.15/93 dt.15.12.93: IE code

No.2688000144 Buyer (other than consignee): GR Form No.AE-702967

ITA 287,21,150,317,49,105,64&65/V VBC Exports Ltd VSKP

2. Purchase order no.15/93 dt.15.12.93 IE Code

No.2688000144 Buyer (other than consignee): GR Form No.AE-702968. Hence, the CIT(A) ought to have confirmed the addition.

7. The CIT(A) is not justified in deleting the addition amounting to Rs.79.05 lakhs in respect of `Ocean Freight Charges' disallowed as per the provisions of sec.40(a)(i) of the Act.

8. The CIT(A) simply deleted the above addition amounting to Rs.79.05 lakhs basing on the submissions made by the assessee's authorized representative without going into the grounds on which the claim was rejected by the assessing officer.

9. The A.O. has disallowed the claim on the ground that the information furnished by the assessee is not tallying with the evidences filed along with the information. Further, the assessee has not produced the details of the ships, mode and place of payment and also the details of the income-tax particulars of M/s. Aspinwal & Co.

In the circumstances, the CIT(A) ought to have confirmed the addition or in the alternative, set-aside the assessment for further examination of the assessing officer.

10. For these and such other grounds that may be urged at the time of hearing of the appeal, the order of the CIT(A) may be set aside and that of the A.O. be restored.

11. The appellant craves leave to add, to alter, to amend or to delete any of the grounds that may be urged at the time of hearing of the appeal.

47. Ground nos.1,10&11 are general in nature and needs no independent adjudication. Ground no.2 relate to higher depreciation on the vehicles of the assessee. This ground is already adjudicated by us in foregoing appeals in which we have confirmed the order of the CIT(A). Following the same, we decide this issue in favour of the assessee and confirm the order of the CIT(A).

48. Ground no.3 relate to the depreciation on trawlers. This issue is also adjudicated by us in foregoing appeals in favour of the assessee. Following the same, we decide this issue in favour of the assessee and confirm the order of the CIT(A).

ITA 287,21,150,317,49,105,64&65/V VBC Exports Ltd VSKP

49. Ground nos.4, 5&6 relate to the hire charges for trawlers/vessels. This issue was examined by us in the foregoing appeals in which we confirm the action of the A.O. for disallowing the payments after invoking the section 40(a)(i) of the Act. Simultaneously we have also held that the sum chargeable under the Act can only be disallowed. The sum chargeable under the Act is to be determined by the A.O. To avoid further delay we estimated at 10% of the total receipt by the foreign companies as sum chargeable under the Act and for that we restored the matter back to the file of the A.O. for re-computation of the disallowance. Following the same, we decide the impugned issue in the same manner and remit the matter to the assessing officer for re-computation of the sum chargeable under the Act at 10% of the total receipt in the hands of the foreign companies by retaining the 85% catch.

50. Ground nos.7,8&9 relate to the ocean freight charges. This issue was also examined by us in the foregoing appeals in which we have confirmed the order of the CIT(A). Following the same, we decide this issue in favour of the assessee and confirm the order of the CIT(A).

51. In the result, this appeal of the revenue is partly allowed for statistical purposes.

ITA 65 of 2000:

52. This appeal is preferred by the assessee against the order of the CIT(A) confirming the disallowance of ESI and PF dues amounting to Rs.48,379/-. In this regard, the Ld. Counsel for the assessee has contended that these payments were made during the accounting year relevant to assessment year 1996-97. Therefore it should be allowed on actual payment basis.

53. The Ld. D.R. on the other hand has placed a heavy reliance upon the order of the CIT(A) who has confirmed the disallowance on the ground that payments were not made before the due date prescribed under the relevant statute.

ITA 287,21,150,317,49,105,64&65/V VBC Exports Ltd VSKP

54. We have carefully examined the orders of lower authorities but we are unable to find whether the PF payment relates to the employer's contribution or employees' contribution. Nothing is placed before us that the payments were even made before the due date of the filing of the return. Admittedly, these payments were not made before the due date prescribed under the relevant statute. Therefore, we find no merit in the claim of the assessee. Accordingly, we dismiss the appeal of the assessee.

55. In the result, the appeal of the assessee is dismissed.

56. In the result, the appeals of the assessee in ITA Nos.287 & 65 are dismissed and in ITA No.21 is partly allowed, whereas the appeals of the revenue in ITA Nos.317, 49 & 105 are dismissed and in ITA Nos.150 & 64 are partly allowed.

Pronounced in the open Court on 24.2.2011

Sd/- Sd/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER

VG/SPS

Visakhapatnam,

Dated 24th February, 2011

Copy to

1 M/s. VBC Exports Limited, A-3 Unit, Industrial Estate, Visakhapatnam-530 003

2 The DCIT, Spl. Range-I, Visakhapatnam

3 The DCIT, Central Circle, Visakhapatnam

4 The ACIT, Circle-4(1), Visakhapatnam

5 The CIT, Visakhapatnam

6 The CIT(A), Visakhapatnam

7 The DR, ITAT, Visakhapatnam.

8 Guard file.

By Order

Senior Private Secretary

Income Tax Appellate Tribunal

Visakhapatnam