AZOLLA SHIPPING CO. LTD. v. INCOME TAX OFFICER
[Citation -1985-LL-0930-1]

Citation 1985-LL-0930-1
Appellant Name AZOLLA SHIPPING CO. LTD.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 30/09/1985
Assessment Year 1976-77
Judgment View Judgment
Keyword Tags avoidance of double taxation • regular assessment • summary assessment • when tax payable • recovery of tax • non-resident • excess tax
Bot Summary: If no claim envisaged under sub-section of section 172 is made before the expiry of the relevant assessment year, the summary assessment made earlier under sub-section becomes final and the remedy to claim refund of the above nature is barred. The provisions of clause shall not in the case of India affect the application of sub-sections to of section 172 of the Income-tax Act, 1961, for the assessment of profits from occasional shipping or tramp steamers; but the provisions of that clause will be applied, when an adjustment is to be made under sub-section of the aforesaid section of the Income-tax Act, 1961, in such cases. As already stated remedy under sub- section of section 172 is barred in the present case because of expiry of time limit for availing thereof. If the figure of total income of the assessee to be assessed under section 172(7) in accordance with the provisions of the Act is the same as that on which he is assessed under section 172(4) in summary assessment, the option for him under section 172(7) is meaningless because the tax payable in the regular assessment would be the same as in summary assessment in view of the provisions of section 44B under which profits are to be presumed at 7 1/2 per cent of gross receipts as in the case of summary assessment under section 172(4). If the total income of the assessee as to be determined in accordance with section 172(7) read with section 44B is less than the income assessed in summary assessment, the assessee as no remedy other than exercise of option before expiry of the assessment year under section 172(7) in order to claim refund of excess of tax paid in summary assessment. As already explained, in order to obtain refund under clause of article VI the only remedy in view of clause thereof is to claim regular assessment under section 172(7) and then obtain necessary adjustment. In section 199 income-tax paid under various sections is mentioned but section 172 is not one of them.


assessee, who is appellant before us, is non-resident shipping company. assessee filed return under section 172(3) of Income-tax Act ('the Act') on 3-10-1975. ITO made assessment order under section 172(4) on 31-3-1976. In that order, ITO found that total amount of freight earned on total cargo loaded was 1,97,274 U. S. Dollars. ITO applied rate of Rs. 8.76 per U. S. Dollar. total amount of freight earned in Indian rupees at that rate came to Rs. 17,28,208. Section 172(2) laid down that taxable income would be 7.5 per cent of total amount of freight earned. Consequently, ITO assessed taxable income at Rs. 1,29,615 being 7.5 per cent of Rs. 17,28,208. Total tax payable came to Rs. 95,267. amount that had been paid by assessee before filing of said return was Rs. 95,922. assessment was, thus, completed on taxable income of Rs. 1,29,615 under section 172(4). 2. Subsequently, agent of assessee sent letter dated 14-10-1977 to ITO. This letter was received by ITO on 18-10-1977. In that letter agent of assessee stated that 'claim application' dated 9-10-1977 received from assessee claiming refund under section 172(7) was being forwarded with said letter to ITO. It was further mentioned therein that other connected documents would be forwarded in due course. 3. 'claim application' mentioned in said letter was 'claim for refund of tax' in Form No. 30 under rule 41 of Income-tax Rules, 1962 ('the Rules'). It was mentioned in this 'claim for refund of tax' that total income of assessee for accounting year ending on 31-12-1975 relevant for assessment year 1976-77 was Rs. 1,10,970 and that total income-tax and super tax chargeable on that income was Rs. 40,728 and that total income tax and supertax paid under section 199 of Act was Rs. 95,922. There was request for refund of Rs. 55,140. 4. On 3-12-1977, assessee through its agent sent letter dated 3-12- 1977 to ITO in which it was stated that in earlier assessment order under section 172(4) ITO had applied rate of Rs. 8.76 per U. S. Dollar while correct rate applicable was Rs. 7.50 per U. S. Dollar under rule 115 of rules and that at said rate tax payable would come to Rs. 81,562.95 as against Rs. 95,922 determined in assessment order. It was further mentioned therein that assessee was entitled to 50 per cent relief on said tax liability of Rs. 81,562.95 amounting to Rs. 40,781.48 under provisions of agreement of avoidance of double taxation between India and Greece vide Notification No. GSR 394 dated 17-3-1967. Hence, assessee was entitled to refund of Rs. 55,140 being difference between Rs. 95,922 and Rs. 40,781.48. On 13-12- 1977 assessee filed return under section 172(7) , showing total income at Rs. 1,10,970. 5. ITO in his order dated 21-3-1979, quoted section 172(7) which is in following words: "(7) Nothing in this section shall be deemed to prevent owner or chartered of ship from claiming before expiry of assessment year relevant to previous year in which date of departure of ship from Indian port falls, that assessment be made of his total income of previous year and tax payable on basis thereof be determined in accordance with other provisions of this Act, and if he so claims, any payment made under this section in respect of passengers, livestock, mail or goods shipped at Indian ports during that previous year shall be treated as payment in advance of tax leviable for that assessment year, and difference between sum so paid and amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as case may be." 6. According to him, said provision entitled assessee to claim that assessment be made of his total income of previous year and tax payable on basis thereof be determined in accordance with other provisions of Act. However, this claim can be made by him before end of assessment year relevant to previous year in which date of departure of ship from Indian port falls. In present case, relevant assessment year expired on 31-3-1977 while claim under section 172(7) was made on 18-10-1977 and return was filed on 13-12-1977. claim was made after expiry of period mentioned in sub-section (7) of section 172 , n d as such, it was barred by time. He, therefore, directed that return submitted by assessee be filed. appeal filed by assessee against that order was dismissed by Commissioner (Appeals) on two grounds. first ground was that no appeal was maintainable against order under section 172(7). other ground was that no assessment under section 172(7) could be made because of fact that return was filed after expiry of relevant assessment year and as such, no relief regarding refund could be granted to assessee. He observed that it was open to assessee to explore administrative remedies. assessee has now come in further appeal before us. 7. first point that requires decision is whether order of ITO refusing to entertain claim for refund and refusing to make regular assessment was appealable. Elaborate arguments were made before us by parties and several decisions were cited. We do not consider it necessary to record finding on point whether order of ITO in this case was appealable. We shall assume, for purpose of this appeal, that said order ease appealable. Even then, assessee does not gain. This is because, on merits, assessee's claim was bound to fail. WE proceed to give our reasons. 8. Section 172 deals with occasional shipping. In that section special provisions have been made for levy and recovery of tax in case of any ship, belonging to or chartered by non-resident, which carries passengers, livestock, mail or goods shipped at part in India. Under this section, assessment must be made in case of every such ship. ITO on basis of return submitted under section 172(3) determines figure of freight and fare earned by owner of chartered of ship on passengers, livestock, mail or goods shipped at part in India. 7 1/2 per cent of said figure is deemed to be income accruing in India to owner or chartered of ship. On this income, tax at rate or rates mentioned in sub-section (4) is determined and that tax is to be paid before departure of ship. assessment under section 172(4) is summary one. It becomes final on expiry of assessment year relevant to provision year in which date of departure of ship from Indian port falls, provided assessee does not exercise, before expiry of said assessment year, option referred to in sub-section (7) of section 172. option given to non-resident ship owner or chartered under said sub-sector is to claim that assessment be made of his total income of previous year and claim that assessment be made of his total income of previous year and tax payable on basis thereof be determined in accordance with other provisions of Act. In substance option is to claim regular assessment. If this option is exercised, and if above claim is made, then payment made under summary assessment would be treated as payment in advance of tax leviable for that assessment year and difference between sum so paid and amount of tax found payable by him on such regular assessment shall be paid by him or refunded to him, as case may be. This in substance shall be paid by him or refunded to him, as case may be. This in substance is scheme of section 172 and it has been specifically provided in its sub-section (1) that provisions of said section would apply to levy and recovery of tax in case of ship belonging to or chartered by non-resident notwithstanding any thing contained in any other provisions of Act. 9. In present case, claim of assessee is two-fold. first part of claim is to effect that income has been wrongly assessed in summary assessment at Rs. 1,29,615 in fact it should have been assessed at Rs. 1,10,972. tax payable on regular assessment according to assessee on latter figure was Rs. 81,562.95 as against Rs. 95,267 assessed by ITO in summary assessment. Hence, excess tax paid on summary assessment should be refunded. It is obvious that claim for refund of this nature can be entertained only if assessee requires ITO under section 172(7) to determine his total income in accordance with other provisions of Act. For that purpose assessee has to file return as required in section 172(7). However, there is time limit for making said claim and that time limit is date of expiry of assessment year. If no claim envisaged under sub-section (7) of section 172 is made before expiry of relevant assessment year, summary assessment made earlier under sub-section (4) becomes final and remedy to claim refund of above nature is barred. 10. second part of claim is that assessee is entitled to reduction of 50 per cent in assessed tax. This claim is made under clause (1) of article VI of agreement between Government of India and Government of Greece for avoidance of double taxation of income which became effective by virtue of Notification No. G. S. R. 394 dated 17-3-1967. That clause is to be read subject to clause (4). These clauses are as follows: "(1) When resident of Greece operating ships, derives profits from India through such operations carried on in India, such profits may be taxed in Greece as well as in India; but tax so charged in India shall be reduced by amount equal to 50 per cent thereof, and reduced amount of Indian tax payable in profits shall be allowed as credit against Greek tax charged in respect of as income. credit aforesaid shall not exceed Greek tax charged in respect of such income. (2) and (3) ** ** ** (4) provisions of clause (1) shall not in case of India affect application of sub-sections (1) to (6) of section 172 of Income-tax Act, 1961, for assessment of profits from occasional shipping or tramp steamers; but provisions of that clause will be applied, when adjustment is to be made under sub-section (7) of aforesaid section of Income-tax Act, 1961, in such cases." 11. first part of clause (4) says that provisions of clause (1) would not affect application of sub-sections (1) to (6) of section 172. This implies that provision of reduction of 50 per cent in tax charged mentioned in sub- section (1) would not operate if summary assessment is made in accordance with provisions contained in sub-sections (1) to (6) of section 172. It follows that if summary assessment under section 172(4) becomes final, relief of reduction of 50 per cent in tax charged is not available to assessee. second part of clause (4) of article VI provides that provisions of clause (1) would be applied when adjustment is to be made under sub-section (7) of section 172 in such cases. This means that if assessee intends to claim reduction of tax charged by 50 per cent under clause (1), he has to follow procedure in sub-section (7) of section 172. As already stated, that procedure is to make claim before expire of assessment year hat total income be assessed and tax payable be determined in accordance with other provisions of Act. It is only when tax payable is determined on total income on regular assessment in above manner that claim for reduction of Act. It is only when tax payable is determined on total income on regular assessment in above manner that claim for reduction of 50 per cent in tax charged could be made under clause (1) of article VI. This claim is entertainable only when adjustment as contemplated in sub-section (7) of section 172 is made. As already stated remedy under sub- section (7) of section 172 is barred in present case because of expiry of time limit for availing thereof. Hence, second part of claim also could have been entertained in present case. 12. learned counsel for assessee drew our attention to section 44B o f Act, which was inserted in Act with effect from 1-4-1976 by Finance Act, 1975. This section in substance provides that non-resident engaged in business of operation of ships is not entitled to have his income from business computed under sections 28 to 43A of Act but amount equal to 7 1/2 per cent of his gross receipts is deemed be his profit taxable under Act. gross receipts covered by this section are fare or freight paid in or outside India on account of carriage of shipment at any Indian port and also fare and freight received in India on account of carriage or shipment at any foreign port. It was submitted that because of this section, option to be exercised under sub-section (7) of section 172 has become meaningless in most cases and as such, failure to exercise option under sub-section (7) of section 172 within time prescribed therein would not affect right of assessee to claim refund of nature involved in this case. We do not agree with this contention. It is true that option to be exercised under sub-section (7) of section 172 has become meaningless in some cases but it has not become meaningless invariably in all cases. If figure of total income of assessee to be assessed under section 172(7) in accordance with provisions of Act is same as that on which he is assessed under section 172(4) in summary assessment, option for him under section 172(7) is meaningless because tax payable in regular assessment would be same as in summary assessment in view of provisions of section 44B under which profits are to be presumed at 7 1/2 per cent of gross receipts as in case of summary assessment under section 172(4). In such case, it would be futile for assessee to exercise said option. However, if total income of assessee as to be determined in accordance with section 172(7) read with section 44B is less than income assessed in summary assessment, assessee as no remedy other than exercise of option before expiry of assessment year under section 172(7) in order to claim refund of excess of tax paid in summary assessment. Similarly, as already explained, in order to obtain refund under clause (1) of article VI only remedy in view of clause (4) thereof is to claim regular assessment under section 172(7) and then obtain necessary adjustment. Thus, provisions of section 172(7) have not become nugatory by insertion of section 44B with effect from 1-4-1976 as submitted before us on behalf of assessee. 13. Another submissions was that assessee was entitled to claim refund in question under section 237 of Act read with rule 41 and that claim for refund under said provisions should not have been negatived despite fact that remedy under section 172(7) had become barred by time. Our attention was drawn to claim for refund made by assessee in Form No. 30. This submission is also devoid of substance. In Form No. 30 itself which is prescribed u n d e r rule 41, it is specifically mentioned that said form should be accompanied by return of income in prescribed form unless claimant had already made such return. return referred to is obviously return on which regular assessment could be made. Such return in present case could have only been return filed under sub-section (7) of section 172 in view of provisions of sub-section (1) thereof already referred to and since right to file such return was barred by time, claim under said provisions could not be entertained. Besides, as recitals in that form indicate, refund could be claimed under rule 41 when total income-tax chargeable is less that total income-tax paid under section 199. In present case no income tax has been paid under section 199. income-tax paid is under section 172. in section 199 income-tax paid under various sections is mentioned but section 172 is not one of them. This is additional reason for holding that claim under rule 41, read with section 237 , was not entertainable. Besides, as already stated, in view of express provisions in sub-section (1), read with sub-section (7), of section 172 first part of claim of refund, and in view of this provisions, read with clause (4) of article VI, second part of claim of refund could not have been entertained in present case. 14. In result, appeal fails and is dismissed. *** AZOLLA SHIPPING CO. LTD. v. INCOME TAX OFFICER
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