CIT vs. V. S. Dempo and Company Pvt. Ltd (Bombay High Court)

DATE: September 8, 2015 (Date of pronouncement)
DATE: September 16, 2015 (Date of publication)
AY: 1999-00, 2000-01
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Law laid down in CIT Vs. Orient (Goa)(P) Ltd 325 ITR 554 that s. 172 is applicable only to non-residents carrying on shipping business and not to residents and that the expenditure of demurrage charges cannot be allowed u/s 40(a)(i) in the absence of TDS does not appear to be correct and issue is referred to Full Bench

The High Court had to consider whether its earlier decision in CIT Vs. Orient (Goa)(P) Ltd. 325 ITR 554 in which it was held that Section 172 of the Act is applicable only in respect of a non-resident carrying on shipping business and not to residents and that the expenditure of demurrage charges cannot be allowed in the absence of tax being deducted at source was correctly decided. HELD by the High Court:

(i) We are unable to agree with the above view of this Court in Orient (Goa)(P) Ltd. (supra). This is for the reason that the assessee placed reliance upon Section 172 of the Act in respect of payments made by it to a non-resident shipping company by way of demurrage charges. The tax which is deducted at source by the assessee company is on behalf of the recipient of the charges. The issue before the Court was whether demurrage charges which are paid by the assessee to a non-resident company would be allowed as an expenditure in the absence of deduction of tax at source in view of Section 40(a)(i) of the Act. Although the Court was concerned with the issue in an appeal concerning a resident company. The introduction of section 172 of the Act by the assessee was to determine whether in view thereof, was there any obligation to deduct tax at source by the payer-assessee. Section 172 of the Act has to be examined through the prism of the non-resident shipping company in respect of it’s income. It is in the above view that Section 172 of the Act and Circular No. 723 issued by the CBDT was relied upon by the assessee to point out that as Section 172 of the Act provides a complete code itself for levy recovery of tax ship wise and journey wise. Thus there is no occasion to deduct tax under Chapter XVII of the Act.

(ii) It is a settled position under the law of precedents that, it is not open to us (Division Bench) to take a view contrary to the view taken by another Division Bench of this Court. In case, we are unable to agree with the view of the earlier Division Bench and it does not fall within the exclusionary categories of binding precedent by being contrary to and/or in conflict with a decision of the Apex Court or rendered per incurrim. In such a case it is best that the issue is resolved at the hands of a Larger Bench of this Court. Certainty of law is an important ingredient of Rule of Law.

(iii) As we do not agree with the view taken by this Court in Orient (Goa) (P) Ltd. (supra) and it does not fall with the exclusions mentioned in Paragraph 12 above, we direct the Registry to place papers and proceedings of the present two appeals before the Hon’ble The Chief Justice to obtain suitable directions to place the following question of law for the opinion of the Larger Bench of this Court as under:

Whether while dealing with the allowability of expenditure under Section 40(a)(i) of the Act, the status of a person making the expenditure has to be a non-resident before the provision to Section 172 of the Act can be invoked?

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