Sections 195 and 201(1)/(1A) – Demurrage charges payable to non-resident shipping company were not liable to TDS u/s 195

4. TS-527-ITAT-2020-Ahd. Gokul Refoils &
Solvent Ltd. vs. DCIT ITA No:
2049/Ahd/2018 A.Y.: 2016-17 Date of order: 11^th
September, 2020

Sections 195 and
201(1)/(1A) – Demurrage charges payable to non-resident shipping company were
not liable to TDS u/s 195

FACTS

The assessee paid
demurrage charges to a non-resident Singaporean company without deduction of
tax. The A.O. was of the view that the assessee was required to withhold tax
u/s 195 from the said payment. Since the assessee had not done so, the A.O.
held the Assessee in Default (AID) u/s 201 and levied interest u/s 201(1A).

On appeal, the
CIT(A) upheld this order. The aggrieved assessee appealed before the Tribunal.

HELD

i)   In the course of the assessment, the assessee
had submitted documentary evidence (comprising demurrage contract, letter to
bank for remittance, debit note, Form No. 15CA, Form No. 15CB, remittance
voucher, details of remittance, Form A2 under FEMA, and no PE declaration)
pertaining to reimbursement of expenses⁵.

ii)   The Tribunal relied on Circular No. 723 in
terms of which section 195 cannot be invoked if freight payment was made in
respect of a ship which was owned or chartered by a non-resident to which
section 172 (i.e., voyage-based special assessment scheme of the Act) applied.

iii) Accordingly, section 195
was not applicable in respect of demurrage charges paid to the non-resident
shipping company.

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1   Other
grounds related to transfer pricing and disallowance of expenditure

2   328
ITR 81

3   Finance
Bill which respectively introduced and reintroduced DDT

4     382
ITR 114

5   Assessee
represented demurrage charges as reimbursement during
assessment proceedings. There is no independent finding of the Tribunal to the
effect that demurrage represents reimbursement