M/s VBC Exports Ltd, Visakhapatnam v. The DCIT, Central Circle, Visakhapatnam

ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 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 VISAKHAPATNAM VS. DCIT SPL. RANGE-I VISAKHAPATNAM (APPELLANT) (RESPONDENT) GIR NO.V-3 ITA NO.150/VIZAG/1998 ASSESSMENT YEAR : 1994-95 DCIT SPL. RANGE-I VISAKHAPATNAM VS. M/S. VBC EXPORTS LTD VISAKHAPATNAM (APPELLANT) (RESPONDENT) ITA NO.317/VIZAG/2000 ASSESSMENT YEAR : 1995-96 DCIT CENTRAL CIRCLE VISAKHAPATNAM VS. M/S. VBC EXPORTS LTD VISAKHAPATNAM (APPELLANT) (RESPONDENT) ITA NO.49/VIZAG/2001 ASSESSMENT YEAR : 1997-98 DCIT CENTRAL CIRCLE VISAKHAPATNAM VS. M/S. VBC EXPORTS LTD VISAKHAPATNAM (APPELLANT) (RESPONDENT) ITA NO.105/VIZAG/2002 ASSESSMENT YEAR : 1998-99 ACIT CIRCLE-4(1) VISAKHAPATNAM VS. M/S. VBC EXPORTS LTD VISAKHAPATNAM (APPELLANT) (RESPONDENT) ITA NO.64/VIZAG/2000 ASSESSMENT YEAR : 1996-97 DCIT CENTRAL CIRCLE VISAKHAPATNAM VS. M/S. VBC EXPORTS LTD VISAKHAPATNAM (APPELLANT) (RESPONDENT) ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 2 ITA NO.65/VIZAG/2000 ASSESSMENT YEAR : 1996-97 M/S. VBC EXPORTS LTD VISAKHAPATNAM VS. DCIT CENTRAL CIRCLE 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 WE LL AS THE REVENUE AGAINST THE RESPECTIVE ORDER OF CIT OR CIT(A). SIN CE CERTAIN ISSUES ARE COMMON THESE APPEALS WERE HEARD TOGETHER AND ARE B EING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. WE HOWEVER PREFE R 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 ASSESSM ENT 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 TRIBUN AL ON 18.5.1998 BUT IT COULD NOT BE DISPOSED OF FOR VARIOUS REASONS. DURI NG 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 CONSEQUE NTIAL 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 EXAMI NED 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 CHARG ES 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 IS SUE WAS NOT EXAMINED BY THE ASSESSING OFFICER. SINCE THE ASSESSEE IS NOT A BLE 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 ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 3 DISALLOWANCE IS REQUIRED TO BE ADJUDICATED BY US IN OTHER APPEALS IN WHICH THE DISALLOWANCE WERE MADE BY THE ASSESSING OFFICERS AN D THE MATTER HAS TRAVELED UPTO THE TRIBUNAL AND WE ARE CEASED WITH T HE 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 TH E ORDER OF THE CIT(A) ON VARIOUS GROUNDS WHICH ARE AS UNDER: 1) THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE D ISALLOWANCE OF INTEREST PAID ON A DEPOSIT ACCEPTED AMOUNTING TO RS .30 000/-. 2) THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING ADDIT ION MADE UNDER THE PROVISIONS OF SECTION 68 IN RESPECT OF A DEPOSIT AC CEPTED BY THE COMPANY AMOUNTING TO RS.60 000/- FROM SMT. G. SRI D EVI. THE APPELLANT MOST RESPECTFULLY SUBMITS THAT THE IDENTI TY 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 CONFIR MING THE DISALLOWANCE OF CHARTER HIRE CHARGES UNDER THE PROVISIONS OF SEC TION 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 PARA GRAPH 6.2.1 OF THE ORDER THAT THE HIRE CHARGES WERE PAID TO THE NON-RE SIDENT 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 PR OVISIONS OF SECTION 40(A)(I) ARE APPLICABLE ONLY TO AMOUNTS PAY ABLE OUTSIDE INDIA BUT NOT IN RESPECT OF SUCH AMOUNTS PAYABLE IN INDIA. 4) FOR THE ABOVE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING THE APPELLANT PRAYS THAT RELIEF AS SOUG HT 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 A SSESSEE BY THE ORDER OF EARLIER YEARS. IN THE LIGHT OF ADMISSION OF THE ASS ESSEE 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 ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 4 DEPOSIT OF RS.60 000/- WITH THE ASSESSEES. THE REL EVANT EVIDENCE IS AVAILABLE AT PG.NOS.47 TO 59 OF THE COMPILATION OF THE ASSESS EES. THE ASSESSEE HAS FILED THE CONFIRMATION LETTERS OF THE CREDITORS ALO NG 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 OR DER 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 PRO VE 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 R EQUEST ON 4.10.1997 ALONG WITH INTEREST THROUGH CHEQUE. IN THE LIGHT O F THESE EVIDENCE WE ARE OF THE VIEW THAT REVENUE HAS WRONGLY TREATED THIS DEPO SIT AS AN UNEXPLAINED CASH CREDIT. WE THEREFORE FIND NO MERIT IN THE AD DITIONS. 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 DEP RECIATION AT 40% AS AGAINST 20% RESTRICTED BY THE A.O. ON TRUCKS AND BU SES AS THE ASSESSEES MAIN BUSINESS IS NOT OF HIRING OF VEHICL ES AND THE VEHICLES WERE HIRED OCCASIONALLY SUCH THAT THESE VEHICLES AR E 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 D ECISION IN KOTAK MAHENDRA (265 ITR 114 )SC. 3. THE CIT(A) IS NOT JUSTIFIED IN DIRECTING TO ALLOW O N TRAWLERS BASED ON HIS OWN ORDERS FOR THE A.Y. 91-92 AND 92-93. THE A O HAS DISALLOWED THE DEPRECIATION AS THE OWNERSHIP OF THE TRAWLERS W AS NOT TRANSFERRED TO THE ASSESSEE. THE CIT(A) ORDERS FOR THESE A.Y. I.E. 91-92 AND 92-93 ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 5 WERE NOT ACCEPTED AND SECOND APPEALS WERE PREFERRED AGAINST THE SAID ORDERS. 4. THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITIO N OF RS.1 13 05 739/- MADE TOWARDS TRAWLER HIRE CHARGES STATING THAT IT W AS PAID IN INDIA FOLLOWING THE ITATS DECISION IN THE ASSESSEES OWN CASE FOR THE A.Y. 1985-86 AS THE FACTS OF THE CASE ARE DISTINGUISHABL E. 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 25.1 2.1993 THE PAYMENTS WERE MADE OUTSIDE INDIA. 5. THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITIO N 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 INCONSIS TENCIES NOTICED N THE EVIDENCES AND THE INFORMATION FURNISH ED AND THE ASSESSEE HAS NOT ADDUCED ANY DETAILS OF THE SHIPS M ODE 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 W ITH 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 OCCASIONALL Y 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 H IS PERSONAL USE IT IS ENTITLED FOR THE HIGHER DEPRECIATION. ONCE THE ASSESSING OF FICER HAS HIMSELF ACCEPTED THAT THE IMPUGNED VEHICLES WERE OCCASIONALLY USED I N 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 AUTHORI TIES AND WE FIND THAT ASSESSING OFFICER HIMSELF HAS ADMITTED IN THE ASSES SMENT ORDER THAT THE IMPUGNED VEHICLES WERE USED IN THE BUSINESS OF THE HIRE THEREFORE HE HAS NO ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 6 MORAL RIGHT TO DENY THE HIGHER DEPRECIATION TO THE ASSESSEES. WE HAVE ALSO EXAMINED THE ORDER OF THE CIT(A) AND WE FIND THAT H E HAS PROPERLY ADJUDICATED THE ISSUE AND WE FIND NO INFIRMITY THER EIN. 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 TRIBUNALS ORDER IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 199 2-93 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. WHI LE DECIDING THIS ISSUE THE CIT(A) HAS FOLLOWED ITS EARLIER ORDER FOR THE ASSES SMENT 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 O F THE A.O. 15. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWE R 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 REGISTRA TION IS NOT NECESSARY TO ALLOW A DEPRECIATION. ONCE THE ASSESSEE IS IN POSS ESSION OF THE PROPERTY AS PER SALES OF THE GOODS ACT THE ASSESSEE IS ENTITLE D FOR DEPRECIATION. THE RELEVANT OBSERVATION OF THE TRIBUNAL ARE EXTRACTED HEREUNDER: IN THIS REVENUES APPEAL THE ONLY DISPUTE RELATES T O ALLOWANCE OF DEPRECIATION AMOUNTING TO RS.1 15 000/ - ON THE VESSEL ALTHOUGH IT WAS NOT REGISTERED IN THE NAME OF THE A SSESSEE AND ITS PREVIOUS OWNER HAD NOT CLEARED THE LIABILITY CREATE D 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 C OVERED BY VARIOUS DECISIONS OF HIGH COURTS INCLUDING THE FULL BENCH D ECISION OF DELHI HIGH COURT IN THE CASE OF GOWERSONS PUBLISHERS P. L TD. VS. CIT (240 ITR 191) AND DECIDED IN FAVOUR OF THE ASSESSEE. TH E 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 FU LL BENCH DECISION IT WAS OBSERVED THAT IF FOR ALL PRACTICAL PURPOSES THE ASSESSEE HAS A RIGHT TO ENJOY A PROPERTY AS OWNER H E 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 B ECAUSE A PERSON DOES NOT HAVE A RIGHT TO SELL THE PROPERTY PURCHASE D AND BEING UTILIZED BY HIM FOR THE PURPOSE OF BUSINESS IT CAN NOT BE HELD THAT ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 7 SUCH PERSON IS NOT ENTITLED TO DEPRECIATION. IN THE CASE OF MYSORE MINERALS LTD. VS. CIT (239 ITR 775) THE HONBLE SUP REME COURT HAD HELD THAT THE CONCEPT OF OWNERSHIP UNDER S.32 SHOUL D 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 TH ERE CAN BE ONLY ONE OWNER BUT THERE CANNOT BE TWO OWNERS AND THAT O NCE A PERSON HAD SOLD A PROPERTY THAT PROPERTY BECOMES THE PROPE RTY OF THE PURCHASER THOUGH TRANSFER OF THE SAME MAY NOT BE C OMPLETE. IT IS NOT DISPUTED THAT EVEN THOUGH REGISTRATION HAS NOT BEEN MADE IN THE NAME OF THE ASSESSEE THE ASSESSEE IS IN POSSES SION OF THE PROPERTY AS PER SALE OF GOODS ACT 1930. THE SELLE R HANDED OVER THE VESSEL TO THE ASSESSEE AND HAS NOT CLAIMED DEPR ECIATION ON THE SAME. IN THIS VIEW OF THE MATTER WE UPHOLD THE ORD ER OF THE CIT(A) ALLOWING DEPRECIATION AS CLAIMED BY THE ASSE SSEE. IN THE RESULT THE DEPARTMENTS 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 ENT ITLED FOR DEPRECIATION. 17. GROUND NO.4 RELATE TO THE ADDITION OF RS.1 13 0 5 739/- MADE TOWARDS TRAWLER HIRE CHARGES. THE BRIEF FACTS BORNE OUT FR OM THE ORDERS OF LOWER AUTHORITIES ON THIS ISSUE ARE THAT DURING THE COURS E 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. EA ST WIDE SHIPPING CORPORATION. SINCE THE ASSESSEE HAS NOT DEDUCTED T DS THEREON THE ASSESSING OFFICER SHOW CAUSED VIDE LETTER DATED 28. 2.1997. IT WAS EXPLAINED ON BEHALF OF THE ASSESSEE THAT NO PAYMENTS WERE MAD E BY THEM IN RESPECT OF HIRE CHARGES OF THE ABOVE VESSELS. UNDER THE AGREE MENT 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 OPE RATING 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 AL SO CONTENDED THAT ASSESSEE HAD NOT MADE ANY PAYMENTS TO THE FOREIGN C OMPANY OUTSIDE INDIA THEREFORE THE QUESTION OF DEDUCTION OF TDS DOES NO T 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 ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 8 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 CHART ER TRAWLERS OPERATED IN THE AREA WHICH IS NOT TAXABLE TERRITORY UNDER THE IN DIAN 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 T AX 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 DISA LLOWED 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 AN Y 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 NO N RESIDENT HAS BUSINESS CONNECTION IN INDIA AND INCOME HAS ACC RUED OR ARISEN IN INDIA. IT IS ALSO PERTINENT TO MENTION HE RE THAT THE TAXABILITY OF THE INCOME OF THE NON-RESIDENT DEPEND S UPON THE PLACE OF ACCRUING OR ARISING OF INCOME. FROM T HE AFORESAID AGREEMENT IT IS CLEAR THAT THE INCOME AC CRUED 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 TR AWLERS USED BY THE ASSESSEE FOR CATCH. C. SINCE THE ASSESSEE BROUGHT THE INCOME ON THE CATCH IN ITS ACCOUNTS AND CLAIMED EXPENDITURE TOWARDS TRAWLER HI RE CHARGES PAYABLE TO NON-RESIDENT IT WAS UNDER STATU TORY 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-R ESIDENT IN INDIA IS ALREADY CONFIRMED BY THE ITAT IN THE ASSESS EES OWN CASE IN ITA NO.1860 AND 1861/HYD/1990 DATED 28.2.19 95. E. IT IS ALSO PERTINENT TO MENTION HERE THAT THE ASSESS EE HAD TAKEN SHELTER FROM THE DECISION OF THE ITAT IN THE CASE OF SRINIVASA SEA FOODS LTD. VS. ITO 56 ITD 64. BUT I N THE ASSESSEES OWN CASE IN THE DECISION OF THE ITAT ME NTIONED ABOVE THE ITAT CONSIDERED THE CASE OF SRINIVASA SE A FOODS ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 9 LTD. VS. ITO AND HELD THAT THE FACTS OF THE CASE WE RE DISTINGUISHABLE FROM THAT OF THE ASSESSEES CASE. HENCE THERE IS NO FORCE IN THE ARGUMENT OF THE ASSESSEE I N THIS REGARD. F. THE ASSESSEE NOT HAVING DEDUCTED TAX AT SOURCE FRO M THE TRAWLER HIRE CHARGES AT RS.1 19 00 778 AS PER THE P ROVISIONS 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 ASSESS EE IN INDIA IN RESPECT OF THE HIRE CHARGES AS TRAWLERS WERE OPERATED BEYOND T HE TAXABLE TERRITORIES. WITH REGARD TO THE RELIANCE OF THE A.O. ON THE DECI SION OF THE ITAT IN THEIR ORDER DATED 28.2.1995 IN THE ASSESSEES OWN CASE FO R A.Y. 1985-86 IN WHICH THE TRIBUNAL HAS CONFIRMED THE TAXABILITY OF THE IN COME THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SAID DECISION WAS B ASED ON THE FINDING OF FACT THAT CERTAIN OPERATIONS WERE CARRIED OUT IN IN DIA AND THAT INCOME ATTRIBUTABLE TO THOSE OPERATIONS WAS ASSESSABLE IN INDIA BY THE A.O. THE LD. COUNSEL FOR THE ASSESSEE FURTHER MADE THE SUBMISSIO N BEFORE THE CIT(A) THAT THE PROVISIONS OF SECTION 40(A)(I) APPLY ONLY TO SU MS 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 T HE FINDING OF THE TRIBUNAL IN THE EARLIER ORDER THAT THE PROPORTION OF CATCH R EPRESENTING HIRE CHARGES IS HANDED OVER AT THE INDIAN PORT I.E. IN INDIA AND THA T 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 DISALL OWANCE U/S 40(A)(I) CAN BE MADE ONLY IN RESPECT OF SUM CHARGEABLE UNDER THE AC T I.E. TAXABLE INCOME ATTRIBUTABLE TO THE CHARTER HIRE CHARGES AND NOT TH E ENTIRE CHARTER HIRE CHARGES AS THE NON-RESIDENT HAS TO INCUR SUBSTANTIA L EXPENDITURE FOR OPERATING THE TRAWLERS IN RESPECT OF WHICH HIRE CHARGES ARE P AID. HE HAS ALSO PLACED A RELIANCE ON EARLIER YEARS ORDER OF THE ASSESSEE IN WHICH THE A.O. HAS DETERMINED THE TAXABLE INCOME AT 5% TO THE TOTAL HI RE CHARGES. 20. THE CIT(A) RE-EXAMINED THE ISSUE IN THE LIGHT O F ASSESSEES CONTENTIONS. HAVING ACCEPTED THE CONTENTION OF THE ASSESSEES THE CIT(A) ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 10 HAS CONCLUDED THAT DISALLOWANCE U/S 40(A)(I) IN THE RELEVANT YEAR IS NOT THE ENTIRE HIRE CHARGES PAID TO THE NON-RESIDENT COMPAN Y BUT ONLY THE TAXABLE INCOME ATTRIBUTABLE TO THE SAID CHARTER HIRE CHARGE S. HE ACCORDINGLY ESTIMATED THE 5% OF THE TOTAL HIRE CHARGES AS AN IN COME CHARGEABLE TO TAX AND DISALLOWED THE SAME. 21. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNA L. THE LD. D.R. HAS EMPHATICALLY ARGUED THAT CIT(A) HAS NOT GIVEN THE B ASIS ON WHICH HE HAS ESTIMATED THAT THE 5% OF THE TOTAL HIRE CHARGES WOU LD BE THE SUM CHARGEABLE TO TAX UNDER THE ACT IN THE HANDS OF THE NON-RESIDE NT. 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 B Y 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 ASS ESSEE. AS PER THIS AGREEMENT VESSELS SHALL BE EMPLOYED IN CARRYING ON THE BUSINESS OF FISHING/PROCESSING/STORAGE/PACKING AS MAY BE PERMIS SIBLE 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 ASS ESSEE I.E. THE CHARTER FOR ITS OPERATION. NECESSARY FORMALITIES ARE TO BE COMPLET ED 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 A ND PAY FOR ALL OPERATING COST INCLUDING ALL WAGES AND EMOLUMENTS FOR THE MAS TER 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 T IME CHARTER. THE OWNER SHALL MAINTAIN THE VESSELS IN THOROUGHLY GOOD CONDI TIONS ESPECIALLY HULL AND MACHINERY DURING THE PERIOD OF THE CHARTER. IT WAS FURTHER CLARIFIED THAT THE OWNER SHALL PURCHASE AND SHALL ESTABLISH AN IRREVOC ABLE 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 CATC H OR ANY OTHER ARRANGEMENT MUTUALLY ACCEPTABLE FOR THE CHARTERS S HARE 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 STEERSMA N BOATAGE LIGHTS THE ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 11 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 B E 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 TH AT ASSESSEE HAS NOT PREFERRED AN APPEAL. THE FINDING OF THE CIT(A) THA T THE AMOUNT PAID TO THE NON-RESIDENT IS CHARGEABLE TO TAX AND THE PROVISION S OF SECTION 40(A)(I) ARE ATTRACTED ATTAINED THE FINALITY. NOW THE SOLE ISS UE 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 T HE 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 R ELIANCE UPON THE JUDGEMENT OF THE FRONTIER OFFSHORE EXPLORATION INDIA LIMITED VS. DCIT 118 ITD 494 AND TRANSMISSION CORPORATION OF A.P. LIMITE D AND OTHERS VS. CIT 239 ITR 587 IN SUPPORT OF THE CONTENTIONS THAT THE ENTI RE PAYMENT CANNOT BE TREATED TO BE THE SUM CHARGEABLE TO TAX UNDER THE A CT 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 A DOPTED THE 5% OF THE TOTAL PAYMENT AS THE SUM CHARGEABLE TO TAX FOR THE PURPOS E 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 C AREFUL 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 PROVIS IONS 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. THE REFORE FINDING IN THIS REGARD ATTAINED THE FINALITIES. MOREOVER WE HAVE ALSO EXAMINED THE PROVISIONS OF THE ACT AND WE FIND THAT AS PER CLAUS E 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 UNL ESS TAX IS DEDUCTIBLE AT ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 12 SOURCE. IN ORDER TO UNDERSTAND THE SAID PROVISION WE EXTRACT THE RELEVANT PORTION AS UNDER: SEC. 40:- NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION S 30 TO [38] THE FOLLOWING AMOUNTS SHALL NOT BE DEDUC TED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION.- (A) IN THE CASE OF ANY ASSESSEE- [(I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISS UED FOR PUBLIC SUBSCRIPTION BEFORE THE 1 ST DAY OF APRIL 1938) ROYALLY FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER TH IS 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 SUBSE QUENT 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 DEDUCT ED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SEC TION 200 SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTI NG THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS B EEN PAID. 24. FROM A PLAIN READING OF THE SECTION WE FIND TH AT IN SUB CLAUSE 1 THE LEGISLATURE HAS USED THE WORD (OTHER SUMS CHARGEABL E UNDER THIS ACT). MEANING THEREBY THE ENTIRE PAYMENT WHICH ATTRACT T HE PROVISIONS OF SECTION 40(A)(I) IS NOT TO BE DISALLOWED. ONLY THE SUM CHA RGEABLE 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 PR OVISIONS OF SECTION 195 WHICH SAYS THAT ANY PERSON RESPONSIBLE FOR PAYING T O NON-RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPANY ANY INTEREST OR AN Y OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT SHALL AT THE TIME O F 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 WHI CHEVER IS EARLIER DEDUCT INCOME TAX THERE OF AT THE RATES IN FORCE. THE SUB SECTION 2 OF SECTION 195 ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 13 MAKES MORE CLARIFICATION BY SAYING THAT WHERE THE P ERSON 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 CHAR GEABLE 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 CHARGEABL E. THE PROVISIONS OF SECTION 195 IS ALSO EXTRACTED HEREUNDER FOR REFEREN CE: [(1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPANY ANY INTEREST OR A NY 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 INC OME 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 GOVERNM ENT OR A PUBLIC SECTOR BANK WITHIN THE MEANING OF CLAUSE (23 D) 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 I N 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 WHER E ANY INTEREST OR OTHER SUM AS AFORESAID IS CREDITED TO ANY ACCOUNT WHETHER CALLED INTEREST PAYABLE ACCOUNT OR SUSPENSE ACCOUNT OR BY ANY OT HER 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 O F THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. ] (2) WHERE THE PERSON RESPONSIBLE FOR PAYING ANY SU CH SUM CHARGEABLE UNDER THIS ACT (OTHER THAN SALARY) TO A NON-RESIDEN T CONSIDERS THAT THE WHOLE OF SUCH SUM WOULD NOT BE INCOME CHARGEABLE IN THE C ASE OF THE RECIPIENT HE MAY MAKE AN APPLICATION TO THE [ASSESSING] OFFICER TO DETERMINE [BY GENERAL OR SPECIAL ORDER] THE APPROPRIATE PROPORTION OF SU CH SUM SO CHARGEABLE AND UPON SUCH DETERMINATION TAX SHALL BE DEDUCTED UNDE R SUB-SECTION (1) ONLY ON THAT PROPORTION OF THE SUM WHICH IS SO CHARGEABLE. (3) SUBJECT TO RULES MADE UNDER SUB-SECTION (5) A NY PERSON ENTITLED TO RECEIVE ANY INTEREST OR OTHER SUM ON WHICH INCOME-T AX HAS TO BE DEDUCTED UNDER SUB-SECTION (1) MAY MAKE AN APPLICATION IN TH E 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 PE RSON RESPONSIBLE FOR PAYING SUCH INTEREST OR OTHER SUM TO THE PERSON TO WHOM SUCH CERTIFICATE IS ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 14 GRANTED SHALL SO LONG AS THE CERTIFICATE IS IN FOR CE MAKE PAYMENT OF SUCH INTEREST OR OTHER SUM WITHOUT DEDUCTING TAX THEREON UNDER SUB-SECTION (1). (4) A CERTIFICATE GRANTED UNDER SUB-SECTION (3) SH ALL REMAIN IN FORCE TILL THE EXPIRY OF THE PERIOD SPECIFIED THEREIN OR IF I T IS CANCELLED BY THE [ASSESSING] OFFICER BEFORE THE EXPIRY OF SUCH PERIO D TILL SUCH CANCELLATION. (5) THE BOARD MAY HAVING REGARD TO THE CONVENIENC E OF ASSESSEES AND THE INTERESTS OF REVENUE BY NOTIFICATION IN TH E OFFICIAL GAZETTE MAKE RULES SPECIFYING THE CASES IN WHICH AND THE CIRCUM STANCES UNDER WHICH AN APPLICATION MAY BE MADE FOR THE GRANT OF A CERTIFIC ATE UNDER SUB-SECTION (3) AND THE CONDITIONS SUBJECT TO WHICH SUCH CERTIFICAT E MAY BE GRANTED AND PROVIDING FOR ALL OTHER MATTERS CONNECTED THEREWITH .] (6) THE PERSON REFERRED TO IN SUB-SECTION (1) SHAL L 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 FI ND 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 T HE PROVISIONS OF THE ACT. WHEREVER THE PERSON RESPONSIBLE FOR PAYING TO NON-R ESIDENT HAS ANY DOUBT ABOUT THE SUM WHICH IS CHARGEABLE UNDER THE PROVISI ONS OF THE ACT HE HAS TO APPROACH THE ASSESSING OFFICER WITH A REQUEST TO DE TERMINE 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 WHI CH 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-RESIDEN T. 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 IND IA 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 T O BE THE SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT. IN THI S REGARD WE HAVE CAREFULLY EXAMINED THE CHARTER HIRE AGREEMENT AND WE FIND THA T OWNER IS ALSO REQUIRED ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 15 TO INCUR CERTAIN EXPENSES TO MAINTAIN THE MASTER AN D THE CREW ON THE VESSEL. HE WAS ALSO REQUIRED TO MAKE CERTAIN PAYMENTS IN LO ADING AND UNLOADING AND AS A PORT CHARGES. THEREFORE THE ENTIRE AMOUNT RE CEIVED 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 RECEIP T CANNOT BE CALLED TO BE THE INCOME OF THE ASSESSEES. ONLY THE PROFIT ELEMENT I S TO BE TAXED. THE CIT(A) HAS ESTIMATED A 5% OF THE TOTAL RECEIPT AS A SUM CH ARGEABLE UNDER THE PROVISIONS OF THE ACT DOES NOT APPEAR TO BE REASONA BLE. THE PROPER COURSE AVAILABLE WITH THE ASSESSEE WAS TO APPROACH THE ASS ESSING OFFICER IN THIS SITUATION FOR DETERMINATION OF THE APPROPRIATE PROP ORTION OF THE RECEIPT AS A SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT. BU T THIS EXERCISE HAS NOT BEEN DONE BY THE ASSESSEE. HE HAS NOT RATHER DEDUC TED 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 SHO ULD HAVE REFERRED THE MATTER TO THE A.O. FOR A PROPER DETERMINATION OF TH E APPROPRIATE AMOUNT OF THE TOTAL RECEIPT AS A SUM CHARGEABLE UNDER THE PRO VISIONS 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-RESIDE NT TO MAINTAIN THE VESSELS WE ESTIMATE THE 10% OF THE RECEIPT AS A SU M CHARGEABLE UNDER THE PROVISIONS OF THE ACT. WE THEREFORE MODIFY THE ORD ER OF THE CIT(A) AND DIRECT THE A.O. TO ADOPT THE 10% OF THE TOTAL PAYMENT WORK ED OUT ON 85% OF CATCH TO THE NON-RESIDENT AS A SUM CHARGEABLE UNDER THE P ROVISIONS OF THE ACT. SINCE NO DEDUCTION HAS BEEN MADE ON THIS AMOUNT TH E DISALLOWANCE IS TO BE MADE TO THAT EXTENT. ACCORDINGLY THE MATTER IS RE MITTED TO THE FILE OF THE A.O. FOR RECALCULATION OF THE DISALLOWANCE. 26. WITH REGARD TO GROUND NO.5 RELATING TO DISALLOW ANCE OF OCEAN FREIGHT CHARGES AS PER PROVISIONS OF SECTION 40(A)(I) OF TH E ACT WE FIND THAT THE A.O. HAS NOTICED DURING THE COURSE OF ASSESSMENT PROCEED INGS 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 D EDUCTED ON THE PAYMENTS MADE TO THEM. HE ACCORDINGLY HELD THAT TH E ASSESSEE HAS VIOLATED ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 16 THE PROVISIONS OF SECTION 40(A)(I) FOR WHICH THE PA YMENT OF OCEAN FREIGHT MADE COULD NOT ALLOWED AS A LEGITIMATE DEDUCTION FO R COMPUTATION OF ITS TOTAL INCOME FOR THE RELEVANT YEAR. ACCORDINGLY DISALLOW ANCE WAS MADE. 27. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WITH THE SUBMISSION THAT PROVISIONS OF SECTION 40(A)(I) APPL Y TO ANY SUM CHARGEABLE UNDER THIS ACT WHICH IS PAYABLE OUTSIDE INDIA ON WH ICH TAX HAS NOT BEEN PAID OR DEDUCTED UNDER CHAPTER XVII B OF THE ACT. IN THE C ASE OF PAYMENT OF OCEAN FREIGHT ALL AMOUNTS ARE PAID TO THE PARTIES L OCATED IN INDIA AS STATED BY THE A.O. HIMSELF IN PART 7 OF THE ORDER. HE HAS AL SO MADE A REFERENCE TO THE CIRCULAR NO.723 DATED 19.9.1995 OF THE CBDT ACCORDI NG TO WHICH SECTION 172(1) PROVIDES THE MODE OF LEVY AND RECOVERY OF TA X 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 PRESIDE NT 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 RESPEC T OF THE PAYMENT TO THEM DOES NOT ARISE. WITH REGARD TO THE PAYMENT TO ASPI NWALL COMPANY LIMITED HE FILED THE COPIES OF LETTER ISSUED BY THE AGENT A ND THE CERTIFICATE ISSUED BY THE ASSESSING OFFICER THAT SAID AGENT IS PAYING TAX ES U/S 172 OF THE I.T. ACT. IN THE LIGHT OF THESE FACTS IT WAS CONTENDED ON BEH ALF OF THE ASSESSEE THAT THE A.O. WAS NOT JUSTIFIED IN INVOKING THE PROVISIO NS 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 O F ASSESSEES CONTENTION AND FINDING FORCE IN THE ASSESSEES CONTENTION HE H ELD THAT THE ASSESSING OFFICER HAS WRONGLY INVOKED THE PROVISIONS OF SECTI ON 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 O F THE APPELLANT AND THE FACTS ON RECORD I AM OF THE OPINI ON THAT THE CONTENTION OF THE APPELLANT ON THE ABOVE SCORE MUST PREVAIL. THE AO HAS DISCUSSED THE FACTS OF THE CASE AND CITED RE ASONS FOR HIS DETAILED ORDER OF ASSESSMENT TO MAKE THE SUBJECT D ISALLOWANCE. 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 ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 17 THE ABOVE SUM BY THE APPELLANT TO VARIOUS FOREIGN COMPANIES WITHOUT ANY DEDUCTION OF TAX AT SOURCE FROM THE PAY MENTS SO MADE. THUS THE ONLY QUESTION THAT SURVIVES FOR CO NSIDERATION 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 T O ANY SUM CHARGEABLE UNDER THE INCOMETAX ACT 1961 WHICH IS P AYABLE OUTSIDE INDIA ON WHICH TAX HAS NOT BEEN PAID OR DED UCTED UNDER CHAPTER XVII-B. A PLAIN READING OF THE PROVISIONS O F THIS SECTION WOULD SHOW THAT TWO CONDITIONS ARE NECESSARILY REQU IRED TO BE SATISFIED IN ORDER TO ATTRACT THE DISALLOWANCE UNDE R 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 ATT RACTED AT ALL. AS IS EVIDENT FROM THE DISCUSSION MADE BY THE AO IN DE TAIL IN THE ORDER OF ASSESSMENT THE AMOUNTS TOWARDS OCEAN FREIGHTS W ERE PAID TO THREE COMPANIES VIZ. (1) M/S. SOUTH INDIA EXPORT PV T. LTD (2) CHAKIAT AGENCIES PVT. LTD. AND (3) M/S. ASPINWALL & COMPANY THROUGH THEIR AGENTS LOCATED IN OUTSIDE INDIA. THU S IT COULD NOT BE SAID THAT THE AMOUNTS WERE PAID TO THEM OUTSIDE IND IA. IN THIS CONTEXT IT WILL NOT BE OUT OF PLACE TO CONSIDER HE RE WHETHER THE PAYMENTS IN THE NATURE OF OCEAN FREIGHT TO THE ABOV E PARTIES CAME WITHIN THE PURVIEW OF VARIOUS TDS PROVISIONS UNDER CHAPTER XVII-B OF THE INCOMETAX ACT. CHAPTER XVII-B DEALS WITH DED UCTION OF TAX AT SOURCE. IT HAS BEEN CLARIFIED IN CBDTS CIRCULAR NO.723 DATED 19.9.1995 AS UNDER: SINCE THE AGENT ACTS ON BEHALF OF THE NON-RESIDEN T 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 I N CASE OF ANY SHIP BELONGING TO OR CHARTERED BY A NON-RESIDEN T AND WHICH IS A SELF-CONTAINED SECTION SHALL SQUARELY AP PLY TO THE SHIPPING BUSINESS OF THE NON-RESIDENT SO FAR AS TH E TAX DEDUCTION AT SOURCE FROM THE PAYMENTS MADE TO FOREI GN SHIPPING COMPANIES IS CONCERNED AND THOSE OF SECTIO NS 194C AND 195 WILL NOT APPLY TO SUCH PAYMENTS. I ALSO FIND THAT THE AOS CONCERNED HAVE ISSUED CER TIFICATES DATED 2.4.1990 AND 11.3.1991 IN RESPECT OF THE FIRS T 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 AL L. SIMILARLY IN RESPECT OF THE THIRD FOREIGN COMPANY THE AO CONCER NED 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 AMOUNTI NG TO RS.79 05 712 PAID BY THE APPELLANT TO THE FOREIGN C OMPANIES DURING ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 18 THE RELEVANT YEAR WAS NOT LIABLE FOR DEDUCTION OF T AX AT SOURCE UNDER THE PROVISIONS OF CHAPTER XVII-B OF THE IT AC T 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 SCOR E IS REALLY WITHOUT ANY BASIS AND THE SAME IS DELETED ACCORDING LY. (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 PAYM ENT U/S 40(A)(I) OF THE I.T. ACT 30. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND HAS INVITED OUR ATTENTION TO THE ORDER OF THE A.O. AS WELL AS THE C IT(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 T HE AMOUNT IS PAYABLE OUTSIDE INDIA AND SECOND IS THAT TAX HAS NOT BEEN PAID OR DE DUCTED 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 LIGH T OF THESE FACTS THE BASIC REQUIREMENT FOR MAKING THE DISALLOWANCE U/S 4 0(A)(I) WAS NOT SATISFIED THEREFORE THE CIT(A) HAS RIGHTLY DELETED THE ADDIT IONS. 31. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A C AREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS PLACE D 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 INDI A ITSELF. THEREFORE WE FIND NO JUSTIFICATION IN THESE ADDITIONS AS THE REQ UISITE CONDITIONS FOR INVOKING THE PROVISIONS OF SECTION 40(A)(I) WAS NOT SATISFIE D. WE HOWEVER CAREFULLY ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 19 EXAMINED THE ORDER OF CIT(A) AND WE FIND THAT HE HA S EXAMINED THE ISSUE IN DETAIL IN HIS ORDER IN THE LIGHT OF RELEVANT PROVIS IONS OF THE ACT. SINCE WE DO NOT FIND ANY INFIRMITY THEREIN WE CONFIRM HIS ORDE R. 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 ORDE R 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 AS SESSING 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 WHI CH CIRCUMSTANCES THE ASSESSEE IS NOT ENTITLED TO HIGH ER 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 TH E ASSESSEES CASE FOR THE ASST. YEARS 1991-92 92-93 & 96-97 HAS ERRE D IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON TRAW LER 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 B Y THE DEPARTMENT AND APPEALS ARE PENDING BEFORE ITAT. 4. THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDI TION AMOUNTING TO RS.1 04 42 504/- IN RESPECT OF `OCEAN FREIGHT CHARG ES DISALLOWED AS PER THE PROVISIONS OF SECTION 40(A)(I) OF THE AC T. 5. THE CIT(A) HAS SIMPLY DELETED THE ADDITION OF RS .104 LAKHS BASED ON HIS DECISION FOR THE ASST. YEARS 94-95 & 9 6-97 WITHOUT GOING INTO THE GROUNDS ON WHICH THE CLAIM WAS REJEC TED BY THE ASSESSING OFFICER FOR THE YEAR UNDER CONSIDERATION. 6. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT TH AT THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM FOR THE DETAILED REASONS GIVEN IN THE ASSESSMENT ORDER AND ALSO ON THE GROUN D THAT THE INFORMATION FURNISHED BY THE ASSESSEE IS NOT TALLY ING WITH THE EVIDENCES FILED ALONG WITH THE INFORMATION. FURTHE R THE ASSESSEE HAS NOT PRODUCED THE DETAILS OF THE SHIPS MODE AND PLACE OF PAYMENT AND ALSO THE DETAILS OF THE INCOME-TAX PAR TICULARS OF M/S. ASPINWAL & CO. ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 20 IN THE CIRCUMSTANCES THE CIT(A) OUGHT TO HAVE CONF IRMED THE ADDITION OR IN THE ALTERNATIVE SET ASIDE THE A SSESSMENT FOR FURTHER EXAMINATION BY THE ASSESSING OFFICER. THE CIT(A) OUGHT NOT TO HAVE FOLLOWED HIS DECISION FOR ASST. YEARS 9 4-95 & 96-97 IN THE VERY ASSESSEES CASE ON THE SAME ISSUE FOR TH E REASON THAT THE DECISIONS OF CIT(A) FOR THESE YEARS ARE NOT ACCEPTE D AND THEY ARE PENDING WITH ITAT. 7. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING OF THE APPEAL THE ORDER OF THE CIT(A) M AY 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 HEA RING OF THE APPEAL. 34. GROUND NOS.1 7&8 ARE GENERAL IN NATURE AND NEED S NO INDEPENDENT ADJUDICATION. GROUND NO.2 RELATE TO HIGHER DEPRECI ATION ON THE VEHICLES OF THE ASSESSEE. THIS GROUND WAS ALREADY ADJUDICATED BY U S IN FOREGOING APPEALS IN WHICH WE HAVE CONFIRMED THE ORDER OF THE CIT(A). F OLLOWING THE SAME WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND CON FIRM THE ORDER OF THE CIT(A). 35. GROUND NO.3 RELATE TO THE DEPRECIATION ON TRAWL ERS. THIS ISSUE WAS ALSO ADJUDICATED BY US IN FOREGOING APPEALS IN FAVO UR 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 C HARGES 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 FA VOUR 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 ORDE R 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 AS SESSING OFFICER TO ALLOW DEPRECIATION AT 40% AS AGAINST 20% RESTRICTED BY THE ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 21 ASSESSING OFFICER IN HIS ASSESSMENT ORDER U/S 143(3 ) AS THE ASSESSEE HAS HIRED THE VEHICLES OCCASIONALLY IN WHI CH CIRCUMSTANCES THE ASSESSEE IS NOT ENTITLED TO HIGH ER 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 TH E ASSESSEES CASE FOR THE ASST. YEARS 1991-92 92-93 & 96-97 HAS ERRE D IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON TRAW LER 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 ACC EPTED BY THE DEPARTMENT AND APPEALS ARE PENDING BEFORE ITAT. 4. THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDI TION AMOUNTING TO RS.1 22 14 109/- IN RESPECT OF `OCEAN FREIGHT CHARG ES DISALLOWED AS PER THE PROVISIONS OF SECTION 40(A)(I) OF THE AC T. 5. THE CIT(A) HAS SIMPLY DELETED THE ADDITION OF RS .122 LAKHS BASED ON HIS DECISION FOR THE ASST. YEARS 94-95 & 9 6-97 WITHOUT GOING INTO THE GROUNDS ON WHICH THE CLAIM WAS REJEC TED BY THE ASSESSING OFFICER FOR THE YEAR UNDER CONSIDERATION. 6. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT TH AT THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM FOR THE DETAILED REASONS GIVEN IN THE ASSESSMENT ORDER AND ALSO ON THE GROUN D THAT THE INFORMATION FURNISHED BY THE ASSESSEE IS NOT TALLY ING WITH THE EVIDENCES FILED ALONG WITH THE INFORMATION. FURTHE R THE ASSESSEE HAS NOT PRODUCED THE DETAILS OF THE SHIPS MODE AND PLACE OF PAYMENT AND ALSO THE DETAILS OF THE INCOME-TAX PAR TICULARS OF M/S. ASPINWAL & CO. IN THE CIRCUMSTANCES THE CIT(A) OUGHT TO HAVE CONF IRMED THE ADDITION OR IN THE ALTERNATIVE SET ASIDE THE A SSESSMENT FOR FURTHER EXAMINATION BY THE ASSESSING OFFICER. THE CIT(A) OUGHT NOT TO HAVE FOLLOWED HIS DECISION FOR ASST. YEARS 9 4-95 & 96-97 IN THE VERY ASSESSEES CASE ON THE SAME ISSUE FOR TH E REASON THAT THE DECISIONS OF CIT(A) FOR THESE YEARS ARE NOT ACCEPTE D AND THEY ARE PENDING WITH ITAT. 7. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING OF THE APPEAL THE ORDER OF THE CIT(A) M AY 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 HEA RING OF THE APPEAL. ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 22 39. GROUND NOS.1 7&8 ARE GENERAL IN NATURE AND NEED S NO INDEPENDENT ADJUDICATION. 40. GROUND NO.2 RELATE TO HIGHER DEPRECIATION ON TH E VEHICLES OF THE ASSESSED. THIS GROUND WAS ALREADY ADJUDICATED BY U S IN FOREGOING APPEALS IN WHICH WE HAVE CONFIRMED THE ORDER OF THE CIT(A). F OLLOWING THE SAME WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND CON FIRM THE ORDER OF THE CIT(A). 41. GROUND NO.3 RELATE TO THE DEPRECIATION ON TRAWL ERS. THIS ISSUE WAS ALSO ADJUDICATED BY US IN FOREGOING APPEALS IN FAVO UR 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 CH ARGES AND THIS ISSUE WAS ALSO DISCUSSED BY US IN THE FOREGOING APPEALS I N WHICH WE HAVE CONFIRMED THE ORDER OF THE CIT(A) AND DECIDE THE IS SUE 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 DELET ING 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 EXA MINED 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 ASSESSE E 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 V SKP 23 ITA 64 OF 2000: 46. IN THIS APPEAL THE REVENUE HAS ASSAILED THE ORDE R 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 OFFI CER TO ALLOW DEPRECIATION AT 40% AS AGAINST 20% RESTRICTED BY TH E AO IN HIS ASSESSMENT ORDER U/S 143(3) AS THE ASSESSEE HAS HIR ED THE VEHICLES OCCASIONALLY IN WHICH CIRCUMSTANCES THE ASSESSEE I S 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 A SSESSEES 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 APPE AL WAS PREFERRED TO KEEP THE MATTER ALIVE SECOND APPEAL I S 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 T HE TRAWLER WERE PAID IN INDIA CANNOT BE ACCEPTED. THE CIT(A) FOR DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE RELIED UPON THE DE CISION 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 ENT ERPRISES OF SINGAPORE (NRI COMPANY). IN THE IMPUGNED ASSESSMEN T THE CHARTER CHARGES WERE PAID TO A DIFFERENT COMPANY. HENCE THE FACTS STATED IN THE ABOVE ITATS 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 ALS O AS PER AMENDED CHARTER AGREEMENT DT. 1.12.92 IT IS MENTIO NED THAT 85% OF CATCH IS TO BE GIVEN FOR CHARTER TOWARDS HIRE CH ARGES. BUT WHERE IT IS TO BE PAID WAS NOT MENTIONED THEREIN. THE ASSESSEE ALSO HAS NOT PRODUCED ANY EVIDENCE TO THE EFFECT TH AT THE HIRE CHARGES WERE PAID IN INDIA. HENCE THE CIT(A) IS NO T JUSTIFIED IN GIVING RELIEF ON THIS SCORE. 6. AS PER THE FOLLOWING INVOICES FILED BY THE ASSES SEE THE PAYMENTS TOWARDS CHARTER HIRE CHARGES WERE MADE OUTSIDE INDI A:- 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 V SKP 24 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 CONF IRMED THE ADDITION. 7. THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDI TION 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 AMO UNTING TO RS.79.05 LAKHS BASING ON THE SUBMISSIONS MADE BY TH E ASSESSEES AUTHORIZED REPRESENTATIVE WITHOUT GOING INTO THE GR OUNDS 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 TALLYI NG WITH THE EVIDENCES FILED ALONG WITH THE INFORMATION. FURTHE R THE ASSESSEE HAS NOT PRODUCED THE DETAILS OF THE SHIPS MODE AND PLACE OF PAYMENT AND ALSO THE DETAILS OF THE INCOME-TAX PART ICULARS OF M/S. ASPINWAL & CO. IN THE CIRCUMSTANCES THE CIT(A) OUGHT TO HAVE CONF IRMED THE ADDITION OR IN THE ALTERNATIVE SET-ASIDE THE A SSESSMENT FOR FURTHER EXAMINATION OF THE ASSESSING OFFICER. 10. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED 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 NE EDS NO INDEPENDENT ADJUDICATION. GROUND NO.2 RELATE TO HIGHER DEPRECI ATION 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). F OLLOWING THE SAME WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND CON FIRM THE ORDER OF THE CIT(A). 48. GROUND NO.3 RELATE TO THE DEPRECIATION ON TRAWL ERS. 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 ASS ESSEE AND CONFIRM THE ORDER OF THE CIT(A). ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 25 49. GROUND NOS.4 5&6 RELATE TO THE HIRE CHARGES FO R TRAWLERS/VESSELS. THIS ISSUE WAS EXAMINED BY US IN THE FOREGOING APPEALS I N WHICH WE CONFIRM THE ACTION OF THE A.O. FOR DISALLOWING THE PAYMENTS AFT ER INVOKING THE SECTION 40(A)(I) OF THE ACT. SIMULTANEOUSLY WE HAVE ALSO H ELD THAT THE SUM CHARGEABLE UNDER THE ACT CAN ONLY BE DISALLOWED. T HE SUM CHARGEABLE UNDER THE ACT IS TO BE DETERMINED BY THE A.O. TO AVOID F URTHER DELAY WE ESTIMATED AT 10% OF THE TOTAL RECEIPT BY THE FOREIGN COMPANIE S AS SUM CHARGEABLE UNDER THE ACT AND FOR THAT WE RESTORED THE MATTER B ACK 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 MAT TER TO THE ASSESSING OFFICER FOR RE-COMPUTATION OF THE SUM CHARGEABLE UN DER 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 CH ARGES. THIS ISSUE WAS ALSO EXAMINED BY US IN THE FOREGOING APPEALS IN WHI CH WE HAVE CONFIRMED THE ORDER OF THE CIT(A). FOLLOWING THE SAME WE DECID E 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 AGAINS T THE ORDER OF THE CIT(A) CONFIRMING THE DISALLOWANCE OF ESI AND PF DUE S AMOUNTING TO RS.48 379/-. IN THIS REGARD THE LD. COUNSEL FOR T HE ASSESSEE HAS CONTENDED THAT THESE PAYMENTS WERE MADE DURING THE ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR 1996-97. THEREFORE IT SHOULD BE AL LOWED ON ACTUAL PAYMENT BASIS. 53. THE LD. D.R. ON THE OTHER HAND HAS PLACED A HE AVY RELIANCE UPON THE ORDER OF THE CIT(A) WHO HAS CONFIRMED THE DISALLOWA NCE ON THE GROUND THAT PAYMENTS WERE NOT MADE BEFORE THE DUE DATE PRESCRIB ED UNDER THE RELEVANT STATUTE. ITA 287 21 150 317 49 105 64&65/V VBC EXPORTS LTD V SKP 26 54. WE HAVE CAREFULLY EXAMINED THE ORDERS OF LOWER AUTHORITIES BUT WE ARE UNABLE TO FIND WHETHER THE PF PAYMENT RELATES TO TH E EMPLOYERS CONTRIBUTION OR EMPLOYEES CONTRIBUTION. NOTHING IS PLACED BEFO RE 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 PR ESCRIBED UNDER THE RELEVANT STATUTE. THEREFORE WE FIND NO MERIT IN T HE 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 24 TH FEBRUARY 2011 COPY TO 1 M/S. VBC EXPORTS LIMITED A-3 UNIT INDUSTRIAL ES TATE 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