No sec. 195 TDS on demurrage charges paid to non-resident shipping company

  • Income Tax
  • High Court
  • Supreme Court

Assessee’s case was selected for verification of foreign remittance made by it towards demurrage charges. Assessing Officer (AO) was of view that aforesaid payment made by assessee to non-resident was liable for deduction of tax under Section 195. Assessee stated that the provisions of Section 201(1) and section 201(1A) were not applicable in respect of demurrage as same was reimbursement of expenses to supplier. 

Assessee also submitted that the CBDT vide Circular No. 723. Detailed 19-09-1995 clarified that Section 195 does not apply to payment made by resident to non-resident shipping line. Thus, Section 194C and Section 195 on tax deduction at source are not applicable.  

AO did not agree with the submission of assessee on the grounds that the assessee had not produced the supporting documents indicating that the payment had been offered to tax under Section 172 by the shipping company. 

Therefore, the assessee was treated to be in default for non-deduction of TDS under Section 195. CIT(A) upheld the order passed by AO.On appeal, ITAT held that the provisions of Section 195 were not applicable to the reimbursement of demurrage charges paid to the non-resident shipping company on behalf of assessee.  

Further, it was clearly clarified by the CBDT vide circular No. 723, dated 19-09-1995, that as long as the ship in respect of which freight payment is made is owned or chartered by non-resident the provision of Section 172 are applicable and the provision of Section 195 or Section 194C cannot be involved. Thus, the provision of section 195 of withholding tax on freight payment to non-resident shipping companies was not applicable as the same are covered by section 172.