ORDER
M. M. Cherian, A.M.
1. This is an appeal directed against the order passed by the CIT(A), Cochin, in the case of the assessee, M/s. Norasia Lines (Malta) Ltd. for the asst. yr. 1996-97.
2. The assessee is a non-resident company registered in the Republic of Malta. The company is engaged in the business of shipping in international traffic. The company does not have any place of management in India, and it is represented in India by Agents M/s. Trans Asian Shipping Services (P) Ltd. having registered office at Ernakulam. The assessee-company has been meeting its tax liability in freight in India under the provisions of s. 172 of the IT Act. After the double taxation avoidance agreement had been made between India and Malta the assessee decided to exercise the option of an assessment to be made under s. 172(7). The assessee accordingly filed the return of income on 25th March, 1997, for the asst. yr. 1996-97 and claimed refund on the basis of the relief available under the double taxation avoidance agreement. The AO processed the return under s. 143(1) and issued an intimation on 27th October, 1997; but in the intimation the claim of double taxation relief was disallowed on the reasoning that the agreement had become operative in India w.e.f. 1st April, 1996, only i.e. from the asst. yr. 1997-98 and so for the asst. yr. 1996-97 the claim was not allowable. The assessee took up the matter in appeal before the CIT(A). The finding of the appellate authority was that the question whether the double taxation avoidance agreement had become effective from the asst. yr. 1996-97 or from the asst. yr. 1997-98 was highly debatable and so the AO was not justified in making the disallowance as a prima facie adjustment while processing the return under s. 143(1)(a). The Revenue is in appeal before the Tribunal against that finding of the CIT(A).
3. We have heard the Departmental Representative, Shri C. D. Nair and the assessee’s counsel Shri R. Vijayaraghavan, Advocate. The CBDT has issued a Circular No. 689 dt. 24th August, 1994 [vide 209 ITR (St) 75] on the scope of prima facie adjustment under s. 143(1)(a). There was the earlier instruction of the Board to the effect that no disallowance could be made under s. 143(1)(a) on issues on which two opinions were possible. In Circular No. 689 it is clarified that the Board did not desire any disallowance under s. 143(1)(a) other than the type mentioned in the circular. In the present case the assessee was claiming relief for the asst. yr. 1996-97 on the plea that the double taxation agreement between India and the Republic of Malta had come into effect in India from 1st April, 1995. The assessee’s view finds support in the booklet issued by the Directorate of Income-tax (R.S.P. & P.R.) Mayur Bhavan, New Delhi, called Taxpayers Information Series 22, Guide for Non-Residents and Indian Nationals abroad. This is a Departmental publication in which it is made clear that the provisions of the double taxation avoidance agreement between India and Malta were applicable for the asst. yr. 1996-97. The Revenue has denied the relief on the ground that subsequent instructions were issued by the Board clarifying that the agreement was effective from the asst. yr. 1997-98 only. In the course of the hearing it has been brought to our notice that the Chief CIT, Cochin, sent a letter to the CBDT on 28th August, 1997 requesting the Board to clarify whether the provisions of the double taxation avoidance agreement were operative in India w.e.f. 1st April, 1996, i.e., from the asst. yr. 1997-98 or from 1st April, 1995, i.e., from the asst. yr. 1996-97. It was thereafter that the Board issued the clarification on 18th September, 1997, that the agreement was operative in India w.e.f. the fiscal year beginning on 1st April, 1996. It is in a letter addressed to the Chief CIT, Cochin, that the clarification was given. There was no public circular issued by the Board for the information of the general public. We understand that the booklet issued by the Directorate has not been withdrawn nor was there any clarification issued by the Directorate subsequently. That means, so far as the general public are concerned, the Departmental view as given in the publication of the directions holds good.
4. We have also gone through the agreement between the Government of India and the Republic of Malta for the avoidance of double taxation entered into on 8th February, 1995. As per Art. 29 of the agreement, the provisions made are as under :
“Article 29(2)-The agreement shall enter into force thirty days after the date of the later of the notifications referred to in para. (1) and its provisions shall have effect :
(a) in India;
as regards income for any fiscal year beginning on or after the first day of April of the calender next following that in which this agreement enters into force.
It can be seen from the above that the provisions of the agreement have effect in India as regards the income of any ‘fiscal year’ beginning on or after the first day of April, of the calender year next following that in which this agreement enters into force. The agreement was entered into on 8th February, 1995. If the word ‘that’ in the Art. 29(2)(a) refers to the calender year, then the provisions of the agreement came into force in the calender year 1996. If the word ‘that’ in the Article refers to the fiscal year, then the provisions would have effect in India from 1st April, 1995, which is the beginning of the fiscal year (i.e. 1995-96) following the fiscal year in which the agreement was entered into force (i.e. 1994-95). In the latter case the agreement is effective from the asst. yr. 1996-97. Evidently two interpretations are possible with reference to the word ‘that’ appearing in Art. 29(2)(a). No wonder, the Chief CIT felt that the matter required to be clarified by the Board. It is important to note that the Directorate has understood the provisions as applicable from the asst. yr. 1996-97. Only subsequently it was clarified that the provisions would be applicable from the asst. yr. 1997-98 only. In the course of the hearing it was also brought to our notice that in the regular assessment under s. 143(3) there was similar disallowance. But in appeal, the CIT(A) decided the issue in favour of the assessee by the order in ITA No. 115/E/CIT/1997-98 dt. 24th September, 1998. In the light of the decision of the CIT(A), it cannot be said that the matter is free from doubt. Suffice it to say that the assessee’s claim for relief under the agreement cannot be denied as a prima facie adjustment while processing the return under s. 143(1)(a). We are in agreement with the CIT(A) that the AO was not justified in disallowing the claim for double taxation relief while processing the return under s. 143(1)(a). We thus uphold the decision of the CIT(A) on this ground.
The Revenue has also raised another ground in this appeal to the effect that the CIT(A) erred in deleting the interest levied under s. 234A. While making the adjustment under s. 143(1)(a) the AO levied interest under s. 234A on the view that there was delay in filing the return of income. The assessee filed the return on 25th March, 1997 exercising the option for assessment under s. 172(7) and then claiming refund on the basis of relief under the agreement. The AO levied interest under s. 234A for the reason that the return was not filed within the time under s. 139(1). In the assessee’s appeal the CIT(A) held that under s. 172(7) there was option given to the assessee to file the return of income to claim the refund and that it was not the statutory obligation of the assessee to file the return for making the assessment under s. 172(7). The CIT(A) deleted the interest levied under s. 234A on the reasoning that in respect of the return filed under s. 172(7), there could be no levy of interest.
It was submitted by the learned senior Departmental Representative that the return of income filed by the assessee was not before the due date under s. 139(1) and so the assessee was liable for the interest under s. 234A. According to him, in the case of a belated return, levy of interest was mandatory and so the CIT(A) ought to have upheld the levy. The learned counsel for the assessee, on the other hand, contended that s. 172 is a self-contained code in which there was no provision for levy of interest. According to Shri Vijayaraghavan, the law did not require the assessee to file the return under s. 172(7) and that the option was on the assessee to file the return or not to file the return. Sec. 172(7) gave the assessee the choice of getting the assessment made on the basis of the return under that section and that only condition to be fulfilled was that the return should be filed before the end of the assessment year. The assessee filed the return of income on 25th March, 1997, which was well before the end of the asst. yr. 1996-97 and so there was no question of levying interest on the ground that it was a belated return. Shri Vijayaraghavan also brought to our notice the Circular No. 730, dt. 14th December, 1995, issued by the CBDT to the effect that no interest under s. 234B and s. 234C is leviable in respect of the return filed under s. 172(7).
Sec. 172 appears in Chapter XV which is entitled ‘liability in special cases’ and the sub-heading of Part H of Chapter XV is “profits of non-residents from occasional shipping business”. It creates a tax liability in respect of occasional shipping by making a special provision for levy and recovery of tax in the case of a ship belonging to or chartered by a non-resident which carries passengers, livestock, mail or goods shipped at a port in India. The section brings to tax the profits made by them from occasional shipping by means of a summary assessment in which 7-1/2 per cent of the gross amount received by them is deemed to be the assessable profit. Before the departure of the ship the master of the ship has to furnish to the AO a return of the full amount paid or payable to the owner or charterer on account of carriage of passengers, goods, etc. shipped at the port in India since the last arrival of the ship at the port. A port clearance will not be granted to the ship until the tax assessable under the section is duly paid or satisfactory arrangements have been made for the payment thereof. The provisions of s. 172 are self-contained and meant to make sure the recovery of the tax due from the non-resident ship owners or charterers of the ships.
In the present case, a summary assessment of the tax payable by the non-resident ship-owner has been made and a total sum of Rs. 1,11,38,477 has been collected by the Department under s. 172(4). But then, the non-resident shipping company came to know that there was the Double Taxation avoidance agreement entered into between India and the Republic of Malta and so in terms of the agreement, the tax liability would be substantially reduced. On the advice that if the provisions of the double taxation avoidance agreement were applied, there would be a refund due to them, the Shipping Co. exercised the option for assessment of the total income of the previous year. The non-resident owner or charterer of the ship has the option under s. 172(7) to claim that an assessment be made on his total income of the previous year. Such option is to be exercised before the expiry of the assessment year. In case such option is exercised, the AO has to make the assessment and determine the tax payable in India. Credit will be given for the cumulative tax paid during the previous year under the provisions of s. 172 which shall be treated as payment in advance and the difference between the aggregate amount so paid and the amount of tax payable by him shall be paid by him or refunded to him, as the case may be. In the present case, the result of the amount after the assessee exercised the option under s. 172(7) was that there was a balance amount determined as payable by the assessee. The AO also levied interest of Rs. 3,75,704 under s. 234A.
As already stated, the provisions of s. 172 are self-contained and apply in regard to levy and recovery of tax on the profits of non-residents from occasional shipping business. The provisions of s. 172 are to apply, not withstanding anything contained in other provisions of the Act. There is nothing in the provisions of s. 172 to show that the other provisions of the Act are applicable in respect of the assessment year under s. 172. The right to claim an assessment under s. 172(7) is an optional right of the non-resident, which he may or may not choose to exercise. If he opts to exercise that right that shall have to be done before the expiry of the assessment year relevant to the previous year in which the departure of the ship from the Indian port occurs. If he does not opt to do so, then orders passed under s. 172(4) would become final on the expiry of the relevant assessment year. It may be noted that in the present case, if the non-resident had not exercised the option under s. 172(7) for the assessment to be made of his total income of the previous year, the orders already passed under s. 172(4) would have become final and in that case, there would have arisen no liability to pay interest under s. 234A. If the non-resident had filed the return under s. 172(7) exercising the option for the assessment of the total income, would he be in a worse situation with the burden of the interest under s. 234A ? We do not think so. After all, there was no obligation imposed by the statute that the non-resident should insist on an assessment of the total income of the previous year under s. 172(7). The non-resident could have kept quiet without exercising the option for the assessment under s. 172(7). The assessment under s. 172(7) need not be made if there is no demand by the non-resident for such an assessment. If the return is not filed within the time permitted under s. 172(7), the same would have been ignored and no assessment could have been made on the basis of that return. But once the non-resident has filed the return within the time allowed under s. 172(7), it is not open to the AO to say that the assessee should have filed the return within the time allowed under s. 139(1) and so in case of the delay in filing the return, reckoned with reference to the time under s. 139(1), he is liable to pay interest under s. 234A. As a matter of fact the non-resident has already filed the return under s. 172(3) and also got the assessment under s. 172(4). After such an assessment under s. 172(4) it would not be correct to say that the return should have been filed under s. 139(1). A person who is required to be covered and controlled by the provisions contained in s. 172 is not referred to as a non-resident assessee, he is a mere ship owner who is a non-resident or a charterer of a ship, who is a non-resident. In the heading under ‘H’ in Chapter XV assumes significance. The heading is “H-Profits of non-residents from occasional shipping”.
5. The heading denotes that the persons intended to be covered by s. 172 are persons who are not regularly in shipping business in India. If it is so understood, it is not difficult to differentiate between the income from shipping business accruing in India in respect of non-resident ship owners or charterers and the income received from occasional shipping by non-resident ship owners or charterers. It is not difficult to come to the conclusion that in respect of the income of non-resident ship owners or charterers from occasional shipping in Indian Ports, the procedure laid down under sub-ss. (3) to (7) in s. 172 are to be followed. In the case of such a non-resident ship owner or charterer falling under the provisions of s. 172, there is no requirement of filing the return of income under s. 139(1). If there is no statutory obligation to file the return within the time allowed under s. 139(1), there would be no liability of interest under s. 234A.
6. The learned counsel for the assessee has relied on the Circular No. 730, dt. 14th December, 1995 to contend that interest under s. 234A is not liable in respect of a return filed under s. 172(7). In that circular (vide 217 ITR 822) the Board has clarified that as the payment under s. 172(4) is not considered to be payment of advance tax within the meaning of the IT Act, the assessee who exercises his option under s. 172(7) to get his total income assessed in the normal course, is not liable to pay advance tax under s. 208 in respect of the income of the nature referred to in sub-s. (2) of s. 172 and so he shall not be liable to pay interest under s. 234B or 234C or entitled to interest under s. 244A. It is the contention of the Departmental Representative that the circular would go to show that unlike interest under s. 234B or 234C, there would be liability under s. 234A and that is why the circular is silent about interest under s. 234A. In the above circular para 4 reads as under :
“The payment made under s. 172(4) by a non-resident ship owner is a payment of tax on actual assessment under that section and it is not a payment of advance tax within the meaning of the IT Act, there being no liability within the scheme of s. 172.”
7. We have already referred to the assessment under s. 172(4) on the basis of the return filed by the master of the ship under s. 172(3) before the departure of the ship from the port in India. The Board also is of the view that the proceeding under s. 172(4) is an assessment on the basis of a return. There is a time specified for filing the return under s. 172(3). After making an assessment on the basis of the return filed within the time under s. 172(3), there is no requirement that the assessee should file the return under s. 139(1) also. In other words, the non-resident ship owner or charterer covered by s. 172 is required to file the return under that section only. The provisions of s. 139 cannot be extended to the cases falling under s. 172. The Board is of the view that there is no advance tax liability under s. 208 within the scheme of s. 172, the reason being that the tax is collected in a summary manner under s. 172(4) during the previous year itself, even before the ship leaves the Indian port. On the same reasoning, it can be seen that there is no liability to file the return under s. 139(1) as the return/returns have already been filed during the previous year itself before the ship leaves the Indian port and there is no obligation within the scheme of s. 172 to file the return once again within the time specified in s. 139(1).
8. Having regard to the above facts, we hold that the AO was not correct in levying interest under s. 234A in this case. The CIT(A) was, therefore, justified in cancelling the interest levied.
9. In the result, this appeal by the Revenue is dismissed.