Recently I have come across a query regarding TDS on freight payment to a foreign shipping company. I have found that according to the Circular No.723 dated 19.09.1995 provisions of Section 194C and 195 of Income Tax Act, 1961 for deduction of tax at source on payment of freight charges does not apply to foreign shipping companies.
The business of shipping of non-residents is dealt in the Section 172. The provisions of this section clarifies the mode of the levy and recovery of tax from ships belong to or hired by a non-resident which carries passengers, goods, livestock or mail shipped at a port in India. The foreign shipping companies file the income tax returns for the profits from occasional shipping business in India.
The provisions of this Section 172 show how these provisions are applied to every journey of a ship. The levy and recovery of tax is ship-wise and journey-wise. It also requires the returns to be filed within 30 days from the date of departure of a ship.
Section 194C requires TDS to be deducted on the payment made in relation to works contract which includes carriage of goods and passengers by any mode of transport other than railways. Since this section requires TDS to be deducted on the sum for works contract either at the time of payment or credit to a ‘resident’, the provisions of this section do not apply to a non-resident foreign company.
The provisions are also not applicable to the agents of foreign shipping companies as they act on behalf of non-resident shipping owners and step into the shoes of the principal.
So the provisions of Section 172 apply to foreign shipping companies despite anything contained in any other provisions of the Act, Section 194C & 195 related to Tax deduction at source are not applicable to them and their agents.
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