INCOME TAX
INSTRUCTION NO. 1934/1996
Dated: February 14, 1996
Section(s) Referred: 195
Statute: Income - Tax Act, 1961
The Ministry of Surface Transport has pointed out that according to the Government of India policy, all Government Departments and PSUs/Autonomous Bodies should finalise their import contracts on FOB basis and shipping arrangements for cargo are to be made by the Chartering Wing (TRANSCHART) of Ministry of Surface Transport. For making shipping arrangements cargo preference is given to Indian ships without any price preference. In the event of non-availability of suitable Indian vessels in required position, foreign vessels are chartered at the most competitive freight rates to meet the requirements of Indian indentures.
The question of Income-tax being payable in respect freight on import of cargo has been examined earlier and O.M. dated 12th April, 1984 (copy enclosed), the Department of Revenue had clarified that no income-tax was payable in respect of freight on import of cargo unless such freight is paid in India to non-resident shipping company or its agent. It has been clarified by the Ministry of Surface Transport that according to normal international practice and also according to the agreements with the foreign ship owners 90% of the freight is to be paid within seven days of the vessel completing loading of cargo and sailing from the loading port. The balance of 10% is remitted after the import of cargo is unloaded in India.
At the time of remittances of this 10%, the normal practice has been to issue a No objection Certificate for the remittance of 10% without deduction of tax at source on the ground that income has not accrued in India. The Reserve Bank of India is, however, now insisting that an NOC should be obtained in respect of the entire 100% of the freight charges before the remittance is permitted.
No income-tax is payable in respect of the freight on import of cargo unless such freight is paid in India to the non-resident shipping company or its agent. Transchart has explained that the entire freight charges are remitted by telegraphic transfer through a bank in a foreign country and no part of freight charges are received in India by the foreign shipping company or its agent. The Board have therefore decided that the NOC should be issued in respect of the entire 100% of the freight charges subject to the remittance falling within the parameters discussed above.
The contents of this Instruction may kindly be brought to the notice of all the officers working in your charge.