Case Note & Summary
The judgment concerns two tax appeals filed by Sesa Goa Limited against the Joint Commissioner of Income Tax, Range 1, Panaji Goa, arising from assessments for different assessment years. The appeals were heard together and disposed of by a common judgment. Tax Appeal No.17 of 2013 was admitted on three substantial questions of law: (i) whether the disallowance under section 40(a)(i) of the Income Tax Act, 1961 of demurrage paid to non-resident buyers of iron ore was covered by the decision in Orient Goa P. Ltd., considering that the Tribunal had held the demurrage taxable under section 172; (ii) whether the claim that demurrage was not income accrued or arisen in India under section 5(2)(b) read with section 9(1)(i) was covered by the same decision; and (iii) whether Education Cess and Higher and Secondary Education Cess are allowable as deduction in the year of payment. Tax Appeal No.18 of 2013 was admitted only on the third question. The court noted that the first two questions in Tax Appeal No.17 of 2013 were covered by the earlier decision of the High Court in Orient Goa P. Ltd., which held that demurrage paid to non-resident buyers is not taxable under section 172 as occasional shipping and does not accrue or arise in India. Accordingly, those questions were answered in favor of the appellant. Regarding the third question, the court relied on its earlier decision in Sesa Goa Ltd. v. Joint Commissioner of Income Tax, which held that Education Cess and Higher and Secondary Education Cess are allowable as deduction under section 40(a)(ii) in the year of payment. The court thus allowed the appeals in part, answering the first two questions in favor of the appellant and the third question also in favor of the appellant.
Headnote
A) Income Tax - Demurrage - Section 172, Section 5(2)(b), Section 9(1)(i) of the Income Tax Act, 1961 - Demurrage paid to non-resident buyers - The issue was whether demurrage paid by the appellant to non-resident buyers of iron ore was taxable under section 172 as occasional shipping or as income deemed to accrue or arise in India. The court held that demurrage is not income from occasional shipping under section 172 and does not accrue or arise in India under section 5(2)(b) read with section 9(1)(i), following the decision in Orient Goa P. Ltd. (Paras 4, 7-8). B) Income Tax - Education Cess - Section 40(a)(ii) of the Income Tax Act, 1961 - Allowability of Education Cess as deduction - The issue was whether Education Cess and Higher and Secondary Education Cess are allowable as deduction in the year of payment. The court held that such cess is allowable as deduction under section 40(a)(ii) in the year of payment, following the decision in Sesa Goa Ltd. v. Joint Commissioner of Income Tax (Paras 5, 9-10).
Issue of Consideration
Whether demurrage paid by the appellant to non-resident buyers of iron ore is taxable under section 172 of the Income Tax Act, 1961, and whether Education Cess and Higher and Secondary Education Cess are allowable as deduction in the year of payment.
Final Decision
The court allowed Tax Appeal No.17 of 2013 in part by answering substantial questions of law (i) and (ii) in favor of the appellant and against the respondent, and answered question (iii) in favor of the appellant. Tax Appeal No.18 of 2013 was allowed by answering the substantial question of law in favor of the appellant. The impugned orders of the Tribunal were set aside to the extent of the disallowance of demurrage and denial of Education Cess deduction.
Law Points
- Demurrage paid to non-resident buyers is not income deemed to accrue or arise in India under section 5(2)(b) read with section 9(1)(i) of the Income Tax Act
- 1961
- and is not taxable under section 172 as occasional shipping
- Education Cess and Higher and Secondary Education Cess are allowable as deduction under section 40(a)(ii) of the Income Tax Act
- 1961 in the year of payment.
