New Delhi: Shipping is one of the oldest businesses known to mankind. Even today, almost 90 per cent of India’s foreign trade is being handled through the sea route. Out of this, over 80 per cent is the share of foreign shipping companies.
Yet, when it concerns taxability of income of foreign shipping companies in India, there remains a cloud of uncertainty. This is largely because the legislature has been unable to cope up with the pace at which the shipping business has evolved around the world.
It is about time that the forthcoming Union Budget attempts to throw light on a few of the boiling issues.
Firstly, till date the Income-tax Act, 1961 (IT Act) lacks a clear procedure under which double tax exemption certificates can be obtained by foreign companies.
In the past, Board Circular has been issued under section 172 of the IT Act prescribing an annual port clearance certificate but the procedure for obtaining the same remains anomalous.
The tax officers at various ports in India follow different practices before issuing such certificates and at some ports such certificates are not being issued at all despite the existence of a binding Circular.
As a result, foreign shipping companies are subject to differential tax treatment at different ports in India with respect to their freight income.
Non-existence of set procedure can have an effect of sending negative vibes to the foreign shipping companies with whose help majority of India’s foreign trade is being conducted.
It is suggested that there ought to be a provision prescribing for a unified tax exemption certificate valid at all Indian ports along with a well defined mechanism for obtaining such certificate.
It also needs to be clarified that the income generated from pooling, joint service and slot charter agreements would be brought under the purview of Section 44B and Section 172 so as to be in conjunction with the position under the double tax a ance treaties.
Furthermore, Section 44B needs to be amended to provide for an option to foreign entities to offer their income for taxation under the normal provisions of the IT Act rather than on presumptive basis.
This would bring Section 44B at par with not only Section 172 but also other deeming provisions wherein such an option is expressly given.
With these amendments in place, one could definitely expect greater clarity and lesser litigation on the taxability of foreign shipping companies in India.
Courtesy: RSM & Company
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