Section 172 of ITA, 1961 : Section 172: Shipping Business Of Non-Residents

Explanation using Example

Imagine a foreign shipping company, "Oceanic Transport Inc.", which is based in Greece, charters a ship that docks at Mumbai port in India. The ship carries goods from India to other countries. According to Section 172 of the Income-tax Act, 1961, Oceanic Transport Inc. is required to pay taxes to the Indian government for the income generated from carrying these goods from an Indian port.

Before the ship departs from Mumbai, the master of the ship must furnish a return to the Indian tax authorities, declaring the full amount payable for the carriage of the goods. The tax authorities will then assess this income, and 7.5% of the carriage fee will be deemed as income accruing in India, on which tax is payable.

The master ensures that the tax is paid or that satisfactory arrangements for its payment are made before the ship leaves the port, as failure to do so would result in the ship not being granted port clearance. If Oceanic Transport Inc. opts for a regular assessment instead of this special provision, it can claim the taxes paid as advance tax against its total income for the year.