Section 172 provides for assessment of profit of shipping business of non resident ;
Section 194C : deals with TDS on contract or sub-contract.Freight is one of them.
Section 195 : deals with TDS on any sum paid to non resident.
According to Circular No. 723 Dated 19th September, 1995
1. Representations have been received regarding the scope of sections 172, 194C of the Income-tax Act, 1961 in connection with tax deduction at source from payments made to foreign shipping companies or their agents.
2. Section 172 deals with shipping business of non-residents. Section 172(1) provides the mode of levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passangers, livestock, mil or goods shipped at a part in India. An analysis of the provisions of section 172 would show that these provisions have to be applied to every journey a ship, belonging to or chartered by non-resident, undertakes from any part in India, Section 172 is a self-contained code for the levy and recovery of the tax, ship wise and journey wise, and required the filing of the return within a maximum time of thirty days of form the date of departure of the ship.
3. The provisions of section 172 are to apply, notwithstanding anything contained in the other provisions of the Act. Therefore, I such cases the provisions of section 194 C and 195 relating to tax deduction at source are not applicable. The recovery of tax is to be regulated, for a voyage undertaken from any part in India by a ship, under the provisions of section 171.”
Above makes it clear why the provisions of section 194C are not applicable if the goods are dispatched through the Non Resident Shipping Companies or through their Resident Agents.
In ITO v Freight systems 6 SOT 473 & CITv Continental carriers 163 taxmann 479 it was held that the tax was not to be deducted if payment is made to agent of NR shippping cos towards inland haulage charges.