2005 (7) TMI 383 - HC - Income Tax

Towing charges - Tax leviable u/s 172- The contention of the Revenue that when a tug tows a ship it carries a ship and the ship being a movable article, the tug carries the goods also requires to be rejected - Therefore, the term goods has to take colour from the preceding words /terms and one cannot visualize either passengers or live-stock or mail being towed away and they have to be carried by a ship aboard a ship. Thus, goods also have to be carried by ship aboard a ship - Thus, it is not possible to find any infirmity with the order of the Tribunal. Section 172(1) of the Act - There is no ship which carries any goods shipped at a port in India. None of the requirements of the section are fulfilled - If section 172(1) of the Act is not applicable there is no question of computing and levying tax in terms of section 172(2) of the Act - Decided in favour of assessee.

Issues:
Interpretation of section 172 of the Income-tax Act, 1961 regarding tax liability on towing charges received for towing a merchant vessel.

Analysis:
1. The case involved a reference by the Income-tax Appellate Tribunal regarding the applicability of section 172 of the Income-tax Act on the tax liability of U.S. $1,00,000 received for towing a merchant vessel. The assessment year was 1987-88, and the relevant accounting period was March 31, 1987. The assessee was treated as an agent of a ship and was assessed for a total income of Rs. 9,80,392.

2. The dispute arose when the Assessing Officer demanded income tax on the towing charges, leading to a series of communications and eventual payment by the assessee under protest. The Commissioner of Income-tax (Appeals) upheld the taxability under section 172 of the Act, which led to appeals by both the Department and the assessee.

3. The Tribunal's order dismissed the Departmental appeal and allowed the assessee's appeal, concluding that the assessee was not liable to be taxed under section 5(2)(b) of the Act. However, the Revenue challenged the finding that no tax was leviable under section 172 of the Act, leading to the present reference before the High Court.

4. The crux of the issue revolved around the interpretation of section 172(1) of the Act, which applies to the levy and recovery of tax in the case of a ship carrying passengers, livestock, mail, or goods shipped at a port in India. The key contention was whether a ship towing another vessel could be considered as "carrying goods" as per the provisions of the Act.

5. The High Court analyzed the language of the statute and the ordinary commercial parlance of terms like "carry," "goods," and "shipped." It was observed that when a vessel tows another vessel, it cannot be said that the towing vessel "carries" the other vessel. The Court also highlighted that the purpose of the provision was to levy and recover tax in the shipping business involving goods meant for trade.

6. The Court delved into the meanings of "tow," "tug," and related terms to establish that a vessel towing another vessel does not fit the criteria of carrying goods as intended under section 172(1) of the Act. It emphasized that goods must be meant for trade and shipped on board a ship, which was not the case in the scenario of towing a vessel due to engine trouble.

7. Ultimately, the High Court concluded that the provisions of section 172(1) were not applicable in the case at hand as the conditions of the section were not fulfilled. Therefore, the Court ruled in favor of the assessee, holding that there was no tax liability under section 172 of the Income-tax Act. The reference was answered in the affirmative for the assessee, disposing of the matter with no order as to costs.

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