1956 (12) TMI 52 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 18(3-B) of the Indian Income Tax Act.
2. Determination of the venue of payment for tax purposes.
3. Classification of advances under Clause 14 of the charterparty agreement as income.
4. Adjustment of credits and debits for determining net income.

Detailed Analysis:

1. Applicability of Section 18(3-B) of the Indian Income Tax Act:
The primary issue was whether the petitioner was liable to deduct tax under Section 18(3-B) of the Indian Income Tax Act on payments made to a non-resident ship owner. The petitioner argued that the hire payable to the owner was to be paid in London and thus not subject to Indian Income Tax. However, the court found that the relevant payments were made in Calcutta under Clause 14 of the charterparty agreement, which stipulated that advances made for local disbursements were to be treated as hire. Therefore, these payments were chargeable under the Indian Income Tax Act.

2. Determination of the Venue of Payment for Tax Purposes:
The petitioner contended that the hire payments should be considered as made in London, the stipulated venue of payment. However, the court held that the payments made in Calcutta under Clause 14 were indeed payments of hire within the meaning of the contract. The court emphasized that the charterparty agreement must be considered as a whole, and it contemplated that part of the hire might be payable in places other than London for local disbursements. Thus, the payments made in Calcutta were subject to Indian Income Tax.

3. Classification of Advances under Clause 14 of the Charterparty Agreement as Income:
The petitioner argued that the advances made under Clause 14 were loans bearing 6% interest and should not be treated as income. The court, however, found that these advances, although initially loans, were to be deducted from hire and thus became part of the hire payments. Therefore, these amounts were chargeable under the provisions of the Indian Income Tax Act.

4. Adjustment of Credits and Debits for Determining Net Income:
The petitioner argued that the amounts advanced should not be considered as income without final adjustments of credits and debits. The court referred to the Supreme Court's decision in Turner Morrison and Co. Ltd. v. Commissioner of Income Tax, West Bengal, which held that income, profit, or gain is considered at the moment of payment, and tax must be deducted accordingly. The court concluded that the Income Tax authorities were correct in their actions under Section 18(3-B) and that the petitioner was liable to deduct tax at the time of payment.

Conclusion:
The court concluded that the petitioner was liable to deduct tax under Section 18(3-B) of the Indian Income Tax Act on payments made under Clause 14 of the charterparty agreement. The payments made in Calcutta were deemed as hire payments and were thus chargeable under the Indian Income Tax Act. The petitioner's arguments regarding the venue of payment and the classification of advances as loans were rejected. The application was dismissed, and the rule was discharged with no order as to costs.