1970 (2) TMI 37 - HC - Income Tax

Non-resident shipping company - freight charges for goods unloaded at an Indian port - whether liable to Income tax - deduction of tax as per section 195

Summary

Issues Involved:

1. Taxability of freight earnings received in India by a non-resident shipping company.
2. Applicability of Section 5(2) of the Income-tax Act, 1961.
3. Interpretation of Section 172 regarding occasional shipping business.
4. Application of Section 195 for deduction of tax at source.
5. Status of the Khemkas as agents under Section 163(2).

Issue-wise Detailed Analysis:

1. Taxability of Freight Earnings Received in India by a Non-resident Shipping Company:

The core issue revolves around whether the freight earnings received in India by a non-resident shipping company are taxable. The court held that the freight for cargo unloaded at Indian ports and received in India is chargeable to tax under Section 5(2) of the Income-tax Act, 1961. The court noted, "The respondent No. 1 is perfectly justified in asserting that the freight for cargo unloaded at Indian ports and received in India is chargeable to tax under section 5(2)."

2. Applicability of Section 5(2) of the Income-tax Act, 1961:

Section 5(2) includes all incomes from whatever source derived that are received or deemed to be received in India by or on behalf of a non-resident. The court clarified that the Explanation to Section 5(2) does not support the contention that income accruing or arising outside India shall not be deemed to be received in India. The court stated, "The Explanation only confines itself to such a deemed receipt on the ground of the amount being taken into account in a balance-sheet prepared in India."

3. Interpretation of Section 172 Regarding Occasional Shipping Business:

Section 172 deals with the levy and recovery of tax in the case of any ship belonging to a non-resident which carries goods shipped at a port in India. The court emphasized that Section 172 provides for provisional assessment and recovery of tax from the captain of a tramp-steamer before the ship leaves the Indian port. The court rejected the argument that Section 172 excludes the operation of Section 5, stating, "Where such owners have their agents in India on whom assessment can be made on annual basis no recourse to section 172 is permissible."

4. Application of Section 195 for Deduction of Tax at Source:

Section 195 mandates any person responsible for paying to a non-resident any sum chargeable under the Act to deduct income-tax at the rates in force. The court examined whether the Khemkas made an application under Section 195(2) for determining the proportion of the sum chargeable to tax. The court concluded that the Khemkas' letter to the Income-tax Officer could not be construed as an application under Section 195(2). The court noted, "This cannot be construed as an application to the respondent-Income-tax Officer to determine what portion of the amount was chargeable to tax and the amount of the tax to be deducted under section 195(2)."

5. Status of the Khemkas as Agents under Section 163(2):

The court addressed whether the Khemkas were treated as agents of the non-resident principals under Section 163(2). The court referred to a decision by the Madhya Pradesh High Court, which held that it was not necessary to determine the status of a person as an agent before making them liable for deduction under Section 18(3B) of the 1922 Act, corresponding to Section 195(1) of the present Act. The court stated, "No enquiry or adjudication was necessary for determining whether a person had or had not been treated as an agent under section 43 before making him liable under section 18(3B) for deduction of tax."

Conclusion:

The court concluded that the respondents exceeded their jurisdiction by proceeding under Section 195(2) on the express ground of an application having been made by the Khemkas. The impugned orders were quashed, but the court noted that this would not prevent the respondents from proceeding according to law to realize any amount due on account of income-tax from the non-resident company. The court stated, "In the result, the rule is made absolute and the impugned orders are quashed."