TMI Blog1991 (6) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... remittances towards demurrage payable on foreign vessels to overseas parties are duly supported by income-tax clearance certificates or documentary evidence that tax is withheld along with a no objection certificate from the income-tax authorities". These letters were allegedly the result of an opinion expressed by the Central Board of Direct Taxes that such demurrage charges attract tax under the Income-tax Act, 1961 ("the Act" for short). The question for consideration is whether demurrage payable to non-resident owner or charterer of a ship for the delay in loading the ore sold to the foreigner is liable to be taxed under the provisions of the Income-tax Act. The two agreements entered into by the respective writ petitioners reveal that, having agreed to sell the ore, the same are to be loaded into the ship chartered by the purchaser. The agreement of sale requires the petitioners to load the goods sold ; thereafter, it is the exclusive responsibility of the purchaser to transport it ; the title to the goods obviously vests in the purchaser. The agreement is in the nature of a FOB contract. In case there is delay in loading, the petitioner is liable to pay demurrage at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is not a penalty, but earnings improperly lost in detention of carrier's cars longer than necessary to load or unload, is for carriers' 'charges or any part thereof' within Transportation Act, February 28, 1920, s 424, 49 U. S. C. A. s 16, requiring that action therefor be begun within three years from time cause of action accrues. (Philadelphia, B. and W. R. Co. v. Quaker City Flour Mills Co. 127 A. 845, 846, 232 pa. 362). (3) Demurrage charges for failure to load and unload cars within 'free time' permitted by the rules of railroad companies held taxable as part of the charge for transportation, under Revenue Act, 1917, ss 500-503, 40 Stat. 314, and Revenue Act, 1918, ss 500-502, 40 Stat. 1101, imposing tax on the amount paid for transportation, since 'demurrage' is a terminal charge, a part of the charge for transportation, even if the purpose of demurrage is primarily to prevent the detention of cars. (Proctor and Gamble Co. v. United States D. C. Ohio, 281 F. 1014,1015). (4) Vessels :-Demurrage is the compensation provided for in contract of affreightment for the detention of a vessel beyond the time agreed on for loading or unloading. (Fisher v. Abeel N. Y. 44 How. Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived from various sources, allowances allowable, deductions to be made are thereafter provided in the provisions from sections 30 to. 43 C (i.e., up to section 44 section 44 governs insurance business). Sections 44A to 44D are the special provisions which override other provisions regarding the subjects stated therein. In this scheme, section 44B occurs, and is described as the "special provision for computing profits and gains of shipping business in the case of non-residents". The section opens with the non-obstante clause overriding sections 28 to 43A. It is applicable to the case of "an assessee, being a non-resident, engaged in the business of operation of ships". It deems particular percentage of the aggregate of the amounts specified in sub-section (2), to be the profits and gains of such business chargeable to tax under the relevant head. Sub-section (2) specifies the amounts to be aggregated. Therefore, in the case of a non-resident assessee, the income chargeable to tax under this head, has to be found out only by applying section 44B. The charge is levied under section 5. The subject of the charge is identified under section 44B. Section 44B is not applicable to all non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x on all incomes accruing in India to any person and, therefore, that object should not be frustrated by any process of interpretation. Here, the question of interpretation does not arise. The Act is a taxing provision ; it has to be understood by reference to its language. No income can be brought to taxation on the basis of the intention or scheme of the Act. The principle is now well settled that: "the subject is not to be taxed without clear words for that purpose and also that every Act of Parliament must be read according to the natural construction of its words" (words of Lord Simonds quoted by Sri G. P. Singh in his Principles of Statutory Construction, 2 nd Edn., p. 441 ). The oft-quoted words of Rowlatt J. again remind us of this principle at p. 442: "In a taxing statute, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be implied. One can only look fairly at the language used." Section 172(1) identifies the subject of taxation. That subject is to be taxed only as provided under section 172(2) to (7). There is no question of any residuary income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p has to furnish to the Income-tax Officer return of the full amount paid or payable to the owner or charterer on account of the carriage of passengers, goods, etc., shipped at the port in India since the last arrival of the ship at the port. In the event that, to the satisfaction of the Income-tax Officer, the master is unable so to do, he has to make satisfactory arrangements for the Ming of the return and payment of the tax by any other person on his behalf. A port clearance cannot be granted to the ship until the tax assessable under the section is duly paid or satisfactory arrangements have been made for the payment thereof. " The question thereafter arose as to whether the payment made by the charterer to the owner of the ship was liable to tax under section 172 because the said ship carried goods shipped at a port in India or whether such a payment was on account of the carriage of goods. The Supreme Court held it was not. At page 311, it was held thus : "In order that it may be said that the amount was payable on account of the carriage of goods, it would be necessary to show that one is the consideration for the other, that is to say, that the payment which the charter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(2) so long as the subject of the levy is identified under section 172(1). The decision reported in Czechoslovak Ocean Shipping International joint Stock Co. v. ITO [1971] 81 ITR 162 (Cal) was relied upon by Mr. Chanderkumar. In the said decision, section 5(2) of the Act was held applicable in cases where section 172 is not attracted. It should be noted that section 172(1) itself was inapplicable to the facts of the said case. Goods were shipped not at any port in India as is made very clear from the facts stated in the opening paragraph of the judgment. The goods were discharged in India and freight was collected in India. At page 167, there is a categorical finding that entire section 172 was not applicable to the facts of the said case ; if so, there is no bar to apply section 5(2). Ultimately, having regard to the other provisions, i.e., section 195, the Revenue lost the case to that extent. The decision of the Judicial Commissioner in Lima Leitao and Co. Ltd. v. Union of India, Represented by the Administrator of Goa, Daman and Diu [1968] 70 ITR 518 was cited by learned counsel for the assessee. The learned Judicial Commissioner held that the cargo belonged to the charterer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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