TMI Blog1995 (2) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head 'Salaries') shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode. Explanation : For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called 'Interest payable account' or 'Suspense account' or by any other name, in the books of account of the person liable to pay such income such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (2) Where the person responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable to tax in the case of the recipient. Sub-sec. (3), on the other hand, provides for such an application by the recipient but only in a case where he claims payment to him without deduction of tax at source. Sub-sec. (5) provides for issuance of a notification by the Board making rules in specified cases in which, and circumstances under which, an application is to be made for grant of certificate under sub-sec. (3) and conditions subject to which such certificate may be granted and providing for all other matters connected therewith. Rule 29B is inserted for the purpose of application under sec. 195(3), but that is only for receipt by a banking company or a person carrying on business or profession in India through a branch and that too on the fulfilment of certain conditions. Form 15C is provided for this purpose. Sec. 197 provides for deduction of tax at a lower rate or no deduction at all if the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of tax at any lower rate or no deduction. Here also, the Board has been empowered to issue general guidelines for the issue of a notification. Form 13 is prescribed for this purpose. In n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1)." 4. The assessee's contentions before us are--(1) that there was no income chargeable at all which resulted to the non-resident, and (2) that there was no payment of any sum by the assessee to the non-resident and, therefore, there was no liability to deduct tax at source under sec. 195 or liability under sec. 201 of the Act. The Revenue, on the other hand, holds the view that the income from charter hire has accrued, arisen and also been received in India in the form of 85 per cent of the catch of fish and, therefore, the assessee was obliged to deduct tax at source. 5. We have heard Sri S. Ravi, learned counsel of the assessee, and Sri E. Narasimha Rao, learned departmental representative, and considered their rival submissions. To recapitulate the facts of the case : The assessee, a company incorporated in India and engaged in sale and export of sea food obtained a permit to fish in the Exclusive Economic Zone of India on 25-6-1990 in pursuance of a Letter of Intent dated 20-2-1984. To exploit th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for obtaining customs and export clearance. They will bear the expenditure and wages, amenities for Indian crew placed on board for training. They will also pay for Port charges, pilotage, boatage, lights, consular charges (except those pertaining to master and crew) canal charges, dock harbour, and tonnage due at all ports and agencies commissions and other expenses as incurred in Indian ports. It is further agreed that at least 20 per cent of the crew are Indian and they are posted as understudies to Master, Engineer and other operation crew. The charterers shall provide for insurance cover for the Indian crew working on the vessels. All the Indian crew will be discharged at an Indian Port where the fishing vessels will report for the homeward voyage after having completed each fishing operation in Indian waters." Clause 6 provides for redelivery of the vessels either at Madras Port or at Taiwan Port at the end of the voyage. Clause 7 provides for the operational rights of the assessee. The duties of the Master are contained in clause 8 and on dissatisfaction of the assessee with the conduct of the master, officers or engineers, the non-resident was to investigate and if nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kong. However, the total payment required to be made by the charterer for the operation of the vessel will not exceed 85 per cent of the sale value of the catch per vessel per annum. The owners will bear all expenses for operation of the vessel during the charter period and also the expenditure on the voyage to the Indian Fort of operation and back. The export value of the catch from the chartered vessels should be decided on the condition that this should not be lower than the prevailing international market prices, which will be verified and authenticated by local customs officials in Indian Ports. (ii) M/s Eastwide Shipping Co. (HK) Ltd., Hong Kong, should pay Rs. 1 lakh per vessel per voyage or 15 per cent of the value of the catch per vessel per voyage, whichever is more. (iii) The base of operation shall be Madras. The area of operation of the chartered vessel shall be as per the notification S.O. No. 286(E) dated 4-4-1985, published in the Gazette of India, Extraordinary, Part-II, Section 3(ii). The chartered fishing vessel shall operate beyond 24 nautical miles from the shore of islands like Andaman, Nicobar, Lakshadweep and Minicoy Group of Islands and man made islands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined abroad after adjustment of charter hire payable by you in respect of each voyage. (ix) The continuance of the arrangement beyond the prescribed period subject to the approval of Government of India will require prior approval of Reserve Bank of India. (x) You should abide by such other directives that may be issued by Reserve Bank of India as well as Government of India in this regard from time to time." Clause 4 of the said permission reads as under : " 4. In case you are required to deduct tax at source while paying charter hire charges, you have to produce documentary evidence showing the payment of taxes by deduction at source from the charter hire charges paid by you. However, if no tax is to be deducted at source as above, a clearance to that effect should be obtained from the Ministry concerned and submitted to us before payment of charter hire charges." 8. As the operations of the fishing vessels were in the Economic Zone beyond 12 nautical miles from the seashore, i.e., outside India, the CIT (Appeals) agreed with the assessee that no income to the non-resident had accrued or arisen in India in the light of the decision of the Supreme Court in the case of Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a business connection or the income was earned by the non-resident through or from any asset or source in India, would not be applicable. The income from hiring of the ship accrues where the ship is made available to the Indian counterpart. In the present case, the ships were no doubt made available to the assessee in Visakhapatnam Port, but they were meant to be used for catching fish beyond 12 nautical miles which is a territory outside India and to which the Income-tax Act does not apply. In this connection, useful reference may be made to the decision of the Supreme Court in the case of CIT v. Toshuku Ltd, 125 ITR 525, wherein the question was deemed accrual of commission under sec. 9(1)(i) read with Explanation thereto. It was held by their Lordships of the Supreme Court as under : " The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assessees during the relevant year. This takes us to section 9 of the Act. It is urged that the commission amounts should be treated as incomes deemed to have accrued o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sec. 5(2) of the I.T. Act, 1961. Though it was a case under sec. 5(2), the emphasis was on the fact that the income to the non-resident had accrued from broadcasting western music from the stations of All India Radio in India." Here also, the fishing operations as per the agreement were to be beyond 12 nautical miles from the seashore and no charges were to be paid if there was no catch of fish. We, therefore, hold that neither the income has actually accrued or arose to the non-resident within the meaning of the provisions of sec. 5(2) nor can it be deemed to have accrued or arisen under sec. 9(1) of the Act. 9. Sec. 5(2) of the I.T. Act deals with the scope of total income of a non-resident. It reads as under : " Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-- (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year." On a careful reading of this section, it is evident that it also ropes in income which is receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht lands and built houses thereon. They created ground annuals or rent charges which meant that the annual rent was a burden upon and realizable out of the land but was not a personal obligation upon the purchaser. The assessees disposed of their entire interest in the land and house for cash, reserving to themselves the rent charges. The House of Lords held that the rent charge was a marketable security and its capitalized value should be brought into account in computing profits. Likewise, income would be realized in case of issue of saleable Government Bonds for the total amount of principal and interest under a statutory provision for the relief of debtors, or transference of movables such as jewellery, or of a decree of a Court of law, or promissory notes or bills of exchange of third parties or a debt due to the debtor for a third party." The entire catch of fish belonged to the assessee. It was shown as sale by the assessee. 85% of such fish catch was adjusted against the liability of the assessee towards hire charges for chartering the vessels from the non-resident. It was thus in discharge of the assessee's liability for hire charges and, therefore, it would be a receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. 13. It is true that under section 5(2) it is the first receipt which is considered to be a receipt of income as held by the Supreme Court in the case of Keshav Mills Ltd v. CIT [1953] 23 ITR 230, and the amount once received by the assessee even though outside India does not become chargeable by reason of the money having been brought into India, because what is chargeable is the first receipt of the money and not the subsequent dealing by the assessee with the said amount. In that event, the money is brought by the assessee as his own money which he has already received and had control over and it ceases to enjoy the character of income, profits or gains. As aforesaid, until the catch was brought to India, it was the property of the assessee and not of the non-resident and a receipt, to constitute income, must come under the control of the person receiving it. In the case of CIT v. Hindustan Housing Land Development Trust Ltd. [1986] 161 ITR 524, the Supreme Court held that there was no absolute right to receive the amount of compensation withdrawn on furnishing of security as at that stage the assessee's right to the money was pending dispute and the assessee did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, sold and money was realised. Insofar as the assessee is concerned, it made the payment and the non-resident received the hire charges in the form of 85% of the catch of fish. We, therefore, reject this contention of the assessee as well. 16. The assessee also attempted to suggest that it was not a case of payment by the assessee but payment by the non-resident to the assessee of 15% of the fish catch or Rs. 75,000, whichever was lower. Though it is true that 15% of the fish catch was in the account of the assessee, it was in discharge of their obligation under the agreement undertaking to take the entire catch for export by purchasing it from the assessee. Be that as it may, we are concerned in this case with the receipt by the non-resident. The assessee gave 85% of the fish catch in discharge of its liability to pay the hire charges and, therefore, it was a payment in kind by the assessee to the non-resident and that being at Madras Port, it would be an income received by the non-resident. 17. The next question to be considered by us is whether any tax deduction at source is contemplated on the payment in kind-handing over of 85% of fish catch being not a sum of money but m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be contrary to the provisions of law and in view of the decision of the Supreme Court in the case of Kerala Financial Corpn. v. CIT [1994] 210 ITR 129, cannot be given effect to. 20. As stated above, section 195 casts an obligation to deduct tax either at the time of payment or also at the time of credit to the account of the payee, whichever is earlier. Even otherwise, the payment contemplated under section 195 not only includes cash payment or payment by cheque or draft but also a payment even by any other mode. In these circumstances, neither the Board's circular under section 194B nor the decision under section 80G is of any help to the assessee. Here, the payment of hire charges was made by the assessee by giving 85% of the fish catch to the non-resident. Therefore, in our opinion, it was a payment contemplated under section 195. More so, in view of the fact that the said 85% of fish catch was adjusted in discharge of the liability, by the assessee in the account of the non-resident. That being so, the assessee was in default under section 201 and has to pay the tax required to be deducted and pay interest for the failure thereof under section 201 (1A) of the I.T. Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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