TMI Blog2010 (7) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ot deducted and deposited was rightly held to be in default under Section 201 of the Income Tax Act. - 3844-3847 OF 2003 - - - Dated:- 7-7-2010 - D.K Jain and C.K. PRASAD, JJ. For Appelant A. Subba Rao and H.K Naik . For respondent - B.V. Balaram Das. JUDGMENT C.K. PRASAD, J. 1. All these appeals arise out of a common judgment dated 7th June, 2002 passed by the Division Bench of the Andhra Pradesh High Court in Referred Case No.144 of 1995 and Writ Petition No.1103 of 1998 and as such they were heard together and are being disposed of by this judgment. 2. Facts giving rise to the present appeals are that the appellant M/s. Kanchanganga Sea Foods Limited is a company incorporated in India and engaged in sale and export of sea food and for that purpose obtained permit to fish in the exclusive economic zone of India. To exploit the fishing rights, the appellant-company (hereinafter referred to as the "assessee") entered into an agreement dated 7th March, 1990 chartering two fishing vessels i.e., two pairs of Bull Trawlers, with Eastwide Shipping Co. (HK) Ltd. a non-resident company incorporated in Hong Kong. Clause 4 of agreement which is relevant for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u. 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." 4. Trawlers were delivered to the assessee with full equipment and complement of staff at Chennai Port. Actual fishing operations were done outside the territorial waters of India but within the exclusive economic zone. The voyage commenced and concluded at Chennai Port. The catch made at high seas were brought to Chennai where surveyor of Fishery Department verified the log books and assessed the value of the catch over which local taxes were levied and paid. The assessee after paying the dues arranged Customs clearance for the export of the fish and the Trawlers, which were used for fishing, carried the fish to destination chosen by non-resident company. The Trawlers reported back to Chennai Port after delivering fishes to the destination and commenced another voyage. The assessee did not deduct the tax from the non-resident company nor produced any clearance certificate during the Assessment Years 1991-92 to 1994-95. Notice under Section 201(1) of the Income Tax Act was issued to it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en, that Eastwide effectively receives its payment. Simultaneously the appellant also credits Eastwide's account. Therefore, Eastwide actually receives the hire charges in India. In this connection it has to be remembered that for the purpose of Income Tax Act the nature of a receipt is to be considered from the commercial point of view and is not to be confused with its nature under the general law. (C.I.T. vs. Scindia Worshop Ltd. - 119 I.T.R. 526, 331 Bom.)." 7. However, the Deputy Commissioner reduced the liability to Rs.8,34,597/-. The assessee unsuccessfully preferred appeal before Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal") and on its following finding it dismissed the appeal: "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 against hire charges and therefore, it would be receipt in the hands of the non-resident under Section 5(2) of the Act." 8. The Tribunal on an application filed before it by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the receipt in the form of 85% of the catch of fish by the non-resident was in India since all the formalities are completed in India. On the facts and in the circumstances of the case, the Tribunal is justified in rejecting the claim that there is no payment to the non-resident by the Assessee but there was only a receipt of 15% of the value of fish catch from the non-resident to the Assessee; On the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the Assessee is liable to deduct tax at source under Section 195 of the Act on the alleged payment made to the non-resident towards hire charges even though the alleged payment is not in cash; and On the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the Assessee was in default under Sec.201 of the Income Tax Act, 1961 for the failure to deduct tax under Section 195 of the Income Tax Act." 11. Mr. A. Subba Rao, learned Counsel appearing on behalf of the appellant-assessee submits that there was no income chargeable which resulted to the non-resident company as no payment of any sum by the assessee to the non-resident company took p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the double taxation treaty would not arise. The Double Tax Treaty, however, was taken recourse to by the appellant only by way of an alternate submission on income from services and not in relation to the tax of offshore supply of goods." 12. Mr. R.P. Bhatt, learned Senior Counsel appearing on behalf of the respondent, however, contends that income had accrued to the non-resident company in India and admittedly the assessee having not carried out its obligations to make deductions, the authorities and the Tribunal rightly held the assessee in default. 13. We have considered the submissions advanced and we do not find any force in the submissions of the Counsel for the appellant and the authorities relied on are clearly distinguishable and those in no way support assessee's contention. Section 5(2) of the Income Tax Act provides, what would be the total income of a non-resident, same reads as follows: "5(1) xxxx xxxx xxxx (2) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the price for which non-resident company sold at the destination chosen by it. According to the terms and conditions of the agreement charter fee was to be paid in terms of money i.e. US Dollar 600,000/= per vessel per annum "payable by way of 85% of gross earning from the fish-sales". In the light of what we have observed above there is no escape from the conclusion that income earned by the non-resident company was chargeable to tax under Section 5(2) of the Income Tax Act. 15. Now referring to the decisions of this Court in the case of Toshoku Ltd.(supra), same is clearly distinguishable. In the said case the amount credited in favour of the assessee was not at its disposal and in the background of the said fact it was held that making entries in the books would not amount to receipt of income, actual or constructive, which would be evident from the following passage of the judgment: "It cannot be said that the making of the book entries in the books of the statutory agent amounted to receipt by the assessees who were non-residents as the amounts so credited in their favour were not at their disposal or control." Here the non-resident company had received charter-fee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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