TMI Blog1958 (5) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... sea-going vessels. One such vessel was the Eastern Venture , owned by Newland Steamship Co. Ltd. of Hongkong, which the predecessor company hired by a charter-party executed in London on August 25, 1954. The charterparty was in the form of a uniform time charter. The period covered by it was six months, with an option of another three months for the charter, but it appears that since the expiry of the original term, the charter-party has been renewed or its terms extended from time to time. Although the vessel appears to have changed hands at least twice and the period of the original charter-party also expired, as I have just stated, long ago, it is not disputed that terms and conditions of the deed of the August 25, 1954, have continued to be in force with one slight modification to which I shall presently refer. We are concerned in this case only with the terms as to the payment of the hire. Clause 6 of the charter-party provided that the charterers were to pay as hire 16s. per ton on the vessel's dead weight of 5,250 tons per 30 days. This payment of hire was to be made without discount every 30 days in advance and, according to clause 6, it was to be made in cash in Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the hire, taken along with all other expenses, paid or payable on behalf of the non-resident owners, was. It will be recalled that according to clause 6, the hire was payable in Calcutta and the Income-tax Officer must have thought that if payment had been made in accordance with that clause, a non-resident was receiving payments within the taxable territories and, therefore, it would be necessary to collect tax on such payments. The company replied to the Income-tax Officer's letter on March 6, 1956, and informed him that the hire had been paid as per clause 26 of the charterparty, irrespective of clause 6. That statement meant that the hire had not been paid in Calcutta, but had been paid in London. The appellant, however, annexed to its letter a statement showing the actual amount of hire, commission and other expenses paid and net amount remitted. The statement, so annexed, was prefaced by something in the nature of an abstract. The figures entered in that abstract are not very intelligible and I shall put them on one side. The statement itself was in the form of entries made in four columns, the first of which gave the period concerned, the second, the total amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that payment, not did he modify the demand he had made of the appellant company. In the end, the appellant company paid the tax demanded by three challans on May 18, 1956. Thereafter, on May 18, 1956, the appellant moved this court under article 226 of the Constitution for a rule on the Income-tax Officer, directing him to show cause why a writ in the nature of certiorari should not be issued, commanding him to certify and return to this court the records relating to the proceedings and for a peremptory order quashing the proceedings, if the Income-tax Officer made no answer or made an insufficient or false answer. A rule was issued on that application, but at the final hearing it was discharged by Sinha, J. It is against the order discharging the rule that the present appeal is directed. According to the judgment of Sinha, J., the appellant's case before him was put in the following way: The amounts paid on account of disbursements had been paid under the provisions of clause 14 of the charter-party and having been so paid, they constituted loans advanced to the owners and not part payments of the hire. Assuming the amounts were not loans, but part payments of the hire, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it will be convenient to read section 18(3B) of the Act. I need not read section 18(7), for that sub-section only provides that if any person, being responsible for deduction of tax under section 18, fails to do so, he himself shall be treated as in default in respect of the tax. The main section with which we are concerned is section 18(3B) which, so far as material, reads as follows: Any person responsible for paying to a person not resident in the territories any interest not being 'interest on securities,' or any other sum, chargeable under the provisions of this Act shall, at the time of payment, unless he is himself liable to pay any income-tax and super-tax thereon as an agent, deduct income-tax at the maximum rate. It is clear from this language that in order that the sub-section may be attracted, it is necessary that there should be a person responsible for making a payment to a non-resident and that the payment concerned should be either of interest, other than interest on securities, or of any other sum chargeable under the provisions of the Act. There is no question in the present case that the appellant company was responsible for making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mr. Mitra was that under the very terms of clause 14 of the charter-party, the advances made under its provisions would be loans granted to the owner, at an interest. If there were payments to which clause 14 did not apply and if there was nothing to show how or by what authority the appellant company had made those payments, it is obvious that the argument that the payments other than those for ordinary disbursements, were also loans cannot possibly be sustained. I do not, however, propose to pursue the distinction in this appeal and shall deal with the contentions raised at the bar on the footing that the whole of the advances were made under the provisions of clause 14 of the charter-party. I am doing so particularly because even the Department was remiss in this respect and did not point out to the learned Judge the distinction which the petition itself disclosed. The other oversight, if oversight it was, appears to me to be far more material. One of the reasons advanced in support of the contention that the amounts paid for disbursements were loans was that under the provisions of clause 14, they were to carry interest. It appears, however, as far as can be seen from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinary disbursements or for the repairs of the vessel and to the local agents of the owners as their commission and it was paying the entire residue by transmitting the same to England. It is true that clause 14 of the charter-party mentioned advances and some interest to be charged thereof, but the actual acting of the appellant company seems to have been on an altogether different basis. On the basis on which the appellant company acted, it appears to me impossible to reconcile what it did with the notion that it was advancing loans to the owners. Since, however, the case proceeded in the court below with the consent of everybody concerned that the payments were made in accordance with clause 14 of the charter-party and the incidents of payments under that provision, as mentioned there, have to be regarded, I shall examine that position as well. The first question is whether--and I am proceeding now on the basis that the entire amount was advanced to the ship's master for ordinary disbursements--the amounts paid were loans and not part-payments of the hire. The argument before us turned on the construction of the particular charter-party before us which was entirely pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the leading authorities are authorities of great age. The principle which one can deduce from the authorities is that if the terms of the charter-party show that the advance was intended to be a part of the freight, it will not be treated as a loan and the charterer making it will not be allowed to recover it. Indications that the advance is intended to be a part-payment of the freight may be direct as well as indirect. One indication which has always been held to be conclusive is where the owner takes the advance agrees to allow a rebate for the cost of taking out an insurance in respect of the prepaid freight. A provisions of that character is regarded as conclusive, because while pre-paid freight can be insured, a mere loan cannot be. The charter-party in the present case provides for advances to be made by the charterer for ordinary disbursements for the vessel's account. it allows the charterer to charge interest on the advances made by it, but, at the same time, provides that it will be entitled to deduct its dues on account of such advances from the hire payable to the owner. On the one hand, there is thus a provisions for charging interest and, on the other, there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peech of Lord Hatherley. The question before the House in that case was, in the words of Lord Chelmsford: Was it an advance in the nature of a loan, or was it a pre-payment of half the freight? Under the charter-party, freight was to be paid on unloading and right delivery of the cargo at and after the rate of 42s. per ton of 20 cwt. on the quantity delivered. It was then provided that such freight was to be paid, say, one-half in cash on signing bills of lading less four months' interest at bank rate, but not less than 5 per cent., per annum, 5 per cent., for insurance and 2? per cent., on gross amount of freight in lieu of consignment at Bombay, and the remainder of the right delivery of the cargo, less cost of coals short delivered, in cash. Dealing with that provision, Lord Hatherley observed as follows: What seems to have happened is that the parties who are desirous of having the freight prepaid to a certain extent, in order to avoid during a long voyage being kept for a long time out of their money have entered into an arrangement with the charterer to this effect: I shall wish to have my money in hand, to some amount at all events, upon this chart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elonging to the owners and as paid by them in liquidation of the debt constituted by the advances. Surely, the charterer could not pay itself with its own money. Whether the procedure is called a set-off or first a notional payment of the money to the owners and then repayment by them through the charterer itself, the fact remaints that to the extent of the portion represented by the advances, the hire due to the owners was received and utilised by them in Calcutta, because it was with that portion of the hire and nothing else that the advances made by the charterer to the master on the owners' account were repaid by them here. I am entirely unable to see how the charterer could repay itself, unless the money with which it repaid became, before such repayment, the money of the debtor, that is to say, the money of the owners. If the requisite portion of the hire had to become the owners' debt, it was, to my mind, constructively received by the owners in Calcutta, as rightly held by the Income-tax Officer. The matter will appear exceedingly simple if one only books at the statement furnished by the appellant itself. Taking the first of the months recorded there, namely Sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the footing that the advances were loans and were repaid by deduction from the hire, the position was, as I have endeavoured to show, that money belonging to non-resident owners was applied under their instructions to the payment of their creditors in India. If so, the amounts were received by them in India, as is established by the decision in Keshav Mills Ltd. v. Commissioner of Income-tax [1953] 23 I.T.R. 230, to which the respondent referred. The question whether, although received in India, they were chargeable under the provisions of the Income-tax Act within the meaning of section 18(3B) however remains. If chargeable under the provisions of this Act means actually liable to be assessed to tax, in other words, if the sum contemplated is taxable income, a diffculty is undoubtedly created as to complying with the provisions of the section. It appears that before the trial Judge, Mr. Mitra referred to the difficulty in one of its forms. A lay person having to make some payment to a non-resident and required to decide whether the amount he would be paying would be actually taxable in the hands of the payee would find himself faced with an almost impossible task. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m another person, could not be annual payment by the latter within the meaning of the rule. On the facts of the case, the House of Lords held that the amount contributed by the Corporation of London to themselves as Conservators of the Epping Forest were not of the nature of trading receipts, but were what Lord Greene had called pure income profit. But their Lordships recognised the distinction between pure income , that is to say, receipts which, in the words of Sir Raymond Evershed, as he then was, had the character of income chargeable itself as such to tax and receipts against which expenses had to be set off in order to determine whether there was any taxable income. Their Lordships also held that the expression annual payment in rule 1 of Case III of Schedule D to the English Act contemplated payments of the former kind. The provisions of section 18(3B) of the Indian Act are not dissimilar to those of rule 1 of Case III of Schedule D to the English Act. The subject-matter of tax under the former is interest other than interest on securities and any other sum chargeable under the provisions of the Act. The subject-matter of taxation under the latter is interest or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by sub-section (3B), but amounts of a mixed composition, a part of which only may turn out to be taxable income, are also contemplated. In taking that view, I am fortified by the authority of the Supreme Court. In the case of Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hiralal [1958] 33 I.T.R. 245, the Supreme Court had to consider whether a particular party could be treated as an agent of a non-resident for the purposes of section 40(2) and section 42(1) on the basis of his having been in receipt of income, profits or gains chargeable under the Act, on behalf of the non-resident. Although the case was directly concerned only with sections 40, 41 and 42, the Supreme Court had occasion to refer also to section 18 which, indeed, is expressly mentioned in the first proviso to section 42(1). The argument before the Supreme Court was that the total world income of the non-resident was not taxable and, therefore, the party in receipt of payments on its behalf was not in receipt of profits and gains and could not, therefore, be treated or treat itself as its agent. The contention thus was exactly the same as that advanced before us and it was to the effect that in order that a perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act in section 18(3B) and income, profits and gains in section 40(2) or 42 mean net income found to be taxable under the Act, gross receipts, the taxability of which or of a portion of which still remains to be determined, are not within the contemplation of either section. The so-called profits which had been received by the Hapur firm in the case before the Supreme Court were no less gross receipts than any other receipt for the purposes of the assessment of the non-resident, because against them, and such other receipts of a revenue character that the non-resident might have against the totality of its receipts, would have to be set off its expenses before it could be ascertained whether there was any taxable income. The decision of the Supreme Court cannot, therefore, be distinguished on the ground which Mr. Mitra put forward. The case before the Supreme Court bears a close analogy to the case in Nielson, Anderson and Co. v. Collins : Tarn v. Scanlan*, which was cited before us on behalf of the respondent. One of the questions there was whether section 41 of the then English Act, which made tax chargeable in the name of a factor, agent or receiver having the recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld make good the deficit by making a contribution of an equal amount. The amount paid by the London Corporation in any particular year would thus be an amount intended to meet items of expenditure. It was contended that being so intended and destined, the amount of the contribution could not be income in the hands of the Conservators of the Forest. The appellants point out, observed Lord Reid, that no part of the sums paid by the city in this case can never be profit in the hands of the Conservators, because the amount of any sum payable is measured by the amount of the Conservators' deficit, and, therefore, the whole of it must go to pay expenses and no part of it can ever be profit. It will be noticed that the contention was identical with that advanced before us by Mr. Mitra. It was disposed of by Lord Reid with the observation that the argument was based on a misunderstanding of what the Income Tax meant by income or profit. An amount of the receipt of surplus, the learned Lord pointed out, was none the less income, because the recipient was bound to use it in a particular way and could not enjoy it as a profit in the ordinary sense: see page 329. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e record. The supervision by means of the writ of certiorari goes, as the Privy Council observed in the case of Rex v. Nat Bell Liquors Ltd., to two matters, one being the area of the inferior jurisdiction, together with the qualifications and conditions of its exercise and the other being the observance of the law in the course of its exercise. Mistakes in the observance of the law in the course of the exercise of jurisdiction are thus not outside the scope of a writ of certiorari. I must, therefore, hold that the mere fact that the Income-tax Officer had jurisdiction to deal with the question of the appellant's liability will not by itself exclude the issue of the writ asked for. In order, however, that an error of law may be corrected by certiorari, it has to be an error apparent on the face of the record. As it has been otherwise expressed, the order, alleged to be vitiated by the error, must be a speaking order, that is to say, an error giving its reasons for the view taken therein and such reasons being manifestly wrong. It was contended that there was no speaking order in the present case and no error apparent on the face of the record. I am afraid, I am unable to acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s affirmed on September 3, 1956. It thus appears that although the appellant had actually filed an appeal before the Appellate Assistant Commissioner as long ago as on June 7, 1956, it was insisting even on September 3, 1956, and against the denial of the respondent, that it had no adequate or legal remedy, Indeed, even in the course of the argument before us,. no mention was made on behalf of the appellant that it had also preferred an appeal and the matter was brought to our notice only by an affidavit on behalf of the respondent. It is stated in the affidavit that the depondent had come to know of the pendency of appeal only on May 6, 1958, when he had discovered it accidentally from a list of appeals pending before the Appellate Assistant Commissioner. On the facts above stated, the question before us is not whether a writ of certiorari can be asked for or issued when there is an alternative remedy. It is well known that the existence of alternative remedy is no bar, or at least not an absolute bar, to the issue of a writ of certiorari which the circumstances call for its issue, although the fact that such a remedy exists may be taken into consideration by the court approach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction to deal with the applications. After the dismissal of this four applications, the assessee preferred as many appeals to the Supreme Court. The Supreme Court held the view taken by the Punjab High Court as regards the jurisdiction to be erroneous and it then fell to the court to consider what order it would make. It was brought to the notice of the court that the assessee had already caused a reference to be made to the High Court of Allahabad of the points involved in these cases under section 18(5) of the Investigation Commission Act and that the reference was still pending. In these circumstances, observed the Supreme Court, we think that it would not be proper to allow the appellants to invoke the discretionary jurisdiction under article 226 of the Constitution at the present stage. It was also contended that the income-tax authorities had not referred to all the matters which the petitioner had desired them to refer, but the Supreme Court pointed out that, for such omission, the Act itself contained ample remedies which might be pursued. On the authority of the above case, it has been contended by the respondent that just as the Supreme Court refused to issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me when the rules nisi came to be heard, the appeals were pending. The court gave that circumstances was one of the reasons for refusing the writs and observed as follows: What the court sees before it is undoubted jurisdiction, decision within the ambit of the jurisdiction, a right of appeal whereby incorrect conclusions may be corrected, and an actual recourse to that appeal by the applicants who are before the court seeking these rules. In those circumstances, the court observed that each of the applications must fail. Mr. Mitra submitted in the end that whether the appeal preferred by his client was maintainable or not was a matter of great doubt and, therefore, the pendency of that appeal ought not to be a bar to the issuance of a writ. Since we have held against the appellant on the merits, it will not be right for me to make any observation as to whether the appeal is or is not maintainable, but it is pertinent to point out that the appellant has itself taken the view that an appeal lies and has in fact preferred an appeal. We are concerned, while considering the propriety or otherwise, of the appellant's conduct and the expediency or otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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