TMI Blog1967 (11) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... of India, and (2) the Income-tax Officer, Panjim. The facts are substantially the same in these petitions except for some minor variations. I shall first discuss the merits of Petition No. 156 before recording the conclusion in Petition No. 157. The answer to the above question would also be the answer in Petition No. 157. The case of the petitioner-company and the respondents is broadly set out in the correspondence exchanged between them. The affidavits and the counter-affidavit elaborate their case. This correspondence is material. To begin with, the petitiener-company wrote a letter to the respondent No. 2 on 13th April, 1965 (exhibit A). In that letter the petitioner-company stated that Messrs. General Ore International Corporation of Vaduz, Lichtenstein, through their New York office, had taken the ship s.s. " Angelica " on daily hire rate basis and as they were the disponee owners of the ship and also the owners of the iron ore carried by the ship, therefore, they are not liable to pay the tax under section 172 of the Act. A copy of the charter party agreement was enclosed for the information of the respondent No. 2 (exhibit, B). This letter was replied by the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the effect that their principals had stated " that since the voyages terminated prior to June 6, 1966, the rate of conversion should be that of pre-devaluation and not the present one ". The respondent No. 2, on the basis of the information supplied, passed an order of assessment dated 20th August, 1966 (exhibit I). According to that order, one-sixth of the hire paid to the owners of the ship by the time charterers was regarded as the taxable income for the purposes of section 172, and the petitioner-company was, accordingly, held liable to pay tax amounting to Rs. 29,528. This assessment, according to the petitioner-company, was not in conformity with this section and accordingly it had not the support of the law. The assessment order was then followed by the notice of demand under section 156 of the Act, threatening to recover the tax assessed in accordance with the relevant provisions of the Act (exhibit J) : The petitioner-company felt aggrieved by this action of the respondent No. 2 and hence, the present petitions under article 226 of the Constitution for an appropriate relief. This, in short, is the background of the case. Mr. Porus Mehta, learned counsel for the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be recoverable under the other provisions of the Act. It is common ground that this sub-section applies to the facts of the case. Sub-section (2) is a charging provision which is mainly relied upon by the respondent No. 2 support of the order of assessment. A summary assessment in substitution of the regular assessment is what is contemplated. Where a ship referred to in sub-section (1) carries goods shipped at a port in India, one-sixth of the amount paid or payable on account of such carriage to the owner or the charterer, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. The fiction is employed for the purposes of a speedy assessment. The nexus is between the goods shipped at a port and the amount paid or payable for their carriage to the owner or the charterer. The parties are at issue in regard to the liability under this sub-section. Sub-section (3) imposes an obligation on the master of such a ship to prepare and furnish to the Income-tax Officer a return of the full amount paid or payable to the owner or charterer on account of the carriage of goods shipped at that port since the last arrival of the ship thereat. Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the owner or charaterer on account of such carriage. " The words underlined are important. He also invited my attention to similar phraseology--in sub-section (3) " full amount paid or payable to the owner or charterer 'on account of carriage of all' goods shipped at that port ". While denying the liability of the petitipuer-company to pay the tax levied in terms of the guarantee bond, he developed his argument thus ; the time charterers hired the ship on time basis as would be clear from the charter party agreement. They were disponee owners of the ship. They carried iron ore purchased by them. There was thus no question of any amount being paid or payable to them on account of carriage of the iron ore. Accordingly the time Charterers are got liable under section 172 of the Act. The liabily of the petitioner-company--as guaranitor--is contingent upon the liability of the time charterers. This section not being applicable to the time charterers because they carried their own goods and, therefore, earned no freight cosequently the petitioner-company is not liable on the guarantee bond. The line of argument is not without substance. I shall examine it but before I do so, it may no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay the said sum to the President of India. ". It follows by necessary implication from this agreement that in case the principals, i.e., the time charterers, are not liable to pay the tax under section 172, the petitioner-company would then be absolved from all liability to pay the tax assessed and later demanded by the respondent No. 2 in terms of the guarantee bond. There can be no default when there is no liability. The liability is to be restricted on the bond consistent with its recitals. There can be no contract of guarantee if liability does not exist. The liability of the guarantor presupposes the existence of a separate liability of the principal debtor and his liability is thus secondary which comes into existence only in default by the principal debtor. It may be stated that the words underlined in sub-section (2) are not words of art. They are words commonly used. They are to be construed in their popular sense : " that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it " : Ramavatar v. Assistant Sales Tax Officer Akola. What was the amount paid or payable to the time charterers on account of carriage of the iro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of assessment. It is said in the counter-affidavit that what is liable to tax under sub-section (2) of section 172 is the amount paid or payable on account of carriage of goods to the owner or charterer whether this amount is termed as freight or termed charter hire. This statement is correct in so far as freight is concerned, but I have my doubt whether the time charter hire of the kind we are considering is also the determining factor for the purposes of assessment. The time charter hire was for the use and hiring of the ship at a certain rate, but this hire paid to the owners of the ship was not on account of carriage of iron ore shipped on the ship chartered by the time charterers. There has to be a shipper of goods other than a time charterer carrying his own cargo before liability to tax can arise. What was paid or payable to the owners of the ship--strictly speaking is not freight at all, but it is in the nature of a rent for the use and the hire of the ship. The learned Government pleader wanted me to construe the words underlined in sub-section (2) of section 172 in a liberal sense. In Cape Brandy Syndicate v. Inland Revenue Commissioners, it was stated :-- " ...in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sreading of this sub-section. Mr. Porus Mehta cited Calcutta Discount Co. Ltd. v. Income-tax Officer in support of his contention that the respondent No. 2 acted without or in excess of jurisdiction when he passed the order of assessment ; he misread section 172 when he considered the hire paid by the time charterers to the owners of the ship as the determining factor for the purposes of assessment. In this decision of the Supreme, Court Das Gupta J., speaking on behalf of the majority, observed at page 380: " In the present case the company contends that the conditions precedent for the assumption of jurisdiction under section 34 were not satisfied and came to the court at the earliest opportunity. There is nothing in its conduct which would justify the refusal of proper relief under article 226. When the Constitution confers on the High Courts the power to give relief it becomes the duty of the courts to give such relief in fit cases and the courts would be failing to perform their duty if relief is refused without adequate reasons. In the present case we can find no reason for which relief should be refused. " The basic condition in the charging sub-section must necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cited earlier : " Mr. Shastri mentioned more than once the fact that the company would have sufficient opportunity to raise this question, viz., whether Income-tax Officer had reason to believe that under-assessment has resulted from non-disclosure of material facts, before the Income-tax Officer himself in the assessment proceedings and if unsuccessful there before the Appellate officer or the Appellate Tribunal or in the High Court under section 66(2) of the Indian Income-tax Act. The existence of such alternative remedy is not, however, always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action. " The respondent No. 2 ought not to be permitted to levy tax on the basis of misconstruction of section 172. I accept the contention of Mr. Porus Mehta that the petitioner-company is not liable to pay the tax as guarantor in terms of the guarantee bond, because this section is not applicable. The question No. 1 accordingly is decided in favour of the petitioner-company. The second question need not detain me long. The guarantee bond would seem to show that the liability of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner-company. The third question for consideration is whether the order of assessment violates the principles of natural justice. The question is considered on the assumption that the basis of assessment arrived at by the respondent No. 2 is not incorrect. As will appear from the scheme of section 172 of the Act, the assessment proceeding is a quasi-judicial proceeding. There was a lis between the petitioner-company representing the time charterers and the respondent No. 2. The former repudicated the liability on the ground that the time charterers were not liable. The latter regarded the petitioner-company as liable. The liability was not merely contractual in terms of the guarantee bond. It was dependent on the liability of the time charterers to the tax assessed. The lis had to be determined objectively after ascertainment of facts and possibly legal argument and not according to the personal opinion of the respondent No. 2. The assessment was to be arrived at on objective as distinguished from a purely subjective consideration. The test to ascertain whether a particular act is a judicial act or an administrative act was indicated by Atkin L.J. in the oft-quoted case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he was called upon to make his defence, 'Adam' (says God) 'where art thou ? Hast thou not eaten of the tree whereof I commanded thee that thou shouldst not eat ?' And the same question was put to Eve also. " As observed by Lord Reid in Ridge v. Baldwin I the laws of God and man both give the party an opportunity to make his defence if he has any. According. to Mr. Porus Mehta, the respondent No. 2 also assessed the petitioner-company without complying with the requirements of the proviso to sub-section (3) and sub-section (4) of section 172. The assessment was arrived at in absence of any return received either from the petitioner-company or the time charterers. This is also the stand taken in the affidavit filed by the petitioner-company. This is one more ground on the vulnerability of the order of assessment. I am satisfied that the principles of natural justice were not observed in this case. The assessment proceeding under section 172 being quasi-judicial in its nature, the respondents are subject to the writ of prohibition or certiorari. This writ will not issue against an executive officer, but the High Court have power to issue in a fit case an order prohibiting him from act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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