TMI Blog1990 (7) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... ores and they are also exporters of the ores to foreign countries mostly to Japan and Korea. It is alleged in the first of the petitions (I propose to go by the facts stated in that petition) that it entered into an agreement with the foreign buyers on credit price for iron and manganese ore and the foreign buyers sent their ships either owned by them or chartered by them and the petitioners loaded their ore stacked at the berth at the port side by mechanical means into the vessel which carried the ore and sometimes it used barges and loaded the ships on the sea when convenient, depending on the size of the ship which was to be loaded. In any event, all the contracts entered into with the foreign buyer were on the basis of free-on-board . All such contracts provided a clause for detention of a ship in the port for unforeseen reasons and, in that behalf, the exporters, i.e., the petitioners, had to bear the demurrage charges and pay the same to the owner of the ship or the charterer. The practice all along had been to pay such demurrage and subsequently work out details having regard to the requirement of complying with certain formalities ; the payments were made after obtaining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 44B and 172 of the Income-tax Act, 1961 (hereinafter referred to as the Act ), and, as such, having regard to the provisions made in the said sections, no other income-tax procedure is required to be followed and these being self-contained provisions in regard to incidence, quantum and procedure for payment of tax, any other method prescribed would be outside the purview of the Act and, on the facts of the cases of the petitioners, the demurrage received by a non-resident shipowner or charterer of a ship is not exigible to income-tax under the Act inasmuch as in both sections 44B and 172 of the Act, it is only when such a ship as is described in sub-section (2) of section 44B and sub-section (1) of section 172 of the Act earns the income by the modes specified in the said sub-sections that the need to pay tax in accordance with the procedure laid down would arise and not otherwise. The thrust of the argument simply stated is that demurrage paid to the owner of a foreign ship or the charterer of a foreign ship who is not a resident in India would not be exigible to tax under sections 44B and 172 of the Act. As against that contention, Mr. G. Chandarkumar, appearing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4B. (1) Notwithstanding anything to the contrary contained in sections 28 to 43A, in the case of an assessee, being a nonresident, engaged in the business of operation of ships, a sum equal to seven and a half per cent. of the aggregate of the amounts specified in subsection (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession . 172. (1) The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply for the purpose of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India. (2) Where such a ship carries passengers, livestock, mail or goods shipped at a port in India, seven and a half per cent., of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. Before the departure from any port in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as the case may be. The thrust of the argument of Mr. Sarangan is that, having regard to the non-obstante clause with which both the sections begin, the sections must be read as excluding the other provisions of the Act in regard to income derived by a non-resident shipowner or charterer and income-tax only in the manner at the rate prescribed under the, other sub-sections of section 172 of the Act is liable to be paid and not in accordance with the assessment made under section 143 of the Act as in the case of other income-tax assessees. It is significant to notice that there is this difference between section 44B and section 172 of the Act. In section 44B of the Act, no-procedure for assessment and collection of tax is provided. The use of the nonobstante clause refers only to sections 28 to 43A and not to the other provisions of the Act as contemplated under sub-section (1) of section 172 of the Act. Section 28 and the following sections up to section 43A are to be found under the heading D-Profits and gains of business , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -Profits of non-residents from occasional shipping business. (emphasis supplied). That heading denotes the persons intended to be covered by section 172 of the Act. They are persons who are not regularly in the shipping trade or business in India. If it is so understood, then it is not difficult to differentiate between income from shipping business accrued or deemed to have accrued in India in respect of non-resident owners or charterers and income derived from occasional shipping business by non-resident owners of ships or charterers of such ships. Once that distinction is clearly established, then it is not difficult to come to the conclusion that when section 172 of the Act is attracted, only that procedure which is contemplated under section 172 of the Act under sub-sections (3) to (7) should be followed and no other. On this point, even Mr. Chandarkumar, learned counsel for the Revenue, does not disagree. Again, Mr. Sarangan's contention is that the payment of demurrage does not constitute an income at all attracting the rigour of either section 44B or section 172 of: the Act. He contended that, in order to attract the two sections dealing with the income from shi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges allowed to vessel for delaying her in unloading, in the nature of compensating her for, freight she might have earned, had she not been so delayed. (California and Eastern S. S. Co. v. 1,38,000 Feet of Lumber D. C.Md., 23 F. 2d 95,96). Thus, then normal meaning and the judicial definition of demurrage does not vary even in the Law Lexicon by P. Ramanatha Aiyar. At page 314, the same meaning is attributed. Similarly, in Stroud's Judicial Dictionary, 4th edition, volume 2, at page 738: DEMURRAGE. (1) The strict meaning of 'demurrage' is the agreed amount to be paid by the charterer of a ship for each day taken in loading or discharging beyond the respective times fixed for those operations ; the word demurrage appears to me to be more applicable to delay in time after the expiration of a fixed time than to delay after the expiration of a reasonable time. That is the principle which underlies the authorities ; it is that upon which Lockhart v. Falk ([1875] L. R, 10 Ex. Ch. 132) proceeded and it appears to me to be a reasonable one. I do not think that the term can be easily applied to time after the expiration of a reasonable time (per Fry L. J., Dunlo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount mentioned in section 44B and section 172(2) of the Act. Thus, it is difficult to hold that it constitutes income. In an earlier case, also relied upon by Mr. Sarangan, the Judicial Commissioner of Goa, in the case of Lima Leitao and Co. Ltd. v. Union, of India Represented by the Administrator of Goa, Daman and Diu [1968] 70 ITR 518 analysed in detail section 172 of the Act and came to the conclusion that damage was not liable to be subjected to tax under section 172 of the Act. It suffices to state that the learned judge dip no more than apply the test of liability arising out of carriage of passengers, goods, livestock or mail from an Indian port. In the absence of such carriage, any other payment, he concluded, would not attract section 172 of the Act. Per contra, Shri Chandarkumar, learned counsel appearing for the Revenue, has relied upon the case of Czechoslovak Ocean Shipping International joint Stock Co. v. ITO [1971] 81 ITR 162 decided by the Calcutta High Court. The learned single judge of that High Court took the view that earnings of a nonresident shipowner could not escape exigibility to income-tax under the Act, even though he may not be liable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1) of section 9, the agent of the nonresident including a person who is treated as an agent under section 163, while sub-section (2) of that section provides that every representative assessee shall be deemed to be an assessee for the purposes of the Act. Therefore, exhibits B and C do not relate to assessment of a representative assessee in terms of the provisions contained in the Act nor are the petitioners non-resident shipowners carrying on shipping business to attract section 172 of the Act. They are mere exporters who are made to pay demurrage which undoubtedly is money received by the ship's captain as compensation for detention. Whether that is assessable to income-tax under section 172 of the Act as representative assessee is not the question before the court. Whether it is not paid for the purpose of carriage of passengers, goods, mail or livestock from an Indian port is the question posed in these petitions and not goods brought to India from foreign ports. If it was so paid for those specified purposes, such income at the rate specified in sub- section (2) of section 172 of the Act shall be assessable and recoverable in terms of the sub-sections that follo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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