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TMI Blog1976 (1) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ipping company with the charterer firm, inter alia, for carrying certain cargo shipped at Kandla. This amount included a sum of Rs. 32,835 being the dead freight recoverable on account of 223.365 M. Tons of cargo having not been shipped from the port as per the contract. The Income-tax Officer computed, under the provisions of section 172(2), the amount of Rs. 25,725 as the income accruing in India to the assessee on account of the carriage of cargo, the said amount being one-sixth of the total amount of Rs. 1,54,350 which was received by the assessee (including the amount of dead freight of Rs. 32,835). The assessee preferred an appeal before the Appellate Assistant Commissioner and contended that the amount paid to him on account of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le income of the assessee ? " The answer to the above question rests on the true construction of the relevant provisions of section 172. The said section makes special provisions for the levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident, which carried passengers, livestock, mail or goods shipped at a port in India. So far as the present case is concerned, we might read only sub-sections (1) and (2) of the said section. They are as under : " 172. Shipping business of non-residents.--(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 chartere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or charterer on account of " such carriage ", whether the amount is paid or payable in or out of India. The fiction is enacted for the purpose of treating a prescribed portion of the amount received by a non-resident shipowner or charterer for the carriage of passengers, cargo, etc., shipped at a port in India as his income (irrespective of the place of payment) so that it could be brought to tax in his hands as such. However, the amount must be paid or payable on account of such carriage, that is, as freight, and not on account of non-carriage of goods by such ship from a port in India. A legal fiction must be limited to the purpose for which it was created and, therefore, any payment made otherwise than by way of freight would not fall w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curate expression of the thing signified by it. It is, as Lord Ellenborough said in Phillips v. Rodie [1812] 15 East 547, at page 554, 'not freight but an unliquidated compensation for the loss of freight recoverable in the absence and place of freight'. In construing the charter party it must be assumed that the parties understood the meaning of the terms they employed and that, amongst others, the term 'dead freight' meant (according to Lord Ellenborough's definition) 'an unliquidated compensation for the loss of freight'. " [McLean and Hope v. Fleming [1871] LR 2 SC & Div 128 (HL), per Lord Chelmsford, at pages 131-133]. " ... dead freight is not freight at all properly so called, but is in reality damages for breach of contract, for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be construed on its plain language. In a taxing statute of that nature, there is no justification for adding words, a payment made not for carriage of goods but for non-carriage of goods cannot, therefore, be brought within the ambit thereof.
In view of the foregoing discussion, it would become clear that the Tribunal was right in the view that it took as regards the non-inclusion of the amount of dead freight in the amount which is to be taken into account for computing income under section 172(2). Accordingly, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee. X X X X Extracts X X X X X X X X Extracts X X X X
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