TMI Blog2002 (12) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/94 US$13,23,171 Let. Dt. Period of Hire Charges Amount to be remitted (US $) 6/6/94 31/5/94 1/6/94 to 22/6/94 314,929 1/7/94 11/17 155,242 8/7/94 1/7/94 to 1/8/94 425.000 5/8/94 1/8/94 to 1/9/94 425,000 ITA/6166/M/95 M/s A.P. Mollar, Denmark Gjertrud Mersk 15/2/94 US$25,66,666.20 23/4/94 31/3/94 to 30/4/94 420,000 27/5/94 30/4/94 to 30/5/94 420,000 27/5/94 30/5/94 to 29/6/94 30/6/94 to 29/6/94 4,20,000 4,20,000 2/7/94 29/6/94 to 29/7/94 4,20,000 4/8/94 29/7/94 to 28/8/94 4,20,000 29/8/94 28/8/94 to 30/9/94 466,666.2 ITA/6167/M/97 M/s A.P. Mollar, Denmark Gertrud Mersk 15/2/94 US$14,25,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 1/1/95 to 23/1/95 74,943.74 4. For the sake of convenience, the charter party agreement with Exmar NV of Belgium for the vessel "Polar Endurance" is taken as illustrative of the issue under consideration. The particular features and factual data relevant to the time charter party agreement entered into with Exmar NV of Belgium are as follows: (a) Clause 3 notes that the owners Exmar NV are agreed to let and charterers (RIL) have agreed to hire the vessel. The said cl. 3 provides for delivery of the ship at a safe port Libya or Italy and after the time charter, it provides that the vessel will be redelivered by the charterers at safe port Libya or Italy. (b) Clause 6 requires the charterers (RIL) to provide and pay for all fuel, towage, pilotage, agency fees, port charges, commissions, expenses for loading and unloading of cargoes, canal dues, etc. (c) Clause 7 provides for the consideration for the use and hire of the vessel at U.S. $ 425,000 per calendar month. (d) Clause 8 requires the payment of the said hire charges to be made to the owner's nominated bank account by telegraphic transfer and cl. 56 gives the details of the mode to be adopted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source as per the provisions and pay the same to the account of the Government." Alternatively, the AO was of the view that the petition for issue of certificate for non-deduction of tax could not be considered under s. 197 as it was not the recipient of the charter charges. 6. Aggrieved by the order of the AO under s. 195, the assessee filed an appeal under s. 248 of the Act before the learned CIT(A). It may be noted that an appeal can be filed under s. 248 of the Act, only after paying the tax provided to be deducted under s. 195 of the Act. The assessee accordingly paid the tax under s. 195 and thereafter, filed an appeal before the learned CIT(A). It was contended before the learned CIT(A) that the provisions of s. 9(1)(i) r/w s. 5(2)(b) of the Act were not applicable and that the charter charges were not taxable in India. 7. The learned CIT(A), after considering the detailed submissions made before him, came to the following conclusions: (i) Both the appellant and the AO are one that this case does not fall within the ambit of the provisions of s. 172. (ii) Since the amount was transferred directly to the non-residents' designated account abroad, the amount was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts as mentioned above to the non-resident owners of ships/vessels as hire charges for time charter of their ships/vessels as per details cited supra. Therefore, as per s. 195(1), the assessee was required to deduct tax at source before remitting the amounts by telegraphic transfer to the designated bank accounts of the non-residents. 9. Thereafter, the learned Departmental Representative drew our attention to the provisions of s. 9 and laid great emphasis on the words "income accruing or arising whether directly or indirectly, through or from any business connection." Then, he proceeded to cite a plethora of judgments to explain the meaning of the words "business connection". He placed reliance on the following judgments: (i) CIT vs. Metro Goldwyn Mayer Ltd. (1939) 7 ITR 176 (Bom) (ii) Anglo French Textile Co. Ltd. vs. CIT (1953) 23 ITR 101 (SC) (iii) Kalwa Devadattam Ors. vs. Union of India Ors. (1963) 49 ITR 165 (SC) (iv) Bikaner Textile Merchants Syndicate Ltd. vs. CIT (1965) 58 ITR 169 (Raj) (v) Performing Right Society Ltd. Ors. vs. CIT (1974) 93 ITR 44 (Cal) (vi) Performing Right Society Ltd. Anr. vs. CIT Ors. 1976 CTR (SC) 429 : (1977) 106 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e post office cases). Accordingly, the learned Departmental Representative submitted that the AO was justified in not granting the NOC. 12. Shri Sonde, the learned counsel for the assessee, strongly supported the orders of the learned CIT(A). His first argument was that the provisions of s. 195 were not applicable notwithstanding the fact that the word used in the section is 'shall' on which the learned Departmental Representative had placed great emphasis. The assessee had approached the learned AO for issue of a no objection certificate because in view of the provisions in the time chart agreement, no part of the consideration paid was taxable. At this stage, he took us through the various clauses of the time chart agreement, the salient features which have been reproduced in para 4. The assessee-company sought to make remittance of the charter party charges through proper banking channels without deducting tax at source. At the relevant time, RBI regulations required various dealers to be satisfied with reference to the income-tax position. The IT Department was required to issue a no objection certification for the remittances of the charter charges after/without deduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Anglo-French Textile Co. Ltd. vs. CIT (c) Carborandum Co. vs. CIT (d) Performing Right Society Ltd. vs. CIT 15. Thereafter, the learned counsel for the assessee took us through the decision of the Hon'ble Supreme Court in the case of Union of India vs. Gosalia Shipping (P) Ltd., relied upon by the learned CIT(A) and submitted that the ratio laid down by the Hon'ble Supreme Court in that case squarely applies to the facts of the case of the assessee. 16. According to the learned counsel for the assessee, the distinction drawn by the learned Departmental Representative while analyzing the judgment of the Supreme Court is irrelevant and in this connection, he drew our attention to cls. 3, 6, 7 and 16 of the charter agreement reproduced and submitted that the judgment of the Hon'ble Supreme Court fits like a cap on the assessee. The learned counsel for the assessee also drew our attention to Instruction No. 1934 dt. 14th Feb., 1996, issued by the CBDT and O.M. No. F. No. 480/195-FID dt. 14th Feb., 1996, placed at page No. 1, 2 and 3 respectively of the paper book and submitted that the case of the assessee also stands covered by the above instructions of the CBDT. 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. For the reasons given above, the ship cannot be said to be situated in India. In any view, there is no transaction involved in the time charter party of the nature to attract the provisions of s. 2(47) of the Act and, therefore, this limb can also have no application. Therefore, the provisions of s. 9(1)(i) referring to "through or from any business connection in India" will have to be considered. In this connection, the learned Departmental Representative has cited several cases referred to supra. 20. The learned Departmental Representative referred to the decision in the case of CIT vs. Metro Goldwyn Mayer (India) Ltd. In that case, the question that arose was whether the profit received on exhibition of films in India could be said to constitute a business connection. The Court held that: "Business connection denotes some element of continuity in the relationship between the person in India who makes the profits and the non-resident who receives them. A single transaction would not fall within the section. In every case one has to look at the particular facts of the case of see whether it falls within s. 42." This case requires a continuity of relationship between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted outside India. (f) The remittance is to be made outside India. Therefore, applying the ratio of the decision of Hon'ble Supreme Court on the facts of the assessee, there is no business connection in India. 24. In the case of CIT vs. Toshoku Ltd. (1980) 19 CTR (SC) 192 : (1980) 125 ITR 525 (SC), the Hon'ble Supreme Court has held that mere credit balance in the books without any operation being carried out in India cannot result into any accrual in income of India and mere book entry does not constitute payment which will secure or discharge from the debt. The argument of the learned Departmental Representative that the credit tantamounts to payment is contrary to the decision of the Hon'ble Supreme Court in the aforesaid case. 25. In the case of Barendra Prasad Ray vs. ITO, relied upon by the learned Departmental Representative, the question before the Court was whether the expression "business connection", would include a professional connection. This case has no relevance to the case of the assessee inasmuch as it is not the case of the assessee that it is in a profession. The true scope and meaning of the expression "business connection" has been dealt with in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the expression and the language used in s. 172 is mirrored in s. 44B of the IT Act. Sec. 44B is a special provision for computing profits and gains of shipping business in the case of non-residents. This section falls in Chapter IV dealing with computation of business income. Clearly, if no income is charged under s. 5 r/w s. 9, the question of going to the computation provisions does not arise. Therefore, if the assessee succeeds on the principle issue as to whether there is any business connection in India that brings the end of the matter. However, the question of whether any sum is chargeable to tax in India within the meaning of that expression in s. 195 must relate back to s. 44B. Sec. 44B and s. 172 are akin in language. The question for consideration is whether the consideration; paid for time charter party agreement can be said to be for the purpose of freight or on account of carriage of goods. The Supreme Court has held that where there is a time charter, one does not take a time charter party for the carriage of goods but for the letting on hire of the ship itself and, therefore, the charge paid is not freight at all. The AO and the learned Departmental Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early not a feature of the normal carriage by the carrier. No carrier gives the right to sublet his lorry, bus, aircraft or ship even if it has a mutual contract for carriage of goods. 28. The above clauses, therefore, establish that the hire charges are not paid on account of carriage of goods but to entitle the charterer for use of the ships. The observations of the Supreme Court at p. 313 are most relevant which are as follows: "These clauses of the charter-party show that the aluminium company took the ship from its owners on a time-charter party, that the owners were entitled to payment for the use and hire of the ship, that the amount was payable irrespective of what use the ship was put to by the time charterers or, indeed, whether it was put to any use at all and that no part of the payment can be said to have been made on account of the carriage of goods. Similies can be misleading but if a hall is hired for a marriage, the charges payable to the owner of the place are for the use and hire of the place, not on account of marriage." 29. In the light of the above discussion, we hold that the nature of payment is charter party charges and not freight charges and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion appears to be this. The engagement of the Government was to make payment by cheques. The cheques were drawn in Delhi and received by the assessee in Aundh by post. According to the course of business usage in general to which, as part of the surrounding circumstances, attention has to be paid, under the authorities cited above, the parties must have intended that the cheques should be sent by post which is the usual and normal agency for transmission of such articles and according to the Tribunal's finding that were in fact received by the assessee by post. In our opinion, this contention is well-founded. Whatever may be the position when there is an express or implied request for the cheque for the amount being sent by post or when it can be inferred from the course of conduct of the parties, the appellant in this case expressly required the amount of the commission to be paid at Secunderabad and the rule of Ogale Glass Works' case would be inapplicable." 31. In view of the above, we hold that complete lot of post office cases can have no application in the case of the assessee as there was an express agreement between the assessee and Exmar NV that the payment is to be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 1984, on the subject cited above and to say that in case 90 per cent of the freight charges are remitted by telegraphic transfer through a bank in the foreign country and the balance 10 per cent together with demurrage, if any, or less despatch, if any, is payable also by telegraphic transfer through a bank in the foreign country, no part of the freight charges is received in India by the foreign shipping company. As such, no income-tax is payable in respect of freight on import of cargo unless such freight is paid in India to the non-resident shipping company or its agents. It is, therefore, requested that the CIT, Tamil Nadu-II, Madras may kindly be approached for the purpose to whom necessary clarification has already been given. Sd/- (Amar Singh) Desk Officer" 33A. In view of the above position, the case of the assessee-company stands squarely covered by the above Instructions/Circulars of the CBDT, which are binding on the Revenue authorities. The argument of the learned Departmental Representative was that these were not circulars of the Board and in any view, were applicable to the Government departments and public sector undertakings and autonomous bodies ..... X X X X Extracts X X X X X X X X Extracts X X X X
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