K.L.Roy, J. -
(1.) Messrs. Czechoslovak Ocean Shipping International Joint Stock Co. is a non-resident shipping company. On or about the 23rd September, 1965, "M. S. Jiskara", one of its vessels, discharged in the port of Calcutta, under 6 bills of lading, cargo of machinery, equipment, instruments, etc., consigned to the Heavy Engineering Corporation Ltd., a Government of India undertaking, and to the Government Cement Factory of the State of Uttar Pradesh. The said vessel left the port of Calcutta on the 29th September, 1965, without loading any cargo. On the 12th November, 1965, another of its vessels, "M. S. Pionyr", discharged in the port of Calcutta, cargo of various machinery, equipment, etc., consigned to the Heavy Engineering Corporation Ltd. and left the port on the 16th November, 1965, without loading any cargo. Under the relevant bills of lading the freight was to be considered as earned whether the ship and/or cargo was lost or not and was to be paid at destination. M/s. Khemka & Co. (Agencies) Private Ltd., the second petitioner (hereinafter referred to as "the Khemkas") acted as the agent for the non-resident shipping company and collected Rs. 1,59,352.66 towards the freight of the cargo discharged by M. S. "Jiskara", and Rs. 1,45,585.86 as the freight for the cargo discharged by "M. S. Pionyr" and after deducting the necessary disbursements panted to remit the balance of the aforesaid freight, being the sums of Rs. 1,25,000 and Rs. 90,000, to Praha, where the head office of the nonresident company was situated and applied for the necessary sanction from the Reserve Bank of India through its own bankers, the Indian Overseas Bank Ltd. The Khemkas were informed by the Indian Overseas Bank Ltd. that the Reserve Bank required them to produce clearance certificate from the income-tax authorities that no income-tax was payable in respect of the aforesaid freights. By its letter dated the 1st April, 1966, addressed to the Income-tax Officer, A Ward, Companies District III, Calcutta, the 1st respondent herein, the Khemkas, asked the Income-tax Officer to confirm that no income-tax is payable on freight for imports discharged in Calcutta unless the vessels loaded any export. In this letter the Khemkas described themselves as "agents". By its letter dated the 4th April, 1966, the respondent No. 1 informed the Khemkas that the freight earnings received in the taxable territories on behalf of the non-resident principal on account of cargo discharged by the said two vessels were assessable under Section 5 of the Income-tax Act, 1961. The Khemkas were further requested to inform the said respondent the name of the non-resident principals on whose behalf the freight earnings were collected and whether the said principals are assessed to Indian income-tax on annual basis and, if not, to furnish the relevant particulars of income from the freight earnings on account of cargo discharged in Calcutta. Thereafter various letters were written by the Khemkas to the respondent No. 1 asking for time as they had referred the matter to Praha and such time was accordingly granted on several occasions. On the 29th April, 1966, the Khemkas again wrote to the respondent No. 1 that pending instructions from their principals it was submitted that the income was earned outside India under a contract of carriage signed outside India and was undoubtedly income accruing or arising outside India though realised in India and was saved from assessment under Explanation 1 to Section 5. To this, the respondent No. 1 replied on the 6th May, 1966, that the freight earnings received in the taxable territories on behalf of the non-resident principal were taxable under Section 5(2) of the Act and that the Explanation to that section had no application to the present case. The material communication which has given rise to this application is the letter dated the 5/8th September, 1966, whereby the said respondent informed the Khemkas that they were liable to deduct tax under Section 195 of the Income-tax Act, 1961, from the freight earnings amounting to Rs. 1,59,352.66 and Rs. 1,45,585.86 in respect of the inward cargo brought by the vessels "M.S. Jiskara" and "M. S. Pionyr" payable to the principals at Praha. The said amount was taxable under Section 5(2) of the Act. The Khemkas were further requested to collect the necessary challans for the payment of the aforesaid tax from the Income-tax Officer, E-Ward, Companies District III, Calcutta, being the respondent No. 2 herein, who was dealing with deductions under Section 195, under intimation to the respondent. On the 15th September, 1966, M/s. Sandersons & Morgans, the petitioners' solicitors, wrote to the respondent No. 1, putting it on record that when their assistant, Mr. Gupta, saw him on the 3rd September, 1966, no order had been passed but the case had been referred to some other Income-tax Officer. The letter further required the respondent No. 1 to supply a copy of the order to pay the tax on freight earnings. By two orders dated the 15th November, 1966, purported to be orders for deduction under Section 195, the respondent No. 2 determined the proportion of the sum chargeable to income-tax out of the amount to be paid to the non-resident as 1/6th and the rate at which tax should be deducted at 70 per cent. and directed the amounts of Rs. 18,591 and Rs. 16,985 to be deducted and deposited after obtaining the necessary challans from the said respondent. A demand for justice was made by the Khemkas on behalf of both themselves and their non-resident principals by their letter dated the 5th February, 1968, and this rule was obtained on the 2nd July, 1968.
(2.) In spite of the attempt of the learned counsel for the petitioner to raise serious questions on the interpretation of certain sections of the Income-tax Act, 1961, and in citing numerous authorities on the principles of interpretation of statutes, in my opinion, none of the sections of the above Act which are material for the purpose of this application present any difficulty of construction and it is not necessary to consider any of the canons of the construction referred to and/or relied on by Mr. Majumdar. I proceed to consider the relevant sections of the above Act and the scope of the application of these sections to the facts of the present case. Section 4 imposes a charge of tax on the total income of the previous year of any person and such tax shall be deducted at source or paid in advance where it is so deductible or payable under any provisions of the Act. Section 5(2) relates to the income of a non-resident and provides that the total income of such a non-resident shall include all incomes from whatever source derived which, (a) is received or is deemed to be received in India in such year by or on behalf of such person, (b) accrues or arises or is deemed to accrue or arise to him in India during such year. The Explanation to that section provides that income accruing or arising outside India shall not be deemed to be received in India within the meaning of that subsection by reason only of the fact that it is taken in a balance-sheet prepared in India. I should point out at once that the said Explanation does not support the contention raised by the Khemkas that income accruing or arising outside India shall not be deemed to be received in India as the Explanation only confines itself to such a deemed receipt on the ground of the amount being taken into account in a balance-sheet prepared in India. The respondent No. 1 is perfectly justified in asserting that the freight for cargo unloaded at Indian ports and received in India is chargeable to tax under Section 5(2). Section 9(1)(i) defines income which is deemed to accrue or arise in India, namely, all income accruing or arising, whether directly or indirectly, through or from any business connection in India or through or from any property in India, or through or from any assets or source of income in India, or through or from any money lent at interest and brought into India in cash or in kind or through the transfer of a capital asset situate in India. The next section to be considered is Section 160 which defines a representative-assessee and such an assesssee under Clause (i) means in respect of the income of a non-resident specified in Clause (i) of Sub-section (1) of Section 9, the agent of the non-resident 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. Section 163, after declaring the categories of persons who could be treated as agents in relation to a non-resident, provides in subsection (2) that no person shall be treated as such agent unless he has had an opportunity of being heard by the Income-tax Officer as to his liability to be treated as such. The next material section is Section 172. It is to be mentioned that Sections 160, 163 and 172 occur in Chapter XV of the Act, the heading of which is "Liability in special cases". There is a subheading for Section 172, namely, "profits' of a non-resident from occasional shipping business". The provisions of Section 172 apply for the purpose of the levy and recovery of tax in the case of any ship belonging to a nonresident which carries passengers, live-stock, mail or goods shipped at a port in India unless there is an agent of the non-resident from whom the tax will be recoverable under the other provisions of the Act. In the case of occasional shipping, which are commonly known as "tramp steamers", when such a ship loads cargo or takes passengers at any Indian port the procedure laid down in the section is for the captain of the vessel to submit a return of the full amount paid or payable on account of the carriage of all passengers or live-stock and freight for goods shipped at. that port and for the Income-tax Officer to make an assessment on the return and realise the tax before the ship is granted clearance to leave the port. In other words, the section is intended to prevent owners or masters of ships who come occasionally to Indian ports and who have no agents in India on whom assessment on an annual basis may be made, to escape payment of tax on earnings from freight or carriage of passengers embarked in an Indian port. The next two sections to be considered are Sections 190 and 195 which occur in Chapter XVII which deals with the collection and recovery of tax. Section 190 is a general provision for deduction at source and advance payment of income-tax. Section 195 is the most material section so far as this application is concerned and is quoted fully here-under:
"(1) Any person responsible for paying to a non-resident, not being a company, or to a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India, any interest, not being 'interest on securities', or any other sum, not being dividends, chargeable under the provisions of this Act, shall, at the time of payment, unless he is himself liable to pay any income-tax thereon as an agent, deduct income-tax thereon at the rates in force : Provided that nothing in this sub-section shall apply to any payment made in the course of transactions in respect of which a person responsible for the payment is deemed under the proviso to Sub-section (1) of Section 163 not to be an agent of the payee. (2) Where the person responsible for paying any such sum chargeable under this Act (other than interest including interest on securities, dividend and salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Income-tax Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under Sub-section (1) only on that proportion of the sum which is so chargeable."
(3.) The only other section to be considered is Section 246 which gives a list of the orders of the Income-tax Officer from which appeals lie to the Appellate Assistant Commissioner and while Clause (g) provides an appeal against an order treating the assessee as an agent of non-resident, no appeal is provided for from an order purported to be made under Section 195(2).;