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1998 DIGILAW 119 (CAL)

COMMISSIONER OF INCOME-TAX v. NIPPON YUSEN KAISHA

1998-03-16

BIJITENDRA MOHAN MITRA, Y.R.MEENA

body1998
Y. R. MEENA, J. ( 1 ) IN this reference application, the following questions are referred for our opinion :"1. Whether, on the facts and in the circumstances of the case and keeping in view particularly the provisions of the Sections 5 (2) and 9 (1) of the Income-tax Act, 1961, the Tribunal was justified in law in holding that the receipt of detention/demurrage charges of Rs. 31,63,688 is not taxable in India and thereby excluding the same from the income of the assessee" ( 2 ) WITHOUT prejudice to question No. 1 whether, on the facts and in the circumstances of the case particularly in view of the finding of facts recorded by the Commissioner of Income-tax (Appeals) in his order the Tribunal was justified in law in holding that the detention/demurrage charges received by the assessee are not covered by the provisions of the Section 44b of the Income-tax Act, 1961, and thereby reversing the order of the Commissioner of Income-tax (Appeals) ?" though we had taken a tentative view in court on March 16, 1998, but on re-thinking we thought it proper to hear the parties again on the question whether the income of the non-resident which accrued outside India can be taxed in India. We re-fixed the case for fresh hearing today, and heard learned counsel for the parties. 2. The assesses is a non-resident company engaged in the business of operation of ships. The assessee declared freight earnings at Rs. 18,21,23,117 and total receipts from detention/demurrage on containers at Rs. 31,63,688. The Assessing Officer took 7. 6 per cent, of the total freight earnings as taxable profits of the assessee-eompany. To this extent, there is no dispute between the parties. However, the Assessing Officer further took the entire receipts of Rs. 31,63,688 received against detention/demurrage as income of the assessee and therefrom allowed deduction at the rate of 5 per cent, as expenses on estimate basis. Thus, he took out Rs. 30,05,504 as income of the assessee received against detention/demurrage charges. ( 3 ) BEING aggrieved, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals ). The Commissioner of Income-tax (Appeals) has taken the receipt against detention/demurrage charges as part and parcel of the carriage of goods within the meaning of Section 44b of the Act. 30,05,504 as income of the assessee received against detention/demurrage charges. ( 3 ) BEING aggrieved, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals ). The Commissioner of Income-tax (Appeals) has taken the receipt against detention/demurrage charges as part and parcel of the carriage of goods within the meaning of Section 44b of the Act. Therefore, the Commissioner of Income-tax (Appeals) directed that the amount received against detention/demurrage charges should be treated at par with freight and only 7. 5 per cent, of that amount should be treated as profits of the business from the operation of ships. ( 4 ) BEING aggrieved, the Department filed an appeal before the Tribunal challenging the view taken by the Commissioner of Income-tax (Appeals) and contending that the entire receipt against detention/demurrage charges should be treated as profits and gains of the assessee as has been taken by the Assessing Officer. The assessee raised a cross-objection and the claim that demurrage charges cannot be taxed at all under the Act, as that income does not accrue in India. The Tribunal has accepted the grounds raised in the cross-objection by the assessee and held that the amount of demurrage charges cannot be taxed as no income does accrue in India. ( 5 ) AT the outset, counsel for the assessee, Dr. Pal, brought to our notice that by virtue of the insertion of the Explanation in Sub-section (2) of Section 44b of the Act, question No. 2 can be answered against the assessee and in favour of the Revenue and so far as question No. 1 is concerned, the matter should be sent back to the Tribunal for further findings of fact as to whether the income which accrued outside India can be taxed in India under Section 5 or Section 9 or under Section 44b of the Act. ( 6 ) LEARNED counsel for the Revenue submitted that even the income which accrued outside India can be taxed under Section 44b treating the same at par with the freight receipts. Dr. Pal for the assessee submitted that the income which has not accrued in India cannot be taxed, the same cannot be treated as income under the provisions of the Act. ( 7 ) THE facts are not in dispute that the assessee is a non-resident shipping company and has earned freight of Rs. 18,21,23,117 and also received Rs. Dr. Pal for the assessee submitted that the income which has not accrued in India cannot be taxed, the same cannot be treated as income under the provisions of the Act. ( 7 ) THE facts are not in dispute that the assessee is a non-resident shipping company and has earned freight of Rs. 18,21,23,117 and also received Rs. 30,05,504 against the detention/demurrage charges. The dispute relates only to the amount received against detention/demurrage charges whether that should be assessed as income of the assessee at all, and if so assessed, whether the same should be assessed under Section 5 (2) and Section 9 (1) of the Act or under Section 44b of the Act. The Explanation which has been inserted in Sub-section (2) of Section 44b of the Act reads as under :"explanation.--For the purposes of this sub-section the amount referred to in Clause (i) or Clause (ii) shall include the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature. "this Explanation though inserted by virtue of the Finance Act, 1997, has come into force with effect from April 1, 1976. Thus, it covers the assessment years of the assessee which is before us. Dr. Pal fairly admitted that after this Explanation, the demurrage charges or handling charges or any other amount of similar nature shall be taxed in the same way as the amount in Clause (i) or Clause (ii) of Sub-section (2) of Section 44b of the Act. Accordingly, question No. 2 we answer against the assessee and in favour of the Revenue holding that demurrage charges or freight charges should be taxed in the same way as freight taxable under Section 44b of the Act. ( 8 ) SO far as question No. 1 is concerned, Dr. Pal submits that in the absence of necessary findings of fact relevant to the question as to whether demurrage charges accrued in India or outside India, this question cannot be answered. According to him, the demurrage charges, the income accrued outside India, is not taxable under the provisions of Sections 28 to 44d. Pal submits that in the absence of necessary findings of fact relevant to the question as to whether demurrage charges accrued in India or outside India, this question cannot be answered. According to him, the demurrage charges, the income accrued outside India, is not taxable under the provisions of Sections 28 to 44d. He also drew our attention to Section 5 of the Act which provides for as to what will be the income and Section 9 provides what will be the deemed income which is taxable under the Act. According to him, demurrage charges which accrued only outside India are not taxable under the provisions of this Act. On a perusal of the provisions of Section 5 of the Act, we find that the provisions contained in Section 5 of the Act starts with the words, "subject to the provisions of this Act. . . " Thus, the provisions of Section 5 are subject to other provisions of the Act. If other provisions are contrary to the provision of Section 5, other provisions will have overriding effect on the provisions of Section 5. ( 9 ) SECTION 44b provides how the income from shipping business can be taxed in the case of non-residents and the section starts with a non obtante clause, i. e. , "notwithstanding anything to the contrary contained in Sections 28 to 43a of the Act". Thus, it is made clear that whatever is provided in the provisions contained in Sections 28 to 43a that will not come in the way of the provisions contained in Section 44b as to how the income from shipping business in the case of non-residents will be computed, whether the income will be computed or not what will be the rate of that income. Sub-section (2) of Section 44b provides as under :" (2) The amounts referred to in Sub-section (1) shall be the following, namely :-- (i) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India ; and (ii) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India. "dr. "dr. Pal also laid emphasis in his argument that when the income which accrued outside India is not taxable under the provisions of Sections 28 to 43a, the detention/demurrage charges cannot be taxed. Therefore, for necessary findings of fact whether the income accrued in India or outside India, the matter should be sent back to the Tribunal. ( 10 ) IT is true that the provisions of Section 44b have overriding effect over the provisions of Sections 28 to 43a of the Act and that if anything is contrary to the provisions of Section 44b, then the provisions of Section 44b will prevail ; but the question before us is whether any income of a non-resident which has accrued outside India by way of demurrage charges, can be taxed in India ? A query was put to learned counsel for the Revenue, but he miserably failed to show any provision or authority that any income of a non-resident which accrued outside India can be taxed in India under any provision including the provision of Section 44b. But at the same time when we perused the order of the Tribunal, there is no specific finding by the Tribunal as to what part of the demurrage income accrued to the assessee in India or outside India. Therefore, in order to answer question No. 1, it is necessary to have the finding whether the demurrage income accrued in India or outside India and if not the entire income from demurrage, as to what part of the income from demurrage accrued in India or outside India. ( 11 ) DR. Pal also brought to our notice that when it is not possible to answer the question referred to us for want of a finding, the matter can be sent back to the Tribunal. In Sutlej Cotton Mills Ltd. v. CIT, their Lordships of the apex court observed as under (page 14) :"the question whether the loss suffered by the assessee was a trading loss or a capital loss cannot, therefore, be answered unless it is first determined whether these two amounts were held by the assessee on capital account or on revenue account or, to put it differently, as part of fixed capital or of circulating capital. We would have ordinarily, in these circumstances, called for a supplementary statement of case from the Tribunal giving its finding on this question, but both the parties agreed before us that their attention was not directed to this aspect of the matter when the case was heard before the Revenue authorities and the Tribunal and hence it would be desirable that the matter should go back to the Tribunal with a direction to the Tribunal either to take additional evidence itself or to direct the Income-tax Officer to take additional evidence and make a report to it, on the question whether the sums of Rs. 25 lakhs and Rs. 12,50,000 were held in West Pakistan as capital asset or as trading asset or, in other words, as part of fixed capital or part of circulating capital in the business. The Tribunal will, on the basis of this additional evidence and in the light of the law laid down by us in this judgment, determine whether the loss suffered by the assessee on remittance of the two sums of Rs. 25 lakhs and Rs. 12,50,000 was a trading loss or a capital loss. "considering the view taken by their Lordships in Sutlej Cotton Mills Ltd. , we remit the matter back to the Tribunal to give a finding as to whether the income by way of demurrage charges accrued to the assessee in India or outside India and, if not the entire income, what part of the income accrued to the assessee in India and what part of income accrued outside India and decide the issue afresh whether if the income accrued outside India to the non-resident, can that be taxed in India ?