High Court Of Andhra Pradesh
Kanchanganga Sea Foods Ltd. vs. CIT
Sections 5(2), 195, 201
Dr. Motilal B. Naik & M. Narayana Reddy, JJ.
Ref. Case No. 144 of 1995 & Writ Petn. No. 1103 of 1998
7th June, 2002
Counsel Appeared
Krishna Koundinya, Vinod Singh & B. Ravinder, for the Petitioner : V. Sivakumar & J.V. Prasad, for the Respondents
JUDGMENT
DR. motilal B. naik, J. :
This reference is at the instance of the assessee. The Income-tax Appellate Tribunal (hereinafter referred to as “the Tribunal”), Hyderabad Bench, Hyderabad, while stating the case, has referred the following questions of law for the opinion of this Court :Questions of law :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that payment is made to the non-resident by the assessee in India?
Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the receipt in the form of 85 per cent of the catch of fish by the non-resident was in India since all the formalities are completed in India ?
Whether, on the facts and in the circumstances of the case, the Tribunal is justified in rejecting the claim that there is no payment to the non-resident by the assessee but there was only a receipt of 15 per cent of the value of fish catch from the non-resident to the assessee ?
Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessee is liable to deduct tax at source under s. 195 of the Act on the alleged payment made to the non-resident towards hire charges even though the alleged payment is not in cash ?
Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessee was in default under s. 201 of the IT Act, 1961, for the failure to deduct tax under s. 195 of the Act ?”
The assessee, a company incorporated in India and engaged in sale and export of sea food, obtained a permit to fish in the Exclusive Economic Zone of India on 25th June, 1990, in pursuance of a letter of intent dt. 20th Feb., 1984. In order to exploit the fishing rights, the assessee entered into an agreement chartering two fishing vessels, i.e., two pairs of bull trawlers, with Eastwide Shipping Co. (Hong Kong) Ltd., a non-resident company incorporated in Hong Kong. The agreement is dt. 7th March, 1990. Necessary permission to remit 85 per cent towards hire charges was also granted by the Reserve Bank of India on 12th Aug., 1991. The agreement between the parties, the grant of permit by the Government of India and the permission to remit 85 per cent towards hire charges were originally for a period of three years and were subsequently extended for another two years in terms of the agreement between the parties.
As per the agreement, the fishing vessels were to be delivered at Madras Port for commencement of fishing operations. Under various clauses, the modalities for payment of the fee including fuel cost, maintenance, repairs, etc., and also the characteristic of the contract and the annual charter fee and the annual fee payable by way of 85 per cent of gross earnings from the sale of fish subject to the further condition that catch of the fish would be accrued to the charterer, are provided under the agreement.
The assessing authority held that the assessee made the payment to the non-resident within the meaning of s. 195 of the IT Act and was liable to deduct tax at source therefrom and that failure to do so made the assessee liable to deposit the amount to the credit of the Government of India and pay interest for such failure under s. 201(1A) of the IT Act. Sec. 195(1) of the IT Act provides that the person responsible for paying any sum to a non- resident/foreign company has to deduct tax at the rates in force at the time of credit of such sum to the account of the payee or at the time of payment thereof. The payment could be either in cash or by issue of a cheque or draft or any other mode. The liability to deduct tax is at the time of earliest mode of payment and the sum paid must be chargeable to tax. Sub-s. (2) of s. 195 of the Act provides for deduction from a lower sum on an application if the payer thinks that the entire sum paid is not income chargeable to tax in the case of the recipient. The other sections provide that other requirements are to be fulfilled. Sec. 201 deals with the consequences of failure to deduct or pay tax and sub-s. (1A) provides for payment of interest in addition to the amount of tax deductible by the payer.
The assessee contended that there was no chargeable income at all which resulted to the nonresident and that there was no payment of any sum by the assessee to the non-resident and as such there was no liability to deduct tax at source under s. 195 or liable under s. 201 of the Act. The Revenue was of the view that the income from charter hire has accrued, arisen and also been received in India in terms of 85 per cent of the catch of fish and, therefore, the assessee was obliged to deduct tax at source. As per the agreement dt. 7th March, 1990, 85 per cent of the catch has to be paid to the Eastwide Shipping Company (HK) Ltd., towards hire charges from out of the catch and the assessee only gets 15 per cent from the catch. As the operations of the fishing vessels were in the Economic Zone beyond 12 nautical miles from the sea shore, i.e., outside India, the Departmental appellate authority agreed with the submission made on behalf of the assessee that no income to the non-resident had accrued or arisen in India in the light of the decision of the Supreme Court in Performing Right Society Ltd. vs. CIT 1976 CTR (SC) 429 : (1977) 106 ITR 11 (SC). The Tribunal held that in view of the decision of the Supreme Court in Raghava Reddy vs. CIT (1962) 44 ITR 720 (SC), the receipt of income by itself attracts the liability to tax and it is not necessary that it must also accrue or arise in India. Having regard to the facts and circumstances of the case, the Tribunal further held that the entire catch of fish belonged to the assessee, which was shown as sale by the assessee and that as 85 per cent of such fish catch was adjusted in discharge of the liability of the assessee towards hire charges for chartering the vessels from the non-resident, it would be receipt in the hands of the non-resident under s. 5(2) of the IT Act. Having held so, the Tribunal came to the conclusion that s. 195 casts an obligation on the assessee to deduct tax either at the time of payment or at the time of credit to the account of the payee. It was also held by the Tribunal that the payment contemplated under s. 195 not only includes cash payment or payment by cheque or draft but also a payment even by any other mode and, therefore, the payment of hire charge made by the assessee by giving 85 per cent of the fish catch to the non-resident amounts to payment as contemplated under s. 195 of the Act and thus the assessee has to discharge the liability by making deduction at source. Having regard to the finding given by the CIT(A) that the assessee had not deducted the tax at source, the Tribunal held that the assessee is a defaulter as provided under s. 201 of the IT Act and required the assessee to pay interest for failure thereof under s. 201(1A) of the Act and dismissed the appeals affirming the order made by the CIT(A).
The assessee sought a reference on questions of law for the opinion of this Court and thus this reference is at the instance of the assessee for the opinion of this Court on the questions of law formulated by the Tribunal.
We have heard Sri Krishna Koundinya, learned counsel appearing on behalf of the assessee and Sri J.V. Prasad, learned counsel appearing on behalf of the Revenue. Efforts are made by learned counsel for the assessee to convince us that there was no income chargeable which resulted to the non-resident and there was no payment of any sum by the assessee to the non-resident and thus the liability to deduct tax at source under s. 195 or the liability under s. 201 of the IT Act does not arise. Supporting his contention, learned counsel for the assessee also drew our attention to a few decisions, but we do not agree to the submissions made by learned counsel appearing on behalf of the assessee.
In the light of the discussion made by the Tribunal in particular referring to various decisions in the light of the provisions under ss. 195, 201 and 201(1A) of the IT Act, we do not think that there are any justifying reasons for us to take a different view than the view taken by the Departmental appellate authority, which is affirmed by the Tribunal. Since the reference is at the instance of the assessee, the questions of law involved in this reference are to be answered against the assessee and in favour of the Revenue. Thus we hold that :
On the facts and in the circumstances of the case, the Tribunal is correct in law in holding that payment is made to the non-resident by the assessee in India;
On the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the receipt in the form of 85 per cent of the catch of fish by the non-resident was in India since all the formalities are completed in India;
On the facts and in the circumstances of the case, the Tribunal is justified in rejecting the claim that there is no payment to the non-resident by the assessee but there was only a receipt of 15 per cent of the value of fish catch from the non-resident to the assessee;
On the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessee is liable to deduct tax at source under s. 195 of the Act on the alleged payment made to the non-resident towards hire charges even though the alleged payment is not in cash; and
On the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessee was in default under s. 201 of the IT Act, 1961, for the failure to deduct tax under s. 195 of the IT Act.
The reference is accordingly answered in favour of the Revenue and against the assessee. Since the R.C. No. 144 of 1995 is decided in favour of the Revenue and against the assessee, which squarely covers the issue raised in W.P. No. 1103 of 1998, we need not separately adjudicate the issue raised in the writ petition and it is accordingly dismissed. No costs.
[Citation : 265 ITR 644]
