High Court Of Kerala
CIT vs. Taiyo Gyogyo Kabushiki Kaisha
Sections 5(2), 44B, 172, SURTAX 2(5), 4
Asst. Year 1979-80
Arijit Pasayat, C.J. & K.S. Radhakrishnan, J.
IT Ref. No. 275 of 1997
28th February, 2000
P.K.R. Menon & George K. George, for the Revenue : C. Kochunni Nair & S. Vinodkumar, for the Assessee
ARIJIT PASAYAT, C.J. :
At the instance of the Revenue, the following questions have been referred under s. 18 of the Companies (Profits) Surtax Act, 1964 (in short “the Act”), r/w s. 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the IT Act”), by the Income-tax Appellate Tribunal, Cochin Bench (in short “the Tribunal”) : “Whether, on the facts and in the circumstances of the case : (i) the Tribunal is right in law in holding that unless the total income is assessed to tax, there can arise no liability under the provisions of the Companies (Profits) Surtax Act. (ii) is the assessment under the Companies (Profits) Surtax Act wrong and against law ?” The factual position as set out in the statement of case is as follows : The assessee, Taiyo Gyogyo Kabushiki. Kaisha, is a multi-national company of Japan with diverse business interests ranging from shipping to sugar refining. During the previous year relevant to the asst. yr. 1979-80, the assesseeâs ships visited Indian ports for shipment of cargo. Gross freight earnings of Rs. 2,75,06,151 for shipment of cargo from Indian ports were subjected to tax in accordance with the provisions of s. 172(4) of the IT Act, 1961. The assessee being a non-resident company the assessment was made through its Indian agents, Devshi Dhanji Khona, Cochin. On the basis of the assessment under s. 172(4) of the IT Act, the AO proposed to levy surtax under the Act. The assesseeâs stand before the AO was that in the absence of any assessment under s. 143 or 144 of the IT Act, there was no question of levy of such tax. Any assessment made under s. 172(4) of the IT Act cannot be said to be computation of total income under the said Act which alone can form the basis of assessment under the Act. The AO did not accept the view. He held that whatever was assessed under s. 172(4) of the IT Act would amount to chargeable profit under s. 2(5) of the Act and attract levy of surtax. In the first appeal filed before the CIT(A), Cochin”, the assesseeâs stand was reiterated. The said authority held that whatever was assessed under sub-s. (4) of s. 172 of the IT Act was not the total income, but was income referred to in sub-s. (2) thereof. There was an option under s. 172(7) of the IT Act, for the owner of ship to have an assessment of his total income for the entire previous year. Therefore, unless an assessment was made under s. 172(7) of the IT Act with the assessee exercising option, there was no assessment on the total income of the ship- owner. Accordingly, the assessment was nullified. The Revenue took up the matter before the Tribunal, which concurred with the view of the CIT(A). At the instance of the Revenue, the questions as set out above, have been referred for opinion of this Court.
In support of the application, learned counsel for the Revenue submitted that a distinction has to be made between an assessment made under s. 172(4) of the IT Act and one made under s. 172 (7) of the IT Act. In the absence of an assessment under s. 172(7) of the IT Act, the one made under s. 172(4) has to be treated as assessment for the purpose of levying surtax. Reliance was placed on the observation of the apex Court in A.S. Glittre D/5 I/S Garonne vs. CIT (1997) 140 CTR (SC) 97 : (1997) 225 ITR 739 (SC) : TC S4.386, wherein it was, inter alia, held as follows : “The scheme of s. 172 of the Act appears to be this : Sec. 172(1) of the Act gives a right to the ITO to levy and recover tax in the case of any ship belonging to a non-resident, in a summary manner (ad hoc assessment) notwithstanding anything contained in the other provisions of the Act. It is an absolute right conferred on the assessing authority. The assessee has no right to object to the same. Normally, this will be the assessment of the assessee for the year.” Learned counsel for the assessee, on the other hand, submitted that the provisions of the Act make the position absolutely clear that it is only the total income as defined under s. 2(45) of the IT Act which can form the basis for computation of surtax. Unless there is a computation of total income in terms of s. 2(45) of the IT Act, the question of surtax being levied does not arise. In view of the rival submissions, it is necessary to take note of a few relevant provisions. Secs. 172 and 5(2) of the IT Act, and ss. 2(5) and 4 of the Act read as follows : Income-tax Act : “172, Shipping business of non-residents.â(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 chartered by a non-resident, which carries passengers, live- stock, mail or goods shipped at a port in India. (2) Where such a ship carries passengers, live-stock, mail or goods shipped at a port in India, seven and a half per cent of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether the amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. (3) Before the departure from any port in India of any such ship, the master of the ship shall prepare and furnish to the AO a return of the full amount paid or payable to the owner or charterer or any person on his behalf, on account of the carriage of all passengers, live-stock, mail or goods shipped at that port since the last arrival of the ship thereat : Provided that where the AO is satisfied that it is not possible for the master of the ship to furnish the return required by this sub-section before the departure of the ship from the port and provided the master of the ship has made satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf, the AO may, if the return is filed within thirty days of the departure of the ship, deem the filing of the return by the person so authorised by the master as sufficient compliance with this sub-section. (4) On receipt of the return, the AO shall assess the income referred to in sub-s. (2) and determine the sum payable as tax thereon at the rate or rates in force applicable to the total income of a company which has not made the arrangements referred to in s. 194 and such sum shall be payable by the master of the ship…….. (7) Nothing in this section shall be deemed to prevent the owner or charterer of a ship from claiming before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, live-stock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment in advance of the tax leviable for that assessment year, and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as the case may be…….” “5. Scope of total income.â(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which : (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income 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; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.âIncome accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2.âFor the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.”
The Act : “2.(5) Chargeable profits.ââChargeable profitsâ means the total income of an assessee computed under the IT Act, 1961 (43 of 1961), for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the First Schedule.” “4. Charge of tax.âSubject to the provisions contained in this Act, there shall be charged on every company for every assessment year commencing on and from the 1st day of April, 1964, a tax (in this Act referred to as the surtax), in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the statutory deduction, at the rate or rates specified in the Third Schedule.”
6. Sec. 2(5) of the Act deals with “chargeable profits” and prescribes that the total income of an assesseecomputed under the IT Act, after adjustment in accordance with the provisions of the First Schedule shall be the chargeable profits. As per the First Schedule, the starting point for computing “chargeable profits” is the total income computed under the IT Act. Sec. 2(45) of the IT Act, defines “total income” as the total amount of income referred to in s. 5, computed in the manner laid down in the IT Act. Sec. 5(2) of the IT Act, in turn, provides that the income of a nonresident includes all income that is received or deemed to be received or accrued or deemed to be accrued. A fine line of distinction has to be drawn between assessments made under sub-ss. (2) and (4) of s. 172 and that made under sub-s. (7) of the IT Act. What is referred to in sub-ss. (2) and (4) is only the income accruing to the “ship owner on account of carriage of goods, etc.”, and not the “total income” of the ship owner. Sub-ss. (2) and (4) of s. 172 provide for a provisional assessment in the case of a ship and sub-s. (7) alone provides for an assessment of the total income of the ship owner. It is to be noted that s. 44B of the IT Act is a special provision for computing profits and gains of shipping business in the case of non residents. The provisions of the saidsection are operative for and from the asst. yr.1976-77. It is further to be noted that s. 44B of the IT Act, begins with a non obstante clause and states that notwithstanding anything to the contrary contained in ss. 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in sub-s. (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. Sec. 172 of the IT Act, on the other hand, is contextually different from s. 44B. In the latter section, no procedure for assessment and collection of tax is provided. It is significant that by use of a non obstante clause what is excluded are ss. 28 to 43A and no other provision of the IT Act while in the former provision, operation of all other provisions of the IT Act is excluded. In Chapter IV of the IT Act, under the heading “Profits and gains of business or profession” ss. 28 to 43A are covered. In other words, income from shipping accrued or deemed to have accrued to a non-resident ship-owner or charterer falls outside the scope of trade and business as it is commonly understood. Under s. 44B, the incidence of tax is on a non-resident engaged in the business of operation of ships owned or chartered by him or it. When an assessment in terms of s. 44B is made, profits or gains of business is computed at seven and half per cent of not only the freight collected or collectable in respect of the goods or other things specified which is shipped at any Indian port, but also the freight deemed to be received in India in respect of the carriage of goods or things specified shipped at any port outside India, till the latter is included in the assessment, it cannot be said that there was assessment of total income of the non-resident. Significantly s. 172 does not refer to a nonresident assessee. It only refers to levy and recovery of tax in the case of any ship belonging to or chartered by a non- resident which carries passengers, livestock, mail or goods shipped at a port in India. The irresistible conclusion, therefore, is that a non-resident engaged in shipping business subject to the qualification of carrying goods, passengers, livestock, mail or goods, being an assessee, is required to be assessed in accordance with s. 143 in the back ground of s. 44B and not in accordance with the procedure prescribed for a non-resident ship-owner or charterer covered by sub-ss. (1) and (2) of s. 172. “Assessee”, as defined in cl. (7) of s. 2, does not encompass the ship-owner or charterer in s. 172(1). Heading under “H” in Chapter XV is significant in that regard. It reads as follows : “H.âProfits of non-residents from occasional shipping business”.
A ship which leaves an Indian port and only casually visits is covered by s. 172 in contrast to those who do regular shipping business. Sec. 44B covers the latter category of persons and in their case, assessment has to be made in accordance with the provisions of the IT Act applicable at the rates specified in s. 44B. A person who is required to be covered and controlled by the provisions contained in s. 172 is, therefore not an assessee. It is to be noted that the provisions of ss. 172(2) and 172(4) are intended to levy and recover tax in specified cases before the end of the previous year or before the ship or vessel leaves the port. It is not a substitute for assessment on the total income of a non-resident engaged in shipping business. The Act does not require piecemeal assessments of total income. Otherwise, it would result in different assessments for the same assessment year on the same person in the same capacity. Such a situation is not contemplated under the IT Act. The decision in A.S. Glittreâs (supra), was rendered in a totally different context and does not throw any light on the dispute at hand. Sec. 172(4) is a special provision, assessment under which can be described as accelerated or ad hoc assessment. Each of such assessments can be viewed as ad hoc or provisional or special purpose assessment. The AO is not precluded from resorting to s. 44B of the IT Act in respect of freight paid or payable on account of carriage of passengers, livestock, mail or goods shipped at any port in India and the amount received or deemed to be received in India on account of carriage of such items shipped at any port outside India. Unless assessment was made in terms of s. 44B, it cannot be said that the owner of the ship or charterer had been assessed on the total income under the IT Act. The stand of the Revenue that the assessment under sub-s. (2) of s. 172 was itself an assessment of total income cannot be accepted, as before the AO could proceed on that basis, either the assessee should haveexercised option under s. 172(7) or the AO should have made an assessment in terms of s. 44B of the Act. The CIT(A) and the Tribunal were, therefore, justified in their conclusion that tax under the Act is not leviable. Our answer to the questions referred is in the affirmative, in favour of the assessee and against the Revenue.
[Citation : 244 ITR 177]