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PETITIONER: UNION OF INDIA

       Vs.

RESPONDENT: GOSALIA SHIPPING PRIVATE LTD., MARGAO, GOA

DATE OF JUDGMENT05/05/1978

BENCH: CHANDRACHUD, Y.V. ((CJ) BENCH: CHANDRACHUD, Y.V. ((CJ) BHAGWATI, P.N. DESAI, D.A.

CITATION:  1978 AIR 1196            1978 SCR  (3) 943  1978 SCC  (3)  28

ACT: Income  Tax  Act, 1961, S. 172(2)--Charter  party  agreement providing for the payment by the Charterers "for the use and hire" of the vessel-Whether the payment can be said to  have been  made  "on account of the carriage of goods" so  as  to attract  the charging provision of S. 172(2) of  the  Income Tax Act, 1961.

HEADNOTE: The  respondent  which is a company incorporated  under  the Indian  Companies  Act  does the business  of  Clearing  and Forwarding  and  as Steamship agents.  In  1970,  respondent acted as the shipping agents of "Aluminium Company of Canada Ltd."  which  is  a  non-resident  company.   The  Aluminium company  time-chartered  a ship "M.V. Sparto"  belonging  to another nonresident company.  Clause 4 of the Charter  party provided for the payment by the charterers "for the use  and hire" of the vessel at the rate of U.S. 4.50 dollars per ton on vessels’ total dead weight carrying capacity per calendar month  commencing  on and from the date of delivery  of  the ship.   "hire to continue until the hour of the day  of  her redelivery".   The said ’ship called at the port  of  Betul. Goa  on March 1, 1970 and loaded 13000 long tons of  bauxite belonging to the time-charterers, the Aluminium Co. The ship was  allowed to leave the port of Betal on the basis of  the guarantee  bond executed by the respondent in favour of  the President of India undertaking to pay the income tax payable by  the time-charterers under Section 172 of the Income  Tax Act, 1961.  On April 15, 1970, the First Income Tax Officer, Margoa  issued  a demand notice to the  respondent  for  the payment  of  Rs.  51,191/- by way of income  tax  under  the aforesaid  provision.  The respondent filed a Writ  Petition asking  for a mandamus directing the Income Tax  Officer  to withdraw  the  notice.   The petition  was  allowed  by  the Judicial Commissioner Goa. Dismissing the appeal by Certificate, the Court HELD : 1. The amount which the time-charterers were required to pay, to the owners of the ship was not payable on account of  the carriage of goods but was payable on account of  the use and hire of the ship. [947 E-F] 2.   It  is true that one cannot place over-reliance on  the

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terms  which the parties give to their agreement or  on  the label  which they attach to the payment due from one to  the other.  One must have regard to the substance of the  matter and if necessary, tear the veil in order to see whether  the true character of a payment is something other than what, by a clever device of drafting, it is made to appear. [947 F-G] In the instant case there is no reason to hold that the real intention  of the parties was something different from  what the words used by them, convey in their accepted sense.  The charter  party was drawn in a standard form approved by  the "New  York  Produce Exchange" and there is  no  warrant  for supposing that though the payment which the charterers bound themselves to make to the owners of the ship was on  account of the carriage of goods, the parties described it as  being payable  for  the use and hire of the vessel,  in  order  to avoid  the payment of Indian income Tax.  The  character  of the payment cannot change according to the use to which  the charterers put the ship or according as to whether the  ship is loaded with goods in a port in India.  What is payable as hire charges for the use of the ship cannot transform itself into an amount payable on account of the carriage of  goods, by reason 944 of  the circumstance that the ship was loaded with goods  in India.   The time charterers loaded the ship at Betul,  Goa, with their own goods.  They did not sub-let the ship for the purpose of carriage of goods nor did they load the ship with goods  belonging to a third party in which event they  might have  earned  some  freight on account of  the  carriage  of goods.  They paid hire charges to the owner of the ship  for the  use  of the ship and since they loaded  the  ship  with their  own  goods, they received nothing on account  of  the carriage  of  the  goods.  Neither the one  nor  the  other, therefore, received any amount on account of the carriage of the goods. [947 G-H, 948 A, B, F-G] 3.   A  contract by charter party is a contract by which  an entire  ship  or  some principal part thereof is  let  to  a merchant who is called the charterer, for the conveyance  of goods on a determined voyage to one or more places, or until the expiration of a specified period.  The contract’ in  the instant case is of the nature of time-charter-party, whether there  is  a  demise of the ship or  not  being  immaterial. Clause  4 of the charter-party provides for the  payment  by the  charterers "for the use and hire" of the vessel at  the rate  of  U.S. 4.50 dollars per ton on vessel’s  total  dead weight carrying capacity’ per calendar month, commencing  on and from the date of delivery of the ship, "hire to continue until the hour of the day of her redelivery".  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. [948 G-H, 949 D-F]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1735 of 1972. 1972. From the Judgement and Order dated the 29th October 1971  of the  High  Court of Goa, Daman and Diu in S.C.A. No.  31  of 1970.

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V.   S. Desai and Miss A. Subhashini for the, Appellant. S.   T. Desai, M. V. Shah and R. P. Kapur for Respondent. The Judgment of the Court was delivered by CHANDRACHUD,  C.J.-The respondent, Gosalia Shipping  Private Limited,  which  is a company incorporated under the  Indian Companies Act does  the business of Clearing and  Forwarding and as Steamship Agents.      In  1970, respondent acted  as the shipping agent of ’Aluminium Company of Canada, Limited’ which  is  a non-resident company.  The,  Aluminium  Company time-chartered  a ship "M.  V. Sparto" belonging to  a  non- resident  company called Sparto Compania Naviera of  Panama. The said ship called at the port of Betul, Goa, on March  1, 1970  where it loaded 13,000 long tons of bauxite  belonging to the time-charterers, the Aluminium Company.  On March 20, 1970  the ship left for Alfred port, Canada.  The  ship  was allowed  to  leave  the  port of Betul on  the  basis  of  a guarantee  bond executed by the respondent in favour of  the President  of  India,  undertaking  to  pay  the  income-tax payable  by  the time-charterers under section  172  of  the Income-tax Act, 1961.  On April 15, 1970, the First  Income- tax  Officer,  Margao, Goa, issued a demand  notice  to  the respondent  for payment of Rs. 51,191 by way  of  income-tax under the aforesaid provision.  The respondent filed Special Civil  Application  No.  31  of 1970 in  the  Court  of  the Judicial  Commissioner, ’boa, asking for a writ of  Mandamus directing  the  Income-tax Officer to  withdraw  the  demand notice.  By a judgment dated October 29, 1971, 945 the  learned Judicial Commissioner allowed the  respondent’s Writ  Petition  and  passed an  order  quashing  the  demand notice.   Having obtained from the Judicial Commissioner  a certificate of fitness to appeal to this Court under article 133(1)(b)  and (c) of the constitution, the Union  of  India has filed this appeal. The  question as to whether the respondent is liable to  pay the  income-tax  demanded of it by the  Income-tax  Officer, depends for its decision on the construction of section  172 of  the Income-tax Act, 1961, which read as follows  at  the relevant time :               "172.  (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  nonresident,  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 ,one-               sixth 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  that               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  Income-tax               Officer  a return of the full amount  paid  or               payable  to  the  owner or  charterer  or  any               person on his behalf, on account of the carri-               age  of  all passengers, live-stock,  mail  or               goods  shipped  at that port  since  the  last               arrival of the ship thereat :

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             Provided that where the Income-tax Officer  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  Income-tax  Officer               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               subsection.               (4)   On receipt of the return, the Income-tax               Officer shall assess the income referred to in               sub-section (2) and determine the sum  payable               as tax thereon at the               946               rate or rates in force applicable to the total               income  of  a company which has not  made  the               arrangements  referred to ’in section 194  and               such sum shall be payable by the master of the               ship.               (5)   For  the purpose of determining the  tax               payable under sub-section (4), the  Income-tax               Officer   may  call  for  such   accounts   or               documents as he may require.               (6)   A port clearance shall not be granted to               the  ship until the Collector of  Customs,  or               other  Officer  duly authorised to  grant  the               same,  is  satisfied that the  tax  assessable               under this section has been duly paid or  that               satisfactory  arrangements have been made  for               the payment thereof.               (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 port 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." Section   172  occurs  in  Chapter  XV  which  is   entitled "liability  in  special cases" and the  sub-heading  of  the section is "Profits of nonresidents from occasional shipping business."  It  creates  a  tax  liability  in  respect   of occasional  shipping by making a special provision  for  the levy and recovery of tax in the case of a ship belonging  to or  chartered  by a non-resident  which  carries  passengers livestock  mail  or goods shipped at a port in  India.   The object of the section is to ensure the levy and recovery  of tax  in  the  case of ships belonging  to  or  chartered  by nonresidents.  The section brings to tax the profits made by

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them  from occasional shipping, by means of a  summary  them assessment  in which one-sixth of the gross amount  received by of the is deemed to be the assessable profit.  Before the departure ship, the master of the ship has to furnish to the Income-tax  Officer  a  return of the full  amount  paid  or payable to the owner or charterer on account of the carriage of  passengers,  goods etc., shipped at the  port  in  India since  the  last arrival of the ship at the  port.   In  the event  that, to the satisfaction of the Income-tax  Officer, the master is 9 47 unable  so to do, he has to make  Satisfactory  arrangements for  the filing of the return and payment of the tax by  any other  person  on his behalf.  A port  clearance  cannot  be granted  to  the  ship until the tax  assessable  under  the section is duly paid or satisfactory arrangements have  been made for the payment thereof. The assessee in this case is the Aluminium Company of Canada which  had time-chartered the ship and on whose  behalf  its shipping  agent, the respondent, had executed the  guarantee bond.   Since  the Company is a non-resident  and  the  ship carried  goods  which were shipped at a port in  India,  the conditions  specified in sub-section (1) are  satisfied  and the provisions of section 172 will apply for the purpose  of levy of tax, notwithstanding anything contained in the other provisions of the Income-tax Act. The  charging provision it contained in sub-section  (2)  of section 172, the relevant part of which provides that  where a  ship belonging to or chartered by a  nonresident  carries goods  shipped at a port in India, one-sixth of  the  amount paid  or payable "on account of such carriage" to the  owner or  the  charterer or to any person on his behalf  shall  be deemed to be income accruing in India to the owner or  char- terer  on account of such carriage.  The ship was  delivered to the time-charterers at Betul, Goa, whereupon they  loaded it with their own goods to the fullest capacity of the ship. Under the charter party, the charterer had agreed to pay  to the owners of the ship a sum of 4.50 U.S. dollars per ton on the total dead weight carrying capacity per calendar   month, commencing on and from the date of the delivery of the ship. The   short   question   for   consideration   is    whether the amount which    the time-charterers had agreed to pay to the  owners  of  the ship was payable "on  account  of"  the carriage of goods. If  any  guidance  is  to B sought from  the  terms  of  the agreement   between  the  parties,  the   conclusion   seems inescapable that the amount which the time-charterers  where required to pay to the owners of the ship was not payable on account of the carriage of goods but was payable on  account of the use and hire of the ship. The charter party provided by clause (4) that the charterers shall  pay  a sum at the rate of 4.50 U.S.  dollars  on  the total  dead weight carrying capacity of the ship,  "for  the use  and  hire  of the said vessel".  It is  true  that  one cannot  place  over-reliance on the form which  the  parties give to their agreement or on the label which they attach to the payment due from one to the other.  One must have regard to  the substance of the matter and, if necessary, tear  the veil in order to see whether the true character of a payment is  something  other  than  what,  by  a  clever  device  of drafting,  it  is made to appear.  But we see no  reason  to hold  that the real intention of the parties  was  something different   from  what  the  words  used  by   them   convey in  their  accepted sense. The charterparty was drawn  in  a standard  form approved by the ’New York  Produce  Exchange’

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and  there  is  no warrant for  supposing  that  though  the payment which the Charterers bound themselves to make to the owners of the ship was on account of the 948 carriage  of  goods,  the parties  described  it  as;  being payable  for  the use and hire of the vessel,  in  order  to avoid the payment of Indian income-tax. Indeed, the other terms of the charterparty and the  general tenor  of the document show that the payment was in fact  to be made by the time-charterers for use and hire of the ship. Under the agreement,     charterers  had  the  "liberty   to sublet"  the vessel for all or any part of the time  covered by  the agreement.  The Captain of the ship was to be  under the  orders  and directions of the,  charterers  as  regards employment  and  agency.  And if the vessel be  lost,  money paid  in  advance and not earned was to be returned  by  the owners   to  the  charterers  at  once.   These  terms   and conditions  of  the  contract between the  parties  are  not consistent  with the theory that-the charterers were  liable to  pay to the owners any amount on account of the  carriage of goods.  In order that it may be said that the amount  was payable  on  account of the carriage of  goods.   Under  the terms of charterparty, the the consideration for the  other, that  is to say, that the payment which the  charterers  had agreed   to  make  to  the  owners  of  the  ship   was   in consideration  of the carriage of goods.  If the  charterers are  liable to pay the amount irrespective of  whether  they carry  the goods or not, it would be difficult to  say  that the amount was payable on account of the carriage of  goods. Under  the  terms of Charterparty, the owners  of  the  ship received  the amount as charges for the use and hire of  the ship.  The character of the payment cannot change  according to the use to which the charterers put the ship or according as  to  whether the ship is loaded with goods in a  port  in India.   What is payable as hire charges for the use of  the ship  cannot  transform  itself into an  amount  payable  on account  of  the  carriage  of  goods,  by  reason  of   the circumstance that the ship was loaded with goods in India. It  is  relevant,  for the decision of  the  question  under consideration.  that the time-charterers loaded the ship  at Betul, Goa, with their own goods.  They did not sub-let  the ship for the purpose of carriage of goods nor did they  load the  ship  with, goods belonging to a third party  in  which event they might have earned some freight on account of  the carriage  of goods.  They paid hire charges to the owner  of the  ship for the use of the ship and since they loaded  the ship with their own goods, they received nothing on  account of  the  carriage of the goods.  Neither the  one nor  the other,  therefore,  received any amount on  account  of  the carriage of the goods. The  weakness  of the argument advanced by  the  appellant’s counsel consists in its assumption that the charterparty has to  be,  an  agreement for the carriage  of  something  like goods,  passengers,  livestock  or  mail.   A  contract   by charterparty,  says, B. C. Mitra in his "Law of Carriage  by Sea"  (Tagore Law Lectures 1972), : "is a contract by  which an  entire ship or some principal part thereof is let  to  a merchant who is called the charterer, for the conveyance  of goods on a determined voyage to one or more places, or until the expiration of a specified period; in the former case  it is called a ’voyage charterparty’, and in the latter a ’time charterparty’ ". A time charter, according to the 949 author is "one in which the ownership and also possession of the ship remain in the original owner whose remuneration  or

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hire  is  generally  calculated at a  monthly  rate  on  the tonnage,  of the ship, while a voyage charter is a  contract to   carry  specified  goods  on  a  defined  voyage  on   a remuneration or freight usually calculated according to  the quantity  of cargo carried." In Carver’s "Carriage by  Sell" (Eleventh  ed.,  1963,  page 263), it is  stated  that  "all charterparties are not contracts of carriage.  Sometimes the ship   itself,  and  the  control  over  her   working   and navigation,  are  transferred  for the  time  being  to  the persons  who use her.  In such cases the contract is  really one  of letting the ship, and, subject to the express  terms of  the charterparty, the liabilities of the  shipowner  and the charterer to one another are to be determined by the law which relates to the hiring of chattels and not by reference to  the liabilities of carriers and shippers." According  to Scrutton on Charterparties (seventeenth ed., 1964, page  4), charterparties fall into three main categories (i)  charters by-demise  (ii)  time charters (not by way of  demise),  and (iii)  voyage charters.  Sometimes categories (i)  and  (ii) are both referred to as time charters as distinguished  from category  (iii),  and  they have this  in  common  that  the shipowner’s  remuneration  is reckoned by  the  time  during which  the charterer is entitled to the use of  services  of his ship." The contract in the instant case is of the nature of time-charterparty, whether there is a demise of the  ship or  not  being  immaterial.  Clause 4  of  the  charterparty provides for the payment by the charterers "for the use  and hire" of the vessel at the rate of U.S. 4.50 dollars per ton on  vessel’s  total  dead  weight  carrying  capacity,   per calender  month, commencing on and from the date of  deliver of the ship, "hire to continue until the hour of the day  of her redelivery." These clauses of the charterparty show that the  Aluminium company  took the ship from its owners  on  a time-charterparty,  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. For  these  reasons we confirm the judgment of  the  learned Judicial Commissioner and dismiss the appeal with costs. S.R.                  Appeal dismissed. 950