Case: M/S.Kanchanganga Sea Foods Ltd Vs. Commnr. Of Income Tax

appellant only by way of an alternate submission on income from services and not in relation to the tax of offshore supply of goods." 12. Mr. R.P. Bhatt, learned Senior Counsel appearing on behalf of the respondent, however, contends that income had accrued to the non-resident company in India and admittedly the assessee having not carried out its obligations to make deductions, the authorities and the Tribunal rightly held the assessee in default. 13. We have considered the submissions advanced and we do not find any force in the submissions of the Counsel for the appellant and the authorities relied on are clearly distinguishable and those in no way support assessees contention. Section 5(2) of the Income Tax Act provides, what would be the total income of a non-resident, same reads as follows: "5(1) xxxx xxxx xxxx (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.--Income 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.--For 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. 14. From a plain reading of the aforesaid provision it is evident that total income of non-resident company shall include all income from whatever source derived received or deemed to be received in India. It also includes such income which either accrues, arises or deem to accrue or arise to a non-resident company in India. The legal fiction created has to be understood in the light of terms of contract. Here, in the present case the chartered vessels with the entire catch were brought to the Indian Port, the catch were certified for human consumption, valued, and after customs and port clearance non-resident company received 85% of the catch. So long the catch was not apportioned the entire catch was the property of the assessee and not of non-resident company as the latter did not have any control over the catch. It is after the non-resident company was given share of its 85% of the catch it did come within its control. It is trite to say that to constitute income the recipient must have control over it. Thus the non-resident company effectively received the charter-fee in India. Therefore, in our opinion, the receipt of 85% of the catch was in India and this being the first receipt in the eye of law and being in India would be chargeable to tax. In our opinion, the non-resident company having received the charter fee in the shape of 85% of fish catch in India, sale of fish and realization of sale consideration of fish by it outside India shall not mean that there was no receipt in India. When 85% of the catch is received after valuation by the non-resident company in India, in sum and substance, it amounts to receipt of value of money. Had it not been so, the value of the catch ought to have been the price for which non-resident company sold at the destination chosen by it. According to the terms and conditions of the agreement charter fee was to be paid in terms of money i.e. US Dollar 600,000/= per vessel per annum "payable by way of 85% of gross earning from the fish-sales". In the light of what we have observed above there is no escape from the conclusion that income earned by the non-resident company was chargeable to tax under Section 5(2) of the Income Tax Act. 15. Now referring to the decisions of this Court in the case of Toshoku Ltd. (supra), same is clearly distinguishable. In the said case the amount credited in favour of the assessee was not at its disposal and in the background of the said fact it was held that making entries in the books would not amount to receipt of income, actual or constructive, which would be evident from the following passage of the judgment: "It cannot be said that the making of the book entries in the books of the statutory agent amounted to receipt by the assessees who were non-residents as the amounts so credited in their favour were not at their disposal or control.Here the non-resident company had received charter-fee in India in the shape of 85% of the catch after its valuation, over which it had alone control and therefore receipt was chargeable to tax." 16. In the case of Ishikawajima-Harima Heavy Industries Ltd. (supra) the entire transaction was completed on high-seas, and in this background, it was held that profit did not arise in India. In the case in hand, undisputedly the catch was brought to an Indian Port, where it was valued and after paying the local taxes, charter fee in the shape of 85% of the catch was given to the non-resident company. 17. Both the decisions, therefore, do not lend any support to the contention of the assessee. 18. From the conspectus of discussion aforesaid, it is obvious that the assessee was liable to deduct tax under Section 195 of the Income Tax Act on the payment made to the non-resident company and admittedly it having not deducted and deposited was rightly held to be in default under Section 201 of the Income Tax Act. 19.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]n 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% 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% 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 Section 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; andOn the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the Assessee was in default underof the Income Tax Act, 1961 for the failure to deduct tax under Section 195 of the Income Tax Act."11. Mr. A. Subba Rao, learned Counsel appearing on behalf of the appellant-assessee submits that there was no income chargeable which resulted to the non-resident company as no payment of any sum by the assessee to the non-resident company took place in India and therefore, the liability to deduct tax at source under Section 195 of the Income Tax Act or the liability under Section 201 of the Act did not arise. It has also been pointed out by the learned Counsel that there was no receipt of income at all in India as the 85% of the fish catch, which was given to the non-resident company, was sold outside India and the sale proceeds thereof were also realized outside India. In his submission, the non-resident company, therefore, had no receipts in India. In support of the submission reliance has been placed on a decision of this Court in the case of Commissioner of Income-Tax, A.P. v. Toshoku Ltd. (125 I.T.R. 1980 525) and our attention has been drawn to the following passage from the said judgment:"In the instant case, the non-resident assessees did not carry on any business operations in the taxable territories. They acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to an operation carried out by the assessees in India as contemplated by cl.(a) of the Explanation toof the Act. The commission amounts which were earned by the non-resident assessees for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India. The High Court was, therefore, right in answering the question against the department."Reliance has also been placed on a decision of this Court in the case of Ishikawajima-Harima Heavy Industries Ltd. v. Director of Income-Tax, Mumbai [(2007) 288 I.T.R. 408 (SC)] and our attention has been drawn to the following passage at pages 443-444:"Therefore, in our opinion, the concepts profits of business connection and permanent establishment should not be mixed up. Whereas business connection is relevant for the purpose of application of Section 9; the concept of permanent establishment is relevant for assessing the income of a non-resident under the DTAA. There, however, may be a case where there can be overlapping of income; but we are not concerned with such a situation. The entire transaction having been completed on the high seas, the profits on sale did not arise in India, as has been contended by the appellant. Thus, having been excluded from the scope of taxation under the Act, the application of the double taxation treaty would not arise. The Double Tax Treaty, however, was taken recourse to by the appellant only by way of an alternate submission on income from services and not in relation to the tax of offshore supply of goods."