LexM/S. KANCHANGANGA SEA FOODS LTD. versus COMMISSIONER OF INCOME TAX
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A B [2010) 7 S.C.R. 866 MIS. KANCHANGANGA SEA FOODS LTD. v. COMMISSIONER OF INCOME TAX (Civil Appeal Nos. 3844-3847 of 2003) JULY 7, 2010 [D.K. JAIN, C.K. PRASAD, JJ.] Income Tax Act, 1961: ss.5(2), 195, 201 - Receipt by Non resident Company - Chargeability to tax - On facts, C assessee obtained permit to carry fishing operations - A Non resident Company agreed to provide fishing trawlers to the assessee - Charter fee payable to Non Resident Company by way of 85% of gross earning from sale of fish - Chartered vessels with entire catch brought to Indian port - Payment of D charter fee to the Non resident company in India after valuation and payment of local tax - Held: Receipt of charter fee by Non resident company was chargeable to tax - Assessee erred in not deducting the tax. E The assessee-appellant had been engaged in the business of export of sea food and for that purpose had obtained permit to fish in the exclusive economic zone of India. The assessee entered into an agreement with a Non-Resident company for providing the fishing trawlers. In terms of the agreement, assessee was required to pay F charter fee of 85% of the gross earning from the sale of fish to the Non-Resident company. The Non-Resident Company delivered the trawlers to the assessee at Chennai Port. Actual fishing operations G were done outside the territorial waters of India but within the exclusive economic zone. The catch made at high seas were brought to Chennai where surveyor of Fishery Department verified the log books and assessed the value of the catch over which local taxes were levied and H 866 KANCHANGANGA SEA FOODS LTD. v. COMMISSIONER 867 OF INCOME TAX paid. The assessee after paying the d!-Jes arranged for A customs clearance and paid 85% of the catch to the Non Resident Company. The assessee did not deduct the tax from the Non- Resident company. The question which came up for consideration in the present appeal was whether the assessee was in default under Section 201 of the Act for failure to deduct tax under Section 195 of the Act. Dismissing the appeal, the Court B c HELD: 1. From a plain reading of Section 5(2) of the Income Tax Act, it is evident that total income of non- resident company shall include all income from whatever 0 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. In the present case the chartered vessels with the entire catch were E 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- F resident company as the latter did not have any control over the catch. It was after the non-resident company was given share of its 85% of the catch that it came within its control. It is trite to say that to constitute income, the recipient must have control over it. Thus the non-resident G company effectively received the charter-fee in India. Therefore, the receipt of 85% of the catch was in India and that being the first receipt in the eye of law and being in India would be chargeable to tax. The non-resident H 868 SUPREME COURT REPORTS [2010) 7 S.C.R. A 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 B 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 c 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". There is no escape from the conclusion that income earned by the non- resident company was chargeable to tax under Section 0 5(2) of the Income Tax Act. [Para 14) [878-C-H; 879-A-B] E Commissioner of Income-Tax, A.P. v. Toshoku Ltd. 125 l.T.R. 1980 525;
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