UNION OF INDIA versus GOSALIA SHIPPING PRIVATE LTD., MARGAO, GOA

Citation: [1978] 3 S.C.R. 943 · Decided: 05-05-1978 · Supreme Court of India · Bench: Y.V. CHANDRACHUD · Disposal: Dismissed
Cited by 1 judgment(s) · see the full citation network in Lexace
Open in Lexace · Ask the AI about this case
Judgment (excerpt)

• 
·-~ 
- • 
UNION OF INDIA 
v. 
GOSALIA SHIPPING PRIVATE LTD., MARGAO, GOA 
May 5, 1978 
943 
[Y. V. CHANDRACHUD, C.J., P. N. BHAGWAT! AND D. A. DESAI,, JJ.] 
lncon.e Tax Act, 1961, S. 172(2)--Charter party agree111ent providing for 
the payment by the Charterers "for the use and hire" of the vessel-Whether 
the payment can be said to hai'e been n1ade "on account cf the carriage of 
goods'' so as to attract the charging provision of S. 172(2) of the lncorne Tax 
Act, 1961. 
The respondent which is a company incorporated under the Indian Com-
panies Act does the business of Clearing and Forwarding and 
as 
Steamship 
agents. In 1970, respondent acted as the shipping agents 
of 
"Aluminiun1 
Company of Canada Ltd." which is a non-resident company. The Aluminium 
company time-chartered a ship "M. V. Sparto" belonging 
to 
another 
non-
resident 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. 
A 
B 
c 
4.50 dollars per ton on vessels' total dead weight carrying capacity per calendar 
D 
month commencing on and from the date of delivery of the ship, "hire to 
continue until the hour of the day of her re-delivery". The said ship called 
at the porl of Betul. Goa on March I, 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 execut-
ed 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 
E 
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 
F 
v.'as 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 
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 \Vhether the tn1e 
character of a payment is something other than what, hy 
<1 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 \i.'as 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 
G 
H 
A 
B 
c 
D 
944 
SUPREME COURT REPORTS 
[1978] 3 S.C.R. 
of the circumstance that the ship was loaded with goods in India. TI1e time-
charterers loaded the ship at Betul, Goa, \Vith 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. 
1~hcy 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 gocxls. [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 mer
Excerpt shown. Read the full judgment & AI analysis in Lexace.