1. The only common ground raised in all these 13 appeals by the Revenue reads as under : "On the facts and in the circumstances of the case and in law, the learned CIT(A) was not justified in holding that the AO erred in directing the assessee to deduct and pay tax under Section 195 of the IT Act while remitting hire charges to the non-resident owners of the ship." 2. A detailed order has been written by the learned CIT(A) which is available in ITA No. 6165/Bom/1995 file and for all the above appeals, he has followed the above order.
3. The assessee-company had entered into series of charter-party agreements with several non-resident ship owners. The details of the ship owners, vessels, date of shipment and the charter charges paid are as under : 4. For the sake of convenience, the charter party agreement with Exmar NV of Belgium for the vessel "Polar Endurance" is taken as illustrative of the issue under consideration. The particular features and factual data relevant to the time charter party agreement entered into with Exmar NV of Belgium are as follows : (a) Clause 3 notes that the owners Exmar NV are agreed to let and charterers (RIL) have agreed to hire the vessel (see Clause 64). The said Clause 3 provides for delivery of the ship at a safe port Libya or Italy and after the time charter, it provides that the vessel will be redelivered by the charterers at safe port Libya or Italy (see Clause 65).
(b) Clause 6 requires the charterers (RIL) to provide and pay for all fuel, towage, pilotage, agency fees, port charges, commissions, expenses for loading and unloading of cargoes, canal dues, etc.
(c) Clause 7 provides for the consideration for the use and hire of the vessel at U.S. $ 425,000 per calendar month.
(d) Clause 8 requires the payment of the said hire charges to be made to the owner's nominated bank account by telegraphic transfer and Clause 56 gives the details of the mode to be adopted.
(e) Clause 9 provides that the entire ship is at the charterers disposal and consequently Clause 16 empowers the charterers to sublet the vessel without any limitation except advising the owner and getting his permission which shall not be unreasonably withheld. (f) Clause 19 provides that if the vessel is lost or missing, the hire charges shall, cease from noon GMT on the day.
(g) Clause 30 provides that the fuel is to be borne by the charterers.
(h) Clause 32 provides that the flag of registry and/or the Belgium Government would be entitled to requisition the ship at any time on the fulfilment of prescribed condition. The flag under which the ship is registered is described in Clause 66 as the Bahamas.
(i) Clause 43 describes the permitted cargoes which is commercial, fully refrigerated butane and/or propane and/or LPG mixture, ethylene, butadiene, propylene, VCM. These are all products utilized by the assessee in its production facilities.
(j) Clause 60 provides the condition in which the vessel is to be delivered and redelivered normally in a condition where the goods of the assessee can be rightly loaded and redelivered after vapours of ethylene are duly cooled down.
5. In view of the provisions in the time charter agreement, the assessee sought to make a remittance of the charter party charges through proper banking channels without deducting tax at source. For this purpose, it filed a petition to the AO to issue NOC for remittance of charter hire charges without deduction of tax. It was contended before the AO that in view of the provisions in the time charter agreement, no part of the consideration paid was taxable in India. The AO in his order dt. 21st Oct., 1994, came to the conclusion that the case of the assessee is covered under the provisions of Section 5(2)(b) of the IT Act and, therefore, the assessee was liable to tax. He was further of the view that under Section 195, the assessee-company was liable to deduct the tax at prevalent rate (see p. 9 of the order). In para 7 of his order, the AO held as under : "In view of the above, the assessee's contention that the remittance to be made without deduction of tax is rejected and in view of reasons discussed in the above paras, the assessee-company is liable to deduct the tax and to pay the same to the Government as per the provisions of Section 195, and accordingly, directed to deduct the tax at source as per the provisions and pay the same to the account of the Government." Alternatively, the AO was of the view that the petition for issue of certificate for non-deduction of tax could not be considered under Section 197 as it was not the recipient of the charter charges, 6. Aggrieved by the order of the AO under Section 195, the assessee filed an appeal under Section 248 of the Act before the learned CIT(A).
It may be noted that an appeal can be filed under Section 248 of the Act, only after paying the tax provided to be deducted under Section 195 of the Act. The assessee accordingly paid the tax under Section 195 and thereafter, filed an appeal before the learned CIT(A). It was contended before the learned CIT(A) that the provisions of Section 9(1)(i) r/w Section 5(2)(b) of the Act were not applicable and that the charter charges were not taxable in India.
7. The learned CIT(A), after considering the detailed submissions made before him, came to the following conclusions ; (i) Both the appellant and the AO are one that this case does not fall within the ambit of the provisions of Section 172.
(ii) Since the amount was transferred directly to the non-residents' designated account abroad, the amount was not actually received in India, and accordingly, the provisions of Section 44B(2)(i) were applicable in view of the judgment of the Hon'ble Supreme Court in the case of CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC).
(iii) The second condition under Section 44B(2)(ii) that the amount should have been on account of carriage of goods also fails in view of the decision of the Hon'ble Supreme Court in the case of Union of India v. Gosalia Shipping Pvt. Ltd. (1978) 113 ITR 307 (SC), wherein it was held that hire charges paid on time charter constitute payment for hire of ships and not for carrying of goods and, hence, not liable for payment of tax.
8. Shri Joe Sebastian, the learned Departmental Representative strongly supported the order of the learned AO. He drew our attention to Section 195 and submitted that Section 195(1) of the IT Act states that "any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force." He further submitted that Section 195 of the Act was amended by the Finance Act, 1987, to provide for deduction of tax at source on payment of certain sums to non-residents either at the time of credit of the same to their accounts or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever was earlier.
In this connection, he relied upon the following passage from the Commentary of Chaturvedi and Pithasaria (p. 6682) : "The purpose of Section 195(1) is to see that the sum which is chargeable under Section 4 of the Act, for levy and collection of income-tax, the payer should deduct income-tax thereon at the rates in force, if the amount is to be paid to a nonresident. The said provision is for tentative deduction of income-tax thereon subject to regular assessment and by the deduction of income-tax the rights of the parties are not in any manner adversely affected." Accordingly, the learned Departmental Representative submitted that the assessee had remitted amounts as mentioned above to the non-resident owners of ships/vessels as hire charges for time charter of their ships/vessels as per details cited supra. Therefore, as per Section 195(1), the assessee was required to deduct tax at source before remitting the amounts by telegraphic transfer to the designated bank accounts of the non-residents.
9. Thereafter, the learned Departmental Representative drew our attention to the provisions of Section 9 and laid great emphasis on the words "income accruing or arising whether directly or indirectly, through or from any business connection." Then, he proceeded to cite a plethora of judgments to explain the meaning of the words "business connection". He placed reliance on the following judgments :Kalwa Devadattam and Ors. v. Union of India and Ors. (1963) 49 ITR 165 (SC) (iv) Bikaner Textile Merchants Syndicate Ltd. v. CIT (1965) 58 ITR 169 (Raj) (v) Performing Right Society Ltd. and Ors. v. CIT (1974) 93 ITR 44 (Cal) (vi) Performing Right Society Ltd. & Anr. v. CIT and Ors. (1977) 106 ITR 11 (SC).
(ix) Amco Furnace Contractors Ltd. v. CIT (1979) 116 ITR 868 (Cal) (x) CIT v. Standard Triumph Motor Co. Ltd. (1979) 119 ITR 573 (Mad) (xii) Hazoora Singh v. CIT (1986) 160 ITR 746 (P&H) He also read from Taxman's Direct Taxes Munual 3 of 2001 at p. 417.
10. Relying on the interpretation of the words "business connection" in the aforesaid judgments, the learned Departmental Representative submitted that the income arose to the non-resident through business connection. According to him, the judgment of the Hon'ble Supreme Court in the case of Union of India v. Gosalia Shipping (P) Ltd. (1978) 113 ITR 307 (SC) relied upon by the learned CIT(A) was not applicable, because according to the learned Departmental Representative, the provisions of Section 44B are not relevant at the stage of deduction of tax at source by the assessee, but only relevant at the assessment stage, It is because, the section under which the assessee's appeal before the learned CIT(A) was based is, Section 195 of the IT Act and not in assessment under Section 143(3) or 143(3) r/w Section 144 of the Act. Therefore, according to the learned Departmental Representative, any discussion regarding Sections 5, 9, 44B, 172 etc., of the IT Act, 1961, in the context of the assessee's case, at this stage, would be premature, superfluous and quite akin to putting the cart before the horse. According to him, Sections 5, 9, 44B and 172, etc. of the IT Act would become relevant when it comes to the regular assessment of non-residential owners of ships/vessels, engaged in the business of operation of ships.
11. The next limb of argument of the learned Departmental Representative was that the place of accrual was in India because the remittances were made from State Bank of India, Overseas Branch, Bombay that is located in India and several cases were cited by the learned Departmental Representative such as Indore Malwa United Mills Ltd. v.CIT (1966) 59 ITR 738 (SC), CIT v. Ogale Glass Works Ltd. (1954) 25 ITR 529 (SC), CIT v. Kirloskar Bros. Ltd. (1954) 25 ITR 547 (SC), etc., (hereinafter referred to as the post office cases). Accordingly, the learned Departmental Representative submitted that the AO was justified in not granting the NOC.12. Shri Sonde, the learned counsel for the assessee, strongly supported the orders of the learned CIT(A). His first argument was that the provisions of Section 195 were not applicable notwithstanding the fact that the word used in the section is 'shall' on which the learned Departmental Representative had placed great emphasis. The assessee had approached the learned AO for issue of a no objection certificate because in view of the provisions in the time chart agreement, no part of the consideration paid was taxable. At this stage, he took us through the various clauses of the time chart agreement, the salient features which have been reproduced in para 4 (supra). The assessee-company sought to make remittance of the charter party charges through proper banking channels without deducting tax at source. At the relevant time, RBI regulations required various dealers to be satisfied with reference to the income-tax position. The IT Department was required to issue a no objection certification for the remittances of the charter charges after/without deduction of tax at source, as the case may be. Accordingly, the assessee made an application for the remittance of the charter charges without deducting tax at source.
According to the learned counsel for the assessee, although the AO has relied on Section 9(1)(i) r/w Section 5(2)(b) of the Act, for taking the view that the charter charges are taxable in India, the arguments have been advanced by the learned Departmental Representative only on the issue of business connection in India. However, for the sake of completeness, the learned counsel for the assessee submitted that the provisions contained in Section 9(1)(i) cannot have application in the case of the assessee. The income cannot be said to accrue or arise in India whether directly or indirectly through or from any business connection in India or through or from any property in India namely, the ship which is registered under the flag of the Bahamas in Belgium.
The learned counsel for the assessee submitted that it is well settled that the location of the ship is the country where the ship is registered, In this connection, he drew our attention to ED Rules and the circular issued by the CBDT, under WT Act and submitted that the income cannot be said to be accrued or arisen though or from any property in India.
13. The next limb of Section 9(1)(i) refers to income accrued or arisen through or from any asset or any source of income in India. According to the learned counsel for the assessee, this clause has no application inasmuch as there is no asset or source of income in India. It is nobody's case that the source was in India. The last limb of Section 9(1)(i) refers to income accruing or arising through the transaction of a capital asset situated in India. For the reasons given above, the ship cannot be said to be situated in India. In any case, according to the learned counsel for the assessee, there is no transaction involved in the time charter party of the nature to attract the provisions of Section 2(47) and, therefore, this limb can also have no application.
14. The learned counsel for the assessee proceeded to distinguish the cases relied upon by the learned Departmental Representative, explaining the words "business connection" and submitted that in fact, the following cases relied upon by the learned Departmental Representative favour the assessee rather than the Revenue : 15. Thereafter, the learned counsel for the assessee took us through the decision of the Hon'ble Supreme Court in the case of Union of India v. Gosalia Shipping (P) Ltd. (supra), relied upon by the learned CIT(A) and submitted that the ratio laid down by the Hon'ble Supreme Court in that case squarely applies to the facts of the case of the assessee.
16. According to the learned counsel for the assessee, the distinction drawn by the learned Departmental Representative while analyzing the judgment of the Supreme Court is irrelevant and in this connection, he drew our attention to Clauses 3, 6, 7 and 16 of the charter agreement reproduced (supra) and submitted that the judgment of the Hon'ble Supreme Court fits like a cap on the assessee. The learned counsel for the assessee also drew our attention to Instruction No. 1934 dt. 14th Feb., 1996, issued by the CBDT and O.M. No. F. No. 480/195-FID dt. 14th Feb., 1996, placed at page No. 1, 2 and 3 respectively of the paper book and submitted that the case of the assessee also stands covered by the above instructions of the CBDT.16A. Concluding that there is no business connection in India; that the payment is for charter party charges and not freight; that the payment is made outside India; and that the statement of law contained in the instructions of the CBDT, apply to the case of the assessee, the learned counsel for the assessee submitted that the order of the learned CIT(A) deserves to be upheld.16B. As a rejoinder, Shri Sebastian, the learned Departmental Representative reiterated that there was a business connection in India; that the payment was made inside India and further Instruction No. 1934 issued by the CBDT is applicable only for Government Departments and public sector undertakings and not for private companies of the like of the assessee and, hence, the orders of the learned CIT(A) deserve to be reversed.
17. We have considered the rival submissions and perused the facts on record. The first vital issue before us is whether the non-resident ship owners to whom the assessee-company had remitted the hire charges had any business connection in India. Although the learned AO had referred to Section 9(1)(i) r/w Section 5(2)(b) for holding that the charter charges are taxable in India, the arguments have been advanced by the learned Departmental Representative only on the issue of business connection in India. In our considered view, the provisions contained in Section 9(1)(i) cannot have application in the case of the assessee. The income cannot be said to accrue or arise in India whether directly or indirectly through or from any business connection in India or through or from any property in India namely the ship which is registered under the flag of the Bahamas, in Belgium. It is well settled that the location of the ship is the country where the ship is registered as is clear from the ED Rules and the circular issued by the CBDT, under WT Act, referred to supra. Accordingly, the income cannot be said to accrue or arise through or from any property in India.
18. The next limb of Section 9(1)(i) of the Act refers to income accrued or arisen through or from any asset or any source of income in India. In our opinion, this clause has no application inasmuch as there is no asset or source of income in India. It is nobody's case that the source was in India.
19. The last limb of Section 9(1)(i) refers to income accruing or arising through the transaction of a capital asset situated in India.
For the reasons given above, the ship cannot be said to be situated in India. In any view, there is no transaction involved in the time charter party of the nature to attract the provisions of Section 2(47) of the Act and, therefore, this limb can also have no application.
Therefore, the provisions of Section 9(1)(i) referring to "through or from any business connection in India" will have to be considered. In this connection, the learned Departmental Representative has cited several cases referred to supra.
20. The learned Departmental Representative referred to the decision in the case of CIT v. Metro Goldwyn Mayer (India) Ltd. (supra). In that case, the question that arose was whether the profit received on exhibition of films in India could be said to constitute a business connection. The Court held that : "Business connection denotes some element of continuity in the relationship between the person in India who makes the profits and the non-resident who receives them. A single transaction would not fall within the section. In every case one has to look at the particular facts of the case of see whether it falls within Section This case requires a continuity of relationship between the non-resident and Indian party. In the case of the assessee-company, no continuity can be said to exist and, therefore, this case has no relevance.
21. As regards the learned Departmental Representative's reliance on the judgment in the case of Anglo-French Textiles Company Ltd. v. CIT (supra), the Hon'ble Supreme Court has held as under : "An isolated transaction between a non-resident and a resident in British India without any course of dealings such as might fairly be described as a business connection does not attract the application of Section 42, but when there is a continuity of business relationship between the person in British India who helps to make the profits and the person outside British India who receives or realizes the profits, such relationship does not constitute a business connection." This case also has no application as there is no continuity of business relations.
22. In the case of Carborandum Co. v. CIT (supra), relied upon by the learned Departmental Representative, this was a case where the technical information was furnished and the question arose as to whether this could be said to arise any business connection in India, The Court held that mere supply could not constitute a business connection. Similarly in the case of the assessee-company, the mere fact that the ship was made available to the assessee could not constitute a business connection in India.
23. In the case of Performing Right Society Ltd. v. CIT (supra) relied upon by the learned Departmental Representative, the Hon'ble Supreme Court has held that the question of whether income accrued or arose is a question of fact which should be looked at and decided in the light of commonsense and plain thinking. We are in full agreement with the statement of law contained in the above decision of the Supreme Court and both the parties also did not dispute this proposition, but for applying this principle to the facts of the assessee's case, the commonsense and plain thinking facts necessary for determining as to whether there is a business connection in India are as under : (c) The hire is for a specific period whether used in India or outside India or not used at all.
(e) The ship is registered and operated under the flag located outside India.
Therefore, applying the ratio of the decision of Hon'ble Supreme Court on the facts of the assessee, there is no business connection in India.
24. In the case of CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC), the Hon'ble Supreme Court has held that mere credit balance in the books without any operation being carried out in India cannot result into any accrual in income of India and mere book entry does not constitute payment which will secure or discharge from the debt. The argument of the learned Departmental Representative that the credit tantamounts to payment is contrary to the decision of the Hon'ble Supreme Court in the aforesaid case.
25. In the case of Barendra Prasad Ray v. ITO (supra), relied upon by the learned Departmental Representative, the question before the Court was whether the expression "business connection", would include a professional connection. This case has no relevance to the case of the assessee inasmuch as it is not the case of the assessee that it is in a profession. The true scope and meaning of the expression "business connection" has been dealt with in the case of CIT v. R.D. Aggawal & Co. (1965) 56 ITR 20 (SC). The words "business connection" is interpreted time and again by the Hon'ble Supreme Court in this case.
It was held that business connection involves a relation between a business carried on by non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly in earning of those profits or gains. It predicates an element of continuity between the business of the non-resident and the activity in the taxable territories, a stray or isolated transaction is being normally regarded as a business connection. The expression "business connection" postulates real and intimate relation between the trading activity carried outside the taxable territory and the trading activity within the territories and the relation between the two contributing to the earning of income by the non-resident in his trading activity. Further, the Hon'ble Supreme Court in the case of Anglo-French Textiles Co. Ltd, (supra) has held that it is not every business activity of a manufacturer that comes within the expression "business connection". In a case where all that may be known is that a few transactions of purchase of raw material is taken place in British India, it could not ordinarily be said the isolated act whereby their nature 'operations' within the meaning of that expression.
26. In view of the above discussions, it can hardly be said that non-resident ship owners to whom the assessee-company had remitted the hire charges had any business connection in India, inasmuch as the charter charges agreement provides the assessee to take the ship anywhere in the world, whereby the ship may or may not come to India, depending upon the wish of the charterer rather than any compulsion in the agreement.
27. The next vital question before us is what is the nature of payment; whether it is charter party charges or freight charges. The contention of the learned Departmental Representative before us is that the payments are in the nature of freight charges and that the learned CIT(A) erred in relying upon the judgment of the Hon'ble Supreme Court in the case of Union of India v. Gosalia Shipping (P) Ltd. (supra).
This is a case where a question arose on the interpretation of Section 172 of the Act. It is an admitted fact that Section 172 does not have application in the assessee's case. However, the expression and the language used in Section 172 is mirrored in Section 44B of the IT Act.
Section 44B is a special provision for computing profits and gains of shipping business in the case of non-residents. This section falls in Chapter IV dealing with computation of business income. Clearly, if no income is charged under Section 5 r/w Section 9, the question of going to the computation provisions does not arise. Therefore, if the assessee succeeds on the principle issue as to whether there is any business connection in India that brings the end of the matter.
However, the question of whether any sum is chargeable to tax in India within the meaning of that expression in Section 195 must relate back to Section 44B. Section 44B and Section 172 are akin in language. The question for consideration is whether the consideration; paid for time charter party agreement can be said to be for the purpose of freight or on account of carriage of goods. The Supreme Court has held that where there is a time charter, one does not take a time charter party for the carriage of goods but for the letting on hire of the ship itself and, therefore, the charge paid is not freight at all. The AO and the learned Departmental Representative were at pains to distinguish the decision of Gosalia's case on the basis that the goods transported were their own goods whereas the goods carried in the ships transported by the assessee were not the goods of the assessee. At the outset, we observe here that no factual data was produced by the learned Departmental Representative for this allegation but on the other hand, the assessee had filed invoices, bill of lading and other documents to establish the fact that the goods imported in the ships were acquired by the assessee outside India and were, thereafter, transported in the ships to India. The fact that the charter charges are not payment of freight are borne out by the following features of the agreement envisaged in the time charter party : (a) Clause 3 provides that that letting is for a specific period irrespective of whether the goods are carried or not. In the case of payment for freight the amount of charges recovered by freight carrier are always co-related to the quantum of goods carried, distance carried and other such features. In the case of the assessee on the other hand, the time charter party hire charges are payable irrespective of the quantum of goods carried or the distance carried.
(b) Clause 6 provides that the appellant has to pay for all fuel, towage, pilot, agency fees, port charges, commissions, expenses or loading and unloading cargoes, canal dues, etc. Clearly, in a case of payment for freight carried by the carrier such charges are to be borne by the carrier and not by the owner. It could be extraordinary to suggest that when goods are transported such charges are to be borne by the owner and not by the carrier and, therefore, this very special feature indicates the fact that the time charter party is not a charge paid for the carriage of goods.
(c) Clause 7 provides for the consideration for the use and hire of the vessel at US $ 425,000 per calendar month as the time charter party charges. It is submitted that these charges are payable irrespective of whether the vessel is used or whether it carries own goods or any other goods and whether the charter plies the ship or keeps it idle, Obviously these features distinguish an agreement for carriage of goods from an agreement in which the ship itself is let to the assessee.
(d) Clause 16 provides that the assessee is entitled to sublet the vessel, This feature is clearly not a feature of the normal carriage by the carrier. No carrier gives the right to sublet his lorry, bus, aircraft or ship even if it has a mutual contract for carriage of goods.
28. The above clauses, therefore, establish that the hire charges are not paid on account of carriage of goods but to entitle the charterer for use of the ships.
The observations of the Supreme Court at p. 313 are most relevant which are as follows : "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. 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." 29. In the light of the above discussion, we hold that the nature of payment is charter party charges and not freight charges and the case of the assessee stands squarely covered by the judgment of the Hon'ble Supreme Court in the case of Union of India v. Gosalia Shipping (P) Ltd. 30. The next question to be decided is what is the place of accrual.
The Department's submission that the place of accrual is India because the remittances were made from the State Bank of India, overseas branch, Bombay, which is located in India and three post office cases mentioned in para 11 above were cited by the learned Departmental Representative. These cases dealt with a situation where cheques were posted from British India at the request of a non-resident and the question which arose for consideration was whether the income could be said to have received in India as the post office acted as agent for the non-resident, Here, it would be relevant to refer to Clause 56 of the charter hire which reads as under : "Hire payments to be made by telegraphic transfer to Kredietbank, Antwerp Branch :With Kredietbank, Antwerp BranchBank Kredietbank, New YorkV.A.T. Nr.
447.825.937 The various post office cases were considered by the Hon'ble Supreme Court in CIT v. Patney & Co, (1959) 36 ITR 488 (SC). In that case, the agreement between the parties provided that commission was to be paid to Patney & Co., the agent company in Hyderabad State in cash or by cheque as the case may be. The payment shall be made from British India and the question which arose was whether as the payment was made from British India, whether it accrued in British India. Ogale's case (supra) was cited for the proposition that since the payments were made from British India, the income accrued or arose in British India. This contention was rejected by the Hon'ble Supreme Court in the following words : "It was further contended that in this case there was an express agreement that the payment was to be made at Secunderabad and, therefore, the matter does not fall within the rule in Ogale Glass Works case and the following principle laid down in the judgment by Das. J (as he then was), is inapplicable : "Applying the above principles of the facts found by the Tribunal the position appears to be this. The engagement of the Government was to make payment by cheques. The cheques were drawn in Delhi and received by the assessee in Aundh by post. According to the course of business usage in general to which, as part of the surrounding circumstances, attention has to be paid, under the authorities cited above, the parties must have intended that the cheques should be sent by post which is the usual and normal agency for transmission of such articles and according to the Tribunal's finding that were in fact received by the assessee by post.
In our opinion, this contention is well-founded. Whatever may be the position when there is an express or implied request for the cheque for the amount being sent by post or when it can be inferred from the course of conduct of the parties, the appellant in this case expressly required the amount of the commission to be paid at Secunderabad and the rule of Ogale Glass Works' case would be inapplicable." 31. In view of the above, we hold that complete lot of post office cases can have no application in the case of the assessee as there was an express agreement between the assessee and Exmar NV that the payment is to be made to the account of ship-owner at Antwerp i.e., outside India.
32. The last vital issue to be decided is whether the case of the assessee is covered by the circulars of the Board relied upon by the learned counsel for the assessee and referred to in para 16 above.
33. CBDT Instruction No. 1934, circulated vide Min. of Fin. (Department of Reserve) (FID Section) No. F. No. 480/195-FID gives clear instruction to all Chief CIT's and Directors General of Income-tax as follows : The question of income-tax being payable in respect of freight on import of cargo has been examined earlier and in OM dt. 12th April, 1984 (copy enclosed) the Department of Revenue had clarified that no income-tax was payable in respect of freight on import of cargo unless such freight is paid in India to nonresident shipping company or its agent. It has been clarified by the Ministry of Surface Transport that according to normal international practice and also according to the agreements with the foreign shipowners 90 per cent of the freight is to be paid within seven days of the vessel completing loading of Cargo and sailing from the loading port. The balance of 10 per cent is remitted after the import of cargo is unloaded in India.
At the time of remittances of this 10 per cent, the normal practice has been to issue a no objection certificate for the remittance of 10 per cent without deduction of tax on the ground that income has not accrued in India. The Reserve Bank of India is, however, now insisting that an NOC should be obtained in respect of the entire 100 per cent of the foreign charges before the remittance is permitted.
No income-tax is payable in respect of the freight on import of cargo unless such freight is paid in India to the non-resident shipping company or its agent, transchart has explained that the entire freight charges are remitted by telegraphic transfer through a bank in a foreign shipping company or its agent. The Board have, therefore, decision that the NOC should be issued in respect of the entire 100 per cent of the freight charges subject to the remittance falling within the parameters discussed above. "(Empahsis, italicised in print, supplied) Ministry of Finance (Department of Revenue) O.M. bearing No. F. No.480/8/83-FTD dt. 12th April, 1984, reads as under : "The undersigned is directed to refer to the Ministry of Shipping & Transport (Transport Wing) G.M. No. CU/13(52)/ACO.III/83 dt. the 23rd March, 1984, on the subject cited above and to say that in case 90 per cent of the freight charges are remitted by telegraphic transfer through a bank in the foreign country and the balance 10 per cent together with demurrage, if any, or less despatch, if any, is payable also by telegraphic transfer through a bank in the foreign country, no part of the freight charges is received in India by the foreign shipping company. As such, no income-tax is payable in respect of freight on import of cargo unless such freight is paid in India to the non-resident shipping company or its agents. It is, therefore, requested that the CIT, Tamil Nadu-II, Madras may kindly be approached for the purpose to whom necessary clarification has already been given.
33A. In view of the above position, the case of the assessee-company stands squarely covered by the above Instructions/Circulars of the CBDT, which are binding on the Revenue authorities. The argument of the learned Departmental Representative was that these were not circulars of the Board and in any view, were applicable to the Government departments and public sector undertakings and autonomous bodies. We do not find any merit in this contention because, it is well settled that all circulars of the Board are binding on the IT authorities. Section 119 of the IT Act clearly refers to orders/instructions/ directions of the Board. In fact, there is no reference to the word 'circular' in Section 119 of the IT Act. The words 'circular', 'instructions' and 'memorandum' are appellations given to various missives issued by the Board for easy convenience or office use. Section 119 of the Act only refers to the obligation of IT authorities to observe and follow such, orders/instructions/ directions of the Board. Accordingly, the above two circulars do constitute an order/instruction or direction as contemplated in Section 119 of the Act.
34. As regards the learned Departmental Representative's contention that the contents of the circular must be limited to Government departments and the public sector undertakings and autonomous bodies, we may point out explicitly the correct position of law as pointed out above and in any view, no circular can be discriminating between various taxpayers. We accordingly hold that the circulars merely lay down the position in law and are, therefore, applicable to the case of the assessee. Further, it has been brought to our notice by the learned counsel of the assessee-company, that Dy. CIT(TDS) Circle-I, Mumbai, in the subsequent years, i.e., financial years 1998-99 and 1999-2000, acting on the above circular of the CBDT, has authorized the assessee-company to make payments to non-resident companies without deducting tax under Section 195(1) of the Act. Copies of "Authorizations for payment of sums to non-residents after deducting income-tax at source at the rate of nil per cent thereon under Section 195(1) of the IT Act, 1961" dt. 16th March, 1999 and 10th May, 1999 have been placed on record. That shows that the Revenue has accepted the CBDT instructions on the issue and on this count also, the assessee succeeds.
35. In the light of the above discussion, we uphold the orders of the learned CIT(A) and decline to interfere.