Kanchanaganga Sea Foods Ltd. Vs. Income-tax Officer - Court Judgment

Excerpt:
1. these four appeals are by the assessee against the orders of the commissioner of income-tax (appeals). the common controversy in these appeals is whether during asst. years 1991-92 to 1994-95, the assessee failed to deduct tax at source under sec. 195 of the i.t. act from the payments made to the non-resident and make payment thereof to the credit of government of india. for the sake of convenience, all these appeals are disposed of by this common order.2. the assessing officer held that the assessee made the payment to the non-resident within the meaning of sec. 195 and was liable to deduct tax at source therefrom and that failure to do so made the assessee liable to deposit the amount to the credit of govt. of india and pay interest for such failure under section 201 (1a) of the.....

Judgment:
1. These four appeals are by the assessee against the orders of the Commissioner of Income-tax (Appeals). The common controversy in these appeals is whether during asst. years 1991-92 to 1994-95, the assessee failed to deduct tax at source under sec. 195 of the I.T. Act from the payments made to the non-resident and make payment thereof to the credit of Government of India. For the sake of convenience, all these appeals are disposed of by this common order.

2. The Assessing Officer held that the assessee made the payment to the non-resident within the meaning of sec. 195 and was liable to deduct tax at source therefrom and that failure to do so made the assessee liable to deposit the amount to the credit of Govt. of India and pay interest for such failure under Section 201 (1A) of the I.T. Act.

Section 195 of the I.T. Act, 1961, reads as under : 195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest 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 a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that in the case of interest payable by the Government or a public sector bank within the meaning of Clause (23D) of Section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.

Explanation : For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called 'Interest payable account' or 'Suspense account' or by any other name, in the books of account of the person liable to pay such income such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(2) Where the person responsible for paying any such sum chargeable under this Act (other than interest on securities and salary) to a nonresident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under Sub-section (1) only on that proportion of the sum which is so chargeable.

(3) Subject to rules made under Sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under Sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under Sub-section (1).

(4) A certificate granted under Sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation.

(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under Sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.

It provides that the person responsible for paying any sum to a nonresident/foreign company, has to deduct tax at the rates in force at the time of credit of such sum to the account of the payee or at the time of payment thereof. The payment could be either in cash or by issue of a cheque or draft or any other mode. The liability to deduct tax is at the time of earliest mode of payment and the sum paid must be chargeable to tax. Sub-section (2) of Section 195 provides for deduction from a lower sum on an application if the payer thinks that the entire sum paid is not income chargeable to tax in the case of the recipient. Sub-section (3), on the other hand, provides for such an application by the recipient but only in a case where he claims payment to him without deduction of tax at source. Sub-Section (5) provides for issuance of a notification by the Board making rules in specified cases in which, and circumstances under which, an application is to be made for grant of certificate under Sub-section (3) and conditions subject to which such certificate may be granted and providing for all other matters connected therewith. Rule 29B is inserted for the purpose of application under Section 195(3), but that is only for receipt by a banking company or a person carrying on business or profession in India through a branch and that too on the fulfilment of certain conditions.

Form 15C is provided for this purpose. Section 197 provides for deduction of tax at a lower rate or no deduction at all if the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of tax at any lower rate or no deduction. Here also, the Board has been empowered to issue general guidelines for the issue of a notification. Form 13 is prescribed for this purpose. In none of the rules or forms do we find any provision which is apt to the facts of the present case. No application, either by the assessee under Section 195(2) or by the recipient under Section 195(3) or under Section 197, was made for lower /no deduction of tax at source, presumably on the ground that according to the assessee there was no such liability to deduct tax at source. Be that as it may, we have to see what is the income chargeable to tax out of the payments made by the assessee to the nonresident. In the light of the decision of the Andhra Pradesh High Court in the case of CIT v. Superintending Engineer, Upper Sileru[ 1985] 152 ITR 753, the obligation to deduct tax at source is limited to the appropriate portion of the income chargeable under the I.T. Act forming part of the gross amount payable to the non-resident. It is determined at 5 per cent by the CIT (Appeals). No dispute is raised by the parties on such determination.

3. Section 201 deals with the consequences of failure to deduct or pay tax and Sub-section (1A) provides for the payment of interest in addition to the amount of tax deductible by the payer. This section reads as under : 201(1) If any such person and in the cases referred to in Section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax : Provided that no penalty shall be charged under Section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.

(1A) Without prejudice to the provisions of Sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.

(2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in Sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in Sub-section (1).

4. The assessee's contentions before us are - (1) that there was no income chargeable at all which resulted to the non-resident, and (2) that there was no payment of any sum by the assessee to the non-resident and, therefore, there was no liability to deduct tax at source under Section 195 or liability under Section 201 of the Act. The Revenue, on the other hand, holds the view that the income from charter hire has accrued, arisen and also been received in India in the form of 85 per cent of the catch of fish and, therefore, the assessee was obliged to deduct tax at source.

5. We have heard Sri S. Ravi, learned counsel of the assessee, and Sri E. Narasimha Rao, learned departmental representative, and considered their rival submissions. To recapitulate the facts of the case: The assessee, a company incorporated in India and engaged in sale and export of sea food, obtained a permit to fish in the Exclusive Economic Zone of India on 25-6-1990 in pursuance of a Letter of Intent dated 20-2-1984. To exploit these fishing rights, the assessee entered into an agreement chartering two fishing vessels, i. e., two pairs of Bull Trawlers, with Eastwide Shipping Co. (H.K.) Ltd., a non-resident company incorporated in Hong Kong. The agreement is dated 7-3-1990.

Necessary permission to remit 85 per cent towards hire charges was also granted by Reserve Bank of India on 12-8-1991. The agreement between the parties, the grant of permit by Govt. of India and the permission to remit 85 per cent towards hire charges were originally for a period of 3 years and were subsequently extended for another 2 years as envisaged in the agreement between parties.

6. As per the agreement, the fishing vessels were to be delivered at Madras Port for commencement of fishing operations. Clause 3 of the agreement provides for operational limits. Clause 4 provides for the obligations of the non-resident as under : The Deponent Owners will provide fishing vessels, as approved by Government of India, for all inclusive charter fee of US $ 600,000 per vessel per annum. The charter fee is inclusive of fuel cost, maintenance, repairs, wages, food for the crew and any other expenses incurred in connection with the operation of the vessel.

They will provide training to the Indian crew in all aspects of fishing techniques, maintenance and running of the engine. In addition : (a) The Deponent Owners should pay the charterers Rs. 75,000 or 15 per cent of the gross value of the catch whichever is more.

(b) Annual charter fee shall be maximum of US $ 600,000 per vessel per annum payable by way of 85 per cent of gross earning from the fish sales subject to the condition that this will not exceed 85 per cent of the sales value of the catch per vessel per annum or voyage to voyage basis. Minimum 15 per cent of the earning by way of sales value of catch of fish should accrue to the charterer. Payment to the Deponent Owners should not exceed the above charter fee.

(c) Export value of catch from the chartered vessels should not be lower than the prevailing international market price at the time of export.

The Indian charterers shall obtain the required permit for operating the chartered vessels. They shall establish an office for managing and monitoring the operations and arrange for obtaining customs and export clearance. They will bear the expenditure and wages, amenities for Indian crew placed on board for training. They will also pay for Port charges, pilotage, boatage, lights, consular charges (except those pertaining to master and crew) canal charges, dock harbour, and tonnage due at all ports and agencies commissions and other expenses as incurred in Indian ports.

It is further agreed that at least 20 per cent of the crew are Indian and they are posted as understudies to Master, Engineer and other operation crew. The charterers shall provide for insurance cover for the Indian crew working on the vessels. All the Indian crew will be discharged at an Indian Port where the fishing vessels will report for the homeward voyage after having completed each fishing operation in Indian waters.

Clause 6 provides for redelivery of the vessels either at Madras Port or at Taiwan Port at the end of the voyage. Clause 7 provides for the operational rights of the assessee. The duties of the Master are contained in Clause 8 and on dissatisfaction of the assessee with the conduct of the master, officers or engineers, the non-resident was to investigate and if necessary substitute them.

Clause 10 provides for suspension of hire. It reads as under: In the event of dry-docking or other necessary measures to maintain the efficiency of the fishing vessels, deficiency of men or Deponent Owner's stores, breakdown of machinery, damage to hull or other accident either hindering or preventing the working of the fishing vessels for more than 24 hours, no hire to be paid in respect of any time lost thereby during the period in which the said fishing vessel is unable to perform the service immediately required unless the cause arises from the Charterer or his employees.

Clause 17 provides for payments under the agreement. This clause reads as under: The Deponent Owner will establish irrevocable sight letter of credit in favour of charterer through a Bank acceptable to the charterer.

The value of the letter of credit shall be for 15 per cent of the value of the fish catch and shall be negotiable upon presentation of documents mentioned hereunder. Quantity of the goods must be defined in the Letter of Credit as 'ABOUT'. The Letter of Credit shall be valid for a period of 2 months : (i) Mate's Receipt evidencing the total number of cartons/packages shipped and exhibiting be the net weight and gross weight of the shipment and bearing the endorsement 'stored on board in refrigerated chambers at minus 10 degree or Colder'.

(ii) Commercial invoices in triplicate, setting out precise details of the cargo delivered against the mate's receipt and priced as mutually agreed between the charterers and Deponent owners.

(iii) Certificate from the Master of Vessel testifying that the goods delivered are in prime condition and packed and stored in accordance with the best standards as prescribed by the concerned authorities and guaranteeing that goods are suitable for human consumption and qualifying for export. This certificate is to be prepared on prescribed form.

7. Government of India granted permission for charter of the fishing vessels, the following terms and conditions whereof are reproduced for the sake of convenience : (i) The charter of this vessel will be an all inclusive time charter for a duration of one year from the date of issue of this permit.

The charter hire will be US $ 6.0 lakhs per vessel per annum payable to Eastwide Shipping Co. (HK) Ltd., Hong Kong. However, the total payment required to be made by the charterer for the operation of the vessel will not exceed 85 per cent of the sale value of the catch per vessel per annum. The owners will bear all expenses for operation of the vessel during the charter period and also the expenditure on the voyage to the Indian Fort of operation and back.

The export value of the catch from the chartered vessels should be decided on the condition that this should not be lower than the prevailing international market prices, which will be verified and authenticated by local customs officials in Indian Ports.

(ii) M/s Eastwide Shipping Co. (HK) Ltd., Hong Kong, should pay Rs. 1 lakh per vessel per voyage or 15 per cent of the value of the catch per vessel per voyage, whichever is more.

(iii) The base of operation shall be Madras. The area of operation of the chartered vessel shall be as per the notification S.O. No. 286(E) dated 4-4-1985, published in the Gazette of India, Extraordinary, Part-II, Section 3(ii). The chartered fishing vessel shall operate beyond 24 nautical miles from the shore of islands like Andaman, Nicobar, Lakshadweep and Minicoy Group of Islands and man-made islands like Bombay High and other offshore installations.

(iv) There is no optional period of withdraw from the charter because of non-profitability or for other reasons. Charterer would not be allowed to withdraw from the charter subsequently. He would be bound by the condition on obligatory purchase of vessels within the stipulated period from the time he commences fishing operations in Indian EEZ. (viii) The charterer shall not commence fishing operation without the requisite clearance from the Coast Guard/Naval authority. Vessel should arrive at a Port on which coast guard cell exists for necessary clearance.

Reserve Bank of India permitted the remittance of 85 per cent of the fish catch towards hire charges subject to the following terms and conditions : (i) All exports of marine products under the agreement dated 7th March, 1990 should be declared on GR form and got cleared by the Indian Customs Authorities in Madras in usual ways.

(ii) All transactions in this regard should be conducted through Central Bank of India, Mango Market Branch, Vijayawada-3.

(iii) Bill of Exchange for the full value in respect of shipment should be drawn and routed through banking channels along with other shipping documents in the usual way.

(iv) The Charter hire will be US $ 6.0 lakhs per vessel, payable per annum to M/s Eastwide Shipping Co. (H.K.) Ltd., Hong Kong, subject to the condition that the total payment required to be made by the charterer for the operation of the vessel will not be exceeding 85 per cent of sale value of fish catch per vessel per annum.

(v) The export value of the fish catch from the chartered vessel should not be lower than the prevailing international market prices which will be verified and authenticated by local customs officials in Indian Ports.

(vi) M/s Eastwide Shipping Co. (H.K.) Ltd., Hong Kong, should pay Rs. 75,000 or 15 per cent per vessel per voyage of the value of the fish catch per vessel per voyage, whichever is more to the charterer.

(vii) A monthly statement in the enclosed proforma, duly certified by your bankers should be submitted to us before the 15th day of each succeeding month. If there are no exports during any particular month, a 'Nil' statement duly certified by your bankers should be submitted.

(viii) No part of export value of the marine products sold to the overseas party should be retained abroad after adjustment of charter hire payable by you in respect of each voyage.

(ix) The continuance of the arrangement beyond the prescribed period subject to the approval of Government of India will require prior approval of Reserve Bank of India.

(x) You should abide by such other directives that may be issued by Reserve Bank of India as well as Government of India in this regard from time to time.

4. In case you are required to deduct tax at source while paying charter hire charges, you have to produce documentary evidence showing the payment of taxes by deduction at source from the charter hire charges paid by you. However, if no tax is to be deducted at source as above, a clearance to that effect should be obtained from the Ministry concerned and submitted to us before payment of charter hire charges.

8. As the operations of the fishing vessels were in the Economic Zone beyond 12 nautical miles from the seashore, i.e., outside India, the CIT (Appeals) agreed with the assessee that no income to the non-resident had accrued or arisen in India in the light of the decision of the Supreme Court in the case of Performing Right Society Ltd. v. CIT [1977] 106 ITR 11. The Tribunal has also held in the case of Srinivasa Sea Foods Ltd. vide order dated 30-1-1995 in I.T. Appeal Nos. 156 (Hyd.) 1989 and 570 (Hyd.) of 1991, in similar, rather identical, circumstances that there was not even deemed accrual of income in India under sec. 9(1) of the I.T. Act because of the Explanation to sec. 9(1) and for the reason that all the fishing operations for earning the hire charges were carried out outside India, i.e., in the Economic Zone of India beyond 12 nautical miles from seashore. Paragraphs 18 and 19 of that order, which deal with the issue, are reproduced below : 18. The liability of the agent is. subject to an exception provided in Explanation (a) to Clause (i) of Sub-section (1) of sec. 9, which has been extracted above. As per the said Explanation, the income of the nonresident is to be ascertained on the basis of the operations carried out in India. It provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under Clause (i) to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. The vessels were hired for catching fish. As stated above, if there is no catch, no hire charges are to be paid. Hire charges are to be paid for the operation of the vessels in catching fish beyond 12 nautical miles to which the Income-tax Act does not apply. As stated in the Notification No. G.S.R. 304(E) dated 31-3-1983, the provisions of the Incomes-tax Act extend to the whole of India and for this purpose 'India' includes the territorial waters up to 12 nautical miles from the nearest point of the appropriate baseline. Under the said notification, the Income-tax Act is extended to the continental shelf and the exclusive Economic Zone of India up to 200 nautical miles, with effect from 1-4-1983, but this is only with regard to prospecting for and extracting of mineral oils. Clause (b) of the Notification includes hire of a ship, aircraft, machinery or plant, but that is only in connection with the activities referred to in Clause (a), i.e., prospecting for or extraction or production of mineral oils. In these circumstances, in our opinion, not even a single operation was carried out in India and, therefore, Section 9(1)(i), even though there was a business connection or the income was earned by the non-resident through or from any asset or source in India, would not be applicable. The income from hiring of the ship accrues where the ship is made available to the Indian counterpart. In the present case, the ships were no doubt made available to the assessee in Visakhapatnam Port, but they were meant to be used for catching fish beyond 12 nautical miles which is a territory outside India and to which the Income-tax Act does not apply. In this connection, useful reference may be made to the decision of the Supreme Court in the case of CIT v. Toshuku Ltd., 125 ITR 525, wherein the question was deemed accrual of commission under Section 9(1)(i) read with Explanation thereto. It was held by their Lordships of the Supreme Court as under: The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assessees during the relevant year. This takes us to Section 9 of the Act. It is urged that the commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, according to the department, had either accrued or arisen through and from the business connection in India that existed between the non-resident assessee and the statutory agent. This contention overlooks the effect of Clause (a) of the Explanation to Clause (i) of Sub-section (1) of Section 9 of the Act which provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If all such operations are carried out in India, the entire income accruing therefrom shall be deemed to have accrued in India. If, however, all the operations are not carried out in the taxable territories, the profits and gains of business deemed to accrue in India through and from business connection in India shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories. If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India [see CIT v. R.D. Aggarwal and Co. [1965] 56 ITR 20 (SC) and Carborandum Co. v. CIT [1977] 108 ITR 335 (SC) which are decided on the basis of Section 42 of the Indian I.T. Act, 1922, which corresponds to Section 9(1)(i) of the Act].

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 assessee in India as contemplated by Clause (a) of the Explanation to Section 9(1)(i) of the Act. The commission amounts which were earned by the non-resident assessees for services rendered outside India and, therefore, no income would be deemed to accrue in this case.

19. Reference may also be made to the decision of the Supreme Court in the case of Performing Right Society Ltd. v. CIT 106 ITR 11, wherein the royalties received from the Govt. of India under an agreement for broadcasting from the stations of All India Radio were held to accrue or arise to the society in India under Section 5(2) of the I.T. Act, 1961. Though it was a case under Section 5(2), the emphasis was on the fact that the income to the non-resident had accrued from broadcasting western music from the stations of All India Radio in India.

Here also, the fishing operations as per the agreement were to be beyond 12 nautical miles from the seashore and no charges were to be paid if there was no catch of fish. We, therefore, hold that neither the income has actually accrued or arose to the non-resident within the meaning of the provisions of Section 5(2) nor can it be deemed to have accrued or arisen under sec. 9(1) of the Act.

9. Section 5(2) of the I.T. Act deals with the scope of total income of a nonresident. It reads as under: 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.

On a careful reading of this section, it is evident that it also ropes in income which is received or deemed to be received in India. The Supreme Court, in the case of Raghava Reddi v. CIT [1962] 44 ITR 720, while considering a case under Clauses (a) and (c) of Sub-section (1) of Section 4 of the old Act of 1922 which correspond to Section 5 of the present Act of 1961, held that the receipt of income by itself attracts the liability to tax and it is not necessary that it must also accrue or arise in India. At pp. 724 and 725, it is said : In our opinion, Clauses (a) and (c) of Section 4(1) can be read disjunctively, and Clause (a), which provides for receipt of income, profits and gains in the taxable territories cannot be subjected to the limitation that the income must also accrue or arise in the taxable territories. To make Clause (a) depend on Clause (c) is to make the 'accrual' the test, while Clause (a) only considers receipt in the taxable territories sufficient. The clauses are capable of being read independently though, sometimes, they may operate together.

10. The receipt may be either in cash or in kind. In the case of Gold Coast Selection Trust Ltd. v. Humphrey [1949] 17 ITR Suppl. 19, the House of Lords held that where a company sold its trading assets for fully paid shares in another company, the profit should be treated as realised in the accounting year in which the shares were allotted to the vendor company, even though the shares were neither realised nor realisable till later; the fact that the shares could not be realised at once might reduce their present value but that was no reason for proceeding on the basis that no profit was received until they could be realised. In the case of Scottish & Canadian Generallnvestment Co. Ltd. v. Easson, 8 TC 265, it was similarly held that interest due on bonds issued by an old company was to be realised when debentures of a new company were received in place of the interest.

11. The various modes of receipt in kind are enumerated in the book " The Law and Practice of Income-tax!' by Kanga and Palkhivala, eighth edition, at pp. 125 and 126 as under : The forms which money's worth or the equivalent of cash may assume are beyond enumeration. Realization of income in money's worth may arise from transfer of immovable property such as a colliery or lands by a debtor in satisfaction of a debt. In John Emery v. IR (20 TC 213; 4 ITR Suppl. 8), the assessees were speculative builders who bought lands and built houses thereon. They created ground annuals or rent charges which meant that the annual rent was a burden upon and realizable out of the land but was not a personal obligation upon the purchaser. The assessees disposed of their entire interest in the land and house for cash, reserving to themselves the rent charges. The House of Lords held that the rent charge was a marketable security and its capitalized value should be brought into account in computing profits.

Likewise, income would be realized in case of issue of saleable Government Bonds for the total amount of principal and interest under a statutory provision for the relief of debtors, or transference of movables such as jewellery, or of a decree of a Court of law, or promissory notes or bills of exchange of third parties or a debt due to the debtor for a third party.

The entire catch of fish belonged to the assessee. It was shown as sale by the assessee. 85% of such fish catch was adjusted against the liability of the assessee towards hire charges for chartering the vessels from the non-resident. It was thus in discharge of the assessee's liability for hire charges and, therefore, it would be a receipt in the hands of the nonresident under Section 5(2) of the Act.

12. The assessee's contention is that the non-resident was already in possession of catch when it operated the trawlers outside the taxable territories and the only event that occurred in the Indian Port was the appraisal of the value of the catch for the purposes of customs and as required under the charter agreement and conditions of approval. It is also stated that even in the invoices made on the non-resident by the assessee, it was shown as 85% of FOB value adjusted towards charter hire and the balance 15% of value to be received. The invoice, bill of lading, etc., were made to comply with the conditions of export. As the goods were already in the possession of the non-resident at a place where the income in respect thereof had accrued or arisen, the mere adjustment in the invoice in India to comply with export regulations and conditions of fishing permit, would not amount to receipt of income by the nonresident in Indian Port. If it is considered as constructive receipt in kind in India, it is only a second receipt after the non-resident having already received the goods outside the taxable territories. This contention of the assessee has no force. It is true that the entire catch was without India. But, the fact should not be lost sight of that until it was brought by the fishing vessels to Indian Port, it was the property of the assessee and not of the non-resident. They were carrying the fish only as an agent of the assessee. As per the agreement and the conditions laid down by the Government, the chartered vessels were to report their location and the quantum of catch in the hold to Coast Guard Station on a daily basis and at fixed hours; when the catch is eventually brought to Port, only goods suitable for human consumption were brought, packed and certified to be so; after their valuation, the non-resident's account was credited with the hire charges paid to it to the extent of 85% of the catch. The actual payment was, therefore, made at Indian port, i.e., in India. Only when the catch is brought in, its suitability is certified on inspection, its valuation is made and customs and port clearances are given that the non-resident effectively receives its payment.

Simultaneously, the assessee also credits the non-resident's account.

Therefore, the hire charges are actually received in India.

13. It is true that under Section 5(2) it is the first receipt which is considered to be a receipt of income as held by the Supreme Court in the case of Keshav Mills Ltd. v. CIT [1953] 23 ITR 230, and the amount once received by the assessee even though outside India does not become chargeable by reason of the money having been brought into India, because what is chargeable is the first receipt of the money and not the subsequent dealing by the assessee with the said amount. In that event, the money is brought by the assessee as his own money which he has already received and had control over and it ceases to enjoy the character of income, profits or gains. As aforesaid, until the catch was brought to India, it was the property of the assessee and not of the non-resident and a receipt, to constitute income, must come under the control of the person receiving it. In the case of CIT v. Hindustan Housing & Land Development Trust Ltd. [ 1986] 161 ITR 524, the Supreme Court held that there was no absolute right to receive the amount of compensation withdrawn on furnishing of security as at that stage the assessee's right to the money was pending dispute and the assessee did not get a vested right till then. Here also, the non-resident was carrying the catch as an agent or custodian of the assessee. No right was vesting with it until it was appropriated towards hire charges.

Further, in the light of the decision of the Andhra Pradesh High Court in the case of CIT v. Chodavaram Cooperative Sugars Ltd. [1987] 163 ITR 420, also such a receipt could not be a receipt and consequently income of the non-resident. In that case, the assessee collected excess sugar price over and above the levy price fixed by Government and it was held that until the matter was settled ultimately by the court, the excess receipt was not income of the assessee. It represented, till then, a receipt in trust and without any right vesting in the assessee. In the case of Hasmukhll M. Parikhv. CIT[1959] 37 ITR 359 (Bom.), the earnest money received was in one year and the land was sold in the later year.

The Bombay High Court held that the earnest money received was not chargeable to tax because it was an amount left in deposit with the assessee for due performance of a contract, to be subsequently appropriated towards the price of the execution of sale deed.

14. We, therefore, do not find any merit in this contention of the assessee. The receipt in the form of 85% of the catch was in India when all the formalities were completed and the account of the non-resident was credited. This was the first receipt in the eye of law and being in India, would be chargeable to tax.

15. The assessee's next defence, that there was no receipt of income at all in India, that what the non-resident was given in the shape of 85% of fish catch was sold by it outside India and the sale proceeds thereof were realised outside India and that, therefore, there was no receipt in India, also has no force. In cases where the profit is realised in the form of a valuable asset, the profit is realised in the year in which the asset is received, even though the asset may be neither realised nor realisable till later and this is what has been held by the House of Lords in the case of Gold Coast Selection Trust Ltd. (supra). The fish catch was handed over to the non-resident's account after it reached Madras Port and other formalities were completed. The catch of fish was received by the nonresident as hire charges in India. Thereafter, it was carried outside India as property of the non-resident, sold and money was realised. Insofar as the assessee is concerned, it made the payment and the non-resident received the hire charges in the form of 85% of the catch of fish. We, therefore, reject this contention of the assessee as well.

16. The assessee also attempted to suggest that it was not a case of payment by the assessee but payment by the non-resident to the assessee of 15% of the fish catch or Rs. 75,000, whichever was lower. Though it is true that 15% of the fish catch was in the account of the assessee, it was in discharge of their obligation under the agreement undertaking to take the entire catch for export by purchasing it from the assessee.

Be that as it may, we are concerned in this case with the receipt by the non-resident. The assessee gave 85% of the fish catch in discharge of its liability to pay the hire charges and, therefore, it was a payment in kind by the assessee to the non-resident and that being at Madras Port, it would be an income received by the non-resident.

17. The next question to be considered by us is whether any tax deduction at source is contemplated on the payment in kind - handing over of 85% of fish catch being not a sum of money but money's worth.

In this connection, reliance is placed on the Circular No. 428 dated 8-8-1985 and the decision of the Andhra Pradesh High Court in the case of CIT v. Amonbolu Rajiah [1976] 102 ITR 403. Clause (2) of para-3 of the Board's Circular No. 428 dated 8-8-1985, which is relevant for the issue under consideration, reads as under : (2) Where a prize is given partly in cash and partly in kind, income-tax will be deductible from each prize with reference to the aggregate amount of the cash prize and the value of the prize in kind. Where, however, the prize is given only in kind, no income-tax will be required to be deducted.

The decision of the Andhra Pradesh High Court in the case of Amonbolu Rajiah (supra) was approved by the Supreme Court in the case of H.H.Sri Rama Verma v. CIT [1991] 187 ITR 308. There the controversy was regarding the expression "sums paid by the assessee" used in Section 80G and their Lordships held that it makes the legislative intent clear that it refers to the amount of money paid by the assessee as donation.

18. We do not find any merit in this issue also. The circular/first of all, is not a general circular which can be applied to all payments in kind. It is issued only for the purposes of deduction of tax at source under Section 194B. Secondly, it seems to be in the nature of a concession and, therefore, no benefit can be granted to the assessee in the case of deduction of tax at source other than under Section 194B.Section 194B provides that a person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle in an amount exceeding Rs. 5,000, shall, at the time of payment thereof, deduct income-tax thereon at the rates in force. The language of Section 195 is somewhat different. Under Section 195, tax is to be deducted at the time of credit of income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

19. We also find, on the contrary, a decision of the Kerala High Court in the case of K.C. Suresh v. Ex Officio, Director of Lotteries, wherein the tax was held to be deductible under Section 194B on the value of a Maruti car also as income includes not only money payments but also value of any benefit or perquisites. The Board's circular, therefore, appears to be contrary to the provisions of law and in view of the decision of the Supreme Court in the case of Kerala Financial Corpn. v. CIT 20. As stated above, Section 195 casts an obligation to deduct tax either at the time of payment or also at the time of credit to the account of the payee, whichever is earlier. Even otherwise, the payment contemplated under Section 195 not only includes cash payment or payment by cheque or draft but also a payment even by any other mode.

In these circumstances, neither the Board's circular under Section 194B nor the decision under Section 80G is of any help to the assessee.

Here, the payment of hire charges was made by the assessee by giving 85% of the fish catch to the non-resident. Therefore, in our opinion, it was a payment contemplated under Section 195. More so, in view of the fact that the said 85% of fish catch was adjusted in discharge of the liability, by the assessee in the account of the non-resident. That being so, the assessee was in default under Section 201 and has to pay the tax required to be deducted and pay interest for the failure thereof under Section 201(1 A) of the I.T. Act.

21. In view of the above, the appeals of the assessee have no merit.

They are accordingly dismissed.