1967 Supreme(Goa) 20

Goa High Court
V.S.JETLEY
Lima Leitao - Appellant
Versus
Union of India represented by the Administrator of Goa, Daman and Diu - Respondent
Decided On : 11/13/1967

A ship chartered by a non-resident Time Charterer which carries goods shipped at a port in India, and of which the Time Charterer is disponee owner, is not liable to pay tax under Section 172 of the Income Tax Act.

Headnote:

INCOME TAX - Section 172 - Whether a ship chartered by a non-resident Time Charterer which carries goods shipped at a port in India, and of which the Time Charterer is disponee owner, is liable to pay tax under Section 172 of the Income Tax Act (hereinafter referred to as 'The Act').

Fact of the Case:

The petitioner company, Lima Leitao and Company Ltd., is a company incorporated under the relevant Portuguese Statute. The respondents are the Union of India and the Income-tax Officer, Panjim. The petitioner company acted as the agents of the master of the ship for all matters relating to tax on freight earnings and as the agents for the disponee owners of the ship. The ship S. S. 'Angelica' was taken on daily hire rate basis by Messrs General Ore International Corporation of Vaduz, Lichtenstein, through their New York office. The Time Charterers were the disponee owners of the ship and also the owners of the iron ore carried by the ship. The petitioner company executed a guarantee bond in favour of the President of India guaranteeing payment of the tax in case of default by their Principals Messrs General Ore International Corporation of Vaduz, Lichtenstein. The Income-tax Officer passed an order of assessment holding the petitioner company liable to pay tax amounting to Rs. 29,528.00.

Finding of the Court:

The Court held that the petitioner company is not liable to pay the tax as guarantor in terms of the guarantee bond because the Time Charterers are not liable under Section 172 of the Act. The Court also held that the petitioner company is not the guarantor for the owners of the ship and consequently it is not liable for tax liability, if any, incurred by these owners. Further, the Court held that the order of assessment violates the principles of natural Justice.

Issues: 1. Whether the petitioner company is liable to pay the tax as guarantor in terms of the guarantee bond? 2. Whether the petitioner company is the guarantor for the owners of the ship? 3. Whether the order of assessment violates the principles of natural Justice?

Ratio Decidendi: 1. The Court held that the petitioner company is not liable to pay the tax as guarantor in terms of the guarantee bond because the Time Charterers are not liable under Section 172 of the Act. The Court observed that the Time Charterers hired the ship on time basis as would be clear from the Charter party agreement. They were disponee owners of the ship. They carried iron ore purchased by them. There was thus no question of any amount being paid or payable to them on account of carriage of the iron ore. Accordingly the Time Charterers are not liable under Section 172 of the Act. The liability of the petitioner company - as guarantor - is contingent upon the liability of the Time Charterers. This section not being applicable to the Time Charterers because they carried their own goods and therefore earned no freight, consequently the petitioner company is not liable on the guarantee bond. 2. The Court held that the petitioner company is not the guarantor for the owners of the ship. The Court observed that the guarantee bond would seem to show that the liability of the petitioner company is qua the Time Charterers and not qua the Owners of the ship. The respondent No. 2 proceeded to assess the petitioner company without ascertaining whether it represented the Owners or the Time Charterers. 3. The Court held that the order of assessment violates the principles of natural Justice. The Court observed that the assessment proceeding under S. 172 being quasi-judicial in its nature the respondents are subject to the writ of prohibition or certiorari.

Final Decision: The Court allowed the petitions and issued a writ certiorari or a direction in the nature of certiorari quashing the order of assessment and the notice of demand based thereon.