Kanchanganga Sea Foods vs. CIT (Supreme Court)

For s. 5(2), income receivable in kind, received at place where goods delivered

The assessee, a fishing company, obtained two fishing vessels on charter from a foreign company based in Hong-Kong. The charter fee of $ 600,000 was payable from the earning from the sale of fish and for that purpose 85% of the gross earnings from the sale of fish was to be paid to the foreign company. The trawlers were delivered to the assessee at Chennai Port. Actual fishing operations were done outside the territorial waters of India but within the EEZ. The voyage commenced and concluded at Chennai Port. The catch made at high seas were brought to Chennai where its value for assessed for local taxes. The assessee thereafter arranged Customs clearance for the export of the fish and the Trawlers carried the fish to the destination chosen by non-resident company. The Trawlers reported back to Chennai Port after delivering fishes to the destination and commenced another voyage. The AO took the view that the assessee ought to have deducted tax at source u/s 195 whilst making payment to the foreign company. He treated the assessee as in-default u/s 201. The CIT (A), ITAT & High Court decided against the assessee. On appeal to the Supreme Court, HELD dismissing the appeal:

(i) The argument that the income of the non-resident had not been received in India is not acceptable. The agreement provided that the charter fee of $600,000 was “payable by way of 85% of gross earning from the fish-sales“. The chartered vessels with the entire catch were brought to the Indian Port, the catch was certified for human consumption, valued, and after customs and port clearance and the non-resident 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-resident company as the latter did not have any control over the catch. It is after the non-resident company was given share of its 85% of the catch it did come within its control. It is trite to say that to constitute income the recipient must have control over it. As the apportionment was in India, the non-resident effectively received the charter-fee in India. This being the first receipt in the eye of law and being in India was chargeable to tax u/s 5(2).

(iii) The said catch was in sum and substance, the receipt of value of money. Had it not been so, the value of the catch ought to have been the price for which the non-resident sold at the destination chosen by it. (Toshoku 125 ITR 525 (SC) distinguished on the ground that there mere entries had been made in India and that was held not to be a receipt in India; Ishikawajima 288 ITR 408 (SC) distinguished on the ground that the entire transaction was completed on high seas);

(iii) Accordingly, the assessee was liable to deduct tax u/s 195 and was rightly held to be in default u/s 201.