Law:

Section:

Section 172 of the Income-tax Act, 1961 - Non-resident - Shipping business of - Assessment year 1987-88 - Whether in order to invoke provisions of section 172, it is necessary that a ship should belong to or be chartered by a non-resident, it should carry passengers, live-stock, mail or goods and, such cargo of passengers should be shipped at a port in India - Held, yes - Whether where section 172(1) is not applicable, there is no question of computing and levying tax in terms of sub-section (2) of section 172 - Held, yes - Whether a vessel which due to a mechanical fault, that it has developed, cannot propel itself on its own, does not become 'goods' under section 172 for purpose of being carried by a ship for purpose of trade - Held, yes [In favour of assessee] FACTS The assessee company was treated as an agent of 'M' a powerful tug under section 163 by the Assessing Officer. Thereafter, assessment under section 143(3), read with section 5(2)(b) came to be made at a total income of Rs.9,80,392. One ship named 'K' which was in the port of Navlakhi was required to be towed away by 'M', from Navlakhi to Singapore/Japan. The owners of 'M' who were non-residents were approached by owners of 'K' for chartering the tug to tow away 'K' and an agreement was entered into for payment of towing charges of U.S.$ 1,00,000 (one lakh US.Dollars). It was not in dispute that 'K', the merchant vessel came to the Indian port for discharging cargo and was not required to load any cargo at the port of discharge. While at the Indian port 'K' developed engine trouble and hence it had to be towed away. It was further not disputed that the agreement between the owners of the tug and the ship was made outside India and payment was also made outside India. Initially the assessee approached the Assessing Officer seeking clarification as to whether any income-tax clearance certificate was required for the purpose of towing operation. The Assessing Officer instead of replying to the query raised by the assessee called upon the assessee to furnish a return of income and pay income-tax on the towing charges. The assessee resisted the said attempt, but after prolonged correspondence furnished…

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