# • ·-~ - • UNION OF INDIA v. GOSALIA SHIPPING PRIVATE LTD., MARGAO, GOA

- **Citation:** [1978] 3 S.C.R. 943
- **Court:** Supreme Court of India
- **Decided:** 1978-05-05
- **Case number:** Civil Appeal No. 1735 of 1972
- **Bench:** Y. V. Chandrachud, P. N. Bhagwat!, D. A. Desai
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-v-gosalia-shipping-private-ltd-margao-goa-7468
- **Pages:** 7

## Headnote

lncon.e Tax Act, 1961, S. 172(2)--Charter party agree111ent providing for
the payment by the Charterers "for the use and hire" of the vessel-Whether
the payment can be said to hai'e been n1ade "on account cf the carriage of
goods'' so as to attract the charging provision of S. 172(2) of the lncorne Tax
Act, 1961.
The respondent which is a company incorporated under the Indian Companies Act does the business of Clearing and Forwarding and
as
Steamship
agents. In 1970, respondent acted as the shipping agents
of
"Aluminiun1
Company of Canada Ltd." which is a non-resident company. The Aluminium
company time-chartered a ship "M. V. Sparto" belonging
to
another
nonresident company. Clause 4 of the Charter party provided for the payment
by the charterers "for the use and hire" of the vessel at the
rate of U.S.
A
B
c
4.50 dollars per ton on vessels' total dead weight carrying capacity per calendar
D
month commencing on and from the date of delivery of the ship, "hire to
continue until the hour of the day of her re-delivery". The said ship called
at the porl of Betul. Goa on March I, 1970 and loaded 13000 long tons of
bauxite belonging to the time-charterers, the Aluminium Co. The ship was
allowed to leave the port of Betal on the basis of the guarantee bond executed by the respondent in favour of the President of India undertaking to pay
the income· tax payable by the time-charterers under Section 172 of the Income
Tax Act, 1961. On April 15, 1970, the First Income Tax Officer, Margoa
issued a demand notice to the respondent for the payment of Rs. 51,191/- by
E
way of income tax under the aforesaid provision. The respondent filed a Writ
Petition asking for a mandamus directing the Income Tax Officer to withdraw
the notice. The petition was allowed by the Judicial Commissioner Goa.
Dismissing the appeal by Certificate, the Court
HELD : 1. The amount which the time-charterers were required to pay to
the owners of the ship was not payable on account of the carriage of goods but
F
v.'as payable on account of the use and hire of the ship.
[947 E-F]
2. It is true that one cannot place over-reliance on the
terms
which the
parties give to their agreement or on the label which they attach to
the
payment due from one to the other. One must have regard to the substance
of the matter and if necessary, tear the veil in order to see \Vhether the tn1e
character of a payment is something other than what, hy
<1 clever device
of
drafting:, it is made to appear.
[947 F-G]
In the instant case there is no reason to hold that the real intention of the
parties \i.'as something different from what the words used by
them,
convey
in their accepted sense.
The charter party was drawn in a
standard
form
approved by the "New York Produce Exchange" and there is no warrant for
supposing that though the payment which the charterers bound themselves to
make to the owners of the ship was on account of the carriage of goods, the
parties described it as being payable for the use and hire of the vessel, in order
to avoid the payment of Indian Income Tax. The character of the payment
cannot change according to the use to which the charterers put the ship or
according as to whether the ship is loaded with goods in a port
in
India.
What is payable as hire charges for the use of the ship cannot transform
itself into an amount payable on account of the carriage. of goods, by reason
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944
SUPREME COURT REPORTS
[1978] 3 S.C.R.
of the circumstance that the ship was loaded with goods in India. TI1e timecharterers loaded the ship at Betul, Goa, \Vith their own goods. They did
not sub-let the ship for the purpose of carriage of goods nor did they load
the ship with goods belonging to a third party in which event they might
have earned some freight on account of the carriage of goods.
1~hcy paid
hire charges to the owner of the ship for the use of the ship and since they
loaded the ship with their own goods, they received nothing on account of
the carriage of the goods. Ne

## Text

•
·-~
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UNION OF INDIA
v.
GOSALIA SHIPPING PRIVATE LTD., MARGAO, GOA
May 5, 1978
943
[Y. V. CHANDRACHUD, C.J., P. N. BHAGWAT! AND D. A. DESAI,, JJ.]
lncon.e Tax Act, 1961, S. 172(2)--Charter party agree111ent providing for
the payment by the Charterers "for the use and hire" of the vessel-Whether
the payment can be said to hai'e been n1ade "on account cf the carriage of
goods'' so as to attract the charging provision of S. 172(2) of the lncorne Tax
Act, 1961.
The respondent which is a company incorporated under the Indian Companies Act does the business of Clearing and Forwarding and
as
Steamship
agents. In 1970, respondent acted as the shipping agents
of
"Aluminiun1
Company of Canada Ltd." which is a non-resident company. The Aluminium
company time-chartered a ship "M. V. Sparto" belonging
to
another
nonresident company. Clause 4 of the Charter party provided for the payment
by the charterers "for the use and hire" of the vessel at the
rate of U.S.
A
B
c
4.50 dollars per ton on vessels' total dead weight carrying capacity per calendar
D
month commencing on and from the date of delivery of the ship, "hire to
continue until the hour of the day of her re-delivery". The said ship called
at the porl of Betul. Goa on March I, 1970 and loaded 13000 long tons of
bauxite belonging to the time-charterers, the Aluminium Co. The ship was
allowed to leave the port of Betal on the basis of the guarantee bond executed by the respondent in favour of the President of India undertaking to pay
the income· tax payable by the time-charterers under Section 172 of the Income
Tax Act, 1961. On April 15, 1970, the First Income Tax Officer, Margoa
issued a demand notice to the respondent for the payment of Rs. 51,191/- by
E
way of income tax under the aforesaid provision. The respondent filed a Writ
Petition asking for a mandamus directing the Income Tax Officer to withdraw
the notice. The petition was allowed by the Judicial Commissioner Goa.
Dismissing the appeal by Certificate, the Court
HELD : 1. The amount which the time-charterers were required to pay to
the owners of the ship was not payable on account of the carriage of goods but
F
v.'as payable on account of the use and hire of the ship.
[947 E-F]
2. It is true that one cannot place over-reliance on the
terms
which the
parties give to their agreement or on the label which they attach to
the
payment due from one to the other. One must have regard to the substance
of the matter and if necessary, tear the veil in order to see \Vhether the tn1e
character of a payment is something other than what, hy
<1 clever device
of
drafting:, it is made to appear.
[947 F-G]
In the instant case there is no reason to hold that the real intention of the
parties \i.'as something different from what the words used by
them,
convey
in their accepted sense.
The charter party was drawn in a
standard
form
approved by the "New York Produce Exchange" and there is no warrant for
supposing that though the payment which the charterers bound themselves to
make to the owners of the ship was on account of the carriage of goods, the
parties described it as being payable for the use and hire of the vessel, in order
to avoid the payment of Indian Income Tax. The character of the payment
cannot change according to the use to which the charterers put the ship or
according as to whether the ship is loaded with goods in a port
in
India.
What is payable as hire charges for the use of the ship cannot transform
itself into an amount payable on account of the carriage. of goods, by reason
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B
c
D
944
SUPREME COURT REPORTS
[1978] 3 S.C.R.
of the circumstance that the ship was loaded with goods in India. TI1e timecharterers loaded the ship at Betul, Goa, \Vith their own goods. They did
not sub-let the ship for the purpose of carriage of goods nor did they load
the ship with goods belonging to a third party in which event they might
have earned some freight on account of the carriage of goods.
1~hcy paid
hire charges to the owner of the ship for the use of the ship and since they
loaded the ship with their own goods, they received nothing on account of
the carriage of the goods. Neither the one nor the other, therefore, received
any amount on account of the carriage of the gocxls. [947 G-H, 948 A, B, F-G)
3. A contract by charter party is a contract by which an entire ship or
some principal part thereof is let to a merchant who is called the
charterer,
for the conveyance of goods on a determined voyage to one or more places,
or until the expiration of a specified period. The contract in the instant case
is of the nature of time-charter-party, whether there is a demise of the ship
or not being immaterial.
Clause 4 of the charter-party provides for the payment by the charterers "for the use and hire" of the vessel at the rate of
U.S. 4.50 dollars per ton on vessel's total dead weight carrying capacity, per
calendar month, commencing on and from the date of delivery of the ship,
"hire to continue until the hour of the day of her re-delivery''. 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.
[948 Cl-H, 949 D-F]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1735 of 1972.
1972.
From the Judgement and Order dated the 29th October 1971 of
the High Court of Goa, Daman and Diu in S.C.A. No. 31 of 1970.
V. S. Desai and Miss A. Subhashini fat the Appellant.
E
S. T. Desai, M. V. Shah and R. P. Kapur for Respondent.
F
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The Judgment of the Court was delivered by
CHANDRACHUD, C.J.-The respondent, Gosalia Shipping Private
Limited, which is a company incorporated under the Indian Companies
Act does the business of Clearing and Forwarding and as Steamship
Agents.
In 1970, respondent acted as the shipping agent of 'Aluminium Company of Canada, Limited' which is a non·resident company.
The Aluminium Company time-chartered a ship "M. V. Sparta" belonging to a non-resident company called Sparto Compania Naviera of
Panama. The said ship called at the port of Betul, Goa, on March 1.
1970 where· it loaded 13,000 long tons of bauxite belonging to the
time-charterers, the Aluminium Company.
On March 20, 1970 the
ship left for Alfred port, Canada.
The ship was allowed to leave
the port of Betul on the basis of a guarantee bond executed by
the
respondent in favour of the President of India, undcr~aking to pay the
income-tax payable by the time-charterers under section 172 of
the
Income-tax Act, 1961.
On April 15, 1970, the First Income-tax
Officer, Margao, Goa, issued a demand not!cc to the respondent
for payment of Rs.
51,191 by way of mcome-tax under the
aforesaid provision.
The respondent filed Special Civil Application
No. 31 of 1970 in the Court of the Judicial Commissioner, Goa, asking for a writ of Mandamus directing the Income-tax Officer to withdraw the demand notice.
By a judgment dated October 29, 1971,
J'
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UNION v. GOSALIA SHIPPING (Chandrachud, c. J.)
945
the learned Judicial Commissioner allowed the respondent's
Writ
Petition and passed an order quashing the demand notice.
Having
-0btained from the Judicial Commissioner a certificate of fitness to
A
appeal to this Court under article 133 ( 1) (b) and ( c) of the constitution, the Union of India has filed this appeal.
"\
The question as to whether the respondent is liable to pay
the
income-tax dem?nded of it by the Income-tax Officer,
depends for
jts decision on the construction of section 172 of the Income-tax
Act,
B
1961, which read as follows at the relevant time :
4
4. ..
"172. (1) The provisions of this section, shall, notwithstanding anything contained in the other provisions of this
-
Act, apply for the purpose of the levy and recovery
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~
of tax in the case of any ship, belonging to or chartered by a non-resident, which carries
passengers,
live-stock, mail or goods shipped at a port in Indi.a.
~ ,
(2) Where such a ship carries passengers,
live-stock,
mail or goods shipped at a port in India, one-sixth
of the amow1t paid or payable on account of such
D
carriage to the owner or the charterer or to any person on his behalf, whether that amount is prud or
payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on
account of such carriage.
(3) Before the departure from any part in India of auy
E
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such ship, the master of the ship shal! prepare and
furnish to the Income-tax Officer a return of the full
amount paid or payable to the owner or charterer
or any person on his behalf, on account of the carriage of all passengers, live-stock, mail dr goods ship-
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ped at that port since the last arrival
of the ship
thereat :
F
Provided that where the Income-tax
Officer is
;tr
satisfied that it is not possible for the master of the
,
ship to furnish the return required by this sub-section
before the departure of the ship from the port and
"
prm~ded the master of the ship has made satisfactory
arrangements for the filing of the return and payment
G
of the tax by any other person on his behalf the Income-tax Officer may, if the return is filed within
•
thirty days of the departure of the ship, deem
the
filing of the return by the person so authorised by
the master as sufficient compliance
with this subsection.
(4) On receipt of the return, the Income-tax Officer shall
assess the income referred ta in sub-section (2) and
H
determine the sum payable as tax thereon at the
946
SUPREME COURT REPORTS
( 1978] 3 S.C.R.
A
rate or rates in force applicable to the total income
of a compa_ny w!J!ch has not made the arrangements
referred tom sec()on 194 and such sum shall be payable by the master of the ship.
(5) For the purpose of determining the tax payable under
B
sub-section ( 4), the Income-tax Officer may call for
/'
such accounts or documents as he may require.
(6) A port clearance shall not be granted to the ship un-
•
ti! the. Col!_ector of Customs, or other Ollicer duly
,f
authorISed to grant the same, is satisfied that the tax
c
assessable under this section has been duly paid or
-
that satisfactory arrangements have been made for
•
the payment thereof.
(7) Nothing in this section shall be deemed to prevent
•
the owner or charterer of a ship from claiming be-
~
D
fore the expiry of the assessment year relevant to the
previous year in which the date of departure of -the
ship from the Indian port falls, that an assessment
be made of his total income of the previous year and
the tax payable on the basis thereof be determined in
accordance with the other provisions of this Act, and
if he so claims, any payment made under this section
E
in respect of the passengers, live-stock, mail or goods
shipped at Indian port during that previous year shall
be treated as a payment in advance of the tax leviable for that assessment year, and the difference between the sum so paid and the amount of tax found
payable by him on such assessment shall be paid by
him or refunded to him, as the case may be."
-
F
Section 172 occurs in Chapter XV which is entitled "Liability in
special cases" and the sub-heading of the section is "Profits of nonresidents from occasional shipping business." It creates a
tax lia- ._
bility in respect of occasional shipping by making a special provision
~
for the levy and recovery of tax in the case of a ship belonging to or
chartered by a non-resident which carries passengers, livestock, :nail
•
G
or goods shipped at a port in India.
The object of the section
is
to emure the levy and recovery of tax in the case of ships belonging
to or chartered by non-residents.
The section brings to tax the profits
made by them from occasional shipping, by means of a
summary
I
assessment in which one-sixth of the gross amount received by them
is deemed to be the assessable profit.
Before the departure of the
ship, the master of the ship has to furnish to the Income-tax Officer
H
a return of the full amount paid or payable to the owner or charterer
on account of the carriage of passengers, goods etc., shipped at the
port in India since the last ariival of the ship at the port.
In ~e
event that. to the satisfaction of the Income-tax Officer, the master J&
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UNION ... GOSALIA Sl!lPPING (Cliandrachud, c. /.)
947
unable so to do, he has to make satisfactory arrangements for
the
filing of the return and payment of the tax by any other person on his
behalf.
A port clearance cannot be granted. to the ship until the tax
assessable under tile section is duly paid or satisfactory arrangements
have been made for the payment thereof.
The assessee in this case is the Alwniniun1 Company of Canada
which had time-chartered the ship and on whose behalf its shipping
agent, the respondent, had executed the guarantee bond.
Since the
Company is a non-resident and the ship carried goods which were
shipped at a port in India, the conditions specified in sub-section l i)
are satisfied and tl1e provisions of section 172 will apply for
the
purpose of levy of tax, notwithstanding anythin:; contained in the
other provisions of the Income-tax Act.
The charging provision is contained in sub-section (2) of section
172. the relevant part of which provides that where a ship belonging
to or chartered by a non-resident carries goods shipped at a port in
India, one-sixth of the amount paid or payable "on account of such
carriage" to the owner or the charterer or to any person on his behalf
shall be deemed to be income accruing in India to the owner or charterer on account of such carriage.
The ship was delivered to the
time-charterers at Betul, Goa, whereupon they loaded it with their
own goods to the fullest capacity of the ship. Under the charterparty,
the charterer had agreed io pay to the owners of the ship a sum of
4.50 U.S. dollars per ton on the total dead weight carrying capacity
per calendar month, cmmnencing on and from the date of the delivery
of the ship.
The short question for consideration is whether
the
amount which the time-charterers had agreed to pay to the owners of
the ship was payable "on account of" the carriage of goods.
If any guidance is to B sought from the terms of the agreement
between the parties, the conclusion seems inescapable that the amount
which the time-charterers where required to pay to the owners of the
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ship was not payable on account of the carriage of goods but was payF
able on account of the use and hire of the ship.
The charter party provided by clause ( 4) that the 8harterers shall
pay a sum at the rate of 4.50 U.S. dollars on the total dead weight
carrying capacity of the ship, "for the use and hire of the said vessel".
It is true that one cannot place over-reliance on the form which tne
parties give to their agreement or on the label which they attach to
the payment due from one to the ot.her.
One must have regard to
the substance of the matter and, if necessary, tear the veil in order
to see whether the true character of a payment is something other
than what, by a clever device of drafting, it is made to appear. But
we see no reason to hold that the real intention of the parties was
something different from what the words used by them convey
in
their accepted sense.
TI1c chartcrparty was drawn in a standard form
approved by the 'New York Produce Exchange' and there is no warrant
for supposing that though the payment which the Charterers hound
themselves to make to the owners of the ship was on account of
the
G
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A
B
c
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948
SUPREME COURT REPORTS
[J 978] 3 S.C.R.
carriage of goods, the parties described it as being payable for the
use and hire of the vessel, in order to avoid the payment of Indian
income-tax.
Indeed, the other terms of the charterparty and the general tenor
of the document show that the payment was in fact to be made by the
fane-charterers for use and hire of the ship.
Under the agreement,
charterers had the "liberty to sublet" the vessel for all or any part of
the time covered by the agreement.
The Capiain of the ship was to
be under the orders and directions of the charterers as regards employment and agency.
And if the vessel be lost, money paid in advance
and not earned was to be returned by the owners to the charterers ,, t
once.
These terms and conditions of the contract between the parties are not consistent with the theory that the charterers were liable
to pay to the owners any amount on account of the carriage of ·goods.
In order that it may be said that the amount was payable on account
cf the carriage of
goods.
Under the terms of charterparty,
the
the consideration for the other, that is to say, that the payment which
the charterers had agreed to make to the own~rs of the ship was in
consideration of the carriage of goods.
If the charterers arc liable
to pay the amount irrespective of whether they carry the goods or
not, it would be difficult to say that the amount was payable on account
of the carriage of goods.
Under the terms of Charterparty, the
owners of the ship received the mnount as charges for the use and
hire of the ship.
The character of the payment cannot change
according to the use to which the charterers put the ship or according
as to whether the ship is loaded with goods in a port in India.
What
is payable as hire charges for the use of the ship cannot transform
itself into an amount payable on account of the carriage of goods. bv
reason of the circumstance that the ship was loaded with goods m
India.
It is relevant, for the decision of the question under consideration.
that the time-charterers loaded the sbip at Betul, Goa, with their
own goods.
They did not sub-let the ship for the purpose of carriage of goods nor did they load the ship with goods belonging to a
third party in which event they migl1t have earned some freight
on
account of the carriage of goods.
They paid hire charges to tk
owner of the ship for the use of the ship and since they loaded the
ship witb their own goods, they received nothing on account of the
carriage of the goods.
Neither the one nor the other, therefore, re~
ceived any amc)Unt on account of the carriage of the goods.
The weakness of the argument advanced b5' the appellant's counsel
consists in its assumption that the charterparty has to be an agreement
for the carriage of son1ething like goods, passengers, livestock or 1nail.
A contract by charterparty, says, B. C. Mitra in his "Law of Carriage
by Sea" (Tagore Law Lectures 1972)_, : "is a contract by which an
entire ship or some principal part thereof is let to a merchant who is
called the charterer, for the conveyance of goods on a determined
voyage to one or more places, or until the e'piration of a specified
period; in the former .case it is called a 'voyage eharterparty', and in
the latter a 'time charterparty' ".
A time charter, according to the
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UNION v. GOSALIA SHIPPING ( Chandrachud, c. J.)
9 49
author, is "one in which the ownership and also possession of the ship
A
remain in the original o\vncr whose remuneration or hire is generally
calculated at a monthly rate on the tonnage of the ship, while
a
voyage charter is a contract to carry specified goods on a defined
voyage on a remuneration or freight usually calculated according to
the quantity of cargo carried."
In Carver's "Carriage by Se'1"
(Eleventh ed., 1963, page 263), it is stated that "all charterparties are
not contracts of carriage.
Sometimes the ship itself, and the control
B
over her working and navigation, are transferred for the time being
to the persons who use her.
In such cases the contract is really one
of letting the ship, and, subject to the express terms of the charterparty, tlie liabilities of the shipowner and the charterer to · one
another arc to be determined by the law which relates to the
hiring of chattels and not by reference to the liabilities of
carriers
and shippers."
According to Scrutton
on Charterparties
C
(seventeenth ed., 1964, page 4), chartcrparties fall into three main
categories: (i) charters by-demise (ii) time charters (not by way of
demise), and (iii) voyage charters. Sometimes categories (i) and (ii)
are both referred to as time chartc" as distinguished from category
(iii), and they have this in common that the shipowner's remuneration
is reckoned by the time during which the charterer is entitled to the
use of services of his ship." The contract in the instant case is of the
D
nature of time-charterparty, whether there is a demise of the ship or
not being imruaterial.
Clause 4 of the charterparty provides for the
payment by the charterers "for the use and hire" of the vessal at the
rate of U.S. 4.50 dollars per ton on vessel's total dead weight carrying
capacity, per calender month, commencing on and from the date of
delivery of the ship, "hire to continue until the hour of the day of
her re-delivery".
These clauses of the charterparty show that the
E
Aluminium Company took the ship from its owners on a time-charterparty, that the owners were entitled to payment for the use and hire
of the ship, that tho amount was payable irrespective of what use tl1e
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
F
the owner of the place arc for the use and hire of the place, not on
account of marriage .
For these reasons we confirm the judgment of the learned Judicial
Commissioner and oelismiss the appeal with com .
S. R.
Appeal dismissed.