1. The shipowner returned under Section 172 of the Income-tax Act. 1961 ('the Act') (profits of nonresidents from occasional shipping business--shipping business of nonresidents), a freight of Rs. 9,92,975. That was assessed. But the Commissioner in revision thought that that assessment was prejudicial to the interests of the revenue.
He was of the view that Rs. 11,75,074 (before rebate) was the freight.
So he ordered a reassessment on that basis. Hence, this appeal is for the assessment year 1981-82.
2. It all happened like this. The ship sailed on 15-3-1981 from Madras port. The consignee was a paper mill in Nigeria (Africa). Their forwarding agent in India was Hindustan Ancillaries. The freight bill worked out to Rs. 11,75,074. That amount was also paid. But the shippers generally give an immediate rebate at a certain rate. That worked out to Rs. 1,82,099. So after rebate it is Rs. 9,92,975. All these facts of freight and rebate were shown in the manifest prepared on 15-3-1981 by the captain of the ship when the goods were loaded in the ship. But the amount of Rs. 1,82,099 was refunded to Hindustan Ancillaries by the Indian agent of the shippers only on 5-5-1981 after a period of two months. The shippers through their Indian agent contended before the Commissioner that there was an immediate rebate and that, therefore, what is paid or payable within the meaning of Section 172(2) to the shipper on account of carriage of goods is only Rs. 9,92,975.
The Commissioner differed and held that the rebate agreed to be paid to Hindustan Ancillaries is not an immediate rebate deductible from the gross freight, that it is an incentive to Hindustan Ancillaries, that it is a sort of a commission payment to Hindustan Ancillaries as an incentive for user of the vessels belonging to the non-resident company. So, what the Commissioner thought is that what is refunded, as an item of expenditure, which in the computation of income from shipping business cannot be taken into consideration, such income being standardised at 71/2 per cent of the freight earnings. So the question for consideration is what is the amount paid or payable to the owner of the ship on account of carriage of goods within the meaning of Section 172(2). The stand of the department is that because of the time-lag of about two months between loading and refund, it is not a rebate but a separate item of outgoing or expenditure incurred by the shipper. But this line of reasoning is, on the facts and in the circumstances of this case, faulty. This rebate of Rs. 1,82,099 is specified on 15-3-1981 in the manifest itself by the captain. So the payment of Rs. 11,75,074 and the grant of rebate of Rs. 1,82,099 is part and parcel of the same transaction. It is an integrated whole. It is not separable.
It cannot be split up into two separate transactions and each treated as an independent receipt and an independent expenditure. This is tantamount to a discount sale. As it is specified in the manifest itself, the fact that it was refunded only two months later is immaterial and is of no effect. The refund is only consequential because it had been already agreed to, even at the time of manifest.
Had it not been so specified in the manifest, the position might have been different. So the rebate cannot be divorced from the freight. The transaction of freight and rebate has to be taken as a whole and treated as a whole. If that is done, then Rs. 9,92,975 is the amount paid or payable on account of such carriage to the owner of the ship.
So the original assessment order was not prejudicial to the interests of the revenue.