P.D. Desai, J.
1. A short question of law as to the applicability of sub-section (2) of section 172 of the Income-tax Act, 1961, to earnings by way of dead freight arises in this reference in the context of the following facts.
2. The assessment year with which we are concerned in this reference is 1967-68. The assessee was a non-resident and received a total sum of Rs. 1,54,350, under the contract entered into by the shipping company with the charterer firm, inter alia, for carrying certain cargo shipping at Kandla. This amount included a sum of Rs. 32,835 being the dead freight recoverable on account of 223.365 M. Tons of cargo having not been shipped from the port as per the contract. The Income-tax Officer computed, under the provisions of section 172(2), the amount of Rs. 25,725 as the income accruing in India to the assessee on account of the carriage of cargo, the said amount being one-sixth of the total amount of Rs. 1,54,350 which was received by the assessee (including the amount of dead freight of Rs. 32,835). The assessee preferred an appeal before the Appellate Assistant Commissioner and contended that the amount paid to him on account of the carriage of cargo consisted only of Rs. 1,21,516 and that the amount of Rs. 32,835 earned as dead freight in respect of the cargo which was not loaded as per the contract between the shipping company and the charterer firm, could not be said to have been paid to it on account of the carriage of goods. According to the assessee, therefore, the provisions of section 172(2) were not attracted in respect of the aforesaid amount of dead freight and the said amount could not have been taken into account in determining the income of the assessee thereunder. The Appellate Assistant Commissioner accepted the contention advanced by the assessee and directed the Income-tax Officer to modify the order of assessment by deduction of the amount of dead freight. The revenue preferred as appeal before the Income-tax Appellate Tribunal and the Tribunal, agreeing with the Appellate Assistant Commissioner, dismissed the appeal. At the instance of the revenue, however, the Tribunal has referred the following question of law for our opinion :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that section 172(2) of the Income-tax Act, 1961, is limited to taxing the earnings of non-residents only in respect of those receipts which are related to cargo shipped from Indian ports and thereby holding that 1/6th of Rs. 32,835, being the dead freight earnings for cargo not shipped from Indian port, was not includible in the taxable income of the assessee ?'
3. The answered to the above question rests on the true constitution of the relevant provisions of section 172. The said section makes special provisions for the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carried passengers, livestock, mail or goods shipped at a port in India. So far as the present case is concerned, we might read only sub-section (1) and (2) of the said section. They are as under :
'172. Shipping business of non-residents. - (1) The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply for the purposes of the levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a part in India, unless the Income-tax Officer is satisfied that there is an agent of the non-resident from whom the tax will be recoverable under the other provisions of this Act.
(2) Where such a ship carries passengers, livestock, mail or 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, whether that amount is paid or payable in or out India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage.'
Sub-section (1) in terms enacts that the provisions of the said section will apply, for the purposes of the levy and recovery of tax, in the case any ship, belonging to or chartered by a non-resident, which carries passengers livestock, mail or goods shipped at a port in India. There is no dispute that the conditions laid down in this sub-section are satisfied in the instant case and that the assessee was liable to be taxed in accordance with the special provisions of the section in question. Under sub-section (2), so far as it is relevant, the legislative fiat is clear and specific. A certain proportion of the amount which is either actually paid or becomes payable, 'on account of such carriage' to the owner of a ship or a charterer or to any person on his behalf, is to be treated as the income accruing in India to such owner or charterer on account of 'such carriage', whether the amount is paid or payable in or out of India. The fiction is enacted for the purpose of treating a prescribed portion of the amount received by a non-resident shipowner or charterer for the carriage of passengers, cargo, etc., shipped at a port in India as his income (irrespective of the place of payment) so that it could be brought to tax in his hands as such. However, the amount must be paid or payable on account of such carriage, that is, as freight, and not on account of non-carriage of goods by such ship from a port in India. A legal fiction must be limited to the purpose for which it was created and, therefore, any payment made otherwise than by way of freight would not fall within the deeming provisions of sub-section (2) of section 172 and it could not be treated as income.
Now, the disputed amount of Rs. 32,835 was paid to the assessee in the instance case on account of dead freight. The term 'dead freight', according to Black's Law Dictionary, meant 'money payable by a person who has chartered a ship and only partly loaded her, in respect of the loss of freight caused to the ship-owner by the deficiency of cargo'. (See page 794 of 1951 edition). In Stroud's Judicial Dictionary, fourth edition, at page 689, the term 'dead freight' is defined as denoting 'an agreed sum to be paid in respect of space not filled according to charter, or damages provided for by a charter, in the event of the freighter not loading a full cargo'. In Butterworth's Words and Phrases Legally Defined, 1969 edition, at page 293, the word 'dead freight' is dealt with as follows :
'If the charterer, without lawful excuse, ships a less quantity of goods than that required by the charter party, or if the goods shipped are not in accordance with the charter party, the measure of damages is the difference between the freight actually earned, including any profit earned by carrying the goods of third persons, and the freight that would have been earned if the charterer had fulfilled his obligation. Such damages are usually known as 'dead freight' (35 Halsbury's Laws of England (3rd Edn.) 399, 400).'
'It must be admitted that the terms 'dead freight' is an inaccurate expression of the thing signified by it. It is, as Lord Ellenborough said in Phillips v. Rodie  15 East 547, at page 554, 'not freight but an unliquidated compensation for the loss of freight recoverable in the absence and place of freight'. In construing the charter party it must be assumed that the parties understood the meaning of the terms they employed and that, amongst others, the term 'dead freight' (according to Lord Ellenborough's definition) 'an unliquidated compensation for the loss of freight'.' [McLean and Hope v. Fleming  LR 2 SC & Div 128 (HL), per Lord Chelmsford, at pages 131-133].
'... dead freight is not freight at all properly so called, but is in reality damages for breach of contract, for convenience nicknamed dead freight...' (Kish v. Charles Taylor Sons & Co.  AC 604 (HL) per Lord Atkinson at pages 621, 622).
'... I have come to the conclusion that the plaintiffs are entitled to succeed in their claim for what is called dead freight, which in legal terminology is damages for failure to load a full and complete cargo.' (Aktieselskabet Reidar v. Arcos Ltd.,  2 KB 83 (KB) per Greer J., page 85-affirmed on appeal  1 KB 352 (CA).
It is clear from the aforesaid exposition of the true meaning of the word 'dead freight' in these standard books that it is not freight, that is, a payment made on account of carriage of goods, but it is in reality damages for breach of contract. It is in substance and effect unliquidated compensation for the loss of freight-an amount recoverable in the place and stead of freight. It is not freight at all property so called and it is merely called as such for convenience.
Once this true meaning of the expression 'dead freight' is ascertained, it becomes evident that any payment made on account of 'dead freight' cannot be treated as payment made on account of carriage of goods in a ship. It is in fact payment by way of damages for non-carriage of goods on account of the charterer's failure to fulfil his obligation.
Sub-section (2) of section 172 which enacts a fiction and makes special provision for the levy and recovery of tax from a non-resident ship-owner irrespective of the place where the freight is paid must be construed on its plain language. In a taxing statute of that nature, there is no justification for adding words, a payment made not for carriage of goods but for non-carriage of goods cannot, therefore, be brought within the ambit thereof.
4. In view of the foregoing discussion, it would become clear that the Tribunal was right in the view that it took as regards the non-inclusion of the amount of dead freight in the amount which is to be taken into account for computing income under section 172(2). Accordingly, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.