K.L. Roy, J.
1. Messrs. Czechoslovak Ocean Shipping International Joint Stock Co. is a non-resident shipping company. On or about the 23rd September, 1965, 'M. S. Jiskara', one of its vessels, discharged in the port of Calcutta, under 6 bills of lading, cargo of machinery, equipment, instruments, etc., consigned to the Heavy Engineering Corporation Ltd., a Government of India undertaking, and to the Government Cement Factory of the State of Uttar Pradesh. The said vessel left the port of Calcutta on the 29th September, 1965, without loading any cargo. On the 12th November, 1965, another of its vessels, 'M. S. Pionyr', discharged in the port of Calcutta, cargo of various machinery, equipment, etc., consigned to the Heavy Engineering Corporation Ltd. and left the port on the 16th November, 1965, without loading any cargo. Under the relevant bills of lading the freight was to be considered as earned whether the ship and/or cargo was lost or not and was to be paid at destination. M/s. Khemka & Co. (Agencies) Private Ltd., the second petitioner (hereinafter referred to as 'the Khemkas') acted as the agent for the non-resident shipping company and collected Rs. 1,59,352.66 towards the freight of the cargo discharged by M. S. 'Jiskara', and Rs. 1,45,585.86 as the freight for the cargo discharged by 'M. S. Pionyr' and after deducting the necessary disbursements panted to remit the balance of the aforesaid freight, being the sums of Rs. 1,25,000 and Rs. 90,000, to Praha, where the head office of the nonresident company was situated and applied for the necessary sanction from the Reserve Bank of India through its own bankers, the Indian Overseas Bank Ltd. The Khemkas were informed by the Indian Overseas Bank Ltd. that the Reserve Bank required them to produce clearance certificate from the income-tax authorities that no income-tax was payable in respect of the aforesaid freights. By its letter dated the 1st April, 1966, addressed to the Income-tax Officer, A Ward, Companies District III, Calcutta, the 1st respondent herein, the Khemkas, asked the Income-tax Officer to confirm that no income-tax is payable on freight for imports discharged in Calcutta unless the vessels loaded any export. In this letter the Khemkas describedthemselves as 'agents'. By its letter dated the 4th April, 1966, the respondent No. 1 informed the Khemkas that the freight earnings received in the taxable territories on behalf of the non-resident principal on account of cargo discharged by the said two vessels were assessable under Section 5 of the Income-tax Act, 1961. The Khemkas were further requested to inform the said respondent the name of the non-resident principals on whose behalf the freight earnings were collected and whether the said principals are assessed to Indian income-tax on annual basis and, if not, to furnish the relevant particulars of income from the freight earnings on account of cargo discharged in Calcutta. Thereafter various letters were written by the Khemkas to the respondent No. 1 asking for time as they had referred the matter to Praha and such time was accordingly granted on several occasions. On the 29th April, 1966, the Khemkas again wrote to the respondent No. 1 that pending instructions from their principals it was submitted that the income was earned outside India under a contract of carriage signed outside India and was undoubtedly income accruing or arising outside India though realised in India and was saved from assessment under Explanation 1 to Section 5. To this, the respondent No. 1 replied on the 6th May, 1966, that the freight earnings received in the taxable territories on behalf of the non-resident principal were taxable under Section 5(2) of the Act and that the Explanation to that section had no application to the present case. The material communication which has given rise to this application is the letter dated the 5/8th September, 1966, whereby the said respondent informed the Khemkas that they were liable to deduct tax under Section 195 of the Income-tax Act, 1961, from the freight earnings amounting to Rs. 1,59,352.66 and Rs. 1,45,585.86 in respect of the inward cargo brought by the vessels 'M.S. Jiskara' and 'M. S. Pionyr' payable to the principals at Praha. The said amount was taxable under Section 5(2) of the Act. The Khemkas were further requested to collect the necessary challans for the payment of the aforesaid tax from the Income-tax Officer, E-Ward, Companies District III, Calcutta, being the respondent No. 2 herein, who was dealing with deductions under Section 195, under intimation to the respondent. On the 15th September, 1966, M/s. Sandersons & Morgans, the petitioners' solicitors, wrote to the respondent No. 1, putting it on record that when their assistant, Mr. Gupta, saw him on the 3rd September, 1966, no order had been passed but the case had been referred to some other Income-tax Officer. The letter further required the respondent No. 1 to supply a copy of the order to pay the tax on freight earnings. By two orders dated the 15th November, 1966, purported to be orders for deduction under Section 195, the respondent No. 2 determined the proportion of the sum chargeable to income-tax out of the amount to be paid to the non-resident as 1/6th and the rate atwhich tax should be deducted at 70 per cent. and directed the amounts of Rs. 18,591 and Rs. 16,985 to be deducted and deposited after obtaining the necessary challans from the said respondent. A demand for justice was made by the Khemkas on behalf of both themselves and their non-resident principals by their letter dated the 5th February, 1968, and this rule was obtained on the 2nd July, 1968.
2. In spite of the attempt of the learned counsel for the petitioner to raise serious questions on the interpretation of certain sections of the Income-tax Act, 1961, and in citing numerous authorities on the principles of interpretation of statutes, in my opinion, none of the sections of the above Act which are material for the purpose of this application present any difficulty of construction and it is not necessary to consider any of the canons of the construction referred to and/or relied on by Mr. Majumdar. I proceed to consider the relevant sections of the above Act and the scope of the application of these sections to the facts of the present case. Section 4 imposes a charge of tax on the total income of the previous year of any person and such tax shall be deducted at source or paid in advance where it is so deductible or payable under any provisions of the Act. Section 5(2) relates to the income of a non-resident and provides that the total income of such a non-resident shall include all incomes from whatever source derived which, (a) is received or is deemed to be received in India in such year by or on behalf of such person, (b) accrues or arises or is deemed to accrue or arise to him in India during such year. The Explanation to that section provides that income accruing or arising outside India shall not be deemed to be received in India within the meaning of that subsection by reason only of the fact that it is taken in a balance-sheet prepared in India. I should point out at once that the said Explanation does not support the contention raised by the Khemkas that income accruing or arising outside India shall not be deemed to be received in India as the Explanation only confines itself to such a deemed receipt on the ground of the amount being taken into account in a balance-sheet prepared in India. The respondent No. 1 is perfectly justified in asserting that the freight for cargo unloaded at Indian ports and received in India is chargeable to tax under Section 5(2). Section 9(1)(i) defines income which is deemed to accrue or arise in India, namely, all income accruing or arising, whether directly or indirectly, through or from any business connection in India or through or from any property in India, or through or from any assets or source of income in India, or through or from any money lent at interest and brought into India in cash or in kind or through the transfer of a capital asset situate in India. The next section to be considered is Section 160 which defines a representative-assessee and such an assesssee under Clause (i) means in respect of the income of anon-resident specified in Clause (i) of Sub-section (1) of Section 9, the agent of the non-resident including a person who is treated as an agent under Section 163, while Sub-section (2) of that section provides that every representative-assessee shall be deemed to be an assessee for the purposes of the Act. Section 163, after declaring the categories of persons who could be treated as agents in relation to a non-resident, provides in subsection (2) that no person shall be treated as such agent unless he has had an opportunity of being heard by the Income-tax Officer as to his liability to be treated as such. The next material section is Section 172. It is to be mentioned that Sections 160, 163 and 172 occur in Chapter XV of the Act, the heading of which is 'Liability in special cases'. There is a subheading for Section 172, namely, 'profits' of a non-resident from occasional shipping business'. The provisions of Section 172 apply for the purpose of the levy and recovery of tax in the case of any ship belonging to a nonresident which carries passengers, live-stock, mail or goods shipped at a port in India unless there is an agent of the non-resident from whom the tax will be recoverable under the other provisions of the Act. In the case of occasional shipping, which are commonly known as 'tramp steamers', when such a ship loads cargo or takes passengers at any Indian port the procedure laid down in the section is for the captain of the vessel to submit a return of the full amount paid or payable on account of the carriage of all passengers or live-stock and freight for goods shipped at. that port and for the Income-tax Officer to make an assessment on the return and realise the tax before the ship is granted clearance to leave the port. In other words, the section is intended to prevent owners or masters of ships who come occasionally to Indian ports and who have no agents in India on whom assessment on an annual basis may be made, to escape payment of tax on earnings from freight or carriage of passengers embarked in an Indian port. The next two sections to be considered are Sections 190 and 195 which occur in Chapter XVII which deals with the collection and recovery of tax. Section 190 is a general provision for deduction at source and advance payment of income-tax. Section 195 is the most material section so far as this application is concerned and is quoted fully here-under:
'(1) Any person responsible for paying to a non-resident, not being a company, or to a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India, any interest, not being 'interest on securities', or any other sum, not being dividends, chargeable under the provisions of this Act, shall, at the time of payment, unless he is himself liable to pay any income-tax thereon as an agent, deduct income-tax thereon at the rates in force :
Provided that nothing in this sub-section shall apply to any payment made in the course of transactions in respect of which a person responsible for the payment is deemed under the proviso to Sub-section (1) of Section 163 not to be an agent of the payee.
(2) Where the person responsible for paying any such sum chargeable under this Act (other than interest including interest on securities, dividend and salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Income-tax Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under Sub-section (1) only on that proportion of the sum which is so chargeable.'
3. The only other section to be considered is Section 246 which gives a list of the orders of the Income-tax Officer from which appeals lie to the Appellate Assistant Commissioner and while Clause (g) provides an appeal against an order treating the assessee as an agent of non-resident, no appeal is provided for from an order purported to be made under Section 195(2).
4. Mr. Majumdar, the learned counsel for the petitioner, contended that, as the provisions of Section 5 are subject to the other provisions of the Act, they are subject to the provisions of the sections in Chapter XV which provides for liability in special cases. It is submitted that, as there is a special provision in Section 172 for the imposition and recovery of tax from a non-resident ship-owner, such special provision would exclude the operation of the general provision in Section 5. I am entirely unable to accept this submission of Mr. Majumdar. As I have already pointed out, Section 172 provides for provisional assessment and recovery of tax from the captain of a tramp-steamer belonging to a non-resident which has loaded cargo and taken in passengers in an Indian port before the ship is allowed to leave the Indian port so that there may not be any evasion of tax due on the freight and the passenger fare earned which would be income accruing or arising in India. Where such owners have their agents in India on whom assessment can be made on annual basis no recourse to Section 172 is permissible.
5. Mr. Majumdar tried to argue from the provisions of Section 172 that under the Indian Income-tax Act only the freight earned in respect of goods loaded in an Indian port is chargeable to tax. In the case of shipowners carrying goods from foreign ports consigned to India and discharging such goods in an Indian port no tax is chargeable on the freight earned as no part of such earnings accrues or arises in India. I am also unable to accept this contention of Mr. Majumdar. Where any income accrues or arises in India through or from any business connection in India it is taxable under Section 9(1) which has nothing to do with any income received inIndia. The case of a non-resident who receives or is deemed to receive in India income in any year or on whose behalf such income is received from whatever source derived is covered by Section 5(2) of the Act. If the freight for the carriage of goods to India includes an amount chargeable to tax as income, such income is certainly received in India and is accordingly chargeable under Section 5(2). So far the contention of the respondent-Income-tax Officer must be accepted. In the view I have taken of the meaning of the relevant sections, it is not necessary for me to consider the various authorities cited by Mr. Majumdar on the use of a 'heading' or a 'preamble' in a statute for the construction of any section where there is any doubt as to the meaning of the words of that section.
6. But that does not take the respondents out of the woods. The impugned orders are purported to be made under Section 195 of the Act and are headed as deduction under Section 195. That section provides that any person responsible for paying to a non-resident any interest or any other sum not being dividends shall at the time of payment, unless he is himself liable to pay any income-tax thereon as an agent, deduct income-tax thereon at the rates in force. Sub-section (2) of that section provides that where a person responsible for paying any such sum chargeable under the Act to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Income-tax Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable and upon such determination, tax shall be deducted under Sub-section (1) only on that proportion of the sum which is so chargeable. This section enjoins a person responsible for making any payment to a non-resident to deduct tax if such payment is taxable under the Act before making the payment. Where such a person is not sure as to which part of the amount payable to the non-resident is chargeable to tax he can apply to the Income-tax Officer to determine the proportion of the sum so chargeable and on such application the Income-tax Officer is to make an order determining the proportion and the tax to be deducted under Sub-section (1). The application of Sub-section (2) pre-supposes that the person responsible for making the payment to the non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted but is not sure what should be the portion so taxable or the amount of the tax to be deducted. If these conditions are satisfied and the person responsible for making the payment applies to the Income-tax Officer, then the question of the Income-tax Officer making an order under Section 195(2) arises. In this case can it be said that the Khemkas made an application to the respondent No. 1 under Section 195(2)? The admitted facts are that the Khemkas applied for sanction of the ReserveBank to remit a certain amount to their non-resident principals and that the Reserve Bank wanted a clearance certificate from the income-tax department that no tax was payable in respect of the amount sought to be remitted. By its letter dated the 1st April, 1966, the Khemkas wrote to the respondent-Income-tax Officer to confirm that no income-tax was payable on freights for import discharged in Calcutta as the freights are deemed to have been earned by the shipping company abroad in respect of both the vessels. This cannot be construed as an application to the respondent-Income-tax Officer to determine what portion of the amount was chargeable to tax and the amount of the tax to be deducted under Section 195(2). Mr. Majumdar has, in my opinion, very rightly pointed out that the Khemkas only approached the respondent No. 1 for a certificate that no tax was due in respect of the freight charges as such a certificate was required by the Reserve Bank before issuing the necessary sanction. It has always been the case of the Khemkas that no tax was payable in respect of the freight as no part of it was earned in India. Mr. Majumdar referred me to the definition of an 'application' in both the Shorter Oxford Dictionary and the Concise Oxford Dictionary as including a request and making a request and pointed out that in this case there was no request by the Khemkas to the respondent No. 1 to determine the amount of tax to be deducted and retained by the Khemkas. The attempt of Mr. Bachawat to satisfy me that the aforesaid letter of the 1st April, 1966, amounted to an application under Section 195(2) must fail.
7. Mr. Majumdar next argued that, as the Khemkas were accepting the position that they were the agents of the non-resident principals and as the respondent-Income-tax Officer was also treating them as such agents, the assessment should have been made on the Khemkas as such agents and no order for deduction could be made under Section 195. Mr. Majumdar further contended that, as no notice of treating the Khemkas as the agent of the non-resident principals as provided for in Section 163(2) had been given, no such assessment was permissible. I do not think that there is any substance in this contention. As pointed out by the Madhya Pradesh High Court in National Newsprint and Paper Mills Ltd. v. Commissioner of Income-tax,  41 I.T.R. 60 (M.P.)which was a decision under Section 18(3B) of the 1922 Act, corresponding to Sections 195(1) and 197(1) of the present Act, that it was not necessary that the status of a person paying any sum chargeable to income-tax to a nonresident, who was sought to be made liable for the deduction of tax under Section 18(3B) of the Income-tax Act should first be determined in accordance with Section 43 (present Section 163) before seeing whether the other requisites of Sub-section (3B) of Section 18 were or were not satisfied. The expression 'unless he is himself liable to pay any income-taxthereon as an agent' introduced an exception for the benefit of the person sought to be made liable for deduction under that sub-section. The expression did not mean that unless the person had been declared to be an agent in accordance with Section 43 he could not be made liable for deduction under Section 18(3B). No enquiry or adjudication was necessary for determining whether a person had or had not been treated as an agent under Section 43 before making him liable under Section 18(3B) for deduction of tax. In this case, therefore, there could have been no objection to the respondent-Income-tax Officer directing the. Khemkas to deduct tax before remitting any money to the non-resident principals under Section 195(1) but, as the respondents had purported to proceed under Section 195(2) on the express ground of an application having been made by the Khemkas, it must be held that they had exceeded the jurisdiction conferred by the Act and the impugned orders must be struck down.
8. In the result, the rule is made absolute and the impugned orders are quashed. But this would not prevent the respondents from proceeding according to law to realise any amount which may be due on account of income-tax from the non-resident company who is petitioner No. 1 in the present application. In the circumstances of the case, there will be no order as to costs.