COMMISSIONER OF INCOME TAX Vs. LAKSHMI LINES LIMITED

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Cochin Bench, has referred the following question under Section 256 (1) of the Income-tax Act 1961 (for brief "the Act"):

(2.) ONE Alagusundaram Chettiar purchased a ship by name "Hugo Arlt" from M/s. Avers and Arlt, Bremmen, Netherlands. The purchase was with the approval of the Government of India. Alagusundaram Chettiar, thereafter, renamed the ship as "M. V. Dhanalakshmi". He had agreed to pay the purchase price to the non-resident vendor in instalments with interest on the unpaid purchase consideration at 6% per annum. The assessee is a company incorporated under the Indian Companies Act. The assessee-company purchased the ship from Alagusundaram Chettiar undertaking the liability to pay the installments due to the non-resident vendor. For the assessment year 1964-65, the Income-tax Officer disallowed an amount Q( Rs. 10,346 which represented the interest payable to the non-resident vendor of the ship on the ground that the assessee-company had failed to deduct tax as required by Section 195 of the Act. According to the Income-tax Officer Section 40(a)(i) governed the matter. On appeal, the Appellate Assistant Commissioner was of the view that since the ship was purchased by Alagxisundaram Chettiar with, the approval of the Government of India and since the Income-tax Appellate Tribunal, Madras Bench "B", by annexure "E" order, had allowed in the assessment proceedings relating to Alagusundaram Chettiar to deduct the payment of interest, the assessee-company is also entitled for deduction of the interest under Section 37(1) of the Act. The further appeal preferred by the revenue before the Tribunal was unsuccessful. The Tribunal by annexure "D" order rejected the contentions raised by the revenue and held that the interest paid by the assessee to the non-resident vendor was not chargeable under the Act and for that reason the assessee was not obliged to deduct tax therefrom while making payment of the interest to the non-resident vendor. It is on these facts that the question extracted above has been referred to this court.

(3.) UNDER Section 4 of the Act, income-tax shall be charged in respect of the total income of the previous year or previous years of every person. Total income has been defined in Section 3(45) as meaning "the total amount of income referred to in Section 5, computed in the manner laid down in this Act". Turning to Section 5 of the Act, we find that Subsection (1) thereof speaks of the total income of a resident, and Subsection (2) thereof deals with the total income of a non-resident person. UNDER Sub-section (2) all income from whatever source derived which-