Charterparty advances treated as hire: tax deduction at source applied when payment was made in India.

Advances made in India under a charterparty, though described as loans and adjustable against future hire, were treated as payment of hire under the contract. Reading the agreement as a whole, the Court held that the payment was made in Calcutta and could not be notionally shifted to London merely because hire was otherwise payable there. The prior advance character of the sum did not prevent tax deduction at source, because the obligation to deduct arose when payment was made. The liability was not postponed until the non-resident owner's final profits or outgoings were ascertained, and section 18(3-B) therefore applied.

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Issues: Whether advances made in India under the charterparty, though styled as loans and adjustable against future hire, were sums chargeable under the Indian Income-tax Act so as to require deduction of tax under Section 18(3-B).

Analysis: The charterparty treated the advances for vessel disbursements as part of the hire by providing that they were to be deducted from hire. The Court read the agreement as a whole and held that the payment was actually made in Calcutta and could not be notionally shifted to London merely because the hire was otherwise payable there. The fact that the amount was advanced before formal adjustment did not prevent it from being treated as payment of hire under the contract. The Court further held that the obligation to deduct tax arose at the time of payment, and the liability was not avoided because final net profits or outgoings of the non-resident owner had not yet been ascertained.

Conclusion: Section 18(3-B) applied, the petitioner was bound to deduct tax from the advances, and the demand raised by the income-tax authorities was upheld.

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