PAYMENT made in kind too is liable to be taxed in India, said the Supreme Court in a ruling last month. The apex court in July dismissed an appeal filed by Kanchanganga Sea Foods, an Andhra Pradesh-based company, which was asked to pay tax on the payment it made to a Hong Kong-based firm Eastwide Shipping.
The Indian firm paid 85% of fish catch to its foreign partner, which had provided vessels and skilled men. Kanchanganga had obtained permission to fish in the exclusive economic zone of India. The income-tax department held that Kanchanganga should have deducted tax before paying to Eastwide. Since Kanchanganga did not do so, the I-T department issued a notice treating it as an assessee in default.
Kanchanganga challenged the I-T notice saying that there was no monetary transaction that took place between the two companies and hence, it should not be taxed. It also argued that its foreign partner did not derive any income in India as it sold its share of fish outside the country. In its order, the Supreme Court said Eastwide derived income in India. Since income was generated in India by the foreign firm, it is libable to pay tax in India.
