2009 (6) TMI 680 - AT - Income Tax

Running and maintenance of third-party ships qualifies for section 33AC deduction without ownership requirement

ITAT Mumbai held that running and maintenance of third-party ships/barges qualifies for deduction under section 33AC. The tribunal ruled that actual ... Running and Maintenance of Third-Party Ships/Barges - claim deduction u/s 33AC - Definition of 'Ship' Including 'Barge' - ‘operation of ships’ for the purpose of section 33AC - HELD THAT:- Considering the legal proposition, the ‘running and maintenance of the barges of the JNPT’ is nothing but ‘carrying the business of operation of ships’ as envisaged by section 33AC. In other words, there is no requirement that, in order to be eligible for deduction under the said section, the assessee has to actually own the ships/barges. To qualify for claim of deduction, essential conditions are that the assessee must be a Government Company or company formed with the Registrar of India with the main object being carrying on of the business operation of ships and it is mandatory that the ships/barges must be owned by the assessee and profit must be derived out of such ships/barges. This view is fortified by the jurisdictional High Court judgment in the case of GATOFF Shares Services Ltd. [2008 (11) TMI 93 - BOMBAY HIGH COURT]. Therefore, the earning/profits out of running and maintaining of the barges belonging to JNPT are considered derived from carrying on the business of operation of ships and the same are eligible for deduction. Thus, the impugned order of the CIT(A), with the decision to treat the running and maintenance of ships/barges belong to third party i.e., JNPT as operation of ships, does not call for any interference. Accordingly, the ground of the revenue is dismissed. Thus, we find it necessary to make a mention that an amount of Rs. 27,74,384 was earned by the assessee by way of Barge Hire charges on letting out of its own barge. It is part of Rs. 59 lakhs mentioned in the preceding paragraphs. As evident from the ground of the appeal, the same is not part of the ground raised in the appeal and accordingly, the same is not adjudicated. In the result, appeal of the revenue is dismissed. Issues Involved:1. Whether the running and maintenance of ships/barges belonging to a third party constitute the operation of ships u/s 33AC.2. Whether the term 'ship' includes 'barge' for the purpose of section 33AC.3. Whether the business of running and maintaining third-party barges qualifies as the operation of ships u/s 33AC.Summary:Issue 1: Running and Maintenance of Third-Party Ships/BargesThe revenue appealed against the CIT(A)'s order, arguing that the CIT(A) erred in treating the running and maintenance of third-party ships/barges as the operation of ships. The assessee, engaged in shipping management and operations, claimed a deduction u/s 33AC, which was denied by the Assessing Officer (AO) on the grounds that the income from contracts with JNPT and barge rental income did not qualify as income derived from the operation of ships. The CIT(A) allowed the deduction, relying on past judgments and the definition of 'ships' to include 'barges.'Issue 2: Definition of 'Ship' Including 'Barge'The AO argued that 'ships' and 'barges' are distinct entities, relying on dictionary definitions. However, the CIT(A) referred to section 2(55) of the General Clauses Act, 1897, and the Income-tax Rules, 1962, which include 'barges' in the definition of 'ships.' The Tribunal agreed with the CIT(A), stating that the legal definitions are more relevant than dictionary meanings, thus concluding that 'ships' include 'barges.'Issue 3: Business of Running and Maintaining Third-Party BargesThe AO contended that the deduction u/s 33AC is intended for generating internal resources to augment the fleet, implying ownership of ships/barges. However, the Tribunal clarified that section 33AC does not mandate ownership but requires carrying on the business of operation of ships. The Tribunal cited the Chennai Bench decision in Sirius Shipping Co. Ltd., which held that 'running and maintenance' falls within the ambit of 'operation of ships.' Thus, the Tribunal concluded that the business of running and maintaining third-party barges qualifies as the operation of ships u/s 33AC.Conclusion:The Tribunal upheld the CIT(A)'s decision, affirming that the running and maintenance of third-party ships/barges constitute the operation of ships and that 'ships' include 'barges' for the purpose of section 33AC. The appeal of the revenue was dismissed.