Tonnage tax computation excludes section 14A disallowance for expenditure linked to exempt dividend income.

Income computed under the Tonnage Tax Scheme in Chapter XII-G is determined under a special presumptive code, with qualifying ship income and related business profits calculated on a deemed basis. On that footing, the Tribunal noted that the scheme governs the allowability of expenses attributable to the shipping business and excludes application of the normal business-income rules. It therefore held, following the assessee's earlier year, that a separate disallowance under section 14A for expenditure relatable to exempt dividend income is not permissible where shipping income is computed under Chapter XII-G, and the disallowance was unsustainable.

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Issues: Whether disallowance under section 14A of the Income-tax Act, 1961 could be made in respect of exempt dividend income where the assessee's shipping business income was computed under the Tonnage Tax Scheme in Chapter XII-G.

Analysis: The income of the assessee's shipping business was computed under the special presumptive regime of Chapter XII-G, under which the qualifying ship income is determined on a deemed basis and the relevant business profits are computed notwithstanding the normal provisions governing business income. In this scheme, only the expenses attributable to the shipping business are treated as allowed, and the special code itself governs the computation of income. Applying the earlier decision in the assessee's own case, the Tribunal held that once income is computed under Chapter XII-G, a separate disallowance under section 14A for expenditure relatable to exempt dividend income is not permissible.

Conclusion: Section 14A could not be applied to the assessee's income computed under the Tonnage Tax Scheme, and the disallowance was not sustainable.

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