Appeals Allowed for Assessee, Dismissed for Revenue. Key Points: Interest Exemption, Expense Apportionment, Deduction Eligibility.

The Tribunal allowed the appeals of the assessee and dismissed those of the Revenue. Key points include: Interest under Sections 234B and 234C not chargeable due to timing of demerger scheme's sanction; method of apportioning common expenses based on operating charter hire income deemed reasonable; and the assessee entitled to claim deduction of demerger expenses under Section 35DD(1).

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Issues Involved:
1. Levy of interest under Sections 234B and 234C of the Income Tax Act.
2. Apportionment of common administrative and other expenses between tonnage and non-tonnage business.
3. Deduction of demerger expenses under Section 35DD(1) of the Income Tax Act.

Detailed Analysis:

1. Levy of Interest under Sections 234B and 234C:
The primary issue was whether interest under Sections 234B and 234C of the Income Tax Act is leviable on the tax liability of the assessee when the scheme of demerger is sanctioned by the High Court after the close of the financial year but effective from the appointed date.

- Facts: The assessee company was demerged from its parent company with an appointed date of 01.04.2005, and the scheme was sanctioned by the Bombay High Court on 31.08.2006. The assessee filed its return of income on 30.11.2006 without paying interest under Sections 234B and 234C.
- AO's Decision: The Assessing Officer charged interest under Sections 234B and 234C for non-payment and deferment of advance tax, rejecting the assessee's plea that the scheme was sanctioned after the financial year.
- CIT(A)'s Decision: The CIT(A) upheld the AO's decision, stating that the liability arose due to the failure of the parent company to transfer the advance tax paid.
- Tribunal's Decision: The Tribunal reversed the CIT(A)'s order, agreeing with the assessee that it was not possible to estimate income and pay advance tax before the scheme's sanction. The Tribunal relied on the judgments in Prime Securities Ltd. vs. ACIT (333 ITR 464) and Ultratech Cement Ltd. vs. DCIT, which held that interest under Section 234B cannot be charged if the assessee could not have anticipated the events leading to the tax liability.

2. Apportionment of Common Administrative and Other Expenses:
The issue was the method of apportioning common administrative expenses between tonnage and non-tonnage business.

- Facts: The assessee allocated common expenses in the ratio of 67:33 based on annualized operating charter hire income. The AO rejected this method and apportioned expenses based on actual revenue, resulting in a ratio of 73.06% to tonnage business and 26.94% to non-tonnage business.
- CIT(A)'s Decision: The CIT(A) upheld the AO's method, stating that common expenses should be apportioned based on actual revenue as per Section 115VJ.
- Tribunal's Decision: The Tribunal reversed the CIT(A)'s order, noting that the AO had inconsistently applied different methods to different expense heads. The Tribunal found the assessee's method reasonable and consistent with past practice and directed that the original apportionment method be accepted.

3. Deduction of Demerger Expenses under Section 35DD(1):
The issue was whether the assessee could claim deduction of demerger expenses under Section 35DD(1).

- Facts: The assessee claimed 1/5th of the apportioned demerger expenses. The AO disallowed the claim, stating that only the demerged company could claim such expenses.
- CIT(A)'s Decision: The CIT(A) disagreed with the AO, stating that Section 35DD(1) allows any company incurring demerger expenses to claim the deduction.
- Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, noting that Section 35DD(1) does not specify that only the demerged company can claim the expenses. The Tribunal allowed the assessee's claim for deduction.

Conclusion:
The Tribunal allowed the appeals of the assessee and dismissed those of the Revenue. The key takeaways are:
- Interest under Sections 234B and 234C is not chargeable when the assessee could not have estimated income due to the timing of the demerger scheme's sanction.
- The method of apportioning common expenses based on annualized operating charter hire income was deemed reasonable.
- The assessee is entitled to claim deduction of demerger expenses under Section 35DD(1).

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