High Court: Drilling rig qualifies as a ship under tax law + Rule 8D not mandatory for expense disallowance

The High Court ruled that a drilling rig qualifies as a ship under Section 115VD of the Income Tax Act, aligning with a previous decision. The court decided to treat the issue as resolved until the Supreme Court's judgment. Regarding the disallowance of expenses under Section 14A using Rule 8D, the court found the assessing officer's application of the rule as mandatory without proper justification. Citing a Supreme Court judgment, the court emphasized that Rule 8D should only be used when the assessing officer is unsatisfied with the assessee's claim. Consequently, the court dismissed the appeals without costs.

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Issues:
1. Qualification of a drilling rig as a qualifying ship under Section 115VD of the Income Tax Act.
2. Disallowance of expenses under Section 14A of the Income Tax Act using Rule 8D.

Qualification of Drilling Rig:
The High Court addressed the issue of whether a drilling rig qualifies as a ship under Section 115VD of the Income Tax Act. The court referred to a previous decision that ruled against the Revenue, stating that a drilling rig is indeed considered a qualifying ship. The matter is pending before the Supreme Court, and the High Court decided to treat the issue as disposed of in line with the previous ruling until the Supreme Court's decision. The court emphasized that parties could apply for further action after the Supreme Court's judgment. This decision aligned with earlier orders passed in similar cases.

Disallowance of Expenses under Section 14A:
The second issue involved the disallowance of expenses totaling specific amounts in two assessment years under Section 14A of the Income Tax Act using Rule 8D. The court noted that the assessing officer had treated Rule 8D as mandatory without justifying the disallowance made by the assessee. The court cited a Supreme Court judgment emphasizing that Rule 8D is a best judgment determination and should only be invoked when the assessing officer is unsatisfied with the assessee's claim. The court found that the assessing officer did not meet the statutory requirement for invoking Rule 8D in this case. Consequently, the court declined to issue notice on this aspect and disposed of the appeals without costs.

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