2022 (5) TMI 827 - AT - Income Tax

Tribunal Upholds Tonnage Tax Benefit for Ship Co-owner despite Fractional Ownership

The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to allow the tonnage tax benefit to the assessee for assessment years 2013-14 ... Eligibility for Tonnage Tax Scheme - AO denied tonnage tax benefit claimed by the assessee u/s.115VC of the Act, on the ground that the assessee is only a fractional owner in the qualifying ship M.V.Gem of Ennore and thus, ship operated by the assessee cannot be considered as qualifying ship as per provisions of section 115VC - also AO further observed that the assessee does not satisfy conditions prescribed u/s.115VD to be eligible for claiming benefit of tonnage tax - HELD THAT:- As in assessee’s own case right from assessment year 2005-06 onwards, where the Tribunal after considering relevant facts and also provisions of section 115VC, 115VD, 115VP of the Income Tax Act, 1961, had very clearly observed that the assessee had satisfied conditions prescribed under Chapter XII-G of the Income Tax Act, 1961, to be qualified for benefit of tonnage tax as per provisions of the section 115VC of the Income Tax Act, 1961. We further noted that the Tribunal [2017 (10) TMI 1604 - ITAT CHENNAI] relevant to assessment years 2012-13 & 2016-17 had considered an identical issue and by following decision of the Tribunal in assessee’s own case for earlier assessment years, had held that the assessee is entitled for benefit of tonnage tax. We further noted that the Tribunal had also considered case of other co-owners of qualifying ship M.V.Gem of Ennore and after considering relevant facts has rightly held that the assessee has rightly claimed benefit of tonnage tax as per provisions of section 115VC of the Income Tax Act, 1961. As regards observations of the Assessing Officer with regard to operation of the ship by M/s. West Asia Maritime Ltd., we find that as per provisions of section 115VH where a qualifying ship is operated by two or more companies by way of joint interest in the ship or by way of an agreement for the use of ship and their respective shares are definite and ascertainable, the tonnage income of each such company shall be an amount equal to a share of income proportionate to its share of that interest. In this case, the claim of the learned AR for the assessee was that the assessee had claimed benefit of tonnage tax, as per definite and ascertainable share of the assessee in terms of agreement with other co-owners. Therefore, we are of the considered view that there is no merit in the observations of the Assessing Officer that operation of the ship was done by M/s. West Asia Maritime Ltd. and thus, the assessee is not entitled for benefit of tonnage tax. Thus we are of the considered view that the assessee is entitled for benefit of tonnage tax as per provisions of section 115VC - Decided in favour of assessee. Issues involved:Appeals by Revenue against orders passed by Commissioner of Income Tax (Appeals) for assessment years 2013-14 to 2017-18 regarding denial of tonnage tax benefit to the assessee owning a ship.Analysis:The Revenue filed appeals challenging the orders passed by the Commissioner of Income Tax (Appeals) for assessment years 2013-14 to 2017-18, which were identical and pertained to the denial of tonnage tax benefit to the assessee who co-owned and operated a ship. The Revenue contended that the assessee, despite obtaining approval under section 115VP of the Income Tax Act, did not fulfill the conditions under Chapter XII-G, specifically section 115VC, to claim the tonnage tax benefit. The Revenue argued that the ship was not a qualifying ship as the assessee was only a fractional owner and the ship's operation was carried out by another entity. However, the assessee, supported by the learned CIT(A), argued that the Tribunal had previously ruled in their favor for earlier years, confirming their eligibility for the tonnage tax benefit.The Tribunal considered the facts and arguments presented by both parties. It noted that the assessee operated a qualifying ship and had obtained approval under section 115VP. The Tribunal disagreed with the Assessing Officer's reasoning for denying the tonnage tax benefit, stating that the issue had been previously examined in the assessee's favor by the Tribunal for earlier years. The Tribunal referenced the Tribunal's decision in the assessee's case for earlier years and highlighted that the ship's operation between Indian ports did not disqualify it from the tonnage tax scheme. The Tribunal also addressed the operation of the ship by another entity, emphasizing that the assessee's share in the ship's operation was definite and ascertainable, making them eligible for the tonnage tax benefit.Based on the consistent view taken by the Tribunal in the assessee's previous cases and considering the relevant provisions of the Income Tax Act, the Tribunal upheld the decision of the learned CIT(A) to allow the tonnage tax benefit to the assessee. Consequently, the appeals filed by the Revenue for the assessment years 2013-14 to 2017-18 were dismissed, affirming the entitlement of the assessee to the tonnage tax benefit.In conclusion, the Tribunal's detailed analysis and interpretation of the relevant provisions of the Income Tax Act supported the decision to uphold the benefit of tonnage tax to the assessee, based on their ownership and operation of a qualifying ship.