Tonnage tax computation under Chapter XII-G prevails over normal business-income disallowances, so depreciation adjustments were deleted.

A qualifying tonnage tax company must have its income computed under Chapter XII-G on the basis of the special tonnage tax regime, so normal business-income disallowances do not apply in the same manner. On that footing, the processing adjustment disallowing depreciation and other expenses could not be sustained, particularly where no separate depreciation claim under section 32 had been made. The ITAT Mumbai accordingly deleted the adjustments and held that the assessee's income had to be computed under the tonnage tax regime, with the Revenue's challenge failing.

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Issues: Whether the assessee, being a qualifying tonnage tax company under Chapter XII-G, was entitled to have its income computed under the special tonnage tax regime and whether disallowances of depreciation and other expenses made in processing under section 143(1) could be sustained.

Analysis: The assessee's approval as a tonnage tax company was on record and had not been disputed. Under the tonnage tax scheme, income is computed on the basis of qualifying ship income under Chapter XII-G, and the normal computational provisions relating to business income do not apply in the same manner. On that footing, the disallowance of expenses and depreciation made by the processing centre could not survive. The finding that no separate deduction of depreciation under section 32 had been claimed also supported deletion of the adjustment.

Conclusion: The disallowances of depreciation and expenses were rightly deleted, and the assessee's income had to be computed under the tonnage tax regime.

Final Conclusion: The Revenue's challenge failed, and the assessment adjustment made in processing was set aside in favour of the assessee.

Ratio Decidendi: A qualifying tonnage tax company must have its income computed under Chapter XII-G, and the normal business-income disallowances and separate depreciation adjustment cannot be applied where the special regime governs the computation.

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