TaxTMI 
TaxTMI 
2011 (7) TMI 1017
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....of the tonnage tax scheme. Notice of hearing of the case was sent to the assessee and in its reply letter dated November 8, 2010, the assessee has requested for rescheduling of the hearing to November 26, 2010. Since November 26, 2010 is a Friday, on which day this Tribunal is taking up only miscellaneous petitions, it was intimated to the assessee by letter dated November 1, 2010 that such rescheduling was not possible. The assessee was also intimated that the appeal would be heard on November 23, 2010 itself. On November 22, 2010 the assessee has filed an adjournment petition stating that Shri Percy Pardiwala, who was to appear for it, was attending a matter at Bangalore High Court and requesting for an adjournment. However, we find from record that no authorisation has been filed by the assessee authorising Shri Percy Pardiwala to appear on its behalf. When the case was called upon for hearing today, nobody appeared on behalf of the assessee. Hence, we are not inclined to accept the adjournment petition filed and therefore, we are proceeding to dispose of the appeal of the Revenue on the merits. The short facts apropos are that the assessee, a company, engaged in the busin....
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.... those like retail selling, restaurants, hotels, prisons, radio stations, casinos, financial services and offices. Therefore, it was argued that the activity which was normally provided on land and which could be easily be shifted to a ship, just for taking advantage of the preferential tax treatment provided under Chapter XII-G of the Act, could alone be excluded. The Commissioner of Income-tax (Appeals) was appreciative of this contention. According to him, as pointed out by the assessee, Chapter XII-G of the Act was based on the U. K. model to allow the benefit of tonnage tax scheme and that the statement of practice issued by the HMRC in respect of tonnage tax clearly substantiated the argument of the assessee. He held that "M. V. Gem of Ennore" was a ship which qualified under section 115VD of the Act and directed the Assessing Officer to allow such ship benefit of tonnage tax scheme under Chapter XII-G of the Act. Now before us, the learned Departmental representative strongly assailing the order of the Commissioner of Income-tax (Appeals) submitted that transportation of coal from one port to another was normally by lorries or trains which operated on land. According to h....
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....s also no dispute that these places were connected by both rail/road. There cannot also be any doubt that coal can be transported by road as well as rail and transportation by rail is a method adopted for movement of coal. But the question here is whether clause (i) of section 115VD is meant for taking out of the ambit of Chapter XII-G, those seagoing ships or vessels which were transporting goods which could also be transported through land. Let us take an example of petroleum products. The situation is similar. Petroleum products can also be moved by land or sea. It is at this juncture that it becomes necessary to very carefully analyse clause (i) of section 115VD. The ship which is excluded by this clause is one which is used for the provision of goods or services of a kind normally provided on land. Providing goods or services on land and transporting goods on land are entirely different. Goods or services have been used together with the interjection "or". It can in the normal commercial sense only mean goods or services which are provided from a specific place in land. It could not be stretched to include transportation of goods between different places on land. Even if we pr....
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....ted or charted (time charter or bare boat charter) by it instead of profit generated by commercial operations, which generally varied from year-to-year. Generally, this tax is levied on the basis of net registered tonnage (NRT). Various countries, following this system, have prescribed a rate structure, which multiplied by the tonnage of the vessel, give the amount of tax payable. Some countries levy tax on gross registered tonnage (GRT) and some follow a mixture of gross registered tonnage and net registered tonnage. There are other variations in the tonnage tax scheme also such as modified tonnage tax system, optional tonnage tax system, a parallel tonnage tax system with corporation tax system. Various countries have incorporated several typical features in their tax legislations by way of incentives to achieve specific national objections. But the biggest merit of tonnage tax is its simplicity and the type of interpretation that is to be given for the various provisions under Chapter XII-G of the Act should be to accentuate the purposes of introduction of tonnage tax scheme, and not to complicate it. Thus, in our opinion, just because a seagoing ship was used to transport coal ....
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....ted December 22, 2008 filed by the assessee wherein it was submitted as follows : "The ship 'M. V. Gem of Ennore' is employed with M/s. Poompuhar Shipping Corporation, Chennai on long-term charter for a period of ten years from February, 2002 for moving thermal coal, for Tamilnadu Electricity Board from Haldia, Paradip and Vizag to Ennore and Tuticorin." The Assessing Officer, in view of the facts, circumstances and other relevant material, formed the opinion that the definition of "qualifying ship", as given in section 115VD of the Act, specifically excludes a seagoing ship or vessel mainly used for the provisions of goods or services of a kind normally provided on land. According to him the coal was moved within the ports in India, such ports were connected by rail as well as road and he further noted that movement of coal between such ports could be routed through land normally and as such, ship "M. V. Gem of Ennore" was not liable for tonnage tax scheme. Therefore, he apportioned the total shipping income declared by the assessee under tonnage tax scheme and he treated one-tenth thereof as attributed by the ship "M. V. Gem of Ennore", in the absence ....
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....d the Assessing Officer while considering and giving relevant details has come to a proper conclusion that ship transporting goods which could be transported by lorries or train are excluded from the benefit of tonnage tax scheme. The learned Departmental representative has also submitted that there is a clear and unambiguous stipulation in the relevant provision and neither there is any ambiguity nor any flaw in the language employed in the relevant provision of the statute, therefore, there was no scope for the learned Commissioner of Income-tax (Appeals) to interpret the clear words of the statute to give any other meaning than in the words used. It was, thus pleaded for restoring the order of the Assessing Officer after setting aside the impugned order. However, there was no representation on behalf of the assessee before the Tribunal and request of the assessee for adjournment has appropriately been discussed and adjudicated to decline such request as dealt with by the learned Accountant Member in detail and I have nothing to add but to concur with him in regard to dealing with the request for adjournment of the assessee, which came to be rejected. The arguments of the l....
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....ines qualifying ship and the relevant provision defining "qualifying ship" is as under : "115VD. For the purposes of this Chapter, a ship is a qualifying ship if (a) it is a seagoing ship or vessel of fifteen net tonnage or more ; (b) it is a ship registered under the Merchant Shipping Act, 1958 (44 of 1958), or a ship registered outside India in respect of which a licence has been issued by the Director General of Shipping under section 406 or section 407 of the Merchant Shipping Act, 1958 (44 of 1958) ; and (c) a valid certificate in respect of such ship indicating its net tonnage is in force, but does not include (i) a seagoing ship or vessel if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land ; (ii) fishing vessels ; (iii) factory ships ; (iv) pleasure crafts ; (v) harbour and river ferries ; (vi) offshore installations ; (vii) dredgers ; (viii) a qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year." From the words contained in the relevant provisions of clause (i) in section 115VD, as reproduced above, i....
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....eaning of the statutory interpretation is plain, then the court must apply it regardless of the results. It is well-settled law that if the language of a statute is clear and unambiguous and if two interpretations are not reasonably possible, it would be wrong to discard the plain meaning of the words used in order to meet a possible injustice-CIT v. T. V. Sundaram Iyengar and Sons P. Ltd. [1975] 101 ITR 764 (SC). The hon'ble Madras High Court (Full Bench) in the case of CWT v. Smt. Muthu Zulaikha [2000] 245 ITR 800 (Mad) has held as under (headnote) : "The cardinal law of interpretation is that if the language is simple and unambiguous, it is to be read keeping in mind the clear intention of the legislation. Any addition or subtraction of words is not permissible. It is also not proper to use a sense which is different from what it ordinarily conveys." The hon'ble Karnataka High Court in the case of Patil Vijaykumar v. Union of India [1985] 151 ITR 48 (Karn) has held as under (headnote) : "When the meaning of words is clear and unambiguous, the court has to give effect to it whatever be the consequences, as the court has no jurisdiction to mitigate harsh co....
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....terpret the plain language and semantic view alone should be taken-there is no room for intendment and words are to be given plain grammatical meaning. If clause (i) of section 115VD is gone into, it would be found that there is no ambiguity in the language employed, which is simple, clear and unambiguous, so, in view of precedents, the courts/Tribunals have to give effect to it, whatever be the consequence, because there is no jurisdiction to mitigate harsh consequences of the statute, if any, also. So far as an opinion of one Mr. D. P. Sengupta, IRS and ex-Chief Commissioner of Income-tax, stated to be one of the members of the core committee which drafted the tonnage tax scheme for Indian income-tax (who has also represented the assessee before the learned Commissioner of Income-tax (Appeals) in the first appeal proceedings), portion of which has been reproduced and has mainly been relied upon by the learned Commissioner of Income-tax (Appeals) is concerned, it could, at the most, be a submission on behalf of the assessee, which has been given to the assessee by the authorised representative and the same cannot be termed or treated as the provisions of law in the absence o....
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....learned Commissioner of Income-tax (Appeals), who has interpreted the relevant provisions to hold that the said ship is a qualified ship for the purposes of tax tonnage scheme, is neither proper nor justified in view of the facts, circumstances and precedents. As such order of the learned Commissioner of Income-tax (Appeals) in this regard is set aside and that of the Assessing Officer is restored. As a result appeal of the Department is allowed. Order of Third Member Dr. O. K. Narayanan (Vice-President).-This appeal is filed by the Revenue. The relevant assessment year is 2006-07. The appeal is directed against the order passed by the Commissioner of Income-tax (Appeals)- III, at Chennai, dated April 21, 2010. The appeal arises out of the assessment completed under section 143(3) of the Income-tax Act, 1961. The assessee-company is engaged in the business of shipping/port services. The company filed its return of income for the assessment year 200607 on a tonnage income of Rs. 76,85,246. Chapter XII-G of the Income-tax Act, 1961 provides for special provisions relating to income of shipping companies. This Chapter comprises of sections 115V to 115VZC. Section 115VA ....
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....der the Merchant Shipping Act, 1958 or a ship registered outside India in respect of which a licence has been issued by the Director General of Shipping under section 406 or section 407 of the Merchant Shipping Act, 1958, holding a valid certificate in respect of such ship indicating its net tonnage. The law has also provided certain exclusions under the same section 115VD. Accordingly a ship cannot be treated as a qualifying ship if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land ; as fishing vessels ; factory ships ; pleasure crafts ; harbour and river ferries ; offshore installations and a qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year. In the course of the assessment proceedings, the Assessing Officer held that the assessee's ship cannot be treated as a qualifying ship for the reason that the case of the assessed is hit by clause (i) of section 115VD. The said sub-clause describes the first item of disqualification, which has already been mentioned. The statutory expression is reproduced below : "115VD. For the purposes of this Chapter....
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....ed in the U. K. legislation. In the U. K. legislation also a vessel is not a qualifying ship for the purposes of the scheme if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land. The U. K. law has provided examples of such provision of goods or services normally provided on land. Those examples are as follows : Retailers (including shops and supermarkets) Restaurants Hotels Prisons Radio stations Casinos Financial service providers Offices It is also stated that the list is not exhaustive. The Commissioner of Income-tax (Appeals) found that the purpose of the legislation being the same and the language employed also the same, those items in the nature of the examples provided under the U. K. law alone could be construed as provision of goods or services of a kind normally provided on land. He held that those examples equally apply to Indian context as well. He held that there is nothing in the enabling provision of law to state that a ship operating in coastal waters of India cannot opt for the benefit of tonnage tax scheme. Finally he held that the ship operated by the assessee as "M. V. Gem....
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....#39; in terms of the exclusion clause (i) of section 115VD for the benefit of tonnage tax scheme or it can be treated as 'qualifying ship' ?" The hon'ble President nominated me as the Third Member and it is how the issue has been placed before me. I heard Shri P. B. Sekaran, the learned Commissioner of Income-tax, appearing for the Revenue and Shri Arvind Sonde, learned counsel along with Shri Niraj Sheth, appearing for the respondent-assessee. The learned Commissioner of Income-tax contended that the benefit of tonnage tax scheme is available only to the qualifying ships as provided in section 115VD and the conditions to be satisfied to become a qualifying ship have to be construed strictly and there is no room to enlarge the scope of the provisions contained therein. He stated that the exclusion clause (i) of section 115VD specifically provides that a seagoing ship or vessel cannot be treated as a qualifying ship if the main purpose for which it is used is providing of goods or services of a kind normally provided on land. He explained that in the present case thermal coal is transported for the Tamil Nadu Electricity Board from ports like Haldia, Para....
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....rts. The crucial aspect to be looked into is whether the ship is being operated to carry on the cardinal function inferred from the operation of a ship voyaging through sea waters. Learned counsel explained that it is for the assessee to decide which mode of transportation should be selected for carrying on its business. The assessee is engaged, in the contract of transporting thermal coal from north-eastern ports to south-eastern ports. It is possible to transport the thermal coal by land routes using road and rail carriages and also by sea routes using ships. The assessee got the contract of transportation because the assessee is owning ship and is in a position to transport thermal coal by sea route, probably at a better economy of cost. The operating character of the ship is not at all changed only for the reason that the ship is navigating only through Indian coastal waters. Learned counsel for the assessee argued that land routes are available to our neighbouring countries like Bangladesh, Myanmar, Pakistan and even Thailand and theoretically to all Asian countries and even beyond that. If the interpretation made by the assessing authority is to be accepted, the tonnage ta....
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....erating a ship to perform the core function of a ship like mass transportation of goods and passengers. The assessee is operating the ship to transport tons and tons of thermal coal from ports like Haldia, Paradip and Vizag to ports like Ennore and Tuticorin. Therefore, learned counsel contended that the Commissioner of Income-tax (Appeals) has rightly understood the intent and purpose of the legislation, on the subject-matter and has rightly held that the assessee is entitled for the benefit of tonnage tax scheme. I heard both sides in detail and perused the relevant materials available on record. Shipping companies are given option to pay tax as per normal provisions of computation or on the basis of presumptive tax regime described as "tonnage tax scheme". The income arising from operation of qualifying ship is determined based on the tonnage tax scheme. Normally a shipping company is to be assessed at the normal corporate tax rate. If the assessee chooses for tonnage tax scheme, it pays tax at a prescribed rate with reference to the tonnage of the ship. The actual loss or profit of the shipping company is not taken into consideration. Irrespective of the other f....
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....n. The law only says that an assessee-company is entitled for opting for the tonnage tax scheme if it is operating a qualifying ship and satisfies other conditions provided therein. The law does not say that the ship should always do its voyage between international ports. The law does not say anything about the distance to be covered by a ship in a single voyage. The law presumes that the benefit of tonnage tax scheme is available to all seagoing ships satisfying the condition where it is operated between Indian ports or between Indian ports and foreign ports. The operation of a seagoing ship does not assume any different character only for the reason that the ship is operating between two Indian ports. The character of operating a ship does not assume any other dimension only for the reason that the ship is operated between one Indian port and another foreign port. These are all matters never construed in the scheme of the Act providing the benefit of tonnage tax scheme to the assessees who are in the shipping industry and operating qualifying ships. This is not an issue particular to India. World over countries are providing such incentives to shipping industry for their own ....