TaxTMI 
TaxTMI 
2011 (7) TMI 588
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....to the provisions of section 28 to 43C of the Act. In section 115VI of the Act, income corresponding to the operation of qualified ships has been defined as relevant shipping income. It consists of profits from core activities and profits from incidental activities. The income from incidental activities in excess of 0.25% of turnover from core activities has further been excluded from relevant shipping income and has been made taxable under other provisions of the Act. If assessee is having any other income either from non-qualified ships or other business, then same has to be computed in accordance with other provisions of the Act. 3. For the current assessment year, the assessee has computed the tonnage income and furnished necessary report from the Chartered Accountant in Form no.66, along with a certificate from Director General of Shipping in respect of the minimum training requirement for tonnage tax company under section 115VU(2) of the Act. However, the assessee has not maintained the books of account exclusively for relevant shipping income, as required under the provisions. The assessee is contesting that it has only income from tonnage tax and therefore books of ....
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....o tax by applying section 41(1), the same principle ought to be applied to such write back of sundry creditors/prior period expenses written back/excess provision relating to pretonnage tax period." 5. Before us, learned Sr. Counsel, Mr. S.E. Dastur, appearing on behalf of the assessee, submits that the entire appeal is on the interpretation of chapter-XII-G i.e., section 115V to 115VX of the Act. He submits that this chapter deals with special provisions relating to income of shipping company. He submits that the undisputed facts of the case are that, all the ships of the assessee are qualifying ships referred to in section 115VD. It is not disputed that the assessee does not have any other business and the company had opted for computation of profits and gains of business under chapter-XII-G. 6. Learned Sr. Counsel submits that there are three types of income i.e., (i) income from shipping business; (ii) income from other than shipping business; and (iii) other income. He further explained that the income from shipping business can be of two categories i.e., (i) income subjected to tonnage tax and (ii) non-tonnage tax income. He relied on section 115VA and submits....
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...., referring to the reliance placed on the judgment of Hon'ble Supreme Court in Liberty India v/s CIT, (2009) 317 ITR 218 (SC), by the Revenue authorities, submits that the wording of section 115VA, is "income from business of operating qualifying ships" and not "income derived from operating of qualifying ships". Similar arguments were advanced on write back of prior period expenses and write back of excess provisions for expenses. He further added that the only ground on which the Commissioner (Appeals) upheld the addition was that these expenditures pertained to period when the assessee has declared income under the normal provisions, when tonnage tax scheme was not in vogue. He submits that the argument of the Revenue that the expenditure which were allowed when income is computed in a period prior to pre-tonnage scheme resulting in reduction in taxable income then the write back those expenses in the current year when tonnage tax scheme applies, results in a miss-match is devoid of merit for the reason that there are other provisions in the Act such as section 43B, which allow certain deduction only on actual payment and would lead to a situation where expenditure which pertain....
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....hifted without loading or unloading the same. He points out that the entire charges were paid to the Port Trust and reimbursement was claimed from the customers. Under such circumstances, he submits that there is no separate income earned by the assessee much less income from incidental activities. 12. On ground no.7, the learned Counsel submits that the issue in question is computation of interest income. He submits that the assessee has allocated common expenditures based on the provisions of section 115VJ of the Act. He disputed the findings of the Assessing Officer that this expenditure does not fall within the ken of section 57(iii). Learned Sr. Counsel, thus, contended that allocation has to be made on the guidelines provided under Rule-8 r/w 14A of the Act and when the same is taken, the allocation made by the assessee would be found reasonable. He relied on the judgment of Hon'ble Jurisdictional High Court in Chinai and Co. Pvt. Ltd. v/s CIT, (1990) 206 ITR 616 (Bom.) and submits that at Page-624, the Court has laid down a norm of 20%. He submits that the same percentage should be taken as a guideline and the claim of the assessee be allowed. 13. On grounds ....
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....me will be brought to tax under the regular provisions of the Act. He referred to Annexure 'A' of the assessment order and submits that this gives a bird's eye view of the various classification done by the assessee. He points out that the total income under Col. (C), has been divided into other taxable income in Col. (D), excess income from incidental activities in Col. (E) and relevant shipping income in Col. (F). He submits that income which does not fall within the classification of relevant shipping income has to be taxed under the normal provisions. 18. With the aforesaid background, the learned Departmental Representative addressed ground no.1 and submits that the assessee had claimed certain expenditure from income under the normal provisions in the earlier assessment years when the taxation under tonnage tax scheme was not in the statute and that some of these expenditures have been written back during the year and that this resulted in double benefit to the assessee. He relied on the order of the Assessing Officer and submits that the amounts written back under section 41(1), do not fall under the category of relevant shipping income and, hence, have to be brought....
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....e in question cannot be said to have been incurred for the purpose of earning of income. Referring to section 115VJ, which is relied upon by the learned Sr. Counsel, the learned Departmental Representative submits that this section comes into play when the assessee company carries on any business or activity other than tonnage tax business. As the assessee claims that his entire income is for qualified ships and does not have any other business or activity other than tonnage tax income, section 115VJ cannot be applied. He pointed out that the assessee himself has disclosed this income under the head "Income From Other Sources" and it would be wrong to argue that the income is from any business or activity. Referring to section 57(iii), learned Departmental Representative submits that when a claim is made under this section, it should fall within its parameters. He submits that the claim does not fall within the parameters and that the claim cannot be allowed. He further submits that Rule-8D, cannot be applied as the expenditure cannot be corelated with the earning of income. He emphasized the fact that interest was earned by the assessee on parking of surplus funds with banks and w....
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....uld be business activity, does not make sense as the word "or" is used in between the words "business" and "activity". 27. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record, as well as the case laws cited before us, we hold as follows:- 28. The issue is, whether write back of sundry credit balances, prior period expenses and provisions for expenses, should be considered as income from core activity of tonnage tax company. For this proposition, we extract following sections:- "Computation of profits and gains from the business of operating qualifying ships. 115VA. Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of a company, the income from the business of operating qualifying ships, may, at its option, be computed in accordance with the provisions of this Chapter and such income shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". (j) "tonnage income" means the income of a tonnage tax company computed in accordance with the provisions o....
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....emed tonnage" shall be the tonnage in respect of an arrangement of purchase of slots, slot charter and an arrangement of sharing of break-bulk vessel. (5) The tonnage shall be rounded off to the nearest multiple of hundred tons and for this purpose any tonnage consisting of kilograms shall be ignored and thereafter if such tonnage is not a multiple of hundred, then, if the last figure in that amount is fifty tons or more, the tonnage shall be increased to the next higher tonnage which is a multiple of hundred and if the last figure is less than fifty tons, the tonnage shall be reduced to the next lower tonnage which is a multiple of hundred; and the tonnage so rounded off shall be the tonnage of the ship for the purposes of this section. (6) Notwithstanding anything contained in any other provision of this Act, no deduction or set off shall be allowed in computing the tonnage income under this Chapter. Relevant shipping income. 115V-I. (1) For the purposes of this Chapter, the relevant shipping income of a tonnage tax company means- (i) its profits from core activities referred to in sub-section (2); (ii) its profits from incidental a....
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....ation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that notification. (5) The incidental activities shall be the activities which are incidental to the core activities and which may be prescribed for the purpose. (6) Where a tonnage tax company operates any ship, which is not a qualifying ship, the income attributable to operating such nonqualifying ship shall be computed in accordance with the other provisions of this Act. (7) Where any goods or services held for the purposes of tonnage tax business are transferred to any other business carried on by a tonnage tax company, or where any goods or services held for the purposes of any other business carried on by such tonnage tax company are transferred to the tonnage tax business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the tonnage tax business does not correspond to the market value of such goods or services as on the date of the transfer, then, the relevant shipping income u....
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....ion 2 and profits from incidental activity referred to in sub-section 5. The issue is, whether the income by way of right back of provisions of sundry credit balances and prior period expenses can be considered as income from core activities of a tonnage tax company. In our opinion, write back of these items is to be considered as income from core activity. In a going concern, such write backs and making of supplementary provisions takes place. The Assessing Officer as well as the Commissioner (Appeals) have treated the very same income which is taxable under section 41(1) differently. The first being expenditure claimed in pre-tonnage tax scheme assessment years and the second being expenditure claimed in post tonnage tax scheme assessment years. Such a segregation is not permissible under the Act. Both the incomes are incomes from core activity and just because tax rates different, they cannot be treated as non-business income. The Assessing Officer as well as the Commissioner (Appeals) seem to have been influenced by the fact that the assessee has an income of Rs. 800 crores in its Profit and Loss account and whereas he has offered only Rs. 18 crores to tax under the tonnage tax....
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....vance to employees for vehicle and computer. Such advancing of loans is not parking of surplus funds but requirements of business. The Hon'ble Jurisdictional High Court in CIT v/s Lok Holdings, (2009) 308 ITR 356 (Bom.), held as follows:- "The assessee, a firm, was engaged in construction business and received monies from the purchasers of flats which it deposited with the bank. The Assessing Officer assessed the interest income earned on money deposited with the bank as income from other sources and thus made an addition under the head "Income From Other Sources" for the assessment year 1992-93. The Commissioner (Appeals) deleted the addition. The Tribunal on finding that the entire interest sprang from the business activity of the assessee and not out of any independent activity, held that the interest income received by the assessee was business income. On further appeal: Held - dismissing the appeal, the Tribunal was justified in holding that the interest income received by the assessee was assessable as business income." 33. Applying the proposition laid down in the aforesaid case law to the facts of the present case, we uphold the contentions of the learned S....
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....dmittedly assessable under the head "Other Sources". The assessee relies on the provisions of section 115VJ. In our considered opinion, this section does not apply to the factual situation. The assessee has contended that it does not carry on any other business and the entire income relates to income from business of operating qualifying ships. We have also held that the assessee does not have any separate activity which could result in income. There is no dispute that the income is assessable under the head "Income From Other Sources". Interest is earned on parking of surplus funds. Allocation of expenditure as that which is necessary to earn the interest income to the tune of Rs. 7,83,88,809 is, in our opinion, is highly excessive and incorrect. Reliance on Rule-8D is also misplaced. The issue is, whether or not the claim falls under the ken of section 57(iii), which reads as follows:- "57(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income." 37. As the expenditure being claim by the assessee cannot be said to have been laid down or expended wholly ....