TaxTMI 
TaxTMI 
2017 (11) TMI 58
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.... sections 28 to 43C of the Income Tax Act, 1961 (hereinafter called as 'the Act'). However, the resident assessees engaged in the business of dredging/operation of ships have the option to declare the income under tonnage scheme under the provisions of section 115V to 115VZC of Chapter XII-G of the Act. This is known as Tonnage Tax Scheme under which the income is computed at specified rates based on net tonnage of a ship under section 115VG of the Act. There is no dispute that the assessee had opted for this scheme and the same has been accepted by the department. 2.1 For the sake of convenience the facts are extracted from the assessment year 2009-10. For the assessment year 2009-10, the assessee filed the return of income on 23.09.2009 declaring total income of Rs. 41,51,34,970/. The assessing officer assessed the following income as non core income and taken out of the scope of tonnage tax and assessed the profits separately. (Rs. in lakhs) 1) Interest earned on House Building and other advances 35.78 2) Sundry Receipts i) Sale of Scrap etc. 25.00 ii) Exchange differ....
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....s found that the assessee had included the interest earned on house building advance amounting to Rs. 35.78 lakhs in the core activity of dredging and computed the income as per the provisions of section 115 VG of I.T. Act, but not offered the same separately to tax. The assessing officer viewed that the interest on house building advance is not from the core activity of dredging and required to be assessed as income other than core activity. Therefore, the receipts on account of interest earned on house building advances had been reduced from the tonnage tax receipts and assessed separately as receipts from non core activities. Aggrieved by the order of the assessing officer, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the order of the assessing officer following the ITAT's order in assessee's own case for the assessment year 2006-07 to 2008-09 in appeal No. ITA Nos. 6 to 8 and 15 to 17/Vizag/2011. During the appeal hearing the Ld. AR did not bring any other decision supporting the subject receipt as the receipt from the core activity. The source of receipt is the interest on house building advances given by the assessee and not from the dredg....
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....ial undertaking and eligible for deduction u/s 80IA. Therefore, following the decision of Hon'ble Madhya Pradesh High Court, Ld.AR vehemently argued that the liquidated damages required to be included in the core income and should not be assessed separately as income other than core income. 4.2 On the other hand, Ld. DR argued that Chapter XII-G relating to income from shipping companies is separate code by itself. The section provides for what is core income u/s 115VI and what is the income incidental to shipping activity in Rule11R of I.T. Act. The complete meaning of income from the shipping activity and incidental activity are given in section 115VI and Rule 11R and the method of computation of income is provided for in Section 115VG. Ld. DR taken our attention to section 115VA, 115VG and 115VI and Rule 11R and argued that there is no ambiguity in the section to identify the core income and non core income. When there is no ambiguity in section with regard to the income from shipping and incidental activities, there is no requirement to interpret the law. The Ld. DR argued that the aspect of complete meaning, identification and definition of core income and non core inco....
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....arate interpretation using the word 'derived from'. Accordingly, we decide the issue whether liquidated damages forms part of core income or not? The liquidated damages are collected from the various contractors as compensatory payment for failure to execute the contract works within the stipulated time. Those are the receipts compensatory in nature but not from the activity of shipping. The income from shipping activity for the purpose of computation of tonnage tax is defined in section 115VI as under: Relevant shipping income. 115VI. (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 activities referred to in sub-section (5): Provided that where the aggregate of all such incomes specified in clause (ii) exceeds one-fourth per cent of the turnover from core activities referred to in sub-section (2), such excess shall not form part of the relevant shipping income for the purposes of this Chapter and shall be taxable under the other provisions of this Act. (2) The core activ....
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....r the purpose. (6) Where a tonnage tax company operates any ship, which is not a qualifying ship, the income attributable to operating such non-qualifying 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 under this section shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the relevant shipping income in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such incom....
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....and not the shipping activity either core or incidental. Though the liquidated damages may be incidental business income but the same is not profit from core activities or incidental activities which have been defined in the Act. They are not directly received from the shipping activity but are compensatory in nature collected from the contractors for failure to execute contract. Therefore, liquidated damages cannot be held to be from the core activity of the shipping and does not form part for computation in tonnage tax. The reliance placed by the Ld.AR in the case of Prakash Oils Ltd of Hon'ble High Court of Madhya Pradesh is related to the computation of profits and gains derived from industrial undertaking u/s 80IA but not related to the tonnage tax u/s 115VI of I.T. Act. Profits and gains for the purpose of industrial undertaking required to be computed as per the provisions of section 28 to 43C of I.T. Act and the deduction required to be allowed u/s 80IA of I.T. Act from the business income. Whereas in the case of tonnage tax as provided u/s 115VI, the income required to be computed as per Chapter XIIG of I.T. Act at the option of the assessee. Once, the assessee opts to....
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....terest at the rate of 15% per annum (The rate of Interest viz., 18% per annual as claimed by the claimants is apparently on the higher side) from 1.7.1993 till the date of payment or 15.5.2008 whichever is earlier. The Respondents will be liable to pay the claim amount with interest @18% per annum from 1.7.1993 till the date of payment if the claimed amount with interest @15% per annum is not paid by 15.05.2008. 6.6.2.2. From the perusal of the award it could be seen that the Cochin Port Trust has not settled the bills raised by this appellant within the agreed time frame. Hence the arbitrator has accepted the appellant's claim for interest and has directed Cochin Port Trust to pay interest at 15% latest by 15.05.2008, and in the event of failure to pay by 15.05.2008 to pay higher interest at 18% per annum- Thus it is evident that the appellant's right to receive interest at 15% or 18% from the Cochin Port Trust arises Award. The right to receive interest on the unsettled amounts, to the appellant by virtue of the arbitration award. Hence it cannot be considered to be a receipt considers to be a receipt derived from dredging activity. It also needs to be noted that....
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....ay be noted that the provision made for F.Y2007-08 was Rs. 801 lakhs and For FY.2008-09 was Rs. 855 lakhs. As it is seen that the AO vide his order dtd.28.032013 had already assessed the interest income of Rs,801 lakhs in AY. 2008-09, the additional Interest income accrued to the -appellant of Rs. 54 laklhs during the year only need to be assessed for this year. Accordingly the addition made to the extent of Rs. 54 lakhs is confirmed, and the addition made to the extent of Rs. 801 lakhs fbr this year is deleted as it has already been subjected to assessment in A.Y.2008-09. 6.6.3 Transaction with Essar Steel Ltd 6.6.3.1. It may be noted that the AO had made an addition of Rs. 94 lakhs being the interest income earned from Essar Steels Ltd. Shown under 'sundry receipts from core activity'. The ARs however clarified vide letter dated 29.05.2013 that the total interest income shown under sundry receipts was Rs. 900 lakhs from Balari Bar arbitration and Rs. 94 lakhs from Essar Steel Ltd., but, the correct amount was Rs. 9,16,14,901/- from Balari Bar Project and Rs. 77,62,902/-from Essar Steel Ltd. It was also represented that the appellant had actually received....
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.... deciding the criteria as to what would constitute receipts derived from core shipping activity. Following the same principle, it could be concluded that as the appellant became entitled to interest on the unsettled amounts on the basis of the settlement agreement, which is a step removed from the dredging activity, such interest Income cannot be considered to be derived from core shipping activity. Hence it is held that the interest income earned from Essar Steel Ltd as per the settlement is liable for taxation as receipt from non-core activity. Admittedly the amount was received during the year, and there is no dispute regarding the year of assessment. However, in View of the clarification given vide letter dated 29.05.2013 and also with reference to the amount recorded in the settlement agreement, the interest income earned can be considered to be only Rs. 77,62,902/- from Essar Steel Ltd and not Rs. 94 lakhs which was subjected to assessment. Hence the addition made to the extent of Rs. 77,62,902/- is confirmed." Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal 5.1 This issue is considered by the Hon'ble ITAT in it's order 6....
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....t for the delayed period of unsettled amounts. The income from the arbitration award on principal amount is the core income. The interest on arbitration award is not directly from the shipping activity but is compensatory in nature akin to the interest on deposits. This is one step away from the shipping activity and is not covered for the purpose of core income within the meaning of section 115VI or Rule 11R of I.T. Rules. As discussed earlier in Para No.4 in liquidated damages, Chapter XIIG is a complete code by itself and the income from shipping activity is defined in section 115VI of I.T. Act and the incidental activity is defined in Rule 11R of I.T. Rules. There is no ambiguity in identification of direct sources of income since it is provided in relevant sections and rules as discussed earlier. Since there is no ambiguity in the sources of income, the interest on arbitration award does not spring directly from the shipping activity and is one step away from the shipping activity, therefore, we hold that the interest on arbitration award is not from the shipping activity. The Ld.AR relied on the decision of Hon'ble Supreme Court in the case of CIT v. Govind Choudary & Son....
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....overies 0.12 0.25 (c) Fee for RTI 0.04 0.02 (d) Sale of tender documents 1.54 1.67 (e) Mess charges - 0.01 (f) Rent for hiring quarters / offices 1.46 1.64 (g) Late attendance receipts 0.62 0.66 6.1 The Ld.AR argued that the above receipts form part of income from shipping and required to be included in tonnage tax. The Ld. D.R. relied on the order of the lower authorities. 6.2 Ld.CIT(A) confirmed the addition following the order of the Tribunal in assessee's own case dated 25.11.2011 in ITA 6 to 8 and 15 to 17/Vizag/2011 for the assessment year 2006-07 to 2008-09. 6.3 We have heard both the parties and find that the above receipts do not form part of income from shipping within the meaning of section 115VI and Rule 11R as discussed above. During the appeal hearing, Ld.AR did not demonstrate how the above receipts are from the shipping within the meaning of section 115VI and Rule 11R of I.T.Act. The issue with regard to shipping for tonnage tax scheme was discussed in detail in para No.4 in Liquidated damages. The above receipts do not fall under the tonnage tax scheme as envisaged in section 115VI and Rule 1....
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.... Act, cited above and hence there cannot be any further deduction of the same expenditure. We agree with the observations of tax authorities in this regard. If the claim of the assessee is allowed, then it would amount to double deduction of the same expenditure, which is not permitted under the Act. Accordingly we dismiss this ground of the assessee. In this case, the assessee did not demonstrate that it had incurred the expenditure separately over and above the expenditure debited to the Profit & Loss Account. No separate books of accounts are maintained for non core income and core income and this issue is squarely covered by the decision of this Tribunal cited supra. Therefore, following the order of this Tribunal, we dismiss the appeal of the assessee on this ground for the assessment year 2009-10 to 2011-12 and 2006-07, 2007-08 and 2008-09. ITA Nos.78 to 80/Vizag/2014 9. These appeals are filed by the assessee against the order of the Ld. CIT(A), Visakhapatnam dated 28.01.2014 for the assessment years 2006-07 to 2008-09. 9.1 First issue is related to the other income which was not included by the assessing officer in the core income for the purpose of tonnage tax ....
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....one step away from the main activity of income. For Ex. Interest on foreign exchange the source of receipt is the interest for delay in payments which is compensatory in nature but not from the main activity of income. Similarly, other receipts are from allied activities of company but not from the main activity of operation of shipping, therefore, the assessing officer held that the above receipts cannot be included in the shipping activity within the meaning of 115VI and Rule 11R of IT Rules, accordingly, brought to tax separately as the income other than tonnage tax. The assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the order of the assessing officer holding that the receipts are not forming part of operation of the qualifying ships. For the sake of convenience, we extract the relevant paragraphs of the order of the Ld. CIT(A) which reads as under:- "9.3. I have considered the submissions made. The AR during the course of appellate proceedings relied on the decision of the Hon'ble ITAT Mumbai in the case of Shipping Corporation of India Ltd. v. Addl.CIT and represented that as the assessee has opted for Tonnage Tax Scheme, none of these addit....
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.... breach of commitment by the customer, but the commitment was in connection with core activity, compensation for breach of said commitment is also for core activity only. It is urged that the said receipt being in the nature of income from operations, that it should only be considered as income from core activity but not as income other than from core activity. Compensation for breach of agreement is with respect to core activities carried out by the appellant and thus the interest received under the agreement for dredging is having direct nexus with the core activity. In view of above submissions made and decisions relied upon, we submit that the appellant is carrying on shipping activities only and whatever income earned is only on account of said activities and accordingly eligible for Tonnage Tax and the said income should not be separately taxed as income other than income from business." 10.2. The assessee also filed a copy of the agreement with AI Ganah Bahrain. It is noted that as per the agreement, the assessee is entitled to charge interest if the payment is not received within 5 days from the due date agreed for payment. Thus the assessee's right to interest....
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....V/2013 for the A.Y.2009-10. Accordingly the appeal of the assessee on this ground is dismissed. Accordingly, the appeals of the assessee for A.Y. 2006-07 to 2008-09 are dismissed. Department Appeals for AY 2009-10 to 2011-12, 557/Viz/2013, 603/ Viz/2013 and 167/Viz/2016 11. The assessing officer treated the receipts on account of sale of scrap, insurance and foreign exchange as non core income and separately computed the profits. The Ld.CIT(A) following the order of this Tribunal held that the income from the above receipts as core income and allowed the appeal of the assessee. This issue is involved for the assessment from 2009-10 to 2011-12. Against the order of the Ld.CIT(A) the Revenue has filed the appeals before this tribunal. 12. We have heard both the parties and perused material placed on record. The Hon'ble ITAT, Visakhapatnam in ITA No. 6 to 8 and 15 to 17/Vizag/2011 dated 25.7.2007 in assessee's own case allowed the appeal of the assessee holding that the income from the above receipts forms part of the income from the core activity of operating the qualifying ships. For ready reference, we reproduce Para No.9 of the ITAT's order supra which read....
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.... the A.Y 2011-12 is provisions written back. The assessee has written back the provisions representing Bad debts, impairment of loss, leave encashment, spares etc.. amounting to Rs. 834.55 lakhs since they were no longer required. These items were related to the expenditure debited to the Profit & Loss account in the earlier years which is reversed by the assessee. This provision was not created or debited to the profit and loss account of the year under consideration. The provisions were already created and outstanding, since the provisions were no longer required, they were reversed by the company and included in the receipts of the core activity. The assessing officer did not accept the contention of the assessee and brought the receipts to tax separately from the shipping activity. Aggrieved by the order of the assessing officer, the assessee went on appeal before the CIT(A) and the Ld. CIT(A) deleted the additions observing that item of credit was only a reversal of debit made earlier and the same cannot be considered as an item of income. For the sake of clarity and convenience, we reproduce the relevant paragraphs of the order of the Ld. CIT(A) which reads as under: ....
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....n Sec.36(1)(va) and Sec43B of the I.T. Act. 9.2.1 In the case of EssäeTeraoka (P) Ltd. v DCIT 43 Taxmann 33, the Hon'ble Karnataka High Court took the View that the word contribution occurring in Sec.43B of the I.T. Act would include employees contribution to PF act .In the light of the definition of the word, 'contribution' by Sec2(c) of P.F. Act, as per which contribution would mean both theempoyers contribution and employees' contribution. Accordingly, it was 'held that the provisions of Sec. 43B of the I.T. Act for allowing deduction for payment made before the filing of the income tax return cannot be ignored. 9.2.2 In the case of CIT v Kichha Sugar Co. Ltd. 35 Taxmann 54, the Hon'be High Court of Uttarakhand held that the due date referred in Sec.36(v)(a) should be read in conjunction with Sec.43B(b) of the I.T. Act and that deduction should payment made before the due date for filing of the return of income. 9.2.3. In the case of CIT v Udaipur DugdhUtpadak Sahakari Sangh Ltd. 35 Taxmann 616, the Hon'ble High Court & Rajasthan after referring to the Apex Court decision in the case of CIT v Alom Extrusions Ltd. (319 I....
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..... And this ground of appeal of the revenue is dismissed. 16. In the result, the appeals of the revenue for the A.Y. 2009-10 to 2011- 12 are dismissed. ITA 165/Viz/2016 A.Y. 2009-10 17. This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals)-1, [CIT(A)], Visakhapatnam vide ITA No.1145/2014-15/DCIT C-3(1), Vsp/2015-16 dated 29.01.2016 for the assessment year 2009-10. The assessing officer passed the orders u/s 143(3) r.w.s. 263 taxing the provisions separately excluding from the shipping receipts. The Ld.CIT(A) deleted the addition holding that in computing the income under tonnage tax scheme the expenses debited in profit and loss account has no relevance. 18. The same issue has been considered by us in ITA No.166/Viz/2016 and held that this is an item of credit which is only reversal of debit made earlier. When it was debited to Profit & Loss Account, it was added back in the computation of income when such item was not allowed/claimed as deduction while computing the income, the same cannot be considered as an item of income. Further when the assessee has opted for tonnage tax scheme, the amounts debited to Profit & Loss accoun....