TaxTMI 
TaxTMI 
2018 (10) TMI 497
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....ter called as 'the Act'). However, the resident assessee is engaged in the business of dredging/operation of ships has the option to declare the income under tonnage scheme under the provisions of section 115V to 115VZC of Chapter XII-G of the Act ('core Income' in short). 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 assessment year2012-13, the assessee filed return of income declaring total income of Rs. 12,92,02,576/-. The Assessing Officer (AO) has assessed the following income as non core income : S. No. Particulars Amount 1. Exchange Differences 30,79,175.71 2. Sale Scrap, Empties, Condemned Stores, Waste Oil, Condemned Assets 50,79,282.00 3. Provision for bad debts previously created now written back 6,88,01,067.00 4. Provision no longer required, written back - Finance & Accounts Section 8,78,893.00 5. Provision for expenses written back 39,28,989.00 6. Liquidated damages....
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....e income other than the core income. During the assessment year under consideration, the assessee has received liquidated damages of Rs. 9,03,93,437/- which was included in the tonnage tax scheme. The AO has called for the explanation of the assessee and after considering the explanation, the AO held that the liquidity damages does not fall into the definition of core income as per section 115VI r.w.Rule 11R of income tax rules and accordingly excluded the receipt of liquidated damages from the core income of the shipping activity and brought to tax as per the normal provisions and made the addition to the returned income. 7. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO following the order of this Tribunal in the assessee's own case for the assessment year 2006-07, 2007-08 and 2008-09 in I.T.A. Nos. 6 to 8 & 15 to 17 of 2011 dated 25.07.2011. For the sake of clarity and convenience, we extract relevant part of the order of the Ld.CIT(A) made available in para No.4.2.2. which reads as under : 4.2.2. I have perused the details filed. It is seen that the following amounts were receiv....
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....cord. In the earlier order the coordinate bench interpreted the word used in shipping income u/s 115VI 'Income from' holding that it is akin to the term derived from since both the Ld. A.R. and the Ld. D.R. agreed that the term derived from is akin to 'Income from'. However, in the present appeals, the Ld. D.R. vehemently opposed and argued that there is no reason to interpret the 'Income from' since the shipping income and the incidental income is clearly defined in section 115 VI and Rule 11R. We have carefully considered the argument of the Ld. D.R. and the Ld. A.R. and also gone through the orders of the Hon'ble ITAT. Since the Ld. D.R. disagreed, we are of the considered view that section 115VI and Rule 11R defined the income from shipping and incidental activities very clearly and there is no ambiguity in the Act and there is no need for separate 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....
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...., as soon as may be after it is issued, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the notification, or both Houses agree that the notification should not be issued, the notification 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 prescribed4 for 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....
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....nloading of cargo; (iii) ship management fees or remuneration received for managed vessels; and (iv) maritime education or recruitment fees. 4.4. The liquidated damages collected from various contractors do not cover any of the receipts in section 115VI or within the scope of Rule 11R of I.T. Act. There is no dispute that the assessee had opted for tonnage tax scheme and the income has to be computed as per section 115VI and Rule 11R of I.T. Act. Under the tonnage tax scheme, only the receipts from core activities and receipts from incidental activities are included, which means that core activities and incidental activities should be the source of profit to be included under tonnage scheme. As regards the liquidated damages the source of such income is payment for failure to execute the contract works within the stipulated time and not the shipping activity either core or incidental. Though the liquidated damages may be incidental business income but the same is not the 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....
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.... and convenience, we extract relevant part of the order of the Ld.CIT(A) which reads as under : "5.3. 1 have considered the above submissions. I find that the basic information relating to the impugned creation of provision for bad and doubtful debts and provision for expenses has not been furnished nor examined by the AO. Hence, the AO A directed to verify whether the provisions were created in relation to core activity transactions as per the test already laid in the order of the ITAT, and in such event, these write backs may be considered as part of core income and the impugned addition may be deleted; otherwise the impugned addition would remain." 9.1. The revenue also has challenged the order of the Ld.CIT(A) in Ground Nos. 4 to 6 on the provision for bad and doubtful debts, provisions written back and provisions no longer required in I.T.A. No.464/Viz/2017. 10. We have heard both the parties and perused the material placed on record. During the appeal hearing, the Ld.AR did not place any material to support the claim of Provisions for bad and doubtful debts and the provisions written back are related to the core activity of the assessee which was already offere....
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....r of the Ld.CIT(A) which is made available in para No.6.2 and 6.3 which reads as under : "6.2. I have considered the submissions and the details filed. It is evident the assessee had obtained compensation for deficiency in dredger supplied from IHC, Holland. From the perusal of Board Resolution, it is seen that the assessee did not succeed much before the Arbitration, and that the impugned - compensation was received subsequently, on account of compromise entered with the other party. Apparently the said compensation cannot be said to be income derived from dredging activity. It is relevant to note that the Honourable ITAT following the ratio laid down by the Apex court in the case of Pandian Chemicals laid down the criteria that receipts derived from the dredging activities would be considered as core activity and eligible to be considered under Tonnage Scheme, and any receipt from an activity which is a step removed from the core activity of dredging would not be so eligible. Thus it could be seen that the appellant became entitled to compensation based on the compromise entered with IHC Holland, which is a step removed from the dredging activity, and such compensation a....
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....pt was neither from the shipping activity nor from the operational activity, therefore, the receipt cannot be held to be from core activity. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee on this issue. 16. The next argument of the assessee was that since the damages were received to compensate the deficiencies for receipt of the dredger supplied with deficiencies, the said receipts should be treated as capital receipt, but not the revenue receipt. The CIT(A) has examined this issue in detail and given a finding that the assessee did not furnish any details with relation to the losses suffered by the assessee. The compromise agreement was not filed before the Ld.CIT(A) and the assessee did not furnish any information as to alleged repairs undertaken by it for rectifying the deficiencies. During the appeal hearing also for a query from the bench, the Ld.AR submitted that the expenditure for repairs was debited to the Profit & Loss account and no details were available with regard to the incurring of expenditure. The assessee did not furnish any break-up of the details with regard to the date of purchase of ship, date of operation of the s....
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....CIT(A) in para No.7.2 to 7.4 which reads as under : "7.2. I have considered the submissions. I find that the AO has treated the following receipts as receipts not relating to core activity : (a) Recovery towards leased quarters to employees Rs.11,45,980/- (b) Staff car recoveries Rs.11,,960/- (c) Fee for right to information Rs.1,908/- (d) Sale of Tender documents Rs.2,75,521/- (e) Rent for hiring of the quarter/office Rs.1,78,292/- (f) Late attendance receipt Rs.44,624/- (g) Recovery of tower rent from Bharti Airtel Rs.5,920/- (h) Training fee Rs.19,722/- (i) Financing & Storage charges recoveries Rs..5,724/- "7.3. It is seen that the Hon'ble ITAT vide order dated 25.11.2011 in ITA Nos. 6 to 8 and 15 to 17/Vizag/2011 in the appellant's case for A.Y.2006-07 to A.Y.2008-09 has held that these receipts, mentioned above in (a) to (f) & (h) to (j) are from independent sources of income and cannot be considered to be connected with the dredging activity. As the factual situation is similar, the above decision of Hon'ble ITAT, Vizag is respectfully followed. Accordingly, the additions refer....
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.....CIT(A) and dismiss the appeal of the assessee. 20. Ground No.6 is related to the EMD and SD forfeiture amounting to Rs. 12,54,473/- which was upheld by the Ld.CIT(A) following the order of this Tribunal in the assessee's own case for the assessment year 2006-07 to 2008-09. 21. We have considered arguments of the both the parties and perused the material placed on record. The issue of EMD forfeiture was decided against the assessee in the assessee's own case in I.T.A. No.78-80/Viz/2014 dated 25.10.2007. Since the receipts of EMD and SD amounts are of the same nature, we hold that the receipts are not connected to dredging activity and cannot be held to be core income for the purpose of tonnage tax scheme. Accordingly, the receipts of EMD and SD are one step away from the dredging activity and would not be eligible for tonnage tax scheme. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and dismiss the appeal of the assessee. 22. Ground No.7 is with regard to the deduction of expenses in respect of incomes considered as not forming part of core activity. Identical issue has come up before this Tribunal in the assessee's own case for the asse....
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....sed. I.T.A. No.461/Viz/2017 - Revenue's Appeal 23. Ground Nos.1 and 7 are general in nature which does not require specific adjudication. 24. Ground Nos. 2 and 3 are related to the receipts on account of sale of scrap, sale of empties, sale of condemned stores and spares and sale of waste oil, sale of assets and exchange difference. The AO treated the receipts from the above activity as non core receipts and accordingly brought to tax other than the income from tonnage tax scheme. 25. On appeal before the CIT(A), the Ld.CIT(A) held that the receipts by way of sale of scrap, exchange difference, insurance claim are having direct nexus with the dredging activity and such receipts are required to be considered as income from core activity. The Ld.CIT(A) followed the order of this Tribunal in assessee's own case for the assessment year 2006-07 to 2008-09 supra. The Ld.CIT(A) also applied the ratio of the decision of Hon'ble Apex Court in the case of Pandian Chemicals Ltd. Vs. CIT(2003) (262 ITR 278). 26. Against the order of theLd.CIT(A), the revenue has filed appeal before this Tribunal. 27. We have heard both the parties and perused the material placed on record. Th....