TaxTMI 
TaxTMI 
TaxTMI 
2018 (10) TMI 497
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....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 9,03,93,437.00 7. Damages - IHC Holland for deficiency in the dredger su....
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....ed 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 received as liquidated damages with the reasons given as follows : Date Amou nt Details 02.05.2011 19,53,600 Delay in work for 8-14 weeks 02.05.2011 33,60,000 Delay in commencement of work for 14 days 08.07.2....
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....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 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 ....
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....on, 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 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 a....
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....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 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....
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....ent, 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 offered as income in the tonnage tax, but not related to the income other than the tonnage tax scheme. the revenue also failed to establish the same with relevant information. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A). Accordingly, we uphold the order of the Ld.CIT(A) and remit the matter back to the file of the AO to verify whether the provisions are created in relation to the core activity transaction or not. If the provisions are related to the income from core activity which w....
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....n 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 amount cannot be considered to be derived from core shipping activity. 5.3. As regards other pleas, it is relevant to note from the perusal of the details furnished by the assessee that there is no information that the said compensation was in relation to losses suffered by the assessee. The compromise agreement was not filed. The assessee also did not furnish any information as to alleged loss suffered by it. No evidence filed as to assessee's claim of alleged loss being accepted by the other party in consenting to pa....
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....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 ship, whether it was purchased after tonnage tax scheme introduced or before the introduction of tonnage tax scheme. In the absence of any details, we are unable to accept the contention of the assessee that the expenditure was capital expenditure. Accordingly, the argument raised by the Ld.AR to treat the receipt as a capital receipt is unacceptable and the same is rejected. Going through the Board Resolution filed in paper book page No.66- 71, the assessee has made the compromise agreement for receipt of 6.24 crores with IHC Holland. N....
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....,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 referred in items (a) to (f) and (h) to (j) in above para are confirmed. 7.4. With reference to other miscellaneous income, the issue was dealt by the then CIT(A) in the assessee's own case for A.Y. 2010-11. The then CIT(A) in his order in ITA No.283/12/-13/Addl.CIT,R-3, Vsp/2013-14, dated 30.07.2013, after carefully examining the matter took the view that these miscellaneous receipts are not in the nature of the receipts from core activity of the assessee. As such, receipts cannot be said to be derived from dredging activity. I am also of the view that the decision taken by the then CIT(A) Is correct and accordingly, the assessee's ground i....
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.... 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 assessment year 2012-13. The issue was decided against the assessee in para No.8 of the order of this Tribunal which reads as under : "8. The next issue is related to the claim of expenses. The Ld.AR raised the ground that if the assessee's contention that the above receipt constitute as a core income is not accepted the income should be computed as per section 28 to 43 C of I.T. Act and allow the deduction towards the expenditure for earning the above receipts of non core income. The Ld.CIT(A) has dismissed this ground of the assessee following the order of this Tribunal in ITA 6 to 8 and 15 to 17/Vizag/2011 cited supra. The Hon'ble ITAT in the assessee's own c....
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....s 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. The issue is squarely covered against the revenue in the assessee's own case for the assessment year 2009-10 to 2011-12 in I.T.A. Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014 and 167/Viz/2016. For the sake of clarity, we extract para No.12 of the order which reads as under : 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 ....