TaxTMI 
TaxTMI 
TaxTMI 
2020 (4) TMI 858
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....applied her mind to the computation of tonnage income and allocation of 36.4403% of other income towards exempt tonnage income is clear from perusal of the response of the appellant to notice u/s 142(1) dt. 15/12/2011 issued prior to completion of the original assessment. a The learned CIT (A) erred in observing that : "This point was never a matter of discussion during the course of original assessment proceedings" despite the fact that it was specifically brought to his notice during Appellate proceedings that the assessee has submitted the relevant information in the form of a statement in response to Notice u/s 142(1) dated 15.122011 issued by the AO. b The learned CIT(A) erred in reaching the conclusion that the issue of allocation of other income was never a matter of discussion during the course of the original assessment proceedings despite being made aware of the computation of income by the AO herself in the assessment order u/s 143(3) dt.28/12/2011 in which she has specifically considered and included the exempt tonnage income at the figure of Rs. 21,57,22,468/-, which is computed as per the statement filed before the AO in response to notice u/s142(1) dt. 15/12/2011....
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.... Loans obtained for acquisition of ships, and therefore represented an item of income derived from the core activities of shipping of the Appellant company. (b) The Learned CIT(A) erred in not appreciating the fact that an amount of Rs. 20,32,448/-, being part of the gross amount of other income of Rs. 5,03,07,943/-, comprised of "Bank Interest" on FDRs compulsorily deposited in banks for obtaining Bank Guarantees submitted to ONGC as Performance Guarantee, Bid Bond Guarantee, etc. for tendering the appellant's ships on hire to ONGC Ltd. Thus the interest income is derived from FDRs which had to be compulsorily obtained for earning the charter hire receipts from the conduct of shipping activities by the Appellant. (c) The learned CIT(A) erred in not appreciating the fact that an amount of Rs. 29,74,116/-, being part of the gross amount of other income of Rs. 5,03,07,943/-, comprised of 'Insurance Claims' on vessels of the Appellant from which shipping income was earned. Thus the income by way of insurance claims was derived directly from the core activities of operations of ships. (d) The learned CIT(A) erred in not appreciating the fact that an amount of Rs. 60,68,21....
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....hipping income. The income from qualifying ships forms 36.44% of the total income of the assessee for the impugned assessment year. This percentage is arrived based on the hire charges receipts earned by the assessee. The computation is as under : Hire Charges income Amount Percentage of total income Income from qualifying ships Rs. 36,79,00,741 36.44% Income from non-qualifying ships Rs. 64,16,97,974 63.55% Total Rs. 1,00,95,98,715 For the year under consideration, the total receipts earned by the assessee, besides the hire charges amounted to Rs. 5,03,07,945/- which is attributable to qualifying as well as non-qualifying ships as shown below: Nature of other income Qualifying ships (36.44%) (Rs.) Non-qualifying ships (63.55%) (Rs.) Total (Rs.) Difference in forex 1,36,87,744 2,38,74,369 3,92,29,423 Interest on deposits 7,40,624 12,91,824 20,32,448 Writing back sundry creditors and debtors 22,11,274 38,56,936 60,68,210 Insurance claims 10,83,777 18,90,339 29,74,116 Dividend received and Ors. 1,365 2,381 3,746 Total 1,83,32,363 3,19,75,582 5,03,07,943 The ground for reopening, as mentioned earlier, was that the amount of Rs. 1,83,32,....
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....rmal business activities carried on in the normal course of business and are core activities of the business. The breakup of the other income as follow: Exchange rate difference Rs. 3,92,29,423/- Bank interest on FDR & other investment Rs. 20,32,448/- Insurance claim Rs. 29,74,116/- Sundry dr/cr written off Rs. 60,68,210/- Dividend received Rs. 3081/- Other Rs. 665/- Total Rs. 5,03,07,943/- However, the AO was not convinced with the above explanation of the assessee for the reason that as per the provisions relating to the taxation of shipping companies opting for the tonnage tax scheme, the presumptive income computed u/s 115VG is taxed instead of the relevant shipping income u/s 115VI(1). Further the AO held that the relevant shipping income means profit from the core activities referred to in sub-sections (2) & (5) respectively of section 115VI r.w. Rule 11R of the Income Tax Rules, 1962. Observing that the above other income is not derived either from the core activities or from the incidental activities, the AO made a disallowance of Rs. 1,83,32,362/-. 4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. ....
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....assessee has not furnished any documentary evidence to prove that the relevant items of income were derived from the core activities of the business, whereas all the relevant evidence to establish beyond the shadow of any doubt that the said income was derived from the core activities of the assessee were filed before the AO during the original scrutiny assessment proceedings and were accordingly considered for apportionment u/s 115VI(1), after due application of mind. It is further explained that during the re-assessment proceedings, complete evidence was filed to show that all the major four items of income were derived from the core activities of the assessee, namely 'shipping', and therefore, the allocation towards tonnage income u/s 115VI(1) made at the time of the original assessment was absolutely an order. It is further stated that one of the specific questions asked by the AO along with notice u/s 142(1) dated 15.12.2011 was "furnish how tonnage and non-tonnage income has been computed?"; another query raised by the AO was "how expenses have been apportioned b/w tonnage and non-tonnage activities?" Thus the Ld. counsel submits that the AO had applied her mind and then app....
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....explained that the AO has rightly reopened the assessment by issuing notice u/s 148 of the Act as the assessee, while computing the non taxable relevant shipping income u/s 115VI(1), had taken into consideration an amount of Rs. 1,83,32,362/- which represents a portion of the other income amounting to Rs. 5,03,07,943/- credited to the P&L account and as the above income is not derived either from the core or from the incidental activities, the portion thereof should not have been allowed to be forming part of the relevant shipping income. Thus the learned D.R. explains that as the amount of Rs. 1,83,32,362/- had escaped assessment within the meaning of section 147, the AO has rightly issued notice u/s 148 of the Act. Further it is stated that as per the provisions relating to the taxation of shipping companies opting for the tonnage tax scheme, the presumptive income computed u/s 115VG is taxed instead of the relevant shipping income u/s 115VI(1) and the relevant shipping income means profit from the core activities referred to in sub-sections (2) and (5) respectively of section 115VI read with Rule 11R of the Income-tax rules 1962. Explaining that the above income is not derived ....
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....ge income computed as per the Act for tax and it further gives exemption from tax to the relevant shipping income of such tonnage tax company. The relevant shipping income has been defined in section 115VI of the Act, as profit derived from core activities or incidental activities. While the incidental activities are exhaustive list provided in Rule 11R of the I.T. Rules, the core activities are inter alia activities from operating ships. We find that in the instant case the interest income on fixed deposits with the banks arises because of bank guarantee that the assessee has given to its clients, including Performance guarantees, bid bond guarantees etc. In other words, if the assessee was not undertaking the business of operating ships, it would not have received the interest on fixed deposits kept as guarantees. Thus, the fixed deposits made in pursuance of guarantee which lead to interest income is directly related to the activity of the assessee of operating ships. Further, it is found that these bank guarantees pertain to qualifying as well as non qualifying ships and in the absence of clear bifurcation between the guarantees, the interest income has to be apportioned at 36.....
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....bsidy income. Hence, it was open to the assessee to put forward this expenditure and any other expenditure which might be directly connected with the subsidy in the reassessment proceedings though the assessee could not reagitate any other claim which was already considered in the assessment proceedings." In Sutlej Cotton Mills Ltd. vs. CIT (1979) 116 ITR 1 (SC), it is held that where profit or loss arises to an assessee on account of appreciation or depreciation in value of foreign currency held by him, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in business. It further held that if foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. Thus the revenue or capital nature of loss or gain on account of foreign exchange will depend on whether it is held as trading asset or capital/fixed asset. In TAG Offshore Ltd. vs. ACIT (2014) 49 taxmann.com 209 (Mumbai- Trib.), it is held that foreign exchange gain arising to an assessee engaged in the ship....