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2023 (7) TMI 685
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....y under CASS. Notice U/s. 143(2) and 142(1) were issued and served on the assessee. In support of its return the assessee filed uploaded an order issued U/s 115VP(3)(i) of the Act dated 27/06/2013 permitting the assessee company to exercise the above option of Tonnage Tax Scheme for a period of 10 years. The Ld. AO on perusing the income tax return filed by the assessee found that the assessee has entered into international transaction with its Associated Enterprises [AEs] and referred the matter to the Ld. Transfer Pricing Officer [TPO] for valuation of Arm's Length Price [ALP]. The Ld. TPO passed an order U/s. 92CA(3) of the Act on 24/12/2020 by making an adjustment of Rs. 2,08,21,534/- as Transfer Pricing adjustment on the international transactions entered into between the assessee and its AEs. The Ld. AO subsequently passed draft order U/s. 143(3) r.w.s 144C(1) of the Act on 18/3/2021. Aggrieved by the draft order, the assessee filed a petition before the Ld. Dispute Resolution Panel [DRP] raising its objections for the draft order. The Ld. DRP upheld the adjustment to the extent of Rs. 1,97,62,895/- with respect to Vessel Operating Cost and ship management fees. With regard t....
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....further Hon'ble DRP erred in not considering the fact that the ship management charges recovered by AE from assessee are recoveries of various third party costs incurred on behalf of assessee along with a nominal mark up of 10%. 3. Companies selected for benchmarking analysis by Ld. TPO are functionally dissimilar: Without prejudice, on the facts and in the circumstances of the case and in law, the Ld. AO / Ld. TPO and further Hon'ble DRP erred in selecting functionally dissimilar companies. 4. Erred in rejecting the benchmarking approach consistently followed by the appellant with respect to ship management fees paid to AE and accepted by Ld. TPO / Ld. AO. The Ld. TPO and Hon'ble DRP erred in not following the principle of consistency for payment of ship management services paid to the AE. The international transaction of payment of ship management fees has been accepted by the Revenue in the earlier assessment years ie AY 2014-15 to AY 2016-17 wherein the similar approach was adopted by the assessee to benchmark the international transaction of payment of ship management fees considering foreign AE as tested party. 5. Ld. TPO / Ld. AO ....
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....siness of operating qualifying ships, shall be computed in accordance with the provisions of this Chapter. The Ld. AR therefore pleaded that if the Bench upholds the applicability of Tonnage Tax Scheme, the adjudication of other grounds on merits shall become academic. Countering the arguments of the Ld. AR, the Ld. DR submitted that section 115VA starts with non-obstante clause covering section 28 to 43C of the Act hence section 92 is not covered and therefore Transfer Pricing provisions are applicable to the assessee-company. The Ld. DR further submitted that the assessee has not exercised its option under Tonnage Tax Scheme for the earlier assessment years. The Ld. DR also submitted that the assessee has not raised this objection before the lower authorities and are being raised for the first time before the Tribunal. The Ld. DR also further submitted that the assessee is not operating Ships on self basis but has chartered Ships to others. The Ld DR also referred to proviso to section 115VB of the Act stating that the a company shall not be regarded as the operator of a qualifying ships. Contradicting the arguments of the Ld. DR, the Ld. AR submitted that the assessee is entitle....
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....out by it on bareboat charter-cum-demise terms or on bareboat charter terms for a period exceeding three years." Further, we also extract the definition of "bareboat charter-cum-demise" as defined U/s. 115V(b) of the Act: "Sec. 115V(b) "bareboat charter-cum-demise" means a bareboat charter where the ownership of the ship is intended to be transferred after a specified period to the company to whom it has been chartered;" 7. Since the assessee is not engaged in the bareboat charter-cum-demise, argument of the Ld. DR is of no relevance. The Coordinate Bench of the Tribunal at Mumbai in the case of Van Oord India Private Limited vs. ACIT, ITA No. 7228/Mum/2012 (AY 2007-08), dated 22/05/2019, relying on the judgment of the Hon'ble Supreme Court in the case of Trans Asian Shipping Services Pvt Ltd (SC) (Civil Appeal No. 5869 and 5870 of 2016) held as follows: "7. Section 115VA of the Act starts with "Notwithstanding any to the contrary contained in section 28 to section 43....". TTS thus, provides for computation of income to the exclusion of section 28 of the Act. In case of an assessee entering into international transactions with associated enterprise, the amo....
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.... computation provisions of Chapter X of the Act fail and in such circumstances, the application of Chapter X of the Act fails. 9...... 10..... 11...... 12. Before parting, we also think it apposite to refer to the judgment rendered by the Hon'ble Supreme Court in the case of Trans Asian Shipping Services Pvt Ltd (supra). In the said case, the Supreme Court observed that ".......It may be stated in brief that in view of the stiff competition faced by the Indian shipping companies vis-a-vis foreign shipping lines, and in order to ensure an easily accessible, fixed rate, low tax regime for shipping companies, the Rakesh Mohan Committee in its report (of January, 2002) recommended the introduction of the TTS in India, which was similar to, and adopted some of the best global practices prevalent. The whole purpose of introduction of the Scheme was to make the Indian shipping industry more competitive in the global space by rationalising its tax cost...... 13...... 14.... 15...... 16. In the final analysis, it is seen that in the instant case, the provisions of chapter X have been invoked to alter an expenditure,....
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.... presumptive basis for computing the taxable income of the qualifying ships. It lays down the mechanism for computation of income of the qualifying ships which is dependent on the tonnage capacity of the qualifying ships and number of days of operation. All the expenses, deductions, allowances or tax incentives are deemed to have been allowed while computing the income of the qualifying ship under the tonnage tax scheme. In sum and substance, the taxability of the income from qualifying ships is circumscribed by the framework provided in the tonnage tax scheme. In fact, the income determined as per the provisions of tonnage tax scheme contemplated in Chapter XII-G is to be deemed to be the income chargeable to tax under the head "Profits and gains of business or profession". As under the tonnage tax scheme, the actual receipts/revenues earned and expenses incurred are not taken into consideration for the purpose of determining the tonnage income of the company, therefore, in our considered view the applicability of the transfer pricing provisions as envisaged in Chapter X of the Act would stand excluded. Our aforesaid view is fortified by the order of the coordinate bench of the Tr....
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....icing provisions envisage computation of income from specified international transactions of receipt or expenditure, of-course with reference to the stated price of such transactions. This is completely in contrast to Chapter-XII G, where the stated price of the transaction has no relevance to the computation of income of qualifying ships, which is based on the weight of the ship and the number of days it has been held. In other words, the determination "of income/expense having regard to arm's length price as envisaged in Chapter-X has no relevance, as it would not affect the computation of income liable for taxation in Chapter-XII G. 7. Section 115VA of the Act starts with "Notwithstanding any to the contrary contained in section 28 to section 43....". TTS thus, provides for computation of income to the exclusion of section 28 of the Act. In case of an assessee entering into international transactions with associated enterprise, the amount of allowable expenses is required to be determined as per the arm's length principle as per the machinery provisions of Chapter X (Section 92 to section 92F). The amount of allowable expenses determined as per the arm's len....