TaxTMI 
TaxTMI 
2023 (10) TMI 296
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed by the Revenue is challenging the deletion of disallowance of Rs. 133,98,65,442/- made by the AO disallowing the assessee's claim of exemption under Tonnage Tax Scheme. The ground No.2(2) raised by the Revenue is challenging the deletion of disallowance of Rs. 189,50,06,805/- while computing book profit u/s 115JB of the Act. 5. We have heard the rival submissions and perused the material available on record. The assessee company is engaged in the business of operation of ships for exploitation of mineral oil for ONGC and also for providing infrastructure facilities at New Mangalore Port. The ld. AO, from the perusal of computation sheet of the assessee, noticed that the assessee had claimed a sum of Rs. 133,98,65,442/- as exempt shipping income u/s 115VI of the Act while computing income under normal provisions of the Act. Similarly, a sum of Rs. 189,50,05,805/- was reduced by the assessee as exempt income while computing book profit of shipping income u/s 115JB of the Act. The assessee claimed the benefit of Tonnage Tax Scheme u/s 115VP/115VR of the Act. The facts relevant to this issue and the observations made by the ld. AO for rejecting the claim of benefit of Tonnage Tax ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....13-14 , 2014-15 & 2016-17 also. Deep Sea Matdrill is a Jack up Rig owned by the assessee. It is of Mat Slot type designed by Baker Marine Services and built by Nippon Kokan at the Japan Ship Yard in the year 1981. It has rated water depth of 200 ft and Drilling depth of 20,000 ft. It is an drilling equipment and is being operated by ONGC. There could be no denying the fact that the Deepsea Matdril is used for the purpose of deep sea drilling. The service of this rig is mainly utilized for the purpose of exploration and production of gas and oil. For the purpose of drilling it is essentially have to fixed to the place where drilling is required. It cannot be imagined the Matdrill moves and drills at the same time. Mobility of the rig by use of rotor to move it like a ship is essential for placing it at different places where drilling is required or for moving the rig to the new customer. The rig is given the shape of a ship and has moving ability only for the purpose of arriving at the designated location of its drilling activity. The customer hires it for drilling and not for moving from one place to other. The income from a matdrill is derived from its drilling operations. Whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 2005. The amendment has the effect of rendering the dredgers as qualifying ships for the purposes of tonnage scheme. In view of the above, the submission of the assessee is rejected. The income claimed as exempt of Rs. 133,98,65,442/- in the computation of income under normal provision as well as for calculation of book profit as per MAT u/s 115-VI of the Act of Rs. 189,50,05,805/- , is accordingly not allowed to the assessee and an addition of Rs. 133,98,65,442/- under normal provisions and Rs. 189,50,05,805/- under MAT is made on this account." 6. The ld.CIT(A), by placing reliance on the order passed by his predecessor for AY 2016-17, deleted the disallowance made by the ld. AO and granted the benefit of Tonnage Tax Scheme to the assessee. Accordingly, relief was granted to the assessee for claim of exemption both under the normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. Aggrieved, the Revenue is in appeal before us. 7. We find that this issue is no longer res integra in view of the decision of the Hon'ble Jurisdictional High Court in assessee's own case in ITA 1395/2010 dated 08.11.2012. For the sake of convenience, the enti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an apparatus or establishment which have been fixed at a place or set in a position for use. It does not mean anything i.e. apparatus or establishment which is being used without being fixed or set in a position for its use. Anything which is moving from one place to another for using the same cannot be termed as installed. Any movable thing cannot be treated as installation. Thus any installation which has been fixed or set in a position at distance place from shore or away from the shore is called "offshore installation." The 'installation' is built by installing various equipments, fixing them for the work and then dismantled and shifted to another site. The ship is build or constructed also by various equipments and material for the purpose for which it is required to be used but they are not dismantled instead ship itself shifts from one place to another for working on the other site. The ships are required to be registered under Merchant Shipping Act but not installations secondly they are not those which are not moveable and required to be shifted after dismantling. In the modern world there could be a case of installing any equipment on the ship for the specific cause or r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al concluded as follows: - "This clearly show that ships used for drilling, dredging etc are not offshore installations otherwise deletion of dredgers was not required. The offshore installations are those which are fixed for the specific purpose of fishing, production of mineral oil and after finishing the purpose are dismantled and shifted to other site. In case of short distance they are fixed to other site through cranes or through ships. While ships used for drilling, dredging etc are moved from one place to another without being dismantled or without the help of crane. It is therefore submitted that assessee's ship which is duly been registered and has obtained the licence under Merchant Shipping Act, 1958 by an authority of Director General Shipping be treated as ―Qualifying ship‖ and not as an ―offshore installations‖ as understood by Ld. Addl. CIT. Apart from certificate from DG Shipping various other certificates have already been filed which were also necessary for issuing certificate by the office of DG Shipping." 5. The Tribunal was also made aware of decision of this Court CIT Vs. Jagson International (2008) 214 CTR (Del) 227 where the same....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee. The last issue addressed by learned counsel for the revenue relates, to section 80-IA(4) of the Act a bare reading of section 80-IA(4) of the Act shows that what is required to be determined is essentially factual and there is no legal issue which is involved, much less a substantial question of law. This issue was raised by the assessing officer during the course of reassessment proceedings and it was replied to by the assessee. The assessing officer was satisfied with the explanation and did not raise any further questions. The Tribunal has not erred in taking the view that it took, namely, that the CIT had overlooked the agreements dt.28th Feb.1995 and 30th September, 1999 which were on the record of the AO. In all the three issues that have been urged by the counsel for the revenue, no substantial question of law arises. Deduction u/s 33AC is allowable in respect of a barge with the drilling rig over it which can be moved from place to place and therefore, CIT was not justified in exercising power u/s 263 on the ground that the barge is not a ship and assessee's claim for deduction u/s 33AC has been wrongly allowed; question whether the conditions laid down in SS80-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al question of law is therefore answered in favour of the assessee and against the Revenue. The appeals are consequently dismissed." 8. Moreover, the ITAT, in assessee's own case in ITA No.6872/Del/2018 and in ITA No.5375/Del/2019 for AYs 2015-16 and 2016-17 respectively, vide order dated 25.11.2022, had decided the very same issue in favour of the assessee. Respectfully following the same, the grounds No.2(1) raised by the Revenue is dismissed. As far as applicability of Tonnage Tax while computing the book profit u/s 115JB is concerned, we find that the provisions of section 115VO specifically provides that the book profit or loss derived from the activities of the Tonnage Tax Company referred to in section 115VI(1) shall be excluded from the book profit of the company for the purpose of section 115JB of the Act. Hence, ground No.2(2) raised by the Revenue is dismissed. 9. The Ground No.2(3) raised by the Revenue is challenging the deletion of disallowance of interest of Rs. 1,78,55,887/- on the ground that interest free advances made to subsidiary company is not for business purpose. We find that this issue is no longer res integra in view of the decision of this Tribunal in a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld not be justified. A similar view has been taken by the Mum Bench of ITAT in the case of Dy.CIT vs. Kukreja Development COL (2007) 161 Taxmann 199 (Mum)(Mag) has held that where the AO had not established nexus between interest bearing borrowed funds and interest free advances given by assessee, the disallowance of interest would not be justified. Further, in the case of CIT vs. Reliance Utilities and Power Ltd. reported in 313 ITR 340, High Court of Bombay hi held that if there were funds available both interest free and overdraft and/or loans taken, then a presumption would arise that investment would be out of the interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investments." Further reliance is placed on the following judicial pronouncements: That once the advances has been made out of own funds on which no interest has been paid, no disallowance can be made by invoking section 36(1)(iii) of the Act without establishing the nexus between the payment of interest and loan advanced. a) ITA No. 1231 with CM 16759/2009 dated 02.12.2009 CIT vs. Jet Air Pvt. Ltd. b) 260 ITR 637 (Dei) CIT vs. Tin Box Co. c) 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....would have extended such interest free advances. Some business objective should be sought to have been achieved by extending such interest free advances when the assessee firm/ company itself is borrowing funds for running its business". 20. Thus, following three conditions are sine qua non for allowance of a claim for deduction of interest under this provision: (i) The money, that is capital, must have been borrowed by the assessee. (ii) It must have been borrowed for the purpose of business. (iii) The assessee must have paid interest on the borrowed amount i.e. he has shown the same as an item of expenditure. 21. The main argument of the AR is that the loans and advances are for business activities, the appellant being a major share holder in Jagson Airlines with long term business relationship. The aircraft belonging to the appellant company were being run by the said airline on tease basis for last many years and advance had been also taken for the airline for business purposes in the past, on which no interest had been charged. The AO has disallowed the interest on loan without recording any finding that the interest bearing loan had been diverted by the appellant fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ich need not necessarily be the business of the assessee itself ), the revenue cannot justifiably claim to put itself in the arm chair of the business man or in the position of the board of directors and assume the role to decide how much is the reasonable expenditure having regard to the circumstances of the case. In the said decision, the Hon'ble Supreme Court approved of the view taken by Delhi High Court in Dalmia Cement Pvt. Ltd. ( 254 ITR 377 ) and disapproved of the Punjab & Haryana High Court decision in the case of Abhishek Industries ( 286 ITR ). Incidentally in the case of Hero Cycles, t was found that the interest liability of the assessee towards the bank on borrowings made had no bearings on the issue as otherwise, the assessee had sufficient funds of its own to advance the funds to the sister concern. Under such circumstances it was for the AO to establish such nexus between the borrowings and advances to prove that the expenditure was for non-business purposes, which the AO failed to do. In the present case also, it is found that the appellant has sufficient funds of its own which he could have advanced and therefore the interest liability on the borrowings made cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to PF/ESI. 17. We have heard the rival submissions and perused the material available on record. We find that business income for qualifying ships under Tonnage Tax Scheme is calculated based on the Tonnage capacity of the ship and number of days the ship was on voyage. This income is computed on presumptive basis irrespective of actual profit or loss derived by the assessee from the operation of its qualifying ships. Hence, any disallowance made on account of employee's contribution to PF/ESI would have no relevance to the assessee herein as, ultimately, its business income is only determined based on tonnage capacity on presumptive basis and not on actual income basis. Hence, the contention raised by the assessee, vide revised ground No.2(a) is justified and is hereby allowed. 18. The ground No.3 raised by the assessee is challenging the addition of Rs. 2,88,08,175/- on account of cash deposits made during demonetization period in specified bank notes. 19. We have heard the rival submissions and perused the material available on record. The ld. AO observed that the assessee had deposited cash in specified bank notes in its bank account from 09.11.2016 to 30.12.2016 in the tot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ich is reproduced in the assessment order, is nothing, but, the furnishing of details by the assessee in the same format sought for by the ld. AO vide questionnaire to notice u/s 142(1) of the Act dated 04.12.2019. When the books of account of the assessee are not rejected and absolutely no deficiencies are found in the cash book maintained by the assessee, there is no case for the Revenue to disbelieve the existence of cash balance as on 08.11.2016 to the tune of Rs. 2,94,28,861/-. The assessee is mandated to maintain cash balance at various levels in view of its business operations and to meet its business exigencies. In fact, from the cash movement summary provided by the assessee before the lower authorities monthwise, we find the assessee has been holding cash balance at the end of each month as under:- (in Rs. ) 01.04.2016 Opening Balance - 2,76,42,057/- April, 2016 2,68,95,396/- May, 2016 2,67,79,660/- June, 2016 2,49,02,189/- July, 2016 2,73,63,297/- August, 2016 2,99,80,507/- September, 2016 2,97,43,776/- October, 2016 2,95,11,903/- 01.11.2016 to 08.11.2016 2,94,28,861/- 21. From the above, it could be safely concluded that the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Before the ld. CIT(A), the assessee also made an alternative claim that the said payment is not subjected to withholding tax in India due to operation of DTAA between India and UAE. The assessee also placed reliance on the decision of the ld.CIT(A) for AYs 2012-13 and 2013-14 wherein the issue was decided in favour of the assessee. The ld.CIT(A), however, observed that the payments in earlier years, i.e., for AYs 2012-13 and 2013-14 were not made by the assessee to All Farida Worldwide Fze and were made to some other parties. The ld.CIT(A) also observed that the assessee did not produce any evidence to show that the payee does not have any permanent establishment in India. The ld.CIT(A) also observed that the assessee had not submitted any evidence to prove that it had followed due procedures to claim the benefit set out under the DTAA between India and UAE. The ld. AR before us placed reliance on pages 547 to 557 of the paper book containing ledger account of the payee in the books of the assessee company together with the invoice raised by the payee on the assessee, proforma invoice, bank correspondences, declaration-cum-undertaking to be given under Foreign Exchange Management A....