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2024 (10) TMI 736
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....subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 02.09.2011. The assessee company was engaged in the business of merchant shipping during the year under consideration. The assessee company has opted for Tonnage Tax Scheme i.e a presumptive taxation scheme mentioned in chapter XII-G of the Act from the assessment year 2005-06 onward. The assessment u/s 143(3) of the Act for the year under consideration was finalised on 29.01.2013 and total income was assessed at Rs. 312,72,77,090/- after making various addition and disallowances. Further fact of the case are discussed while adjudicating the ground of appeal filed by the assessee. Before the ITAT the assessee has also filed additional ground of appeal on 01.01.2024 which was also admitted for adjudication. Ground No.1: (i) Sundry credit balances written back amounting to Rs. 19,58,670: (ii) Excess provision written back amounting to Rs. 19,42,29,013/- (being 80% of the excess provision written back amounting to Rs. 24,27,86,267/-: 3. During the course of assessment the assessing officer noticed that assessee has declared certain income in the nature of excess provision/sundry credit balance writt....
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.... Rs. 19,42,29,013/- was treated as income to be assessed under the normal provision of the Act. 5. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee holding as under: "1. As per section 115VZB, tonnage tax scheme not to apply where a tonnage tax company is a party to any transaction or arrangement which amounts to abuse of tonnage tax scheme. 2. As per section 176(3A), any sum received after discontinuance of business shall be deemed to be income of the recipient. 3. Section 115VE permits separate taxation of profits from both tonnage tax and non-tonnage tax business. 4. The relevant details of write-back were not provided to the AO or CIT(A). 6. During the course of appellate proceedings before us the ld. Counsel submitted that identical issue on similar fact has been adjudicated by the ITAT in favour of the assessee for 2006-07 to 2009-10. 7. On the other hand, the ld. D.R supported the order of lower authorities. 8. Heard both the sides and perused the material on record. Without retreating the facts as elaborated above the assessee has declared certain income relating to e....
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....hargeable to tax under the head "Profits and gains of business or profession". (j) "tonnage income" means the income of a tonnage tax company computed in accordance with the provisions of this Chapter; (k) "tonnage tax activities" means the activities referred to in subsections (2) and (5) of section 115V-I; (l) "tonnage tax company" means a qualifying company in relation to which tonnage tax option is in force; (m) "tonnage tax scheme" means a scheme for computation of profits and gains of business of operating qualifying ships under the provisions of this Chapter. Tonnage income. 115VF. Subject to the other provisions of this Chapter, the tonnage income shall be computed in accordance with section 115VG and the income so computed shall be deemed to be the profits chargeable under the head "Profits and gains of business or profession" and the relevant shipping income referred to in sub-section (1) of section 115V-I shall not be chargeable to tax. Computation of tonnage income. 115VG. (1) The tonnage income of a tonnage tax company for a previous year shall be the aggregate of the tonnage income of each qualify....
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.... 115V-I. (1) For the purposes of this Chapter, the relevant shipping income of a tonnage tax company means- (i) its profits from core activities referred to in sub-section (2); (ii) its profits from incidental activities referred in sub-section (5): Provided that where the aggregate of all such incomes specified in clause (ii) exceeds one-fourth per cent of the turnover from core activities referred to in sub-section (2), such excess shall not form part of the relevant shipping income for the purposes of this Chapter and shall be taxable under the other provisions of this Act. (2) The core activities of a tonnage tax company shall be- (i) its activities from operating qualifying ships; and (ii) other ship-related activities mentioned as under :- (A) shipping contracts in respect of- (i) earning from pooling arrangements; (ii) contracts of affreightment. Explanation.-For the purposes of this sub-clause,- (a) "pooling arrangement" means an agreement between two or more persons for providing services through a pool or operating one or more ships and sharing earnings or op....
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....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 as on the date of the transfer, then, the relevant shipping income under this section shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the relevant shipping income in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such income on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch on sale in the open market. (8) Where it appears to the Assessing Officer that, owing to the close connection between the tonnage tax company and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the tonnage tax ....
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....usiness income. The Assessing Officer as well as the Commissioner (Appeals) seem to have been influenced by the fact that the assessee has an income of '800 crores in its Profit & Loss account and whereas he has offered only' 18 crores to tax under the tonnage tax scheme. The decision whether a particular income has to be brought to tax or not, cannot be based on such a view of the matter. The legislature in its wisdom provided the manner of computation of income under the tonnage tax scheme. In section 115VA, it is clearly provided that sections 28 to 43C would not over ride the computation of profits and gains under section 115VA. As section 41(1) falls within sections 28 to 43C, no separate addition under that section can be made. As section 41(1) seeks to bring to tax certain specified items of receipts under the head "profits and gains of business" the scheme should not be invoked while computing profits and gains of business under Chapter-XII-G. Hence, we are of the opinion that the argument of the assessee should succeed. 30. With the introduction of chapter-XII-G, the entire methodology of taxing income from the business of operating qualifying ships has changed an....
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....assessing officer asked the assessee to explain why the aforesaid sundry receipt should not be taxed under the normal provision of the Act. The assessee explained that these receipts were recorded on gross basis and expenses incurred against the same have been debited to the profit and loss account and if these receipts were treated as income from other sources or normal business income then it would adversely affect the computation of income as the claim of expenses will be denied to the assessee. However, the assessing officer except considering the claim of incurring expenses against the income earned have not accepted the contention of the assessee. The assessing officer stated that the tonnage tax scheme was applicable for the income earned from operation of qualified ships and that too from the activities which have been listed as core activities of operation of ships. Therefore, he was of the view that the aforesaid receipt earned from the unrelated activities were taxable under the normal provision of the Act. On further query the assessee has submitted expenses incurred against 3 heads as under: "1. Insurance + PI claims Rs. 8,37,37,681 2. House rent ownersh....
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.... by the appellant is recovered customer for any damage done by customer during use of containers belonging to the appellant. 3. Port Handling charges The containers owned by outsider are loaded on the appellant's Vessel thought Small forwarders. In such case. the port recovers handling charges for loading the container to the appellant vessel from the appellant which the appellant recovers from the customer. 4. Electricity charges Due to the perishable nature of cargo it requires cold Storage containers. The appellant recovers the electricity charges for cold storing he and are recovered from the customer. 5. Fire Fighting charges The appellant is required to keep firefighting apparatus on stand by mode at the port if the consignment contains dangerous or explosive cargo The appellant recovers such charges from the customer whose cargo is of dangerous or explosive nature. 6. Recovery of Port rent This are the charges levied by the Port authorities to the appellant towards additional port rent or pore Charges for delayed movement of containers from Port which the appellant recovers from respective consignees 7. Documentation Charges These....
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....50/Mum/2012 pertaining to assessment year 2008-09 is reproduced as under: "22. We have considered the rival submissions and perused the material available on record. The assessee has taken accommodation on rent for its employees involved in the core activity of the organisation, which was further sublet to those employees. As per the assessee, it incurred an expenditure of Rs. 14,25,55,708 and recovered the house rent from his employees only to an extent of Rs. 1,21,83,784. It is the plea of the assessee that the accommodation was taken on rent in respect of employees involved in the core activity of the organisation and therefore the recovery of rent is nothing but related to its core activity. Since the assessee does not have any other business other than the business of operating qualifying ships and as it has no other activity as contemplated under Chapter XII-G, we are of the considered opinion that the income cannot be brought to tax separately and it is the income from the core activity. 23. Similarly, the receipt of rent on furniture of Rs. 30,404, company's bus service of Rs. 1,795, contribution for employees" new post-retirement medical scheme of Rs. 5,0....
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.... or deficiency in service in respect of the qualifying ships, therefore, we are of the considered opinion that such receipt is part of the core shipping activity of the assessee. 18. Since the issue on hand being squarely covered by the decision of the ITAT Mumbai in the case of the assesse itself as discussed supra, therefore ground no.2 of the assessee is allowed excluding the amount of Rs. 2,984/- on the issue of application money for right to information Act which was not pressed. Additional Ground No. 2: Deduction of expenditure incurred for earning of sundry receipts aggregating to Rs. 4,83,76,945/-: 19. Since we have allowed the claim of the assessee by considering the sundry receipts as part of core activities while adjudicating ground no. 2 of the appeal of the assessee as discussed above in this order, therefore, additional ground no. 2 become academic not required any adjudication. Additional Ground No.3: Sundry receipts aggregating to Rs. 9,64,12,610/- should be treated as 'profit from core activities': 20. During the course of assessment the assessing officer has not treated sundry receipt aggregating to Rs. 964,12,610/- as mentioned below as profit from....
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....urance claim for damages which was restricted up to the actual expenses incurred by the assessee. Similarly, the house rent was related to the accommodation arranged by the assessee for its employees on lease basis for which it had incurred expenditure of Rs. 13,93,00,092/- on lease rent and recovered from normal house rent of Rs. 126,74,819/- from the employees, therefore, same is related to the core activity of the assessee company and these expenses were incurred every year for the purpose of the business of the assessee. Therefore, the part of the amount recovered out of the expenditure is a receipt related to the core activity of the assessee company. Similarly, the bus service were arranged by the assessee for its employees who were working in the assessee company, which is related to the business of the assessee and part of the core activity. With the assistance of ld. Representative we have also gone through the decision of ITAT in the case of assessee itself for A.Y. 2008-09 vide ITA No. 2550/Mum/2012 dated 14.03.2023 wherein identical issue on similar fact has been decided in favour of the assessee. The relevant operating part of the decision is reproduced as under: ....
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....itself on the similar issue and identical as discussed above this additional ground of appeal of the assessee is allowed. Additional Ground No.4: Deduction of expenditure allowed by the ld. A.O against sundry receipts aggregating to Rs. 9,64,12,610/- should be upheld. 26. Since we have adjudicated the additional ground no. 3 in favour of the assessee therefore, in consequence to additional ground no. 3 this additional ground of appeal no. 4 of the assessee become academic and not required any adjudication therefore the same stand dismissed. Ground No.3: Adjustment in computation of turnover of core shipping: 27. Since we have adjudicated the ground no. 2 of appeal of the assessee regarding taxing the sundry receipts as part of core activities, therefore, in consequence to ground no. 2 this ground of appeal no. 3 of the assessee become academic not required any adjudication therefore the same stand dismissed. Additional Ground No. 1: Interest income of Rs. 218,15,37,199/- constituted profits from core activities and therefore could not be separately assessed to tax: 28. During the course of assessment the assessing officer noticed that under the head other taxable ....
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.... to be utilised by the company before the expiry of 8 years for acquiring a new ship for the purpose of the business of the company and until the acquisition of the new ship for the purpose of the business of operating qualifying ships. As per the assessee, in its Tonnage Tax Reserve, following the procedure prescribed under the aforesaid section, is Rs. 695 crores as on 31/03/2008. Further, the assessee earned interest on deposits placed with the banks and financial institutions out of the funds required for purpose of the business but temporarily lying idle. The funds are required for meeting the working capital requirement and repayment of loans earlier taken for the acquisition of ships. In support of its submission, the assessee has placed on record statements showing the placement of surplus funds in short-term deposits on weekly basis, by way of additional evidence filed vide application dated 18/02/2021. It was submitted that factual assertion was made before the learned CIT(A), however, the underlying document in support of the same are filed for the first-time before the Tribunal. The assessee has also placed on record the details of repayment of loans taken for the acqui....
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.... therefor, same was added back to the income of the assessee. 34. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the ground of appeal of the assessee. 35. During the course of assessment proceeding before us the ld. Counsel submitted that similar issue on identical fact has been decided in favour of the assessee by the DRP for assessment year 2014-15 as per the copy of the order placed in the paper book. The ld. Counsel further submitted that there is no requirement to consider allocation of administrative expenses u/s 115VI of the Act. 36. On the other hand, the ld. D.R supported the order of the lower authorities. 37. Heard both the sides and perused the material on record. We have perused the provision of Sec. 115VI of the Act the extract of the same is reproduced as under: "115V-I (I) For the purposes of this Chapter, the relevant shipping income of a tonnage tax company means- (i) Its profits from core activities referred to in sub-section (2) - (ii) Its profits from incidental activities referred to in sub-section (5); Provided that where the aggregate of all such incomes specified in clause (i....
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...., all the expense of the vessels are required to be borne by the ship owner but if the assessee incurs certain expenses on behalf of the vessels owner for managing the vessel, the same are reimbursed to it by the vessels owner along with commission. We have perused the decision of ITAT for A.Y. 2008-09 vide ITA No. 2550/Mum/2023 dated 14.03.2023 wherein the similar issue on identical fact was decided by the assessee. The relevant part of the decision is reproduced as under: 25. The receipt of Rs. 6,05,004 is on account of commission on disbursement which the assessee earned over and above the disbursement amount paid to the agents, Captain, and crew of ships when the ship is abroad. As per the assessee, such disbursement was pursuant to an agreement with certain ship owners. We have already upheld the taxability of commission on disbursement under Chapter XII-G, which was forming part of the prior period income. Since this commission is also of a similar nature and that too pertaining to the post tonnage tax era, therefore, same forms part of core shipping activity." 43. Since the issue on hand being squarely covered by the decision of the ITAT in the case of the assess....
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....r normal provision of the Act after allowing 20% towards expenditure incurred for earning such income. 49. The ld. CIT(A) held that such receipts are related to core shipping activity and same was treated as part of business receipt of the assessee. 50. We find that ld. CIT(A) held that such receipts are recovered from the container freight station and include various receipts including reserves on behalf of the customer which indicate that such receipts are related to the core shipping activity. Considering the aforesaid findings of the ld. CIT(A) we don't find any reason to interfere in the decision of ld. CIT(A) therefore, this ground of revenue stand dismissed. Ground No. 4 & 7: Treatment of 'recovery of water charges' as part of profit and turnover from core activity: 51. The assessing officer has not treated recovery from water charges as part of profit on turnover from core activity. 52. However, the ld. CIT(A) held that same was part of shipping activity. 53. Heard both the sides and perused the material on record. Water charges recovery are made from the vessel owners towards supply of fresh water for use by crew staff which showed that this recovery is p....