TaxTMI 
TaxTMI 
2024 (10) TMI 736
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....43(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 written back of Rs. 67.17 crores. On further verification ....
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....on 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 earlier years pertained to excess provision/sundry credit written back amounting to Rs. 66.17 crores out of which an a....
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....y 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 qualifying ship computed in accordance with the provisions of subsections (2) and (3). (2) For the purposes of sub-section (1), the tonnage income of each qualifying ship shall be the daily tonnage incom....
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....gate 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 operating profits on the basis of mutually agreed terms; (b) "contract of affreightment" means a service contract under which a tonnage tax company agrees to transport a specified quantity of specified products at a specified rate, between designated loading and discharging ports over a specified period; (B) specific shipping trades, being- (i) on-board or on-shore acti....
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...., 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 company more than the ordinary profits which might be expected to arise in the tonnage tax business, the Assessing Officer shall, in computing the relevant shipping income of the tonnage tax company for the purposes of this Chapter, take the amount of income as may reasonably be deemed to have been derived therefrom. Explanation.-For the purposes of this Chapter, in case the relevant shipping income of a tonnage tax company is a loss, then, such loss sha....
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....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 and recourse to the normal provisions of the Act in a peace-meal manner is not authorised by law. Though the assessee has computed other income while filing its return of income, in our opinion, the income arising from section 41(1), cannot be classified as, either income from other sources or income from incidental activities. When all the ships of the assessee are qualifying ships and when there is no other activity other than core activities and incidental activities, in our ....
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....cept 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 ownership flat Rs. 1,26,74,819 3. Co's bus services Rs. 130 Total Rs. 9,64,12,610 The assessing officer has reduced the aforesaid expenses of Rs. 964,12,610/- from the amount of Rs. 17,76,61,058/- and stated that balance amount of Rs. 812,48,448/- was not in the nature of receipt pertaining to the activity of the shipping activity. However, the AO has further reduced 20% of the amount as possible administration cost from the amount of Rs. 812,48,448/- and treated the amount of Rs. 649,98,758/- as income of the assessee. 13. The asse....
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....e 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 charges are charged by the appellant to the customer for preparing the necessary documentation at the time of shipment of the Consignment 8. Non manifested charges these charges are recovered from the consignee on account of charges in the documentation. additional request. endorsement charges, crane charges etc 9. Re-nomination and Destination changes charges The applicant needs to prepare sow documentation where the destination to deliver Cargo is changed by the Customer or on his direction cargo needs to be delivered to third part The appellant therefore vies these Charges in respect of the changes in ....
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....ing 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. 5,000, and penal charges levied on employees of Rs. 9,150, are is in respect of employees involved in the core activity of the business of the assessee, we are of the considered opinion that same is not taxable under the normal provisions of the Act. 24. As regards the refund of Director's fees of Rs. 7,49,819, as per the assessee the same is recovered from the Directors who are holding the office as Director in companies where the assessee had joint ventures etc. Such Directors are paid their remuneration and as per the terms of employment, Directors‟ sitting fees are recovered. Since the assessee's only business is operating the qualifying ships therefore the afor....
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.... 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 core activities. "1. Insurance + PI claims Rs. 8,37,37,681 2. House rent ownership flat Rs. 1,26,74,819 3. Co's bus services Rs. 130 Total Rs. 9,64,12,610 21. The assessee filed the appeal before the ld. CIT(A). In respect of aforesaid receipts to the ld. CIT(A) held that receipt under the head insurance and PI claim was not part of turnover from core shipping activity but it was incidental to the business therefore same was excluded from the computation of turnover of core activities. In respect of receipt under head house rent the ld. CIT(A) held that this was the receipt recovered from the employees towards house rent which was not part of turnover from core shipping activity, therefore, ....
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....ing 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: "12. It is an undisputed fact that all the ships owned and in-chartered by the assessee are qualified ships. From the aforesaid facts, it is evident that the receipt of Insurance and P & I claim by the assessee is in respect of its 2 ships, which were damaged in preceding years but post-tonnage tax era. The assessee first incurred the cost of the repair, which was thereafter claimed as per the insurance policy. Since the receipt of the Insurance and P & I claim is directly in relation to the core shipping activity of the assessee in respect of its ships, which are qualifying ships, therefore the receipt is covered under section 115VI of the Act. 22. We have considered the rival submissions and perused the material available on record. The asses....
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....equence 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 income the assessee has offered the following income: Sr. No. Nature of Income Amount (Rs. In crores) 1. Interest on bank deposits 188,93,39,520 2. Interest on deposits 9,92,04,691 3. Interest on others 19,29,92,988 4. Dividend 2,31,81,942 Total 220,47,19,141 as income from other sources and claimed administrative expenditure of Rs. 11,52,75,610/- against the above income as deduction resulting in net income from other sources of Rs. 208.9 crores. Assessee in its additional ground of appeal submitted that out of the above income interest income of Rs. 218,15,37,199/- was arising from the business of operating qualifying ships. Since the deposit amount relating to shipping reserves was created as per Sec. 115VT of the Act was temporarily placed on fixed....
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.... 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 acquisition of ships. Further, the month-wise weekly fund position was also filed by the assessee. In the present case, it is undisputed that the only business activity pursued by the assessee relates to shipping, and thus the entire receipts are from the shipping activity, which qualifies for computation on a presumptive basis under the tonnage tax provisions. We find that the Hon'ble jurisdictional High Court in CIT vs Varun Shipping Co Ltd, [2011] 324 ITR 263 (Bom.) held that where the assessee borrowed certain amount for its business purpose and earn interest on unutilised portion of the loan, interest income is taxable as business income. Thus, since the funds are nothing but the funds required for running the shipping business, which has been invested by the assessee, and interest income is earned, therefore, we are of the c....
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....e 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 (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." After referring the aforesaid provision of Sec. 115VI the ld. DRP agreed that in respect of profit from incidental activities only the net receipt cannot be treated as income and reasonable allocation of administrative expenditure is required to be made. It is also stated in the finding of the DRP that assessee has shown the same on the basis of turnover, therefore, the same is reasonable. Considering the aforesaid fact and submission of the assessee that administrative expenses are required to be incurred for all activities of the assessee company, therefore, we consider that the same is required to be attributed ....
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.... 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 assessee itself as supra, therefore, following the decision of ITAT we don't find any merit in the ground of appeal of the revenue and the same stand dismissed. Ground No.2: Treatment of 'Profit on bar and shop sales' as part of turnover from core activity: 44. During the course of assessment the assessing officer stated that profit on bar and shop sales is not related to the operation of ships, therefore, the assessing officer after allowing 20% of deduction of expenses for earning such income tax the balance 80% under the normal provision of the Act. 45. In the appeal, the ld. CIT(A) held that the profit on bar/shop sales are directly related to the incidental activities of the operation of the qualified ships, therefore, referring the decision of ITAT for assessment year 2009-10. 46. Heard both the sides and perused the material on record. We find that identical issue on similar fact has been a....
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.... 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 part of the shipping activity therefore, we don't find any error in the decision ld. CIT(A), therefore, this ground of appeal of revenue are dismissed. Ground No. 8 & 9: Credit of Foreign Taxes paid u/s 90 and 91 of Act: 54. During the course of assessment the assessing officer has not allowed the claim of credit of foreign taxes paid by the assesse on the ground that as per Sec. 91 of the Act credit of only income tax act paid in country with which no agreement exit can be allowed. 55. However, the ld. CIT(A) held that tax deducted in countries with whom India does not have a DTAA, the manner of determining the independent rate of tax has been specifically provided by explanation to Sec. 91 and the effective rate of tax determined by the AO was not proper, therefore, AO was directed to follow the same as per Sec. 91 of the Act. 56. Heard both the sides and perused the material on record. We find that similar issue on identi....