AI Drafter 
TaxTMI 
TaxTMI 
2025 (4) TMI 908
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....O on account of expenses related to exempt income?" 3."Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in relying on the judicial pronouncement of the Hon'ble Special Bench, Delhi ITAT in the case of Vireet Investments while deleting the addition made by the AO on account of expenses related to exempt income, whose facts are completely different from the present case?" 4. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in reversing the non-tonnage income as tonnage income ignoring the fact that the assessee failed to satisfy the first condition specified in 115VD(a) in order to be a qualifying ship for the purpose of TTS that the ship should be a sea going ship or vessel ?" 5. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in reversing the non-tonnage income as tonnage income ignoring the fact that the assessee has been given preferential treatment under the TTS with a particular purpose in mind which is the promotion of Indian Shipping Industry. If the ship is not put to use for the specified purpose, definitely....
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....dated order. 4. The main issue involved in the Revenues appeal has been raised from ground No.4 to 7, i.e., the denial of Tonnage Tax Benefit by the ld. AO. For the sake of ready reference, appeal for the A.Y.2012-13 is being taken at first. 5. The brief facts are that assessee company is engaged in business of shipping operations since 1994, however, it has been stated that assessee was into this business from the year 1974, The assessee company owns and operates various types of operating platform supply vessels, offshore supply vessels, anchor handling tugs, anchor handling tugs supply vessels, etc. These vessels are owned by the assessee company and are also given on charter for offshore activities ranging. It has been stated that most of the companies were even chartered out to clients (public sector and limited company) for long term tenure. At this point it would be relevant to mention various types of vessels owned and operated by the assessee, which are illustrated in brief here under:- Platform Supply Vessel. The PSV is designed for supplying offshore drilling rigs and production platforms with necessary equipment, stores and drilling consumables. These are....
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.... 21/12/2004, the department has approved the option for TTS for the period of 10 years and further, w.e.f. A.Y.2014-15 another order u/s.115VP was passed and it continues till date. In all the previous years" assessee's claim under TTS has been allowed and accepted by the department. In support, assessment orders from Assessment Years passed u/s. 143(3), since A.Y.2005-06 has been placed on record before us alongwith different applications in Form No.65, D.G. Shipping certificate certifying the tonnage of the vessels, etc. 7. For the A.Y.2012-13 assessee had declared total income of Rs. 12,52,54,524/- under normal provisions and book profit of Rs. 15,23,08,685/-. The assessment order u/s. 143(3) was passed accepting the returned income and TTS benefit. Thereafter, a search and seizure operation u/s.132 was conducted in the case of the assessee and accordingly, notice u/s.153A was issued on 29/12/2018. In the return of income, income which was assessed u/s 143(3) was declared as the return in response to notice u/s.153A. However, in this case assessee has preferred a writ petition before the Hon'ble High Court against the issuance of notice u/s.153A and Hon"ble High Court vide it....
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....t condition specified in 115VD(a) is that the same should be a sea going ship or vessel which has a net tonnage of 15 tons at least. The second condition is that the same should have a valid certificate. That implies, the primary condition is that the ship should be a sea going vessel and to say that the same is to be ignored just because it satisfied the second condition would be fallacious argument. To take the argument further, any ship or vessel would be eligible for the tonnage tax scheme if it is certified and is not falling in the negative list. That would need an understanding whether there is any difference between "ship/vessel" and "seagoing ship/vessel". The guidance is provided by the General Clauses act which defines "ship" and 'vessel". "Ship" has been defined in section 3(55) of the General Clauses act, 1897 as every description vessel used for navigation and not exclusively propelled by oars whereas "vessel" has been defined in section 3(63) of the same Act to include any ship/boat/vessel used for navigation. That implies, navigation anywhere may be a feature of the ship but to be 'seagoing', it has to satisfy certain additional qualifications and that i....
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.... recognized for the purposes of claims u/s 80IB of the Act, 80HHC of the Act, export oriented undertakings etc to support is stand. Going by the understanding of the assessee, there can be no verification of claims of deduction or exemption by the income tax department if the technical certifications are available from respective authorities which is not only actually incorrect but also legally untenable. The certifications are essential documents is carry out certain activities and sometimes constitute prima facie proof. But whether a tax benefit is being claimed unduly is for the department to verify and therefore, we do have the verifications and the remedial provisions including cancellation/ disallowance of claim for the deductions and exemptions in the IT Act itself. To say that if the Charity Commissioner has not found faults with a Charitable Trust, the same cannot be denied exemption even if the actual activities are found to be in contravention of Sec. 12A of the Act would be absurd. To say that the project is approved by the local authority is enough to prove that the assessee is eligible for claim u/s 801B of the Act, would also be incorrect. The claim of the assessee f....
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....fter analysing Section 115VD which defines "qualifying ship", observed and held as under:- 6.5.4 Thus, the definition laid down above is a very comprehensive one. As regards "sea going ship", the same is defined in S. 115V(1) as "seagoing ship means a ship if it is certified as such by the competent authority of any country After a careful consideration of the definition, I find that all the conditions laid down in S.115VD (a), (b), (c) stand fulfilled. There is no finding in the assessment order that the vessels operated by the appellant are of less than 15 net tonnage or that they are not "seagoing ship" as per the definition laid down in the Act. The contentions that vessels should be proceeding beyond specified limits and not merely capable of proceeding beyond or that they should be carrying any cargo or passengers do not emanate from the definitions. In fact, S.115VD clearly lays down certain exclusions. According to the appellant, "the ships are involved in the movement of men and materials from shore to marine related activities. The vessels of the appellant do not fall under any of the exclusions. It is also noted that dredgers were initially specifically....
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....005-06 and prior to that Section 33AC of the Act was governing the various deductions from the computation of income granting benefits for the shipping business. The assessee company was always found eligible for deduction u/s. 33AC from A.Y.1995-96 to A.Y. 2004-05; and thereafter, from A.Y.2005-06 onwards assessee was granted benefit of Tonnage Tax Scheme after considering the Form No.65, certificate of Registration under the Merchant Shipping Act, 1958, certificate of international tonnage issued under the provision of convention on the Tonnage Measurement of Ships, 1969, and other statutory requirements and compliances. It is after examining these details, order u/s.115VP of the Act has been passed wherein assessee's ships were held to be "qualifying ships" and option for exercising Tonnage Tax Scheme u/s.115VP was approved. The approval u/s.115VP still continues which makes assessee eligible for TTS. It is also not in dispute that assessee ships are registered and has obtained license under Merchant Shipping Act 1958 by Director General Shipping wherein assessee's ships/ vessels have been certified as "qualifying ship". Apart from certificate from DG shipping, various other nec....
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....d "dredgers"} (viii) a qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year. 14. Thus, pre-conditions which have been provided for a ship to be a "qualifying ship" are that; * firstly, it is a sea going ship or vessel of 15 net tonnage or more; * secondly, ship is registered under the Merchant Ship Act, 1958 or if any ship registered outside India, the license has to be issued by the Director General of ship; and * lastly, it should have a valid certificate in respect of such ship indicating its net tonnage in force, that is, the sea going ship should be certified by the competent authority about the tonnage. The "seagoing ship" has been defined, a ship if it is certified as such by the competent authority. If the ship or vessel is certified by the competent authority then it is entitled to qualify under TTS. 15. Then there is a negative list which has been provided under the head "but does not include".................. Prior to 01/04/2006, the "dredgers" were also excluded from the negative list which inter alia means that "dredger" now qualifies as a ship if it is a sea going v....
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.... or not? There is absolutely no dispute that assessee ship or vessels are more than 15 net tonnage and in support, he drew our attention to various certificates issued under the Merchant Ship Act, for the vessels and pointed out that in so far as tonnage is concerned, all the vessels were far higher tonnage of 15 tons. Secondly, it has been certified and registered as a sea going ship under the Merchant Shipping Act and also all the vessels had a valid certificate from the DG shipping. The activities of the assessee include hiring income which was mainly time charter of vessels given on hire to various entities. One important fact brought on record and also been discussed by the Ld. CIT(A) that assessee has qualified its income from shipping activity, partly under tonnage tax scheme and partly under non-tonnage tax scheme which has been duly certified by the auditor as per Enclosure B to Form 66. Nowhere, the assessee"s Form 66 which is a mandatory requirement in terms of Section 115VI (6) has been rejected. Thus, if any income does which does not qualify under section 115VD or any income under section 115VI assessee has offered as normal business income and no TTS benefit has been....
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....ndling SPM for liquid cargo like petroleum products for all tankers, etc to the ships or ferrying from port to sea, then how can it be said it is not operating in sea. The smooth waters and inland waters here is to be inferred as river water or inland water bodies not connected to sea. Coastal sea water can also be reckoned as inland waters connected with the ports or coast. All these activities are carried out in water of the sea. Even if it is inland waters of the sea then also how it can be treated if it is not a sea going ship. Thus, when assessee's vessels are certified as sea going ship by the competent authority under the statute and also holds the tonnage certificate and duly certified by the DGA shipping under MSA and also approved by the Income Tax Department, then it cannot be disqualified by the AO on his own reasoning and interpretation. Nowhere the language of the statute gives any such condition or definition as inferred by the AO. AO cannot give a restrictive meaning otherwise provided under the Act. 19. Coming to the definition of relevant shipping income, Section 115VI provides that relevant shipping income of a tonnage tax company means profit from core activi....
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....n board and are paid on per man day basis at fixed rates. These victualling expenses in the case of crew on board on the vessel are borne by the company. The ld. AO had made the disallowance on the ground that assessee has not made any submissions in compliance with the notice u/s.142(1) and also did not file any details in support of its claim and accordingly, he has added the entire amount debited to the profit and loss account for sum of Rs. 3,27,27,894/-. The ld. CIT(A) has deleted the addition on the ground that assessee has furnished vessel-wise monthly summary of details and the cash expense are negligible which is only to the amount of Rs. 2,30,548/- out of total expenses of Rs. 3,27,27,894/- and none of the expenses have reached the limit of Section 40A(3). 21. After hearing both the parties and on perusal of the material placed on record, it is seen that these expenses incurred towards beverages, snacks, lunch and dinner for the personnel / crew on board of the vessel at high sea round the clock. These payments are made for man day at fixed amount to meet the victualling cost. The purchase of victualling materials are made directly from the vendors and delivered on boa....
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.... 4,26,954 3,50,796 9,09,722 5,36,582 5,42,737 Amount to be further disallowed if AO's view is upheld in respect of100% disallowance and assessee is entitled for tonnage tax scheme 4,26,954 3,50,796 9,09,722 5,36,582 5,42,737 23. The ld. CIT (A) held that since assessee has not been able to conclusively establish that these expenses were incurred wholly and exclusively for the purpose of business, however, he restricted the disallowance only to that part of income which is not eligible to be taxed under TTS and he also noted that ld. AO has made a mistake by including one extra digit in A.Y.2013-14 erroneously. Accordingly, he restricted he disallowance in the following manner:- Particulars Sales promotion & sundry expenses A.Y. 2012-13 A.Y. 2013-14 A.Y. 2014-15 A.Y. 2015-16 A.Y. 2016-17 Disallowance by AO 76,61,552 6,47,79,916 74,14,478 80,40,738 53,45,263 Disallowance confirmed 4,26,954 3,50,796 9,09,722 5,36,582 5,42,737 24. After hearing both the parties and on perusal of the material placed on record it is seen that these expenses mainly comprise of complimentary gifts a....
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..... AO while passing the order u/s 153A of the Act did not provide netting off of the interest expenses which was part of tonnage income calculation. 29. The ld. CIT(A) further upheld the ld. AO's order and considered the said income as income from other sources. 30. Before us ld. Counsel submitted that the loan facility agreements, for the purpose of acquisition of qualifying ships, signed with the borrower banks mandate the assessee to place Margin Deposits as a condition for the loan. Further in order to issue bank guarantees to the charterers, the banks mandate providing margin deposits. In support of the claim, the assessee had demonstrated the nexus of fund deployed for the business purpose i.e. for acquiring ships/vessels and for placing performance guarantee margin vis a vis each contract with banks and financial institution. The ld. AO has not considered these documents to decide this issue. He further submitted that the margin deposits are integral to part of the core activity of arranging financial resources for operating qualifying ships and they do not constitute an independent source of income but rather an inseparable part of assets deployed for the operation....
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.... calculating the taxable income. Thus, any interest claimed for the calculation for tonnage tax scheme cannot be allowed because once the presumptive tax is applicable on tonnage tax then, no separate interest expenses can be allowed. The interest income has to taxed separately under the head income from other sources and any interest expenses which is directly related to interest income has to be netted and accordingly, we direct the ld. AO to net off interest income from interest expenses and balance should be taxed as income from other sources. In the result, ground No.3 raised by the assessee is partly allowed. A.Y.2014-15 34. In A.Y.2014-15 in the Revenue's appeal, same three issues have been raised i.e. denial of tonnage tax benefit, disallowance of sales promotion and sundry expenses and victualling expenses. Since all these issues have been decided in favour of the assessee in the appeal for A.Y.2012-13, the appeals raised by the Revenue are dismissed. 35. In so far as assessee's appeal in ground No.1 relates to validity of assessment u/s.153A, the same has been dismissed as infructuous and in so far as sales promotion and sundry expenses, the same is dismissed in ....
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....ld by SML in GSOPL (of SGD 1 each) as on 1st April 2015 59,64,576 27,81,12,532 Total Shares Extinguished in AY 2016-17 25,11,400 11,71,00,000 No. of Shares left after reduction of Share Capital as on 31st March 2016 34,53,176 16,10,12,532 46. In support, statutory documents of Singapore pertaining reduction of share in capital in the form of copy of Board Resolution of GSOPL dated 18/03/2016 has been filed alongwith acknowledged copy of resolution filed with Singapore Government and business profile post reduction in share capital. Table provided working of share capital and extract of financial statement of GSOPL for the F.Y.2015-16 was also filed. Apart from that further documents were filed like, statutory documents of the assessee, i.e., promising maritime limit, FIRC copy of receipt of funds of USD 2 million for the purpose of remittance alongwith bank statement crediting the said money, acknowledged copy of form, Overseas Direct Investment (ODI) part III comprises with the authorised dealer i.e. Standard Chartered Bank for submission to the RBI alongwith financial statement as on 31/03/2016 seeking reduction in number of shares have been filed. The ....
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....as allowed to the set off against the other long term capital gain. Since the facts have not been discussed properly by the ld. AO or by ld. CIT (A) accordingly, this matter is restored back to the file of the ld. AO and to decide afresh in line with the principle laid down in the decision of ITAT Mumbai Bench in case of Tata Sons Ltd., (supra) wherein, it was held that reduction of share capital is to be treated as "capital loss". Accordingly, the ground is partly allowed for statistical purposes. Thus, appeal of the Revenue is dismissed and appeal of the assessee is partly allowed. A.Y.2017-18 49. In this year, the Revenue has raised the grounds pertaining denial of tonnage tax benefit and victualling expenses which has been decided against Revenue in the earlier appeals and accordingly, this issue is decided against the Revenue. 50. Ground No.2 relates to deemed dividend u/s.2(22)d wherein Revenue has challenged that ld. CIT(A) erred in restricting the addition on account of deemed dividend u/s.2(22)d of the Act from Rs. 14,29,55,824/- to Rs. 1,32,00,000/- 51. The brief facts qua the issue are that assessee is 100% shareholder of Underwater Services Company Ltd. The ....
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.... ground that asset has been sold at much more than its fair market value, as the asset worth Rs. 15.70 Crores was purchased by USCL for Rs. 30 Crores so as to transfer the funds to the assessee which had resulted into reduction in capital in the books of M/s. USCL whereas assessee has recorded at Rs. 30 Crores where the receipt value of Rs. 15.70 Crores. 53. The ld. CIT (A) noted that the valuation report furnished by the assessee and value of the assessee ascertained by the Valuer is at Rs. 28,68,00,000/- and he observed that valuation report was a comprehensive one considering the comparable sale, market survey and comparables, physical attributes of the property, verification of documents etc., Since, there was no specific reason as to how the price of Rs. 30 Crores was arrived, he therefore held that only difference of Rs. 1.32 Crores can be added, i.e., to the extent value of the property has been ascertained by the Valuer at Rs. 28.68 Crores, accordingly same should be taxable u/s.2(22)d as against the addition of Rs. 14,29,55,824/- made by the AO. Now for the balance amount of Rs. 1,32,00,000/- assessee is in appeal. 54. After considering the relevant facts as discusse....