TaxTMI 
TaxTMI 
2026 (9) TMI 1150
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 2016-17. 3. The assessee-company is a Public Sector Undertaking engaged in executing offshore dredging activities under the Ministry of Shipping, Government of India. The assessee-company filed its return of income for the A.Y.2016-17 on 07.10.2016 admitting an income of Rs. 10.58 crores. Subsequently, notices under section 143(2) and 142(1) of Income Tax Act, 1961 (hereinafter in short "the Act") were issued to the assessee-company calling for information relevant to the assessment proceedings. During the course of assessment proceedings, the Learned Assessing Officer (hereinafter in short "Ld.AO") noticed that the assessee-company is filing its return of income under the "Tonnage Tax Scheme" as per section 115VE of the Act. On perusal of the information submitted by the assessee-company, the Ld.AO has observed that they claimed the "Other Operating Revenue" amounting to Rs. 2.36 crores as revenue from Core Dredging Services and claimed exemption accordingly. The details of "Other Operating Revenue" are tabulated below: - S.No. Particulars Amount (Rs.) 1. Sale of tender documents 3,22,981/- 2. Rec. For liquidated damages 1,54,89,693/- 3. Recov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reinafter in short "Ld.AR") of the appellant has filed a paper book containing a copy of Acknowledgement of Return of Income, copy of Computation of Income, copy of Annual Report, copy of Note filed before the Ld.AO with regard to "Other Operating Revenue" and a copy of written submission filed before the Ld.CIT(A). During the proceedings before the ITAT, the Ld.AR of the assessee-company has fairly admitted that all these issues were adjudicated against the assessee-company in the earlier years and they have filed an appeal before the Hon'ble High Court of Andhra Pradesh where the adjudication is pending. For the sake of convenience of the Bench, Ld.AR of the assessee-company has prepared a chart showing the reference to previous orders of ITAT on each issue. Since the arguments of the assessee-company and the Department are same on the similar issues, this Bench follows the decision taken by the earlier Bench, especially because the assessee-company did not agree with the order of the earlier ITAT and filed an appeal before the Hon'ble High Court where the issues are pending. 7. The income received from "Sale of Tender Documents" was treated as "Other Operating Revenue" not en....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... to 4.4 which reads as under : "4.3 We have heard both the parties and perused the material placed on record. In the earlier order the coordinate bench interpreted the word used in shipping income u/s 115VI 'Income from' holding that it is akin to the term derived from since both the Ld. A.R. and the Ld. D.R. agreed that the term derived from is akin to 'Income from'. However, in the present appeals, the Ld. D.R. vehemently opposed and argued that there is no reason to interpret the 'Income from' since the shipping income and the incidental income is clearly defined in section 115 VI and Rule 11R. We have carefully considered the argument of the Ld. D.R. and the Ld. A.R. and also gone through the orders of the Hon'ble ITAT. Since the Ld. D.R. disagreed, we are of the considered view that section 115VI and Rule 11R defined the income from shipping and incidental activities very clearly and there is no ambiguity in the Act and there is no need for separate interpretation using the word 'derived from'. Accordingly, we decide the issue whether liquidated damages forms part of core income or not? The liquidated damages are collected from the various contractors as compensatory....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urposes of this section. (4) Every notification issued under this Chapter shall be laid, as soon as may be after it is issued, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the notification, or both Houses agree that the notification should not be issued, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that notification. (5) The incidental activities shall be the activities which are incidental to the core activities and which may be prescribed4 for the purpose. (6) Where a tonnage tax company operates any ship, which is not a qualifying ship, the income attributable to operating such non-qualifying ship shall be computed in accordance with the other provisions of this Act. (7) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y :- (i) maritime consultancy charges; (ii) income from loading or unloading of cargo; (iii) ship management fees or remuneration received for managed vessels; and (iv) maritime education or recruitment fees. 4.4. The liquidated damages collected from various contractors do not cover any of the receipts in section 115VI or within the scope of Rule 11R of I.T. Act. There is no dispute that the assessee had opted for tonnage tax scheme and the income has to be computed as per section 115VI and Rule 11R of I.T. Act. Under the tonnage tax scheme, only the receipts from core activities and receipts from incidental activities are included, which means that core activities and incidental activities should be the source of profit to be included under tonnage scheme. As regards the liquidated damages the source of such income is payment for failure to execute the contract works within the stipulated time and not the shipping activity either core or incidental. Though the liquidated damages may be incidental business income but the same is not the profit from core activities or incidental activities which have been defined in the Act. They are not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ived from the shipping activity but are compensatory in nature collected from the contractors for failure to execute contract. Therefore, liquidated damages cannot be held to be from the core activity of the shipping and does not form part for computation in tonnage tax. We, therefore, find no infirmity in the orders passed by the lower authorities and respectfully following the decision laid down by the Hon'ble Tribunal in assessee's own case for the previous relevant assessment years, we uphold the order of the lower authorities and dismiss the appeal of the assessee on this ground." 9. The third issue relates to "Recovery towards leased quarter" and this particular amount also was claimed as exemption under the Tonnage Tax Scheme by the assessee-company and the Ld.AO has disallowed the exemption stating that this is not the revenue from core dredging services and hence disallowed the exemption. Ld.CIT(A) confirmed the order of Ld.AO. This issue was discussed by the ITAT in assessee's own case in the A.Y. 2015-16 at Para No. 6 to 10, Page No. 4-13 and the Coordinate Bench has held that the addition made by the Ld.AO is correct because this income does not directly com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....similar issues were held against assessee company and in favour of Revenue for the reasons mentioned in this Order as above and also in view of o-ordinate Bench's decision of earlier year in assessee's own case, the Bench decides to confirm the additions made by Ld.AO in the assessement order and dismiss the appeal of assessee company. 14. In the result, appeal of the assessee is dismissed. ITA No. 637/VIZ/2025 (A.Y. 2017-18) 15. In this assessment year, the Ld.AO made an addition of Rs. 27.70 crores to the taxable income by disallowing the various claims made by the assessee-company as exempt incomes. Ld.AO has mentioned that the assessee-company clubbed the "Other Operating Revenue" earned to the extent of Rs. 27.70 Crs. along with the revenue from core dredging services. The assessee-company is following the Tonnage Tax Scheme and claimed the following incomes as "Other Operating Revenue" as exempt because the same is from the core activity of dredging operations of the assessee company. Ld.AO did not agree with the contention of the assessee-company and added back the following "Other Operating Revenue" to the taxable income which is tabulated below: - S. No. Par....
X X X X Extracts X X X X
X X X X Extracts X X X X
....grieved by the order of the Ld.CIT(A), the revenue preferred an appeal before the Tribunal and submitted that the Ld.CIT(A) erred in holding that the income from sale of scrap, sale of empties, sale of waste oil, exchange difference and machinery scrap sales as part of income from core business, as they are not falling in the purview of provision of incidental to the core business. Therefore, the Ld.DR pleaded to set aside the order of the Ld.CIT(A) and allow the appeal of the revenue on this ground. 15 We have heard both the parties and perused the material placed on record. It is evident that the Tribunal in assessee's own case in I.T.A. No.464/Viz/2017 decided the issue against the revenue on the same issue for the A.Y.2012-13, relying on the assessee's own case for the A.Y.2009-10 to 2011-12 in I.T.A.No.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014 and 167/Viz/2016. For the sake of clarity and convenience, we extract relevant part of the order of the Tribunal in I.T.A.No.464/Viz/2017 which reads as under: "24. Ground Nos. 2 and 3 are related to the receipts on account of sale of scrap, sale of empties, sale of condemned stores and spares and sale of waste oil, sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me generated on sale of such empty containers could be set off against the purchase cost, in other words bringing down the purchase price of raw material, or it could be treated as income directly relatable to the activity of industrial undertaking. The net result would be the same-either the cost of raw material gets reduced and thus increases profits of manufactured products on sale or the sale price of containers is directly added to swell the total profits. Therefore, in the light of the decision of this High Court in the case of Dy.CIT v. Harjivandas Juthabhai Zaveri [2002] 258 ITR 785, there was no infirmity in the impugned order of the Tribunal". Applying the above said ratio, the income received by the assessee on sale of scraps and sale of assets could be treated as income directly relatable to the activity of operating qualifying ships. Accordingly, we affirm the order of Learned CIT(A) on these two types of income. 9.1 The amount received on insurance claim was held to be derived from industrial undertaking by Hon'ble Delhi High Court in the case of CIT v. Sportking India Ltd. [2010] 324 ITR 283/[2009] 183 Taxman 312. By following the ratio of the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... company. Hence, this income is related to the core activities of dredging operations of assessee company. 23. The fifth issue contented by the appellant company relates to "Recovery of liquidated damages". The Ld.AO has treated this income as non-core activity and denied the exemption claimed by the assessee-company. This issue was discussed at length by the Coordinate Bench in ITA No. 211/VIZ/2020 & ITA No. 54/VIZ/2021 dated 09.09.2022 for the A.Y. 2015-16 at Para No. 6 to 10, Page Nos. 4 to 13. Ld.AR of the appellant has brought to the notice of the Bench that the issue was held against the assessee-company in the above cited order. Following the above order, the Bench dismisses the appeal of assessee on this ground. 24. The sixth issue relates to "service charges" Rs. 900/- received by the assessee-company was also treated as non-exempt by the Ld.AO. As the amount is too small, Ld.AR of the assessee company has stated that the Bench may take a decision. As these service charges related to dredging operation of the assessee-company, the same should be exempt from taxation. This issue is decided in favor of assessee and against the Department. 25. The seventh issue relat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and thus increases profits of manufactured products on sale or the sale price of containers is directly added to swell the total profits. Therefore, in the light of the decision of this High Court in the case of Dy.CIT v. HarjivandasJuthabhaiZaveri [2002] 258 ITR 785, there was no infirmity in the impugned order of the Tribunal". Applying the above said ratio, the income received by the assessee on sale of scraps and sale of assets could be treated as income directly relatable to the activity of operating qualifying ships. Accordingly, we affirm the order of Learned CIT(A) on these two types of income. 9.1 The amount received on insurance claim was held to be derived from industrial undertaking by Hon'ble Delhi High Court in the case of CIT v. Sportking India Ltd. [2010] 324 ITR 283/[2009] 183 Taxman 312. By following the ratio of the said decision, we uphold the decision of Learned CIT(A) on this issue. The Ld. D.R did not controvert or bring any other order to support that the income was from non core activity. Therefore respectfully following the order of this Tribunal we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... In the above cited appeal, for the A.Y. 2018-19, the Ld.AO made an addition of Rs. 51,13,98,173/-. Since the assessee-company was filing return of income under Tonnage Tax Scheme as per provisions of chapter XIIG of the Act, Ld.AO disallowed the claim of exemption of "Other Operating Revenue" and the details of "Other Operating Revenue" are tabulated below: - S. No. Particulars Amount (Rs.) (in lakhs) 1. Sale of Scrap 993.00 2. LD recovery 978.00 3. Provision written Back 1,631.00 4. Sale of empties 0.13 5. Sale of waste oil 0.35 6. Sale of tender documents 2.27 7. Service Charges 0.12- 8. Training fee 4.00 9. Right of Information - others 0.01 10. Insurance claims 1,505.09 Total 51,13,98,173 34. The assessee-company has clubbed "Other Operating Revenue" with revenue earned from core dredging services and has accordingly claimed exemption as per provisions of section Tonnage Tax Scheme. Ld.AO held that the above income does not have any correlation with relevant shipping income from the core activities and incidental activities. Hence the exemption was denied and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red by the decision of ITAT and accordingly relevant copies of ITAT order of earlier years are filed before the Bench. Ld.AR of the appellant drew the attention of the Bench to the orders of ITAT of earlier years with respect to each issue because certain issues are covered in a particular year of ITAT order and other issues are covered in a different assessment year of ITAT order. 38. The Ld.AR of the appellant submitted hat the issue relating "sale of scrap" was covered by the ITAT order for the A.Y. 2015-16 in ITA No. 211/VIZ/2020 for the A.Y. 2015-16 dated 09.09.2022 vide Para No. 15-16 at pages 14-17. It was brought to the notice of the Bench that the Tribunal has decided this issue against the Revenue by holding that this income increases the profits of manufactured products on sale and directly added to swell the total profits by relying on the decision of DCIT v. Harjivandas Juthabhai Zaveri [2002] 258 ITR 785 and DCIT v. Core Healthcare Ltd., [2009] 308 ITR 263 (Guj.). 39. Second issue relates to "Recovery of liquidated damages" and this issue was discussed at length by the Coordinate Bench in the above ITAT order at Page Nos. 4 to 13 and Para Nos. 6 to 10 and finall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y following the decision of co-ordinate Bench in earlier year. 43. The next issue relates to the receipt by way of "sale of tender documents" and this issue was elaborately discussed by the order of the ITAT dated 09.09.2022 at Para No. 6 to 10 and Page Nos. 4 to 13. It was held that the "sale of tender documents" is not connected in any way with the core dredging operation of assessee-company, this receipt is not eligible for claiming the exemption and the action of the Ld.AO was upheld. Accordingly, in this year also, the addition made by Ld.AO is upheld. 44. The receipt from "Service Charges" also stand on the same footing as above and the exemption was denied by the order of the Coordinate Bench in the above order. The Order of ITAT in its own case of earlier year is followed and addition made by Ld.AO is upheld. 45. The receipt from "training fee" was discussed by the ITAT in ITA No. 437/VIZ/2017 dated 05.10.2018 at Para Nos. 18-19.2 of Page Nos. 18 to 20 as this receipt of training fee does not have any correlation with the core dredging activity, and hence, the Coordinate Bench in the earlier year held that the assessee-company is not eligible for exemption and the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f deduction of Rs. 2.03 cores which is debited to the P&L Account. The Ld.AO was directed to afford an opportunity to the assessee before passing the consequential orders. 51. In pursuance of the direction given by the Ld.Pr.CIT, the Ld.AO has taken up the case for scrutiny and issued notice under section 143(2) of the Act and notice under section 142(1) of the Act. Subsequently, a show cause notice was given to the assessee-company in which it was mentioned that Rs. 2.03 crore was debited towards donations given to Maritime India Summit, 2016 and the same is not eligible for deduction under donations. In response to this show cause notice, the assessee furnished reply stating that the during the year under consideration the assessee-company M/s.Dredging Corporation of India Limited has stated that, the Hon'ble Prime Minister of India came up with a major campaign of the initiative "Make in India" launched in September, 2014 to encourage companies to manufacture in India and incentivize dedicated investments in to manufacturing as the flagship initiative of the Government of India. In this initiative, the Government has stated that Ports and Shipping is one of the major thrust a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s as the deductible business expenditure as held by the ITAT Ahmadabad Bench. After the perusal of the documents submitted by the assessee-company, the Ld.AO was not satisfied with the arguments of assessee-company and held that the assessee could not prove genuineness of the commercial expediency and the same was not spent "wholly and exclusively" for the purposes of its business. Accordingly, it was held that there is no nexus between the said contribution and business promotion specific to the assessee's line of business with reference to the documentary evidences submitted. Since the expenditure does not relate to the core activity of the dredging operation of the assessee-company, the Ld.AO finally held that the expenditure was not allowable and added back to the total income for the A.Y. 2016-17. 52. Aggrieved by the order of Ld.AO, the assessee-company filed an appeal before the Ld.CIT(A). The Ld.CIT(A) passed order under section 250 of the Act stating that the assessee has just stated that these expenses are incurred for business promotion but had not produced any evidences in support these expenditures, and hence, not incurred for wholly and exclusively for the purposes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ld.Pr.CIT and Ld.AO and argued that there is no close connection between the payment to the Ministry of shipping and to the core-activities of dredging operations of assessee-company. Since there is neither business connection nor commercial expediency to spend this amount the expenditure cannot be allowed as business expenditure and the orders of the Ld. Pr.CIT / Ld.AO are correct. 56. After hearing both sides, the Bench decides to allow the appeal of the appellant-company for the following reasons: - a. There is no dispute with regard to the payment of expenditure through banking channels and that too to the Ministry of Shipping which comes under the Cabinet Ministry of Central Government which takes policy decisions relating to the activities of appellant-company. b. There is no dispute that the assessee-company's activities were show-cased before the global investors who have participated in the Maritime India Summit-2016. It was clearly mentioned that the purpose of summit is to enhance the capacities of ports to increase the Tonnage capacity to 3300+ Million tonnes per annum from the present volumes of 2400 Million tonnes per annum. c. The policy....