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2020 (4) TMI 858 - ITAT MUMBAIReopening of assessment u/s 147 - addition of excess allowance of income from tonnage tax - computing the non taxable relevant shipping income u/s 115VI(1) - HELD THAT:- The notice u/s 148 has been issued by the AO in the instant case, within a period of four years from the end of the relevant assessment year. As the AO formed an opinion that the above income is not derived either from the core or from the incidental activities as envisaged u/s 115VI, he has rightly issued notice u/s 148 of the Act. Thus, we dismiss the grounds of appeal raised by the assessee against the reopening made by the AO. Section 115VF provides that a tonnage tax company shall offer its tonnage income computed as per the Act for tax and it further gives exemption from tax to the relevant shipping income of such tonnage tax company. The relevant shipping income has been defined in section 115VI of the Act, as profit derived from core activities or incidental activities. While the incidental activities are exhaustive list provided in Rule 11R of the I.T. Rules, the core activities are inter alia activities from operating ships. We find that in the instant case the interest income on fixed deposits with the banks arises because of bank guarantee that the assessee has given to its clients, including Performance guarantees, bid bond guarantees etc. If the assessee was not undertaking the business of operating ships, it would not have received the interest on fixed deposits kept as guarantees - fixed deposits made in pursuance of guarantee which lead to interest income is directly related to the activity of the assessee of operating ships - these bank guarantees pertain to qualifying as well as non qualifying ships and in the absence of clear bifurcation between the guarantees, the interest income has to be apportioned at 36.44% to determine the part of the relevant shipping income for the assessee. The assessee has claimed 36.44% of the total receipt from insurance claim amounting to ₹ 29.74 lakhs as exempt income. In the instant case, the sums pertaining to insurance claim are amounts expended for the repair of the vessel parts and regular maintenance of the vessels. These vessels are deployed for the business of the assessee of operating ships. As the insurance claim are directly related to operation of ships, they have to be considered while arriving at the profits of the tonnage tax company under the Act. Certain expenditure incurred towards repairs and maintenance of vessels and other core activities relating to operation of ships was no longer required to be paid which lead to writing back of the creditors. As it pertains to qualifying as well as non-qualifying ships, the portion pertaining to relevant shipping income had to be appropriated on 36.44% basis. The writing back of sundry creditors or debtors give rise to income arising due to the activity of operating ships and, therefore, the receipts due to writing back has to be considered when determining profits arrived from core activities u/s 115VI. As mentioned earlier, the assessee had obtained loan in the foreign currency, the repayment of which lead to accrual of gain due to fluctuation in foreign exchange rate and the loan had been taken by the assessee for acquiring vessels which are its business asset. Hence, the gain being a capital receipt is not chargeable to tax. We set aside the order of the Ld. CIT(A) and delete the addition of excess allowance of income from tonnage tax made by the AO - assessee is entitled to claim of refund, which is subject to its contentions as stated in the ‘ Statement of Facts’ dated 13.05.2016 filed before the Tribunal that “however, during appellate proceedings before the learned CIT(A), it was submitted that even though the return filed in response to notice u/s 148 shows a lower income than the originally returned income, the learned CIT(A) may give directions to the effect that the assessed income after giving effect to his order can in no case go below the originally returned income, to which proposition the appellant is fully agreeable to” and direct the AO to work it out. - Appeal is partly allowed.
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