2008 (2) TMI 388 - HC - Income Tax

Interpretation of provisions in Chapter XII-G relating to the income of shipping companies - Eligibility of the petitioner for the tonnage tax scheme under section 115VP - Scope of the term company in section 115VA by applying section 115VC - determining the main object of the company - actual business activities and income distribution - availability of alternative statutory remedy - HELD THAT -The overwhelming thrust of section 115VA is the derivation of income from the business of operating qualifying ships. The concept of the main object of the company in section 115VC(d) in the absence of any provision to the contrary in Chapter XII-G has necessarily to be understood in the manner in which that term is understood in common parlance without being tied down to any requirement of the Companies Act to classify the objects of a company into principal and ancillary and show them distinctly in the object clauses in the memorandum of association of the company. In the context of business operations by companies having different business activities the purpose of providing a provision like section 115VA has to be understood to be one intended to provide a method of computation on tonnage basis at the option of the assessee. In that view of the matter the plain meaning of the term the main object of the company in section 115VC(d) does not call for any restriction that the said provision would apply only in cases where the company applying for the approval of its option has to be one which has the business of operating ships enumerated as its main object going by its memorandum of association. The provisions in section 13(1)(c) and (d) of the Companies Act in terms of the amendment by Act 31 of 1965 would show that the companies that existed at the commencement of such amendment were not required to classify their objects as is required of the companies incorporated thereafter. Such classification on the basis of the date of coming into force of the said amendment to the Companies Act was the effect of the Joint Selection Committee accepting the representation before it that any effort to redraft the object clauses of the existing companies would not be commensurate with the results intended by the amendment. The provisions in section 13(1)(c) and (d) of the Companies Act in terms of the amendment by Act 31 of 1965 would show that the companies that existed at the commencement of such amendment were not required to classify their objects as is required of the companies incorporated thereafter. Such classification on the basis of the date of coming into force of the said amendment to the Companies Act was the effect of the Joint Selection Committee accepting the representation before it that any effort to redraft the object clauses of the existing companies would not be commensurate with the results intended by the amendment. In the light of the conclusions arrived at on a plain reading of the provisions supported by the speech of the Finance Minister introducing the Bill it has necessarily to be concluded that the decision in exhibit P5 to the extent it holds that the business of operating ships is not a main object of the petitioner-company going by its memorandum is illegal. In the result the finding in exhibit P5 that carrying on of the business of operating ships is not the main object of the petitioner to the extent it is based solely on the object clauses in the memorandum and articles of association of the petitioner-company is quashed and the petitioner is relegated to the statutory appellate authority for adjudication on the other issues to decide whether the petitioner s option for tonnage tax scheme ought to have been approved. The writ petition is ordered accordingly.

Summary

Issues Involved:
1. Interpretation of provisions in Chapter XII-G of the Income-tax Act, 1961.
2. Eligibility of the petitioner for the tonnage tax scheme under section 115VP.
3. Jurisdiction and validity of the decision rejecting the petitioner's application for the tonnage tax scheme.
4. Availability and impact of alternative statutory remedies.

Issue-wise Detailed Analysis:

1. Interpretation of Provisions in Chapter XII-G of the Income-tax Act, 1961:

The case revolves around the interpretation of Chapter XII-G, which provides a tonnage tax scheme for shipping companies. The petitioner argued that the provisions of section 115VA allow a company to compute income from operating qualifying ships on an optional basis. The petitioner contended that the term "main object" in section 115VC(d) should be interpreted in the context of the business activities at the relevant time, not strictly by the memorandum of association. The court noted that the term "main object" should be understood in common parlance and not restricted to the classification in the Companies Act.

2. Eligibility of the Petitioner for the Tonnage Tax Scheme under Section 115VP:

The petitioner claimed to be a qualifying company under section 115VC, having acquired ships and consistently earning income from ship operations. The court examined the statutory requirements, noting that a qualifying company must be an Indian company, with effective management in India, owning at least one qualifying ship, and having the main object of operating ships. The court found that the petitioner's varied activities and income distribution needed thorough examination to determine if shipping was indeed a main object.

3. Jurisdiction and Validity of the Decision Rejecting the Petitioner's Application for the Tonnage Tax Scheme:

The court scrutinized the decision (exhibit P5) by the Additional Commissioner, which rejected the petitioner's application based on the assessment that shipping was not the main object. The court found this decision to be partly illegal as it was based solely on the object clauses in the memorandum, without considering the actual business activities and income distribution. The court highlighted that the decision should consider the ground realities and comparable turnovers of different business activities.

4. Availability and Impact of Alternative Statutory Remedies:

The Department argued that the petitioner had an alternative remedy through an appeal under section 246A(1)(a), which the petitioner had already filed. The court acknowledged the alternative remedy but chose to address the jurisdictional issues due to the significant time elapsed and the importance of the legal questions raised. The court emphasized that the statutory appellate authority should adjudicate on the factual aspects of the case.

Conclusion:

The court quashed the part of the decision (exhibit P5) that solely relied on the memorandum and articles of association to determine the main object. It directed the petitioner to pursue the statutory appeal for a comprehensive determination of whether the tonnage tax scheme should be approved based on the actual business activities and income distribution. The writ petition was ordered accordingly.