TMI Blog2009 (6) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the assessee received income of Rs. 31,35,159 from Jawaharlal Nehru Port Trust (JNPT) and rental income from hiring of barges amounting to Rs. 27,74,384 and claimed deduction under section 33AC of the Income-tax Act, 1961 (the Act). To elaborate, from the Assessing Officer s point of view, these earnings out of contracts with JNPT and the barge rental income are not derived from the operation of ship within the meaning of section 33AC of the Act. Further, as per the Assessing Officer, the assessee is not the owner of a ship and what the assessee is doing is mere manning and maintaining of the barges of the JNPT and in fact, they are hired ones and owned by the third party. Regarding the rental income generated out of barge, the Assessing Officer is of the opinion that the barge is not a ship and consequently, then it is considered as the operation of ships for the purpose of section 33AC. Relying on the Apex Court judgment in the case of CIT v. Sterling Foods [1999] 237 ITR 579 1 , the Assessing Officer held that the rental income from the letting of the barges and contract income from JNPT out of manning, running and maintaining of their barges are the receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 for the proposition that the expression ships include tugs and in the same analogy, the ships being ocean going ships covers the barges for the purposes of section 33AC. He further relied on Chennai Tribunal decision in the case of Sirius Shipping Co. Ltd. ( supra ) for the proposition that income derived from running and maintenance of barges is nothing but income derived from the operation of ships as envisaged by section 33AC of the Act. Thus, CIT(A) allowed the claim of deduction of Rs. 59 lakhs under section 33AC of the Act. 5. Aggrieved with the same, revenue filed an appeal before the Tribunal. Shri Ravi Kiran, Ld. Sr. AR for revenue relied on the order of the Assessing Officer and mentioned that the provisions of section 33AC should be applied strictly. He contended that the deduction under the said section is available only in respect of assessee, who are engaged in the business of operation of ships . Shri K. Gopal, the Learned Counsel for the assessee relied on the order of the CIT(A) in this regard and reiterated the submissions already made by the assessee before the revenue authorities. Ld. counsel stated that the decision of the Chennai Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is under statutory obligation to fulfil the following conditions in order to avail the benefits of the above section. They are : (1) assessee should either be a Government Company or a Public Company formed and registered in India; (2) main object of assessee company should be that of carrying on business of operation of ships; (3) assessee should have debited an amount not exceeding 50 per cent of profits derived from business of operation of ships to its Profits and Loss Account; and (4) assessee should have credited the amount to a reserve account viz., Shipping Reserve Account. Considering the dispute between the parties, the phrase "profits derived from the business of operation of ships" then used in sub-section (1) above are relevant for the instant case. To elaborate the same, the assessee-company must have been incorporated with the object of carrying on the business of operation of ships and the deduction under section 33AC is available out of the profits derived from business of operation of ships . 7. Applying the above statutory requirements to the facts of the case, we find that there is no dispute with regard to conditions (1), (2) and (4) above. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finition to the expression ship given in the above mentioned Appendix-I of the Income-tax Rules. It is a fact that the expression ship is undefined in the Income-tax Act and the parties in the appeal have not brought in any new material or information or arguments on the subject apart from the ones put forward before the revenue authorities. Under these circumstances, in our opinion, the legal opinions existing on the topic as rightly borrowed by the CIT(A) are more relevant than the dictionary descriptions borrowed by Assessing Officer for understanding the meaning of the expression ship . Accordingly, we find no reason to interfere with the order of the CIT(A) on this issue. Therefore, the ships include barges. 11. The next issue for discussion relates to whether the business of operation of running and maintaining the barges of JNPT (third party) constitute the business of operation of ships within the meaning of section 33AC of the Act. This issue has two components and they are : ( i ) ownership issue and ( ii ) the activity of operation of running and maintaining the barges. 12. The ownership issue was discussed in the assessment order and in his opinion the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of operation of ships and thus, the dispute is restricted to whether the earning earned out of the contracts with the JNPT for manning, maintaining and running their barges are considered as profits derived from the business of running and maintaining of the ships to qualify the deduction under section 33AC of the Act or not. To resolve this issue, we have examined the Chennai Bench decision in the case of Sirius Shipping Co. Ltd. ( supra ). From the perusal of the said decision of the Tribunal, it is found that the meaning of the phrase "running and maintenance" was examined and the Tribunal came to the conclusion that it falls within the ambit of the phrase "carrying on the business of operation of ships", and same is nothing but operation of ships as envisaged by section 33AC. While affirming that the ownership of the ships is a condition precedent and emphasizing that the main object of the company must be the operation of ships, the Chennai Bench decision has held that the phrase running and maintenance is nothing but operation of ships as envisaged by section 33AC of the Act. Relevant finding number ( iii ) from the held portion reads as under: "( iii ) That the ph ..... X X X X Extracts X X X X X X X X Extracts X X X X
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