TMI Blog2011 (7) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... - Decided against revenue. Order of Judicial Member - Since the language employed in the relevant provision here is plain and simple, without any ambiguity or flaw, natural grammatical meaning has to be given, therefore, in my considered view, if a ship, the main purpose for which it is used is the provision of goods or services of a kind normally provided in land it would disqualify that ship for the purpose of tonnage tax scheme as specifically mentioned in clause (i) of section 115VD. Action of the Assessing Officer is proper and justified to hold that the ship is not a qualified ship for the benefit of tonnage tax scheme as envisaged under the relevant provisions of law - Decided in favour of revenue. Order of Third Member - Theoretically speaking, even transport planes can carry coal from one destination to another destination. These kinds of extreme views are not at all called for in interpreting a beneficial provision couched in simple language. The AO is trying to bring in additional conditions which have never been contemplated in drafting the law. On the facts and circumstances of the case agree with the view of the learned Accountant Member to hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its behalf. When the case was called upon for hearing today, nobody appeared on behalf of the assessee. Hence, we are not inclined to accept the adjournment petition filed and therefore, we are proceeding to dispose of the appeal of the Revenue on the merits. The short facts apropos are that the assessee, a company, engaged in the business of shipping and port services, had filed its return declaring tonnage income of ₹ 76,85,246 under section 115VG of the Act. During the course of assessment proceedings, it was noted by the Assessing Officer that out of the ten ships operated by the assessee one ship called M. V. Gem of Ennore was transporting thermal coal from one location to another location within the country. He came to this conclusion based on a letter dated December 22, 2008 submitted by the assessee, wherein it was submitted as under : The ship M. V. Gem of Ennore is employed with M/s. Poompuhar Shipping Corporation, Chennai on long-term charter for a period of ten years from February, 2002 for moving thermal coal for Tamilnadu Electricity Board from Haldia, Paradip and Vizag to Ennore and Tuticorin. The Assessing Officer was of the opinion that definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to allow such ship benefit of tonnage tax scheme under Chapter XII-G of the Act. Now before us, the learned Departmental representative strongly assailing the order of the Commissioner of Income-tax (Appeals) submitted that transportation of coal from one port to another was normally by lorries or trains which operated on land. According to him, goods which could be moved on such modes of land transport, if transported by ocean, the ships transporting such goods automatically stood excluded from the benefit of tonnage tax scheme under Chapter XII-G of the Act. As already mentioned by us, nobody appeared on behalf of the assessee. We have perused the orders and heard the learned Departmental representative. There is no dispute that in respect of the ship M. V. Gem of Ennore as also other ships owned by the assessee, all the conditions stipulated under Chapter XII-G of the Act for availing of tonnage tax scheme were satisfied, except in the case of the above named ship, which as per the Assessing Officer, was not a qualified one under section 115VD of the Act. For availing of the beneficial provision of Chapter XII-G of the Act, which gives a fixed method of computing income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods on land are entirely different. Goods or services have been used together with the interjection or . It can in the normal commercial sense only mean goods or services which are provided from a specific place in land. It could not be stretched to include transportation of goods between different places on land. Even if we presume that it would include transportation of goods, it would not be possible to say that transportation of goods like coal or petroleum are though a kind of transport method which is normally provided on land only. The mode of transport that is to be used is a commercial decision to be taken by a businessman based on, the cost factors involved. If transportation by land is cheaper no body would transport the goods by ship. If transport by ship is cheaper, then we cannot say that such goods which are cheaper to be transported on sea, have to be treated as goods normally transported by land. If we look at the Budget Speech dated February 3, 2004 of the Finance Minister, on the scheme of tonnage tax it was mentioned as under ([2004] 265 ITR (St.) 51, 58) : More than 90 per cent. of world shipping tonnage is subject to very low levels of taxation. To pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit of tonnage tax is its simplicity and the type of interpretation that is to be given for the various provisions under Chapter XII-G of the Act should be to accentuate the purposes of introduction of tonnage tax scheme, and not to complicate it. Thus, in our opinion, just because a seagoing ship was used to transport coal between the ports which were connected by rail/road, would not be sufficient enough a reason to say that it was not qualified under section 115VD of the Act. Clause (i) of section 115VD was not intended for that purpose but only to ensure that profits, from services and sale of goods which could be effected on land did not get any unintended benefits by shifting the business to a seagoing ship, just to get the benefit of tonnage tax scheme. We are therefore of the opinion that the Commissioner of Income-tax (Appeals) was very well justified in directing the Assessing Officer to give the benefit of tonnage tax scheme under section 115VD of the Act to the assessee. No interference is called for. In the result, the appeal of the Revenue is dismissed. U. B. S. Bedi (Judicial Member).-Despite best persuasion of myself, Ihave not been able to agree with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be routed through land normally and as such, ship M. V. Gem of Ennore was not liable for tonnage tax scheme. Therefore, he apportioned the total shipping income declared by the assessee under tonnage tax scheme and he treated one-tenth thereof as attributed by the ship M. V. Gem of Ennore , in the absence of any bifurcation of accounts for individual ship concerned having been furnished by the assessee, denied the tonnage tax benefit to this extent. The assessee took up the matter in appeal and challenged the action of the Assessing Officer by raising various grounds, before the learned Commissioner of Income-tax (Appeals) and also relied upon the opinion of one Mr. D. P. Sengupta, IRS, ex-Chief Commissioner of Income-tax, who is stated to be a member of Core Committee which drafted the tonnage tax scheme ; the assessee further argued that the Assessing Officer grossly erred in treating the M. V. Gem of Ennore as not qualifying ship when, according to the assessee, carrying of cargo from one Indian port to another would not disentitle the assessee from getting such benefit, especially when there is no disabling provision in Chapter XII-G of the Income tax Act and giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent has appropriately been discussed and adjudicated to decline such request as dealt with by the learned Accountant Member in detail and I have nothing to add but to concur with him in regard to dealing with the request for adjournment of the assessee, which came to be rejected. The arguments of the learned Departmental representative in the light of facts and circumstances of the case and the provisions of sections 115VD and 115VG have been considered. It is found that during the assessment proceedings, the assessee explained to the Assessing Officer that the assessee is the co-owner of the ship M.V. Gem of Ennore which was engaged on a long-term charter for moving thermal coal for Tamilnadu Electricity Board from Haldia, Paradip and Vizag ports to Ennore and Tuticorin ports in Tamil Nadu. The Assessing Officer observed that all the ports stated above are located within the country and are well connected by road and rail. Therefore, movement of coal between these ports can be routed through land by road or rail transport. Accordingly, he concluded that M.V. Gem of Ennore is not a qualifying ship in terms of section 115VD, if any seagoing ship or vessel transports any good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vi) offshore installations ; (vii) dredgers ; (viii) a qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year. From the words contained in the relevant provisions of clause (i) in section 115VD, as reproduced above, it becomes clear that the seagoing ship or vessel, if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land is categorically excluded from being qualified ship in terms of the wording used. So far as interpretation of statute is concerned, various High Courts and the hon'ble Supreme Court have opined in the following decisions as under : The hon'ble Supreme Court in the case of Orissa State Warehousing Corporation and Rajasthan State Warehousing Corporation v. CIT [1999] 237 ITR 589 (SC) has held as under (headnote) : Interpretation of taxing statutes-Literal interpretation-Natural and ordinary meaning must be ascribed to words. The hon'ble Supreme Court in the case of Padmasundra Rao (Decd.) v. State of Tamil Nadu [2002] 255 ITR 147 (SC) has held as under (headnote): The court cannot read anything into a statutory p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Patil Vijaykumar v. Union of India [1985] 151 ITR 48 (Karn) has held as under (headnote) : When the meaning of words is clear and unambiguous, the court has to give effect to it whatever be the consequences, as the court has no jurisdiction to mitigate harsh consequences of the statute, if any. The hon'ble Kerala High Court in the case of Central Board of Direct Taxes v. Cochin Goods Transport Association [1999] 236 ITR 993 (Ker) has held as under (headnote) : So long as the language employed in the statutory provision and more so in the fiscal statute is clear, the court should interpret it on the face value and there is no warrant to go behind it. Nothing should be added or subtracted to interpret the plain language and the semantic view alone should be taken. In fiscal matters there is no res judicata and no estoppels. The hon'ble Delhi High Court in the case of M. P. Poddar (HUF) v. Appropriate Authority [1999] 240 ITR 372 (Delhi) has held as under (headnote) : This is a clear mandate of the Legislature and there is no reason to depart from applying the fundamental rule of construction of a taxing statute that the meaning and intention of a statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax (Appeals) is concerned, it could, at the most, be a submission on behalf of the assessee, which has been given to the assessee by the authorised representative and the same cannot be termed or treated as the provisions of law in the absence of having been based on any specific provision of statute or precedent in this regard. Moreover, reference of some UK model provisions, as mentioned by the learned Commissioner of Income-tax (Appeals), when those are not part of provisions in relation to tonnage tax scheme in India cannot be held to be applicable. Further, the Indian tonnage tax scheme has been stated to be largely adopted from the U. K. law by the learned Commissioner of Income-tax (Appeals) without defining/explaining further as to how it has been adopted here especially when the language employed here under the income-tax law is not same as in that country. Moreover the British model on the tonnage tax regime, which itself is based on the tonnage tax scheme in the Netherlands and the language used in such legislation is not similar to the language used under the Income-tax law inasmuch as in their restrictive provision, they have incorporated various exampl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income for the assessment year 200607 on a tonnage income of ₹ 76,85,246. Chapter XII-G of the Income-tax Act, 1961 provides for special provisions relating to income of shipping companies. This Chapter comprises of sections 115V to 115VZC. Section 115VA provides an option to an assessee carrying on the business of operating qualifying ships to compute its shipping income on a tonnage basis, instead of computing the income under the conventional method provided in sections 28 to 43C. Tax is levied under the tonnage scheme on the basis of the net tonnage of every qualifying ship. In the case of a qualifying ship having net tonnage up to 1,000 tons, the daily income presumed is ₹ 46 for each 100 tons. In the case of a qualifying ship having net tonnage in excess, of 1,000 tons but less than 10,000, the daily income will be ₹ 460 plus ₹ 35 for each 100 tons exceeding 1,000 tons. In the case of a qualifying ship having net tonnage exceeding 10,000 but not more than 25,000, the rate of income is ₹ 3,610 plus ₹ 28 for each 100 tons exceeding 10,000 tons. In the case of qualifying ships having net tonnage exceeding 25,000 tons, the daily rate of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualifying ship for the reason that the case of the assessed is hit by clause (i) of section 115VD. The said sub-clause describes the first item of disqualification, which has already been mentioned. The statutory expression is reproduced below : 115VD. For the purposes of this Chapter, a ship is a qualifying ship if- . . . but does not include (i) a seagoing ship or vessel if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land. The assessing authority denied the benefit of tonnage tax scheme to the assessee in respect of its operating ship M. V. Gem of Ennore by holding that the ship is not a qualifying ship, under section 115VD. The basis of such a finding is the observation of the assessing authority that the ship operated by the assessee is transporting thermal coal from Haldia, Paradip and Vizag ports to Ennore and Tuticorin ports in Tamil Nadu, where all the ports are located within the country and well connected by road and rail on land. Therefore, the Assessing Officer held that the transport of coal between these ports can be routed through land either by road or rail transport. As it is possible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se examples equally apply to Indian context as well. He held that there is nothing in the enabling provision of law to state that a ship operating in coastal waters of India cannot opt for the benefit of tonnage tax scheme. Finally he held that the ship operated by the assessee as M. V. Gem of Ennore is a qualifying ship under section 115VD and the assessee is entitled for the benefit of tonnage tax claimed under section 115VG of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) accepted the contention of the assessee on this point. Aggrieved by the above decision of the Commissioner of Income-tax (Appeals) the Revenue has come in appeal before the Tribunal, as already stated in I. T. A. No. 1195/Mad/2010. When the matter was heard by the B Bench of this Tribunal, there arose a difference of opinion between the two Members constituting the Bench. The learned Accountant Member, who authored the order for the Bench, upheld the order of the Commissioner of Income-tax (Appeals) holding that the ship operated by the assessee-company is a qualified ship and, therefore, the assessee is entitled for the benefit of tonnage tax scheme under section 115VG of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be treated as a qualifying ship if the main purpose for which it is used is providing of goods or services of a kind normally provided on land. He explained that in the present case thermal coal is transported for the Tamil Nadu Electricity Board from ports like Haldia, Paradip and Vizag so as to unload it at Ennore or Tuticorin ports in Tamil Nadu. All these ports are dotted in the coromandel line of India and well connected by roads and rail, transportation of thermal coal from the loading ports is very much possible either by means of road transport or rail transport to reach at the destination ports and the sea route is only an alternative route. He argued that the option given to the assessee is only to choose the method of computing the income, either the normal method or the tonnage tax scheme and there is no option to choose the alternatives available for operating the ships. If land routes are available, the assessee cannot claim the benefit of tonnage tax scheme. The ship is voyaging through Indian coastal waters. The service rendered by operating the ship could equally be provided on land and therefore the restrictive clause (i) provided in section 115VD makes out a cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee argued that land routes are available to our neighbouring countries like Bangladesh, Myanmar, Pakistan and even Thailand and theoretically to all Asian countries and even beyond that. If the interpretation made by the assessing authority is to be accepted, the tonnage tax benefit will not be available to any shipping company transporting goods from India to such countries for the simple erratic reason that land routes are available between India and those countries. Learned counsel argued that this line of argument is perverse and the interpretation is quite ridiculous. If the interpretation given by the assessing authority is accepted, no shipping company in India will be able to avail of the benefit of tonnage tax scheme except where the ships are sailing through coastal waters. That could never be the intention of the Legislature in enacting the law provided in Chapter XII-G of the Income-tax Act, 1961. It is in this context, learned counsel argued that a comparative study on similar lines available in other countries becomes relevant. The intention of the Legislature to introduce the tonnage tax scheme was to give incentives to shipping companies by way of low tax inci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed at the normal corporate tax rate. If the assessee chooses for tonnage tax scheme, it pays tax at a prescribed rate with reference to the tonnage of the ship. The actual loss or profit of the shipping company is not taken into consideration. Irrespective of the other factors, income is always computed but at a tonnage rate, de facto much lower to normal corporate tax rate. The accounting or actual income is replaced by a notional income. The business of operating a qualifying ship is treated as a separate business and income is also computed on standalone basis. The conditions are that it must be a seagoing ship ; it must have a net tonnage of 15 tons or more ; it must be a ship registered under the Merchant Shipping Act and it must possess a valid certificate from the Director General of Shipping. The assessee must be a company engaged in the business of operating qualifying ship and income from the business of operating of qualifying ship would be deemed to be chargeable to tax under the head Profits and gains of business or profession . The assessee has complied with the above conditions. The contention of the assessing authority that the ship was excluded from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act providing the benefit of tonnage tax scheme to the assessees who are in the shipping industry and operating qualifying ships. This is not an issue particular to India. World over countries are providing such incentives to shipping industry for their own economic advantage. The policy of giving such incentives to shipping industry is a matter of larger policies relating to economic priorities. If the intent of the law is interpreted in such a manner to arrive at an erratic conclusion, that interpretation must always be avoided. The only provocation for the Assessing Officer to hold that the ship operated by the assessee-company is not a qualifying ship is that the ship operated by the assessee is doing the same services that could be provided on land also. It is in that context that the Commissioner of Income-tax (Appeals) has made a reference to the English law on the subject. The U.K. law while using the same phraseology in drafting, the law in the matter of tonnage tax scheme has provided certain examples. It says what could be those items coming under the provisions provided to restrict the abuse of the tax incentive. The examples given in the English law state t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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