TMI Blog2011 (7) TMI 584X X X X Extracts X X X X X X X X Extracts X X X X ..... the date, the amount etc., except making a general statement all the receipts categorized under the head "Other income" in these three years need to be examined by the Assessing Officer - set aside the order of CIT(A) on this issue and restore the same back to AO - in favour of assessee by way of remand. Deduction towards expenditure incurred towards earning receipts if item of receipts is not considered as receipts relating to the core activity of dredging - Held that:- All the expenses incurred by the assessee shall be deemed to have been allowed while computing the income of the assessee under the special provisions of the Act, hence there cannot be any further deduction of the same expenditure. If the claim of the assessee is allowed, then it would amount to double deduction of the same expenditure, which is not permitted under the Act - against assessee. Interest awarded under arbitration - selection of year of assessment - Held that:- Though the assessee claims that the interest awarded by the arbitrator was disputed by both the parties, no material was placed on record to suggest that both the parties have resorted to any legal process in support of their respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and gains of business or profession". There is no dispute with regard to the fact that the assessee company is operating "Qualifying ships" and hence it is entitled to offer its income under Chapter XII-G of the Act. In the three years under consideration, the assessee company offered its income as per "Tonnage tax scheme" prescribed under Chapter XII-G of the Act. 3.1 The assessment for the assessment year 2006-07 was initially completed on 29-1-2008 under section 143(3) of the Act by accepting the income disclosed by the assessee. Subsequently the Assessing Officer noticed that the assessee had generated interest income of Rs. 35.16 lakhs from house building and other advances given by it and also miscellaneous income of Rs. 586.06 lakhs during the year relevant to the assessment year 2006-07. The Assessing Officer took the view that these types of income cannot be considered as income generated from the core activity of operating qualifying ships and hence the assessee could not claim exemption of the same under the garb of tonnage tax scheme, i.e., these two types of income have to be assessed under normal provisions of the Act. Accordingly he reopened the assessment by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se from the assessment order under section 147/143(3), dated 2-12-2009. The appellant, having acquiesced to the reassessment proceedings by the Assessing Officer without any iota or objection or reservation, the additional ground relating to such issue does not merit to be admitted. Even otherwise, the claim of the appellant that it had duly disclosed full and true facts relating to miscellaneous income is baseless and incorrect one. A perusal of the breakup of miscellaneous income indicates three items, the first one being sale of scrap, empties, condemned stores etc. (Rs. 23.51 lakhs), the second one being rent recoveries (Rs. 4.70 lakhs) and the third one being a non-specified item "others" (Rs. 555.85 lakhs). In the absence of any detailed breakup of the miscellaneous income falling under the sub-category "others", it cannot be said that the appellant company had made full and true disclosure of its miscellaneous income which could have been considered by the Assessing Officer who framed the original assessment order. It does not appeal from the records that the erstwhile Assessing Officer who had passed the original assessment order dated 29-1-2008 had ever applied his mind to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 154 of the Act before the Assessing Officer seeking interest under section 244A of the Act on the refund arising out of self-assessment tax paid by it and the same was rejected by the Assessing Officer. Hence the assessee filed an appeal before Learned CIT(A) challenging the order passed under section 154 of the Act and the said appeal was disposed of by Learned CIT(A), Visakhapatnam, i.e., the immediate predecessor of the CIT(A) who passed the impugned common order. The said order was passed on 26-4-2010 in ITA No. 35/ACIT/C-3(1)/VSP/08-09, wherein the predecessor Learned CIT(A) held that the assessee is entitled to interest under section 244A on the refund arising out of self-assessment tax paid. It appears that the assessee has also taken an identical ground in the appeal filed against the assessment order passed under section 143(3) of the Act. Hence the successor Learned CIT(A), i.e., the present Learned CIT(A) in the instant case, has decided the very same issue by partly allowing the ground in his common order dated 11-11-2010. It is not shown to us that the department has filed any appeal challenging the order dated 26-4-2010 passed by the predecessor Learned CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment is a reassessment made under section 147 of the Act, since the original assessment has already been completed under section 143(3) of the Act. Accordingly, he contended that the provisions of section 234D shall not apply in the facts and circumstances of the case. 5.3.2 We have heard the parties on this issue. For the sake of convenience, we extract below the sub-section (1) of section 234D: "234D(1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of section 143 and - (a) no refund is due on regular assessment; or (b) the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment, the assessee shall be liable to pay simple interest at the rate of one - half per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment". On a plain reading of the above said section, we notice that the interest under section 234D is leviable only if the refund granted to the assessee under section 143(1) of the Act become collectable in the order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently, the provisions of sec.234D cannot apply in the appellant company's case, although as a logical corollary, the appellant company is liable to pay interest on the excess refund granted to it earlier in the manner where interest under section 144A is granted to the appellant company on the excess taxes paid by it. In this view of the matter, no interest under section 234D is chargeable in the appellant company's case". Accordingly we uphold the order of the learned CIT(A) on this issue. 6. We shall now take up the common issue urged in all the three appeals filed by both the parties. The assessee claimed that the interest income and miscellaneous incomes form part of income generated from the business of operating qualifying ships. The Assessing Officer did not agree with the said claim and accordingly added the same to the total income of the assessee. The Learned CIT(A) gave partial relief and hence both the parties are in appeal before us. For the sake of convenience, we extract below the breakup details of said interest and miscellaneous income as given in the assessment order relating to the assessment year 2007-08: ( i ) Sale of scrap - Rs. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities which are incidental to the core activities and which may be prescribed for the purpose. The incidental activities for the purposes of relevant shipping income are prescribed in rule 11R of the Income-tax Rules and the same is extracted below: "11R. The incidental activities (details given in Note 5 appearing after the corresponding Form No. 66) referred to in sub-section (5) of section 115VI shall be the following, namely:-- (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". 8. Now coming to the impugned issue, we notice that the learned CIT(A) has addressed the impugned issue by taking into account following principle, as stated by him in his order: "The activities from operating qualifying ships should not be restricted to only the receipts from the parties in respect of whom shipping operation services have been rendered but it should also include activities which necessarily and directly relate to the overall shipping operations and, accordingly, the income arising from such activities over and abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f empty containers can be treated as income derived from industrial undertakings was raised before the High Court. The question was answered in affirmative and for the sake of convenience, we extract below the relevant head note: "Held that it was an accepted position that the empty containers, which were sold, were containers in which raw material in bulk had been purchased by the assessee. The cost of the containers was part of the purchase price which went to make up the total cost of the manufactured product and was thus directly relatable to the manufacturing activity of the industrial undertaking. The income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reason that the assessee company could well manage shipping activities without undertaking such extraneous activities. It is now well settled that it is necessary to look into the direct or immediate source of any income in order to decide whether such income is derived from the eligible activity. Accordingly, we are of the view that the learned CIT(A) was right in holding that the following types of receipts cannot be related to the activity of operating qualifying ships: (a) Interest on housing loan and other advances (b) Recovery towards late attendance (c) Sale of tender documents (d) Training fees (e) Fee for supply of information under the RTI Act. (f) Liquidated damages collected from various contractee parties as compensatory payment for the failure to execute contract works within the stipulated time. However, with regard to the income categorized as "other income", the learned CIT(A) has taken adverse inference in the absence of any details with regard to the nature of items of income included therein. However, during the course of hearing, the Learned Authorised Representative pointed out that the explanations given before Learned CIT(A) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer noticed that the assessee did not account for interest awarded to it under the arbitration conducted by the Joint Secretary (Arbitrator) in the Ministry of Heavy Industries Public Enterprises (Department of Public Enterprises). The Assessing Officer came to know of this fact from the annual report. The relevant observation of Assessing Officer is extracted below: "On perusal of the annual report of the company for the year 2007-08 relevant to the assessment year 2008-09 it is noticed that under Schedule XIV of the Annual Report at item No. K it has been stated that during the year the arbitration in respect of Balari Bar has been adjudicated in favour of the Company. Kolkata Port Trust (KOPT) paid the principal amount of Rs. 502 lakhs. However, KOPT disputed payment of the interest amounting to Rs. 1144 lakhs up to 31-3-2008 awarded under the award. Hence, income thereto is recognized in the current year accounts to the extent of principal amount received. Similarly under item No. L it has been stated that during the year the arbitration in respect of Link Road Project, Kochi has been adjudicated in favour of the Company awarding principal amount of Rs. 289 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting followed by the assessee. 11.2 Alternatively the assessee has claimed that the impugned interest income form part of its core activity of dredging operations, i.e., the same form parts of income relating to the activity of operating qualifying ships. However, from the record, we are unable to ascertain the nature of activities carried on by the assessee in the above said two projects. It is also not clear whether the nature of the activities of the above said two projects was verified by the Assessing Officer during the course of assessment proceedings. Hence, in our view, this aspect requires verification. With regard to the nature of interest receipts, it has been claimed that the interest realized from customers on overdue payments should be considered as profits and gains derived from the activities carried on by the assessee. In support of the said contention, the assessee has placed reliance on the decision of Hon'ble High Court of Delhi in the case of CIT v. Advance Detergents Ltd. [2010] 228 CTR 356. We have already held that the nature of activity carried on by the assessee in the above said two projects require verification and interest awarded to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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