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TMI Blog2012 (6) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... ome which is common in all the three years. The AO noted that the assessee who was engaged in the business of operating ships had opted for Tonnage Scheme of taxation and had filed application under section 115VP of the Act. The option given by the assessee had been approved by the Addl. CIT. The AO also noted that the assessee had received interest income on FDs amounting to Rs. 41,16,326/-; Rs. 83,17,450/- and Rs. 54,99,766/- for the assessment years 2005-06 to 2007-08 respectively. The assessee had not offered the interest income for taxation as income from other sources and had instead taken the sum as covered under Tonnage Scheme. On query raised by AO, assessee explained that it had availed term loan from bankers for acquiring vessels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the expenses incurred for earning of interest income. CIT(A), however, did not accept the contentions raised. It was observed by him that the interest income received from FDRs was not income earned from operating ships. Therefore, he held that the interest income was not covered under the Tonnage Scheme and accordingly upheld the orders of AO treating the income as income from other sources. CIT(A) however, did not pass any order regarding alternate plea of the assessee for taxing only net interest income as income from other sources. Aggrieved, by the order of CIT(A), the assessee is in appeal before the Tribunal in all the three years under consideration. 2.2. Before us, the ld. AR reiterated the submissions made before CIT(A) that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative on the other hand strongly supported the orders of authorities below for treating interest income as income from other sources. It was argued that, under the Tonnage Scheme, only income from operating ships is to be taxed and not any other income. The interest income from FDRs placed for taking loans for shipping activities can not be considered as income arising from shipping activity. The activity of placing FDRs was neither covered by core activities nor by incidental activities and, therefore, it has rightly been assessed as income from other sources. 2.4 We have perused the records and considered the rival contentions carefully. The dispute raised in this ground is regarding the assessment of interest income on FDRs received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge tax company shall be : (i) its activities from operating qualifying ships; and (ii) other ship-related activities mentioned as under :- (A) Shipping contracts in respect of - (i) earning from pooling arrangements; (ii) contracts of affreightments; Explanation - For the purposes of this sub-clause,- (a) "pooling arrangement" means an agreement between two or more persons for providing services through a pool or operating one or more ships and sharing earning or operating profits on the basis of mutuality agreed terms; (b) "contracts of affreightment" means a service contract under which a tonnage tax company agrees to transport a specified quantity of specified products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idental activity but under the Tonnage Tax Scheme, the incidental activities have been separately defined in Rule-11 which has been reproduced earlier and which clearly does not contain the activity of placing FDRs. Even the ld. AR for the assessee agreed that placing FDRs will not be an incidental activity but he argued that the same was contained in the definition of core activities with which we do not agree for the reasons given earlier as definition of core activities is exhaustive which does not include placing of FDRs with banks. Moreover, under the Tonnage Tax Scheme, only profit from core activities and profit from incidental activities are included, which means that core activities and incidental activities should be the source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO in the assessment order held that these items of income were neither related to core activities of shipping nor to incidental activities as defined under the Tonnage Scheme. He, therefore, assessed these items as income from other sources in addition to income under Tonnage Scheme. The assessee disputed the decision of AO and a specific ground in relation to these items of income had been raised before CIT(A). However, it is found that CIT(A) has not passed any order on this issue. Aggrieved by the decision of CIT(A), assessee is in appeal before the Tribunal. 3.1 Before us, the ld. AR submitted that the CIT(A) had not adjudicated the issue and, therefore, matter should be sent back to CIT(A) for fresh adjudication. The ld. Department ..... X X X X Extracts X X X X X X X X Extracts X X X X
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