TMI Blog2012 (6) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be assessed as assessee had used borrowed funds for making the FDRs – Held that:- While computing interest income expenses incurred for earning interest income have to be excluded - restore the submission of the assessee regarding netting of income to the file of CIT(A) for deciding the same after necessary examination and after hearing the assessee – in favour of assessee. Assessment of other income consisting of sundry balance written back, excess provision written back and miscellaneous income - AO assessed such income as income from other sources in addition to income under Tonnage Scheme – Held that:- Since the CIT(A) had not adjudicated the issue the matter should be sent back to CIT(A) for fresh adjudication and after allowing opportunity of hearing to the assessee. - IT Appeal Nos. 4103 to 4105(Mum.) of 2011 - - - Dated:- 11-4-2012 - Rajendra Singh, V.D. Rao, JJ. M.C. Naniwadekar for the Appellant. R.S. Srivastava for the Respondent. ORDER Rajendra Singh, Accountant Member These appeals by the assessee are directed against different orders of CIT(A) all dated 11.3.2011 for assessment years 2005-06 to 2007-08. The disputes raised in these appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, only net income should be taxed after deducting 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 interest income received from FDRs was covered by the Tonnage Scheme. It was pointed out that the resident assessees engaged in the business of operation of ships had the option to declare the income under Tonnage Scheme at the prescribed rates under Chapter- XIIG. The provisions relating to Tonnage Scheme are contained in Section 115V to 115VZC . It was also submitted that the shipping of a tonna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 to 43C. However, the resident assessees engaged in the business of operation of ships have the option to declare income under Tonnage Scheme under the provisions of section 115V to 115VZC of chapter XII-G. This is known as Tonnage tax Scheme under which income is computed at specified rate based on net tonnage of a ship under section 115V-G. There is no dispute that the assessee had opted for this scheme and same had been accepted by the department. The dispute is only whether the interest from FDRs placed for the purpose of business has to be covered by the income calculated under the Tonnage Scheme. 2.5 The shipping income of a Tonnage tax company has been defined under section 115V-I to mean: ( i ) profit from core activities ( ii ) profit from incidental activities. Core activities of a tonnage tax company has been defined in section 115V-I(2) which is reproduced as under :- "115V-I(2) - The core activities of a tonnage 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; ( i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition 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 profit to be included under tonnage scheme. As regards the interest income, the source of such income is FDR and not the shipping activity either core or incidental. Though the interest on FDR may be incidental business income but the same is not profit from core activities or incidental activities which have been defined in the Act. Therefore, in our view, the interest from FDRs placed in connection with shipping business has to be taxed separately in addition to the profit computed under the Tonnage Scheme. We, accordingly confirm the orders of the CIT(A) on this issue. 2.7 The ld. AR for the assessee has advanced an alternate argument that in case the interest income is found assessable, separately only the net interest income should be assessed as assessee had used borrowed funds for making the FDRs. We find substance in the argument because while computing interest income expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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