TaxTMI 
TaxTMI 
1970 (9) TMI 27
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....rpose of this business in the accounting years ending 31st March, 1968, and 31st March, 1969, being the relevant previous years for the assessment years 1968-69 and 1969-70, the petitioner-company became entitled to relief under section 80J and section 80K of the Income-tax Act, 1961, and, therefore, an application dated 9th September, 1969, was made to the 1st respondent (Income-tax Officer, Companies Circle II(7), Bombay), through the petitioner-company's auditors and after stating that the company was entitled to get the benefits of these two sections it applied for the relevant certificate under section 197(3) of the Income-tax Act, to enable it to declare the dividend as tax-free dividend. Along with that application the petitioner-company annexed the statements of the exempted profits under section 80J relating to the two years, out of which profits the dividends were to be declared. The company also enclosed a certificate of Indian registry being the specimen certificate in respect of the ships owned and used by the petitioner-company for earning the income. Certain further information was required by the 1st respondent and the same was also furnished by the petitioner-compa....
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....t. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year). Sub-section (5) of section 80J runs as follows : " This section applies to any ship, where all the following conditions are fulfilled, namely :- (i) it is owned by an Indian company and is wholly used for the purposes of the business carried on by it ; (ii) it was not, previous to the date of its acquisition by the Indian company, owned and used in Indian territorial waters by a person resident in India ; and (iii) it is brought into use by the Indian company at any time within a period of twenty-eight years next following the 1st day of April, 1948." It is true that the trawlers owned by the petitioner-company could be said to have fulfilled all the conditions mentioned in sub-section (5) of section 80J and Mr. Joshi appearing for the 1st respondent has not disputed that position before me. The only question th....
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....ust have been derived directly from a ship or ships owned by an assessee and not by using the ships as instruments with which the business of the assessee is carried on. In other words, according to Mr. Joshi, the ship or ships concerned must be a direct source of the income produced or earned by the assessee, as for instance when ships are plied for earning freight by transporting passengers or cargo, and, according to him, it is in that sense the expression "profits and gains derived from a ship" has been used in section 80J. On a matter of construction Mr. Joshi relied upon the scheme of the Income-tax Act which classified sources of income into four or five categories, namely, income from salary, securities, property, business, and any other source of income and urged that the ship, the profits or gains derived from which are entitled to certain deduction, must be regarded as a direct source of income. Mr. Joshi pointed out that it was an admitted position in the case of the present assessee that according to the memorandum of association of the petitioner-company the principal business of the company was to carry on business of deep sea fishing. In other words, the profits and....
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....under that section but it had not done so ; on the other hand, while laying down the conditions of sub-section (5) it has been stated that the ship concerned should be owned by an Indian company and the same should be wholly used for the purposes of the business carried on by the Indian company and not that it should be wholly used for the purposes of shipping business of the company. In other words, the business for which the ship should be used by the company has nowhere been qualified while incorporating conditions in sub-section (5). He, therefore, urged that if the petitioner-company satisfied the said condition as is to be found in sub-section (5), namely, that the petitioner-company is an Indian company which owns the ships and has used the ships for the purpose of its business, the petitioner-company should be held to be entitled to the benefits conferred by section 80J. In my view, it is difficult to accept the contentions urged by Mr. Dwarkadas. In the first place, sub-section (1) and sub-section (5) cannot be read together in the manner suggested by him. It is true that sub-section (5) of section 80J prescribes certain conditions which must be fulfilled before the secti....
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....n applies, there shall be a particular deduction as provided for in the latter part of that sub-section. The fact that these three different sources have been grouped together in sub-section (1) clearly shows that the legislature intended to confer benefits of the said sub-section upon the profits and gains derived directly from the sources mentioned therein and, therefore, in my view, the expression "any profits and gains derived from a ship" occurring in sub-section (1) will have to be construed as profits and gains directly derived from that source and the benefit of that provision cannot be availed of if the assessee is using the ship or ships as instruments for carrying on his business activity which produces the income. If profits and gains derived from the business activity like catching fish and selling the same are to be regarded as profits and gains derived from a ship simply because the ship is used for catching fish, then profits and gains derived from a business carried on by using the buliding where the business is housed will have to be regarded as profits and gains derived from the house property. I am, therefore, of the view that the construction submitted by Mr. J....