TMI Blog2019 (6) TMI 1176X X X X Extracts X X X X X X X X Extracts X X X X ..... e stated in the profit and loss account but is on the basis of net tonnage of the qualifying ship multiplied by the number of days such ship was operated during the previous year. No doubt, the Assessing Officer has computed the income of the assessee under section 115VG - Conclusion drawn by Ld. Commissioner (Appeals) with regard to applicability of TP provisions to the present assessee needs to be tested. Notably, identical dispute came up for consideration before the Tribunal in assessee s own case in assessment year 2007 08 held that the provisions of chapter X have been invoked to alter an expenditure, namely the mobilisation and demobilisation charges paid for a qualifying ship, an item which has no bearing on the income as computed under Chapter XIIG and accordingly the provisions of Chapter X have no application in computing the income of the assessee chargeable to tax as per Chapter XII-G of the Act. In our considered view, the transfer pricing regulations do not apply to the assessee to the extent of operations carried out through operating qualifying ships where the income is taxed under TTS. - ITA no.10/Mum./2018, C.O no.5/Mum./2019 - - - Dated:- 21-6-2019 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head office costs allocated to the assessee. While completing the assessment the assessing officer added back the aforesaid adjustment suggested by the Transfer Pricing Officer. Being aggrieved with such addition, assessee preferred appeal before Ld. Commissioner (Appeals). Before Ld. First Appellate Authority assessee reiterated its stand that transfer pricing provisions are not applicable since, its income is computed under the TTS. After considering the submissions of the assesseeLd. Commissioner (Appeals) found that in assessee s own case in assessment year 2013 14, the Dispute Resolution Panel (DRP) while deciding identical nature of dispute has held that since assessee s income is computed under TTS, the TP provisions would not be applicable. Following the aforesaid decision of Ld. DRP, Ld. Commissioner (Appeals) accepted assessee s contention that TP provisions are not applicable to it. Accordingly, she deleted the addition made on account of transfer pricing adjustment. 4. We have heard the parties and perused the material on record. At the outset, Ld. Counsels appearing the parties have agreed before us that the issue arising in the appeal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g industry and making it globally competitive. The income of a tonnage tax company depends on the tonnage capacity of the qualifying ships and the number of days for which it has been held. A reading of the provisions of TTS in Chapter XII-G suggest that the TTS is a charging section for the income generated by carrying out business of operating ships. Further, it also prescribes the mechanism for computation of income which is to be brought to tax. Thus, TTS is a presumptive basis of taxation, whereby the taxability of income from qualifying ships is restricted to the framework provided in the TTS. Further, the tonnage tax company is liable to pay taxes even in a case where the financial statements reveal a loss on actual operations. Further, all expenses, deduction, allowances or tax incentives are deemed to be allowed while computing the total income of a company as per TTS. The income thus computed shall be deemed to be the income chargeable to tax under the head 'Profit and gains of business or profession'. Hence, it is clear from the above that actual receipts/revenues earned and expenses incurred are not taken into consideration for the purpose of determining the ton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee covered by TTS. 8. Further, tonnage income is based on the weight of the vessel and not on arm's length price . Section 92C prescribes methods for computation of arm's length price. None of the methods prescribed can have any application to computation of the tonnage income. In these circumstances, the computation provisions of Chapter X of the Act would fail and therefore, application of Chapter X of the Act in such circumstances has to fail. Tonnage tax provisions determine the entire chargeable income earned by the tonnage tax vessel including income from an international transaction with associated enterprise. In contrast, transfer pricing provisions apply only to international transactions entered with associated enterprises. It is not possible to segregate what portion of the final taxable tonnage income is relatable to international transactions with associated enterprises and then apply transfer pricing provisions to such transactions, because the statutorily prescribed formula to compute income under chapter XII-G is based on the weight of the qualifying ship and number of days it has been held, irrespective of whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee and opting for TTS for shipping business, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. Therefore, confirming his order, we decide the effective ground of appeal against the AO. (underlined for emphasis by us) 10. On yet another occasion, our co-ordinate bench in the case of Tag Off shore(supra) was concerned with a situation where the Revenue sought to make an addition by invoking the provisions of Section 14A of the Act in case of a tonnage tax company, whose income was computed under the special provisions of Chapter XII-G. The Tribunal set aside the addition observing thus' No disallowance under section 14A is warranted in this case when the assessee has admittedly not claimed any expenditure, towards taxable income i.e, it has not claimed any deduction of expenditure debited in the Profit Loss account while computing the total income. 11. Further, the co-ordinate bench of this Tribunal in the case of CGU Logistics Ltd(supra) while dealing on the issue under TTS has held as under: 10.a.We find that section 115VP deals method and time of opting for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to ensure an easily accessible, fixed rate, low tax regime for shipping companies, the Rakesh Mohan Committee in its report (of January, 2002) recommended the introduction of the TTS in India, which was similar to, and adopted some of the best global practices prevalent. The whole purpose of introduction of the Scheme was to make the Indian shipping industry more competitive in the global space by rationalising its tax cost ... The Hon‟ble Supreme Court further observed that, we would also like to refer to Circular No. 05/2005 dated 15.07.2005 explaining the need and essence of the introduction of these provisions which was issued contemporaneously by the Central Board of Direct Taxes (CBDT). The Circular clarifies that the Scheme is a preferential regime of taxation . It also clarifies that charging provision is under Section 115VA read with Section 115VF and Section 115VG .. 13. It has also been brought to our notice that an identical situation arose in assessee‟s own case for AY 2013-14 where the Dispute Resolution Panel( DRP‟) vide its order dated 18.09.2017 held that transfer pricing regulations do not apply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Chapter XIIG and accordingly the provisions of Chapter X have no application in computing the income of the assessee chargeable to tax as per Chapter XII-G of the Act. 17. In view of the aforesaid discussion, in our considered view, the transfer pricing regulations do not apply to the assessee to the extent of operations carried out through operating qualifying ships where the income is taxed under TTS. 5. The aforesaid decision of the coordinate bench squarely applies to the facts of the present appeal also. Moreover, as discussed earlier, ld. DRP has also expressed identical view while deciding the issue in assessee s own case in Assessment Year 2013-14. In view of the aforesaid, we uphold the decision of Ld. Commissioner (Appeals) on the disputed issue. Grounds raised are dismissed. 6. In the result department s appeal is dismissed. 7. In view of our decision in departments appeal hereinabove, the grounds raised in the cross objection on merits have become academic/Infructuous, hence, do not require adjudication at present. Accordingly, the grounds raised in the cross objection are also dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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