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TMI Blog2019 (6) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Act') on 8 October 2012 (received on 3 November 2012) in respect of the order passed by the Assistant Commissioner of Income-tax - Circle 5(3), Mumbai ('AO') under section 143(3) of the Act, on the following grounds which are independent and without prejudice to each other. General 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the addition of Rs. 5,40,887 in the Appellant's case. Applicability of transfer pricing provisions to companies covered under the Tonnage Tax Scheme 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that the transfer pricing regulations does not apply to the extent of operations carried out through operating qualifying ships, being company registered under the Tonnage Tax Scheme provided under the Act. 3. The learned CIT(A) failed to appreciate that since the transfer pricing regulations does not apply to the Appellant, no reference should have been made to the Transfer Pricing Officer (TPO') under section 92CA of the Act with regards to the income derived from operating qualifying ships by the Appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal". Although the assessee has raised multiple Grounds of appeal, but the entire dispute emanates from the stand of the Assessing Officer that the transfer pricing provisions contained in Chapter-X of the Act also apply to an income determined in terms of the Chapter XII-G of the Act i.e. Tonnage Tax Scheme. 3. Briefly put, the relevant facts are that the appellant assessee is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia engaged in the business of executing dredging contracts and is a subsidiary of Van Oord Dredging and Marine Contractors BV which is incorporated in Netherlands. The assessee is registered as a Tonnage Tax Company under the Tonnage Tax Scheme (TTS) as provided under chapter XII-G of the Act. As per the provisions of TTS, income derived from operating qualifying ships would be treated as shipping income and would be taxable as per the computation mechanism provided therein. The appellant had filed its return of income on 31st October, 2007 declaring income of Rs. 3,50,365/- from operating qualifyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the companies whose income is taxable under TTS, and hence, the enhancement of income based on the order of TPO on account of transfer pricing adjustment would not have any effect on the taxable income of the assessee. The Ld. Senior Counsel also submitted that Section 115VA starts with a non-obstante clause stating that sections 28 to 43C are not applicable to the tonnage tax company and the income has to be computed as per the computation mechanism provided under the TTS. For the present purpose, the Explanation to section 92(1) was referred to point out that it deals with allowance for any expense; and in the present case, the assessee does not claim any allowance for any expense, thus the provisions of section 92(1) or the Explanation thereto, and including the provisions of section 92CA, have no application in the instant case. In support of its contention, the assessee has relied on following decisions: i. CGU Logistics Ltd (Mumbai ITAT - ITA No. 1053/Mum/2014) ii. TAG Offshore Limited (Mumbai ITAT - ITA No. 710/Mum/2014) iii. Shreyas Shipping Logistics Ltd (Mumbai ITAT - ITA 7406/Mum/2014) iv. Trans Asian Shipping Services Pvt Ltd (Supreme Court - (Civil A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit 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 tonnage income of the company. The entire computation of the tonnage income depends on the tonnage capacity of qualifying ships and number of days it has been held. At this stage, we may contrast the sphere in which the transfer pricing provisions of Chapter-X operate. The transfer pricing provisions envisage computation of income from specified international transactions of receipt or expenditure, of-course with reference to the stated price of such transactions. This is completely in contrast to Chapter-XII G, where the stated price of the transaction has no relevance to the computation of income of qualifying ships, which is based on the weight of the ship and the number of days it has been held. In other words, the determination 'of income/ expense having regard to arm's length price as envisaged in Chapter-X has no relevance, as it would not affect the computation of income liable for taxation in Chapter-XII G. 7. Section 115VA of the Act starts with "Notwithstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 whether the ship has been used for a related party or an unrelated party. Once again, therefore, the computation provisions of Chapter X of the Act fail and in such circumstances, the application of Chapter X of the Act fails. 9. In this context, the learned Counsel pointed out that a similar situation has been considered by the co-ordinate bench of this Tribunal in the case of Shreyas Shipping Logistics Ltd (supra) which has held as follows: "5....... Now we would like to discuss the TTS. Section 115VA of the Act is unique in the sense that it deals with the computation of income from the business of operating qualifying ships which opt for Tonnage Tax Scheme(TTS).The method of computation of income under the scheme, as provided by the section, stipulates that income has to be assessed in a particular manner. In other words, no expenditure can be allowed or disallowance can be made, while computing the income under TTS. The income of the assessee is computed at affixed rate and all other provisions of the Act are not to be applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "10.a.We find that section 115VP deals method and time of opting for TTS, Section 115VQ is about period for which tonnage tax option remains in force. Renewal of TTS is subject matter of section115VR.Circumstanes and conditions where in tonnage tax scheme cannot be opted are the subject matter of Section 115VS.As per the provisions of section 115VT every assessee has to transfer profits to tonnage tax reserve account at a fix rate and has to utilise it for specific purpose, once he opts of TTS. Companies opting for TTS have to comply with minimum training requirement as required by Section 115VU.Limit for charter in of tonnage has been determined by section 115VV.Maintenance and audit of accounts of the TTS companies is governed by the provisions of section 115VW of the Act, whereas section115VX determines tonnage. Amalgation is subject matter of section 115VY.Next section i.e. Section 15VZBtakes care of the tonnage tax companies which are found to be a party to any transaction or arrangement that amounts to an abuse of the scheme. Last section,section115VZC,deals with exclusion from TTS. From the above it is clear that chapter XII-G is a complete code in itself and it provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to the extent of operations carried out through operating qualifying ships where the income is taxed under TTS. 14. To sum up, Tonnage Tax Scheme, as per Chapter XIT-G of the Act, is a separate code by itself in as much as it provides a self-contained changing provision as well as 'method of computation of income in the chapter, and, the method of computation of income under TTS is not dependent on receipt or expenditure of the assessee. Under Tonnage Tax Scheme, the income has to be computed as per the method prescribed in section 115VG. The income as per Tonnage Tax Scheme is computed on the basis of the weight of the vessel and number of days it is held, irrespective of its revenue realisations and the expenditure incurred for the purpose of the business. Hence, neither the business receipts nor the business expenditure of the assessee has any bearing on the method prescribed for computation of income under TTS as per section 115VG. The tonnage tax scheme, in that sense, is a presumptive method of computation of taxable income which is not dependent on actual receipts and expenditure of the assessee. 15. In fact, the fallacy in the approach of the Assessing Officer ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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