TMI Blog2011 (5) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the depreciation available to the appellant in fact increases. Accordingly, Sec.263 cannot be called into operation. (d) The Commissioner of Income-tax ought not to have invoked jurisdiction under Sec.263 when the issue of eligibility for tonnage tax was a matter that had been considered and accepted at the initial stage. There is, therefore, no error in the stand taken in the original assessment calling for revision under Sec.263. II. GROUNDS ON MERITS (WITHOUT PREJUDICE TO GROUNDS RAISED ON JURISDICTION) (a) The Commissioner of Income-tax erred in concluding that the appellant is not eligible for Tonnage Tax Scheme as per Sec.115VC. His interpretation of the statutory provisions is erroneous, unjustified and illegal. (b) The Commissioner of Income-tax erred in not noting that the issue of eligibility to the Tonnage Tax Scheme had been considered by the Additional Commissioner of Income-tax by his order dated 28.01.2005. The impugned revision, thus, seeks to revise the order of the Additional Commissioner of Income-tax, dated 28.01.2005 and is accordingly barred by limitation. (c) The Commissioner of Income-tax failed to note that the exclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind normally provided on land is not a qualified ship for the purpose of computation of tonnage income. 6. As per Section 115VC(c), the assessee company should own at least one qualifying ship. In this case, the assessee owns only a part of the ship and not the entire ship. The assessee company has only 20% share in the ship MV Gem of Ennore . In the circumstances, the assessee company is not qualified as per section 115VC to be eligible for tonnage tax scheme. 7. The assessing officer while completing the assessment applying Tonnage Tax Scheme has not considered whether the conditions as aforesaid, application of Section 115VD and Section 115VC(c) to the assessee s case. 8. In response to the notice issues, the assessee has contested the issue of proceedings u/s.263 on various grounds and also on merits. These are briefly stated below: (i) The Additional Commissionr of Income Tax, had passed order u/s.115VP approving the assessee s appelication to exercise the option in favour of the tonnage tax scheme. The assessing officer is precluded from examining the issue of qualification under the scheme after the approval granted by the Add;. CIT. CIT does not hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01. The Court, in the context of approval given by the Board u/s.36(1)(vii) and binding nature of such approval on the assessing officer held that grant of approval by itself does not directly provide for direct concession to the petitioner. It is further subject to strict scrutiny at the time of assessment proceedings. (iv) Sub section (5) of section 115VE states that where a company is engaged in the business of operating qualifying ships is not covered under the tonnage tax scheme or has not made an option to that effect, the profits of such company shall be computed in accordance with other provisions of the Act. This makes it clear that the option for the scheme and actually being covered under the tonnage tax scheme are cumulative conditions. Even if the option is exercised and approved by the Additional CIT, Learned Assessing Officer may examine whether the other condition of being covered under the scheme has been fulfilled. I am therefore of the view that CIT under section 263 is not precluded from revising the assessment made by the Learned Assessing Officer applying the benefit of tonnage tax scheme to the assessee merely for the reason that approval for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of the provisions of Sec. 115 VP (5) required the approval shall apply from the assessment year relevant to the previous year in which the option for Tonnage Tax Scheme is exercised. This approval was granted by the Additional Commissioner after due application of mind on the application filed by the appellant seeking to opt for Tonnage Tax Scheme. The order of approval under Sec. 115VP (3) is filed as Annexure I of Typed Set 1 and is dated 28.01.2005. Thereafter, the assessment was taken up for scrutiny and the Assessing Officer under Sec. 143 (3) of the Income Tax Act examined the claim of the assessee in the light of the approval dated 28.01.2005 for opting the Tonnage Tax Scheme and completed the assessment pursuant thereto determining the amount refundable under the Tonnage Tax Scheme at Rs.19,85,439/-. The depreciation loss amounting to a total of approximately Rs.10 Crores was however not available for set off against any other income in view of with the provisions of Sec. 115VM (2) which reads as follows :- Exclusion of loss. 115VM (1) . (2) The losses referred to in sub-section (1) shall not be available for set off against any income other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arkets, casinos, financial service providers etc. which are normally services that are provided on land and claimed the benefit in respect of income arising there from. To avoid the abuse of this provision, Sec. 115VD (i) has been included which requires that provision of goods or services of a kind normally provided on land on a vessel would disentitle a ship from being a qualifying ship entitled to the Tonnage Tax Scheme. This provision is entirely inapplicable to the appellant s case, in so far as the appellant is engaged in the carriage of thermal coal from Paradip Port to Tuticorin Port. The view taken by the Assessing Authority therefore that the activity carried on by the appellant does not disentitle it to the Tonnage Tax Scheme is thus correct. The view of the Assessing Authority is supported by the order of the Commissioner of Income-tax (Appeals) dated 02.02.2009 in the case of West Asia Maritime Ltd. (one of the co-owners along with the appellant of MV Gem of Ennore ) where an identical contention taken by the Assessing Officer has been rejected by the Commissioner of Income-tax (Appeals). This order of the Commissioner of Income-tax dated 21.04.2010 (annexed at Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudice caused to the Revenue by the order of assessment dated 7.12.2007. The condition of prejudice being caused to the Revenue by virtue of the order of assessment under Sec. 143 (3) is thus not satisfied. (v) On the aspect of jurisdiction, the appellant submits that neither of the conditions stipulated under Sec. 263 have been satisfied, either independently or concurrently. (vi) On merits, as stated above, the view taken by the Assessing Officer is established to be one possible view, in view of the order of the Commissioner of Income-tax (Appeals) in the case of a co-owner of a ship upheld by the Hon ble Accountant Member of the Income Tax Appellate Tribunal. (vii) In fact the Commissioner of Income-tax in the impugned order at Page 4 (unnumbered last page) himself admits that the issues dealt with by him in the order are debatable. Reliance placed on the judgment of the Madras High Court in the case of C.I.T. vs. Seshasayee Paper Boards is misplaced. DEPARTMENT S CONTENTION (i) The department sought to contend that the order under Sec. 143 (3) dated 7.12.2007 does not contain any discussion on the points raised by the Commissioner of Income-tax in the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available only to an entity that owns 100% of a vessel. In fact Sec. 115VH itself statutorily provides for joint operation or joint ownership. Reliance is also placed on Circular No.2 of 2005 in this connection. On the basis of the above submissions, the submissions made at the personal hearing and the annexures filed herewith, it is prayed that the appellant s appeal be allowed and justice rendered. 5. The Learned Departmental Representative relied on the reasonings given by the Learned Commissioner of Income Tax for passing the order under section 263 of the Act. 6. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In the instant case the undisputed facts are that the assessee is a co-owner of a ship, owning 20% of the ownership. The assessee opted for tonnage tax scheme and accordingly made application before the Additional Commissioner of Income Tax having jurisdiction over the assessee company. The Additional Commissioner of Income Tax passed an order dated 28.01.2005 in writing approving the option for tonnage sheme as applied by the assessee company. The Learned Assessing Officer thereafter c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide for direct concession to the petitioner. It is further subject to strict scrutiny at the time of assessment proceedings. (iv) Sub section (5) of section 115VE states that where a company is engaged in the business of operating qualifying ships is not covered under the tonnage tax scheme or has not made an option to that effect, the profits of such company shall be computed in accordance with other provisions of the Act. This makes it clear that the option for the scheme and actually being covered under the tonnage tax scheme are cumulative conditions. Even if the option is exercised and approved by the Additional CIT, Learned Assessing Officer may examine whether the other condition of being covered under the scheme has been fulfilled. I am therefore of the view that CIT under section 263 is not precluded from revising the assessment made by the Learned Assessing Officer applying the benefit of tonnage tax scheme to the assessee merely for the reason that approval for exercise of option under section 115VP has been given by the Additional CIT. On the merits of the case, it is seen that the assessing officer has not considered the issue whether a part own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bareboat charter terms for a period exceeding three years. *115VD. Qualifying ship.-For the purposes of this Chapter, a ship is a qualifying ship if- (a) it is a sea going ship or vessel of fifteen net tonnage or more ; (b) it is a ship registered under the Merchant Shipping Act, 1958 (44 of 1958), or a ship registered outside India in respect of which a licence has been issued by the Director- General of Shipping under section 406 or section 407 of the Merchant Shipping Act, 1958 (44 of 1958) ; and (c) a valid certificate in respect of such ship indicating its net tonnage is in force, but does not include- (i) a seagoing ship or vessel if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land ; (ii) fishing vessels ; (iii) factory ships ; (iv) pleasure crafts ; (v) harbour and river ferries ; (vi) offshore installations ; (vii) dredgers ; (viii) a qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year. 115VP. Method and time of opting for tonnage tax scheme.-(1) A qualifying company may opt f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on owing of a qualifying ship and has not been provided that it should fully own a qualifying ship and on partly owning a qualifying ship the assessee will not be a qualifying company. 10. Still further we find that as per provision of Sec.115VA in the case of the company the income from the business of operating qualifying ship at the option of such company shall be computed as per tonnage tax scheme. Nowhere this section provides that such company should be a qualifying company. 10. We find that it is not in dispute that the assessee company opted for tonnage tax scheme which option was duly approved by Additional Commissioner of Income Tax vide his order dated 28.01.2005 passed u/s.115VP(3) of the Act. Further it is also not in dispute that the said order of the Additional Commissioner of Income Tax is still in force and the same has not been set aside by any higher authority. In the impugned order also, the Learned Commissioner of Income Tax has considered the said order of the Additional Commissioner of Income Tax and has not set aside that order and has observed in regard to that order that:- The order has to be passed by the Additional Commissioner within 30 days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ship during the year or not . In our considered opinion, provision of Sec.263 cannot be resorted for making a roving or fishing enquiry without bringing on record some material to show that the assessment order as passed by the Learned Assessing Officer was erroneous as well as prejudicial to the interest of the Revenue. 14. The only other ground for treating the assessment order as erroneous and prejudicial to the interest of the Revenue by the Learned Commissioner of Income Tax was that in his opinion the Learned Assessing Officer has not considered that whether the transportation of goods between two ports situated within India falls within clause (1) of Section 115VD or not. In this respect, the Learned Commissioner of Income Tax himself further observed in the impugned order that the view adopted by the Learned Assessing Officer in the assessment order is a debatable issue. However in his opinion Learned Commissioner of Income Tax is not precluded from passing an order u/s.263 in respect of disputable issue. We find that similar issue came before this Tribunal in the case of The Additional Commissioner of Income Tax Co. Circle II(3),Chennai Vs,. M/s.West Asia Martitime ..... X X X X Extracts X X X X X X X X Extracts X X X X
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