TMI Blog2023 (3) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in preceding years but post-tonnage tax era. The assessee first incurred the cost of the repair, which was thereafter claimed as per the insurance policy. Since the receipt of the Insurance and P I claim is directly in relation to the core shipping activity of the assessee in respect of its ships, which are qualifying ships, therefore the receipt is covered under section 115VI of the Act. Course fees - As per the assessee though the said receipt is in incidental income in accordance with clause (iv) of Rule 11R of the Income Tax Rules, 1962, since the threshold of 0.25% of the turnover from core activities is already crossed, the said amount would be chargeable to tax. Accordingly, the same is held to be taxable under the provisions of the Act as per proviso to section 115 VI(1) of the Act. Recovery of the container-related cost credited as prior period income was treated as income of the pre-tonnage tax era and taxable as income from the incidental activity - Since the aforesaid receipt is mere reimbursement of expenditure, therefore respectfully following the judicial precedent rendered in assessee‟s own case assessment year 2007-08 [ 2011 (7) TMI 588 - ITAT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are credited. Since the liquidated damages on account of delay or deficiency in service in respect of the qualifying ships, therefore, we are of the considered opinion that such receipt is part of the core shipping activity of the assessee. Sundry receipts - Assessee submitted additional evidences in relation to volume incentives from CFS, additional free days charges, container damage/maintenance charges, documentation charges, ship-owners expenses recovery, additional terminal handling charges, non-manifested charges, and other receipts - We allow the admission of the additional evidence filed by the assessee. Since the aforesaid evidence was not placed before the lower authorities, therefore the same could not be examined during the assessment proceedings. Accordingly, we deem it appropriate to remand this issue of taxability of sundry receipts under Chapter XII-G to the file of the AO for de novo adjudication after the necessary examination of details filed by the assessee. Profit on bar plus shop sale are held as incidental activity of the operation of the qualified ship. Adjusting the turnover by reducing the sundry receipts and profit on sale of assets - We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai, [ learned CIT(A) ], for the assessment year 2008 09. 2. In its appeal, the assessee has raised the following grounds: Ground no 1: Income under the head Prior Period Adjustments: The CIT(A) erred in upholding the action of the A.O. in assessing the prior period income of Rs. 4,95,81,902. He failed to appreciate that the prior period income constituted profits from core activities and therefore could not be brought to tax under the Act. Ground no 2: Additions under Sundry Receipts: 2.1 The CIT (A) has erred in holding that sundry receipts of Rs. 12.88 crore were not arising out of the core activity of operation of qualifying ships and the provisions of Tonnage Tax Scheme was not applicable to these receipts. 2.2 In the alternative and without prejudice to the above since the sundry receipts are assessed to tax as business income, The CIT (A) ought to have granted deduction in respect of expenditure laid out or expended wholly and exclusively for the purpose of its business and earning such income. 2.3 The CIT (A) failed to appreciate that the expenses Rs. 14.25 crores were incurred on account of rent to take the premises on lease which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income arising out of excess provisions written back does not fall into the core activity of qualifying ship. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 26,519/- made by the A.O by denying tonnage tax provisions to the prior period income under normal provisions. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing relief to the assessee, holding that the reimbursement of overheads for managed vessels is to be included in the turnover while working out the income as per the Tonnage Tax. 5. The appellant prays that the order of the ld. CIT(A) on the above ground be set aside and that of the Assessing Officer restored. 6. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 4. The brief facts of the case as emanating from the record are: The assessee is a private sector undertaking engaged in the business of merchant shipping. From the assessment year 2005-06, the assessee has opted for the Tonnage Tax Scheme, i.e., the presumptive taxation scheme provided in Chapter XII-G of the Act. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Interest on Housing loans Rs. 6,866/ 3. Insurance P I claims Rs.3,17,91,248/ 4. Course fees Rs. 15,998/ 5. Interest Income Others Rs. 13,800/ Total: Rs.3,18,74,963/ Excess Income Incidental Activity 1. Recovery of container related cost Rs.1,76,21,892/ 2. Sundries Incidental Activity Rs. 84,612/ 3. Remuneration Managed Vessels Rs. 435/ Total: Rs.1,77,06,939/ Taxable under normal provisions of the Act 1. THC receivable pre tonnage Rs. 8,878/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given to employees of Rs.6,866, we find that while dealing with the interest income on loans/advances to employees for vehicles and computers, the coordinate bench of the Tribunal in assessee‟s own case in the Shipping Corporation of India Ltd vs ACIT, in ITA No. 145/Mum./2011, for the assessment year 2007-08 vide order dated 29/07/2011 observed as under:- 33. Applying the proposition laid down in the aforesaid case law to the facts of the present case, we uphold the contentions of the learned Sr. Counsel that the interest in question cannot be compared with the interest on surplus funds parked in a bank. Loans were advanced to the employees involved in the core activity of an organisation and when certain income is derived form such activity, in our opinion, the same is taxable under the head Income From Business as it is expected that the assessee does not have any other business other than business of operating qualifying ships and as it has no other activity as contemplated under chapter-XII-G, we uphold the contention of the assessee that this income cannot be brought to tax separately and it is business income from core activity. Hence this ground is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which are qualifying ships, therefore the receipt is covered under section 115VI of the Act. 13. As regards the course fees of Rs.15,998, as per the assessee though the said receipt is in incidental income in accordance with clause (iv) of Rule 11R of the Income Tax Rules, 1962, since the threshold of 0.25% of the turnover from core activities is already crossed, the said amount would be chargeable to tax. Accordingly, the same is held to be taxable under the provisions of the Act as per proviso to section 115 VI(1) of the Act. 14. As regards the recovery of the container-related cost of Rs.1,76,21,892, credited as prior period income was treated as income of the pre-tonnage tax era and taxable as income from the incidental activity. As per the assessee, in addition to the carriage of goods in its operation, it also renders services of leasing the containers. This part of the logistical service rendered is an integral part of the core activity of the tonnage tax company. The recovery of container-related costs is from the customers to whom the containers are leased out. These costs are first incurred by the assessee and then recovered. Further, the incurring of cost and its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to this issue are: During the assessment proceedings, the assessee was asked to show cause as to why the following sundry receipts be not taxed under the normal provisions of the Act:- Particulars Core Shipping Commission on disbursements [receipts] 6,05,004 Insurance + P I claims 3,35,61,032 House Rent ownerships flat 1,21,83,784 Rent on furniture 30,404 Co s bus services 1,795 Contribution for employee s new PRMs 5,000 Liquated Damages (Dry docks) 6,65,11,332 Profit on Bar + Shop sales 7,83,659 Refund of Director s fees 7,49,819 Sundries 1,44,21,883 Application Money Right to info Act 1,639 Penal Charges levied on employees 9,150 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he normal provisions of the Act. 24. As regards the refund of Director's fees of Rs.7,49,819, as per the assessee the same is recovered from the Directors who are holding the office as Director in companies where the assessee had joint ventures etc. Such Directors are paid their remuneration and as per the terms of employment, Directors‟ sitting fees are recovered. Since the assessee‟s only business is operating the qualifying ships therefore the aforesaid refund is also related to its core activity and thus cannot be taxed under the normal provisions of the Act. 25. The receipt of Rs.6,05,004 is on account of commission on disbursement which the assessee earned over and above the disbursement amount paid to the agents, Captain, and crew of ships when the ship is abroad. As per the assessee, such disbursement was pursuant to an agreement with certain ship-owners. We have already upheld the taxability of commission on disbursement under Chapter XII-G, which was forming part of the prior period income. Since this commission is also of a similar nature and that too pertaining to the post tonnage tax era, therefore, same forms part of core shipping activity. 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment proceedings. Accordingly, we deem it appropriate to remand this issue of taxability of sundry receipts of Rs.1,44,81,883 under Chapter XII-G to the file of the Assessing Officer for de novo adjudication after the necessary examination of details filed by the assessee. Since the matter is remanded to the Assessing Officer for de novo adjudication, the assessee shall be at liberty to adduce any other evidence in support of its plea. 29. As regards the profit on bar plus shop sales of Rs.783,659, we find that a similar profit was held to be directly related to the incidental activity of the operation of the qualified ship by the coordinate bench of the Tribunal in assessee‟s own case in The Shipping Corporation of India Ltd vs ACIT, in ITA No. 3546/Mum/2013, for the assessment year 2009-10, vide order dated 19/08/2015. As per the assessee, though the receipts have been referred to as incidental in the aforesaid order, what was meant was that it is a receipt from core activity. However, no order modifying the aforesaid findings by the coordinate bench is placed on record. Thus, respectfully following the judicial precedent in assessee‟s own case, the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising in ground No. 4, raised in assessee‟s appeal, is pertaining to considering income by way of interest and dividend as income from core shipping activity. 36. We have considered the rival submissions and perused the material available on record. The assessee apart from the tonnage tax income computed on a presumptive basis has separately offered for tax two streams of income being incidental income in excess of 0.25% of turnover from core shipping activity and income from other sources comprising of dividend and interest. Even before the CIT(A), no ground was raised regarding treating the income by way of interest and dividend as income from core shipping activity. Therefore, vide application dated 11/08/2022, the assessee prayed that ground No. 4, raised in the appeal, be treated as additional ground. In its aforesaid application, the assessee submitted that this issue raised in ground No. 4 could not be raised earlier as the assessee applied it is mind to this issue while preparing for the appeal to be filed before the Tribunal. It was also submitted that the asepct goes to the root of the matter and for the correct computation of tax in the hands of the assessee, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital requirement and repayment of loans earlier taken for the acquisition of ships. In support of its submission, the assessee has placed on record statements showing the placement of surplus funds in short-term deposits on weekly basis, by way of additional evidence filed vide application dated 18/02/2021. It was submitted that factual assertion was made before the learned CIT(A), however, the underlying document in support of the same are filed for the first-time before the Tribunal. The assessee has also placed on record the details of repayment of loans taken for the acquisition of ships. Further, the month-wise weekly fund position was also filed by the assessee. In the present case, it is undisputed that the only business activity pursued by the assessee relates to shipping, and thus the entire receipts are from the shipping activity, which qualifies for computation on a presumptive basis under the tonnage tax provisions. We find that the Hon‟ble jurisdictional High Court in CIT vs Varun Shipping Co Ltd, [2011] 324 ITR 263 (Bom.) held that where the assessee borrowed certain amount for its business purpose and earn interest on unutilised portion of the loan, interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e‟s own case for the assessment year 2007-08 vide order dated 29/07/2011 cited supra decided a similar issue in favour of the assessee by observing as under:- 29. Provisions of section 115VA provides that the income from business of operating qualifying ships may be computed in accordance with the provisions of chapter XII-G, and that the income so computed shall be deemed to be the profits and Income from qualifying ships are defined in section 115VC, and there is no dispute on this aspect. Section 115VE mandates that profits from business of a company engaged in the business of operating qualifying ships shall be computed under the tonnage tax scheme. It also specifies that such business of operating qualifying ships shall be considered as a separate business distinct from all other activities or business carried on by the company. The mode of computation of tonnage income is given under section 115VG. The term relevant shipping income has been defined in section 115VI. It is basically classified into two categories i.e., profits from core activities referred to in sub-section 2 and profits from incidental activity referred to in sub-section 5. The issue is, whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee are qualifying ships and when there is no other activity other than core activities and incidental activities, in our opinion, a third category of other business income cannot be created. As pointed out by the learned Sr. Counsel, if such introduction is allowed then, a claim of the assessee of deduction under section 43B i.e., deduction only on actual payment would be required thruogh the expenditure actuall ybelongs to pre-tonnage period. to be allowed. The Assessing Officer cannot take recourse to sections 28 to 43C, when there is no other activity or business carried on by the company, other than business of operating qualifying ships. In view of the above discussion, we allow ground no.1 of the assessee. 44. Since similar issue has already been decided in favour of the assessee by the coordinate bench of the Tribunal, which decision was followed by the learned CIT(A), therefore, we find no infirmity in the impugned order. Accordingly, ground No. 1 raised in Revenue‟s appeal is dismissed. 45. The issue arising in ground No. 2, raised in Revenue‟s appeal, is pertaining to the deletion of addition on account of excess provision written back. We find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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