2009 (6) TMI 680 - AT - Income Tax

Summary

Issues Involved:
1. Whether the running and maintenance of ships/barges belonging to a third party constitute the operation of ships u/s 33AC.
2. Whether the term "ship" includes "barge" for the purpose of section 33AC.
3. Whether the business of running and maintaining third-party barges qualifies as the operation of ships u/s 33AC.

Summary:

Issue 1: Running and Maintenance of Third-Party Ships/Barges
The revenue appealed against the CIT(A)'s order, arguing that the CIT(A) erred in treating the running and maintenance of third-party ships/barges as the operation of ships. The assessee, engaged in shipping management and operations, claimed a deduction u/s 33AC, which was denied by the Assessing Officer (AO) on the grounds that the income from contracts with JNPT and barge rental income did not qualify as income derived from the operation of ships. The CIT(A) allowed the deduction, relying on past judgments and the definition of "ships" to include "barges."

Issue 2: Definition of "Ship" Including "Barge"
The AO argued that "ships" and "barges" are distinct entities, relying on dictionary definitions. However, the CIT(A) referred to section 2(55) of the General Clauses Act, 1897, and the Income-tax Rules, 1962, which include "barges" in the definition of "ships." The Tribunal agreed with the CIT(A), stating that the legal definitions are more relevant than dictionary meanings, thus concluding that "ships" include "barges."

Issue 3: Business of Running and Maintaining Third-Party Barges
The AO contended that the deduction u/s 33AC is intended for generating internal resources to augment the fleet, implying ownership of ships/barges. However, the Tribunal clarified that section 33AC does not mandate ownership but requires carrying on the business of operation of ships. The Tribunal cited the Chennai Bench decision in Sirius Shipping Co. Ltd., which held that "running and maintenance" falls within the ambit of "operation of ships." Thus, the Tribunal concluded that the business of running and maintaining third-party barges qualifies as the operation of ships u/s 33AC.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, affirming that the running and maintenance of third-party ships/barges constitute the operation of ships and that "ships" include "barges" for the purpose of section 33AC. The appeal of the revenue was dismissed.