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2009 (10) TMI 649 - AT - Income TaxExemption under Tonnage Tax Scheme - drilling rig as Qualifying ship - offshore installation - licence u/s 407 of Merchant Shipping Act - at the time of disposal of assessee s application in Form No. 65, the assessee s ship was not registered under the Merchant Shipping Act - AO held that assessee is not eligible for Tonnage Tax Scheme. Thereafter, the assessee received the above registration/licence - same was filed before CIT(A) as additional evidence, which was admitted and was sent to the AO for remand report. In the remand report, AO raised an objection that in the definition provided in section 115VD for qualifying ship, offshore installation has been specifically excluded. Word offshore installation has not been explained or defined in the Income-tax Act. As per the English dictionaries, it is found that the word offshore has not been defined anywhere but the words offshore and installation have been separately defined in the dictionary. As per the New Lexicon Webster s Dictionary , offshore means moving away from the shore and towards sea . The word installation has been defined an installing or being installed/an apparatus set in a position for use such as lighting installation/a military establishment including the base and all its equipment. HELD THAT - The Chapter of Merchant Shipping Act is named as Control of Indian ships and ships engaged in coasting trade . This clearly shows that it applies to only ships and not to the offshore installation. Section 405 specifically explained about application of part - it clearly states as under Application of part - This Part applies only to sea-going ships fitted with mechanical means of propulsion of not less than one hundred and fifty tons gross, but the Central Government may, by notification in the Official Gazette, fix any lower tonnage for the purposes of this part. Thus ship required to be licensed is sea-going ship fitted with mechanical means of propulsion which is not provided in any of the offshore installation . We have perused the registration of the assessee s vessel u/s 407 of the Merchant Shipping Act, which are in respect of the ship, which has been referred to by the CIT(A). Hon ble Delhi High Court in assessee s own case for assessment years 1996-97, 1997-98, 1998-99 and 1999-2000, CIT v. Jagson International Ltd. 2007 (11) TMI 610 - DELHI HIGH COURT and ITAT held that assessee s vessel to be a ship and not a rig. In view thereof, the assessee s application u/s115VD/115VR is to be allowed for the purpose of option of tonnage tax scheme. Order of CIT(A) is upheld and appeal is dismissed
Issues Involved:
1. Whether the drilling rig qualifies as a "qualifying ship" under section 115VD of the Income-tax Act, 1961. 2. The relevance of registration under the Merchant Shipping Act, 1958 for the drilling rig. 3. The applicability of the Tonnage Tax Scheme under sections 115VP/115VR of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Qualifying Ship under Section 115VD The primary contention revolves around whether the drilling rig can be classified as a "qualifying ship" under section 115VD of the Income-tax Act, 1961. The Assessing Officer (AO) initially rejected the assessee's application for the Tonnage Tax Scheme, arguing that the drilling rig did not meet the definition of a "qualifying ship" and was instead an "offshore installation," which is explicitly excluded from the definition under section 115VD. The CIT(A) overturned the AO's decision, noting that the drilling rig had received a license under section 407 of the Merchant Shipping Act, 1958, and should be considered a "qualifying ship." The CIT(A) emphasized that the drilling rig is not an "offshore installation" because it is built as an integrated unit and moves from one location to another without being dismantled, unlike offshore installations which are fixed and later dismantled. The Tribunal supported this view, citing the lack of a clear definition of "offshore installation" in the Income-tax Act and relying on dictionary definitions. It concluded that the drilling rig, being a movable entity integrated with its equipment, qualifies as a ship and not an offshore installation. Issue 2: Relevance of Registration under Merchant Shipping Act The AO argued that the drilling rig's registration under the Merchant Shipping Act was irrelevant to its classification under the Income-tax Act. However, the CIT(A) and the Tribunal found this registration significant. The drilling rig received a license under section 407 of the Merchant Shipping Act, which the CIT(A) and Tribunal deemed as recognition by a competent authority that the rig is a ship. The Tribunal further noted that the Merchant Shipping Act applies to sea-going ships with mechanical propulsion, which aligns with the characteristics of the drilling rig. Therefore, the registration under the Merchant Shipping Act supports the classification of the rig as a ship. Issue 3: Applicability of Tonnage Tax Scheme Given the classification of the drilling rig as a "qualifying ship," the Tribunal upheld the CIT(A)'s direction to allow the assessee's application for the Tonnage Tax Scheme under sections 115VP/115VR. The Tribunal referenced previous judicial decisions, including a Delhi High Court ruling that classified the assessee's vessel as a ship for the purposes of section 33AC, reinforcing the view that the rig qualifies for the Tonnage Tax Scheme. The Tribunal dismissed the revenue's appeal, affirming that the drilling rig meets the criteria for a "qualifying ship" and is eligible for the Tonnage Tax Scheme, given its registration and operational characteristics. Conclusion: The Tribunal upheld the CIT(A)'s decision, classifying the drilling rig as a "qualifying ship" under section 115VD and allowing the assessee's application for the Tonnage Tax Scheme under sections 115VP/115VR. The registration under the Merchant Shipping Act was deemed relevant and supportive of this classification, and previous judicial rulings were considered to reinforce this position. The revenue's appeal was dismissed, affirming the eligibility of the drilling rig for the Tonnage Tax Scheme.
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