2002 (12) TMI 628 - AT - Income Tax

Summary

Issues Involved:
1. Payment of tax in foreign countries on freight earnings.
2. Deduction under section 80-I out of profits derived from shipping business.
3. Alternative claim regarding deduction under section 80-I from business income after deducting allowance under section 33AC.

Detailed Analysis:

1. Payment of Tax in Foreign Countries on Freight Earnings:

The assessee contested the disallowance of Rs. 9,45,665 paid as income tax in foreign ports against freight earnings. The Tribunal found that this issue was already settled in favor of the assessee for the assessment year 1991-92, following the Bombay High Court judgments in CIT v. Amabalal Kilachand and CIT v. South East Asia Shipping Co. (P.) Ltd., which allowed such tax as deductible expenditure. Respectfully adhering to these precedents, the Tribunal directed the income tax authorities to allow the deduction for the foreign tax paid.

2. Deduction under Section 80-I out of Profits Derived from Shipping Business:

The assessee claimed a deduction under section 80-I for profits from the ship "Prabhu Das," which was computed at Rs. 20,13,944. The dispute arose over whether the deduction under section 33AC should be considered before calculating the deduction under section 80-I. The Assessing Officer computed the net income from the ship "Prabhu Das" at Rs. 75,20,175 and deducted Rs. 2,50,00,000 under section 33AC, resulting in no profit left for the deduction under section 80-I. The CIT(A) upheld this view.

The Tribunal examined the provisions of section 80-I, particularly sub-section (6), which mandates computing the profits of the ship as if it were the only source of income. This computation must ignore other provisions, including section 33AC, due to the non-obstante clause in section 80-I(6). The Tribunal agreed with the Assessing Officer that the deduction under section 33AC should be adjusted against the profits of "Prabhu Das," leaving no profits for the deduction under section 80-I. The Tribunal found the Assessing Officer's approach consistent with the statutory provisions and dismissed the assessee's claim.

3. Alternative Claim Regarding Deduction under Section 80-I from Business Income:

The assessee alternatively claimed that the business income after deducting allowance under section 33AC was Rs. 65,28,776, and therefore, a deduction under section 80-I should be allowed from this amount. The Tribunal rejected this claim, noting that the figure included profits from another ship, "Prabhu Gopal," which was not eligible for deduction under section 80-I. Without a clear segregation of the profits from "Prabhu Das," the Tribunal found no basis to allow the alternative claim.

Conclusion:

The Tribunal allowed the appeal in part by directing the income tax authorities to allow the deduction for the foreign tax paid. However, it upheld the disallowance of the deduction under section 80-I, both in the primary and alternative claims, affirming the orders of the departmental authorities.