1995 (4) TMI 30 - HC - Income Tax

Development Rebate At Higher Rate New Industrial Undertaking Profits And Gains Special Deduction

Issues Involved:

1. Denial of higher development rebate of 40% on mechanised diesel fishing trawlers under section 33 of the Income-tax Act, 1961.
2. Denial of relief under the provisions of section 80J of the Income-tax Act, 1961.
3. Interpretation of whether mechanised diesel fishing trawlers can be included in the term "ship" as used in section 80J of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Denial of Higher Development Rebate of 40% on Mechanised Diesel Fishing Trawlers

The assessee, an Indian company, claimed a development rebate of 40% under section 33 of the Income-tax Act, 1961, on its mechanised diesel fishing trawlers. The Income-tax Officer denied this higher rate of rebate, and the Commissioner (Appeals) upheld this decision, stating that trawlers cannot be considered as "ships" for the purpose of section 33. The Tribunal also agreed with this view.

However, the court referred to a previous decision in Chola Fish and Farms Pvt. Ltd. v. CIT [1987] 166 ITR 600, where it was held that trawlers come within the word "ship" in section 33 of the Act. The court reasoned that the word "ship" should be construed in its popular sense and in the context of the statute. Various dictionary definitions and the Income-tax Rules, 1962, were examined, which supported the inclusion of fishing trawlers within the term "ship." Consequently, the court concluded that the assessee is entitled to a development rebate at 40%, answering the first question in favor of the assessee and against the Revenue.

Issue 2: Denial of Relief Under the Provisions of Section 80J

The assessee also claimed a deduction under section 80J of the Act in respect of profits and gains derived from the trawlers. The Tribunal denied this relief, and the court had to determine whether trawlers could be considered "ships" under section 80J.

The court noted that section 80J(5) applies to any ship owned by an Indian company and used for business, provided certain conditions are met. Since the trawlers used by the assessee meet these conditions, the court found no reason to exclude trawlers from the term "ship" for section 80J purposes. However, the court emphasized that the income must be "derived from" the trawlers to qualify for the deduction.

Referring to CIT v. Eastern Sea Foods Exports (P.) Ltd. [1995] 215 ITR 64 (Mad), the court explained that "derived from" implies a direct relationship between the income and the source. The court concluded that the assessee's income from fishing is derived from the sea, not directly from the trawlers, which are merely instruments used in the business. Therefore, the second question was answered against the assessee and in favor of the Revenue.

Issue 3: Interpretation of Mechanised Diesel Fishing Trawlers as "Ship" in Section 80J

The court reiterated its agreement with the decision in Chola Fish and Farms Pvt. Ltd. v. CIT [1987] 166 ITR 600, which established that trawlers are included within the term "ship" for section 33 purposes. The court extended this interpretation to section 80J, stating there is no provision in section 80J that assigns a different meaning to "ship." The court found that the trawlers meet the conditions specified in section 80J(5) and should be considered "ships" for the purposes of section 80J as well. Thus, the third question was answered in favor of the assessee.

Conclusion:

The first and third questions were answered in favor of the assessee, affirming that mechanised diesel fishing trawlers qualify as "ships" under sections 33 and 80J of the Income-tax Act, 1961. However, the second question was answered against the assessee, as the income derived from fishing is considered to be derived from the sea, not directly from the trawlers. There was no order as to costs.

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