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2022 (11) TMI 1404 - AT - Income TaxAddition on account of shipping business - benefits of the provisions of section 115VO under the Tonnage Tax Scheme denied - AO has made this addition stating that the drilling of Oil is the main operation and it is not provided in the Act that drilling and exploration of Oil will be the shipping income, to be included in computation of income under Tonnage Tax Scheme - HELD THAT - As decided in assessee own case A.Y. 2014-15 held that revenue's contention that the vessel is nothing but 'off shore' installations had no merit. Since the Hon'ble High Court has rendered the findings in the appellant's own case for the A.Y. 2006-07 2007-08, that the appellant is taxable under the provisions of Chapter XIIG, no change in the facts and circumstances are brought out by the AO in the assessment order vis-a-vis those years, it is held that the benefit of the said Chapter is to be allowed to the appellant. It may be mentioned here that on specific requisition by the undersigned the AR has filed an additional paper book enclosing herewith the computation of total income filed with the return of income and the computation of such income separately in respect of shipping unit and port infrastructure unit. The relevant certificates of registration, tonnage certificate, mobile offshore drilling unit (MODU) safety certificate, and all other such certificates in respect of the three vessels namely Deepsea Matdrill, Deepsea Fossil and Deepsea Fortune have also been filed. Although not discussed by the AO in the Assessment Order perusal of these certificates show that the three vessels owned by the appellant are of the same nature as that of the Deepsea Matdrill on which the Hon'ble High Court rendered its decision, Accordingly, ground is allowed. Applicability of MAT provisions - HELD THAT - CIT(A) held that income of assessee is taxable under provisions of section of Chapter XIIG of the Act, and since income of shipping unit is exempt u/s 115V-I of the Act, in view of section 115VO of the Act, same is liable to be excluded from the computation of book profit under section 115JB of the Act. Since, the decision of the ld. CIT(A) is in-consonance with the provisions of the Act, we decline to interfere with the order of the ld. CIT(A). Disallowance of interest - assessee has given interest free loans to its subsidiary company without substantiating commercial expediency - HELD THAT - Hon'ble Supreme Court 2015 (11) TMI 1314 - SUPREME COURT approved of the view taken by Delhi High Court in Dalmia Cement Pvt. Ltd. 2001 (9) TMI 48 - DELHI HIGH COURT .and disapproved of the Punjab Haryana High Court decision in the case of Abhishek Industries 2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT Incidentally in the case of Hero Cycles, it was found that the interest liability of the assessee towards the bank on borrowings made had no bearings on the issue as otherwise, the assessee had sufficient funds of its own to advance the funds to the sister concern. Under such circumstances it was for the AO to establish such nexus between the borrowings and advances to prove that the expenditure was for non-business purposes, which the AO failed to do. In the present case also, it is found that the appellant has sufficient funds of its own which he could have advanced and therefore the interest liability on the borrowings made could not be disallowed, particularly when the AO failed to prove that the expenditure was for non-business purposes. Accordingly, it is held that no notional interest can be attributed towards the interest free advances made during the impugned year. The decision of the ld. CIT(A) is affirmed. Disallowance on account of late deposit of PF ESI - HELD THAT - As the issue of payment of employees contribution towards the PF has been ruled against the assessee by the Hon ble Supreme Court in the case of Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT Hence, the appeal of the revenue on this ground is allowed. Disallowance u/s 14A - CIT(A) held that no exempt income has been earned by the assessee, hence, in view of the judgment of the Hon ble Jurisdictional High Court in the case of Cheminvest Ltd 2015 (9) TMI 238 - DELHI HIGH COURT no disallowance is called for. Hence, we decline to interfere with the order of the ld. CIT(A). Disallowance u/s 40(a)(ia) TDS u/s 195 - HELD THAT - As services rendered by the foreign consultants cannot be said to amount to a permanent establishment or a fixed place for a business through which the foreign enterprise carries out its business in India, wholly and partly. It is also seen that during the appellate proceedings relating to A.Y. 2011-12 my Ld. Predecessor considered the letter issued by Nobel Denton Middle East Ltd. clarifying that they did not have a permanent establishment in India as per Article 5 of the DTAA and were assessed to tax in the UAE. Also find from the tax audit report for the impugned years placed at pages 28 69 of the paper book that the auditors have clarified that no amount is inadmissible u/s 40(a). Keeping in view the above facts it is held that neither the provisions of section 40(a)(ia) nor 40(a)(i) are applicable. Ground are allowed.
Issues Involved:
1. Deletion of disallowance of interest-free loans to subsidiary companies. 2. Deletion of disallowance under Section 14A read with Rule 8D. 3. Deletion of disallowance under Section 40(a)(ia). 4. Classification of "Deepsea Matdrill" as a ship or offshore installation. 5. Deletion of disallowance of exempt income under the Tonnage Tax Scheme. 6. Deletion of disallowance made in computation of income under Section 115JB. 7. Disallowance under Section 36(1)(va) for late deposit of PF and ESI. 8. Non-applicability of MAT provisions under Section 115JB for tonnage tax companies. Detailed Analysis: 1. Deletion of Disallowance of Interest-Free Loans to Subsidiary Companies: The Revenue contended that the assessee provided interest-free loans to its subsidiary companies without substantiating commercial expediency. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting that the issue was covered by prior decisions in the assessee's favor for AY 2010-11 and AY 2011-12. The Tribunal emphasized that the assessee had sufficient interest-free funds and that the AO failed to establish a nexus between borrowed funds and the interest-free advances. 2. Deletion of Disallowance Under Section 14A Read with Rule 8D: The Revenue argued that the CIT(A) erred in deleting the disallowance under Section 14A read with Rule 8D. The CIT(A) held that no exempt income was earned by the assessee, and the Tribunal upheld this decision, citing the judgment of the Hon'ble Jurisdictional High Court in Cheminvest Ltd. Vs CIT-IV (378 ITR 33), which states that no disallowance is called for if no exempt income is earned. 3. Deletion of Disallowance Under Section 40(a)(ia): The Revenue challenged the deletion of disallowance under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) found that the payments were made to a non-resident and that the provisions of Section 40(a)(i) did not apply. The Tribunal upheld this decision, noting that the payments were for technical services rendered by a foreign entity without a permanent establishment in India, thus falling under the DTAA provisions, which exempted such payments from TDS. 4. Classification of "Deepsea Matdrill" as a Ship or Offshore Installation: The Revenue argued that "Deepsea Matdrill" should be classified as an offshore installation, not a ship, thus excluding it from the Tonnage Tax Scheme. The CIT(A) followed the Hon'ble Delhi High Court's decision, which classified such vessels as ships under Section 115VD. The Tribunal upheld this decision, noting that the facts and circumstances were similar to previous years where the High Court had ruled in favor of the assessee. 5. Deletion of Disallowance of Exempt Income Under the Tonnage Tax Scheme: The AO disallowed the assessee's claim of exempt income under the Tonnage Tax Scheme, arguing that drilling operations did not qualify as shipping income. The CIT(A) and Tribunal both upheld the assessee's claim, relying on the Hon'ble Delhi High Court's decision, which held that such vessels qualify as ships under the Tonnage Tax Scheme. 6. Deletion of Disallowance Made in Computation of Income Under Section 115JB: The Revenue contended that the CIT(A) erred in deleting the disallowance made under Section 115JB. The CIT(A) held that the income from shipping activities, being exempt under Chapter XIIG, should be excluded from the computation of book profit under Section 115JB. The Tribunal upheld this decision, noting that Section 115VO specifically excludes such income from MAT provisions. 7. Disallowance Under Section 36(1)(va) for Late Deposit of PF and ESI: The AO disallowed the deduction for late deposit of PF and ESI. The CIT(A) deleted the disallowance, but the Tribunal reversed this decision, citing the Hon'ble Supreme Court's ruling in Checkmate Services P. Ltd. vs. Commissioner Of Income Tax-I, which mandates that employee contributions must be deposited by the due date under the respective laws to qualify for deduction. 8. Non-Applicability of MAT Provisions Under Section 115JB for Tonnage Tax Companies: The assessee argued that MAT provisions under Section 115JB do not apply to companies taxed under the Tonnage Tax Scheme. The CIT(A) and Tribunal both upheld this position, stating that Section 115VO explicitly excludes tonnage tax income from MAT provisions. Conclusion: - The Tribunal upheld the CIT(A)'s deletion of disallowances related to interest-free loans, Section 14A, and Section 40(a)(ia). - The Tribunal affirmed the classification of "Deepsea Matdrill" as a ship and the applicability of the Tonnage Tax Scheme. - The Tribunal confirmed that MAT provisions under Section 115JB do not apply to tonnage tax companies. - The Tribunal reversed the CIT(A)'s deletion of disallowance for late deposit of PF and ESI, following the Supreme Court's ruling.
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