2019 (6) TMI 1238 - AT - Income Tax

Applicability of TP provisions of Chapter-X on Tonnage Tax Scheme of the Chapter XII-G - HELD THAT - Tonnage Tax Scheme, as per Chapter XIT-G of the Act, is a separate code by itself in as much as it provides a self-contained changing provision as well as 'method of computation of income in the chapter, and, the method of computation of income under TTS is not dependent on receipt or expenditure of the assessee. Under Tonnage Tax Scheme, the income has to be computed as per the method prescribed in section 115VG. The income as per Tonnage Tax Scheme is computed on the basis of the weight of the vessel and number of days it is held, irrespective of its revenue realisations and the expenditure incurred for the purpose of the business. Hence, neither the business receipts nor the business expenditure of the assessee has any bearing on the method prescribed for computation of income under TTS as per section 115VG. The tonnage tax scheme, in that sense, is a presumptive method of computation of taxable income which is not dependent on actual receipts and expenditure of the assessee. The perception of AO that chapter X of the Act creates an independent or a separate charge of income, an aspect which is contrary to the judgment in the case of Vodafone Services Pvt.ltd. vs. UOI 2014 (11) TMI 881 - BOMBAY HIGH COURT wherein after referring to an earlier judgment 2014 (10) TMI 278 - BOMBAY HIGH COURT , held that chapter X does not contain any charging provision but is a machinery provision to arrive at an arms length price of a transaction between associated enterprises. In the instant case, the provisions of chapter X have been invoked to alter an expenditure, namely the mobilisation and demobilisation charges paid for a qualifying ship, an item which has no bearing on the income as computed under Chapter XIIG and accordingly the provisions of Chapter X have no application in computing the income of the assessee chargeable to tax as per Chapter XII-G of the Act. Transfer pricing regulations do not apply to the assessee to the extent of operations carried out through operating qualifying ships where the income is taxed under TTS - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Applicability of transfer pricing provisions to companies under the Tonnage Tax Scheme (TTS)
2. Validity of the addition of ?5,40,887 by the Assessing Officer (AO)
3. Computation of income under Chapter XII-G of the Income-tax Act, 1961

Detailed Analysis:

1. Applicability of Transfer Pricing Provisions to Companies Under the Tonnage Tax Scheme (TTS):
The primary issue revolves around whether transfer pricing regulations apply to income determined under the Tonnage Tax Scheme (TTS) as per Chapter XII-G of the Act. The appellant argued that since the income is computed on a presumptive basis under TTS, transfer pricing provisions should not apply. The Tribunal noted that TTS is a self-contained code for computing income from qualifying ships based on their tonnage capacity and the number of days held, rather than actual receipts and expenses. Therefore, the transfer pricing provisions, which adjust income based on arm's length pricing of international transactions, are irrelevant to the computation of income under TTS.

2. Validity of the Addition of ?5,40,887 by the Assessing Officer (AO):
The AO had added ?5,40,887 to the income of the appellant based on the Transfer Pricing Officer's (TPO) suggestion. This adjustment was related to charter hire rentals for the dredger HAM 312, specifically for the mobilisation and demobilisation period. The Tribunal found that the AO's addition was inappropriate because the income under TTS is computed based on the tonnage of the ship and the number of days it is held, not on the specific expenses or receipts. Therefore, the adjustment made by the AO was not relevant to the taxable income under TTS.

3. Computation of Income Under Chapter XII-G of the Income-tax Act, 1961:
The Tribunal emphasized that Chapter XII-G provides a unique method for computing income from qualifying ships, which overrides the general provisions of the Act, including sections 28 to 43C. The income is computed based on the tonnage capacity of the ships and the number of days they are held, rather than actual business receipts or expenses. The Tribunal referred to multiple cases, including Shreyas Shipping Logistics Ltd and CGU Logistics Ltd, to support the view that TTS is a separate code and the transfer pricing provisions do not apply to the computation of income under TTS.

Conclusion:
The Tribunal concluded that the transfer pricing regulations do not apply to the appellant's operations carried out through qualifying ships under TTS. Consequently, the addition of ?5,40,887 by the AO was deleted, and the appeal of the assessee was allowed. The Tribunal's decision underscores that the TTS is a self-contained code for computing income from qualifying ships, independent of the transfer pricing provisions.