1989 (1) TMI 191 - AT - Income Tax

Assessment Year, Business Income, Capital Receipt, Interest On Borrowed Capital, Investment Allowance

Summary

Issues Involved:
1. Investment Allowance on Barge Lease
2. Deduction of Interest Subsidy from Interest Payment

Analysis of the Judgment:

1. Investment Allowance on Barge Lease

Issue: The assessee claimed investment allowance for a barge leased to another company, which was disallowed by the Income Tax Officer (ITO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

Findings:
- The assessee purchased the barge 'Vishal Laxmi' on 11-10-1983 and leased it to M/s Salgaocar Mining Industries Pvt. Ltd. on 19-10-1983.
- The ITO rejected the investment allowance claim, arguing that the assessee was not engaged in the business of operation of ships and that leasing the barge did not amount to exploitation of a commercial asset.
- The CIT(A) confirmed this view, noting that the assessee's intention was to lease the barge from the inception and that the lease deed indicated no responsibility for maintenance or crew employment on the part of the assessee.

Arguments:
- The assessee argued that entering into a "bareboat" or "net" charter, a recognized method of operating ships, amounted to engaging in the business of operation of ships.
- The revenue contended that leasing the barge did not constitute business operation of ships and thus the income was not assessable as business income.

Tribunal's Decision:
- The Tribunal considered various authoritative texts on maritime law and concluded that "bareboat" charters are recognized as a form of operating ships.
- It was held that the act of leasing the barge under a "charterparty by demise" is a recognized method of carrying out the business of operation of ships.
- The Tribunal directed the ITO to grant the investment allowance, provided other conditions for such grant were satisfied.

2. Deduction of Interest Subsidy from Interest Payment

Issue: Whether the interest subsidy received by the assessee should be deducted from the interest payment for determining allowable interest deduction.

Findings:
- The ITO observed that the interest subsidy received should be considered as "remission of interest" and deducted from the interest payable.
- The CIT(A) upheld this view, stating that the interest subsidy effectively reduced the interest payable by the assessee.

Arguments:
- The assessee contended that the interest subsidy was a capital subsidy intended to promote investment in barges and should not be treated as a revenue receipt.
- The revenue argued that the subsidy resulted in a reduced interest liability and should be considered as such.

Tribunal's Decision:
- The Tribunal referred to its earlier decisions and those of the Bombay Benches, which held that subsidized interest rates do not constitute a capital receipt.
- The Tribunal rejected the assessee's reliance on the Madhya Pradesh High Court decision, distinguishing it on the grounds that it dealt with a different type of subsidy.
- The Tribunal upheld the deduction of the interest subsidy from the interest payment, ruling against the assessee.

Conclusion:
The appeals were partly allowed. The Tribunal directed the ITO to grant investment allowance for the barge lease, recognizing it as part of the business of operation of ships. However, it upheld the deduction of the interest subsidy from interest payments, aligning with previous Tribunal decisions.