2024 (8) TMI 1246 - HC - Income Tax

Deduction u/s 33AC reduction from the profits and gains of business for computing the allowance u/s 80I - HELD THAT - The amendment brought into effect from 1st April 1996 only capped the deduction allowed to 50% of the profits from operating ships as opposed to 100% of the total income of the assessee. Such a change in the indicia for computation of the cap is of no relevance to the core character of the allowance. Parliament in its wisdom thought it fit to disable loss-making shipping companies from seeking an allowance in the name of acquiring new ships but in fact effected no change to object of the deduction creating a reserve to acquire a new ship. In our opinion the ITAT was right in noticing that the amendment of 1996 was only in connection with the computation of the cap on the amount of the allowance. We also agree that the amendment made subsequently (in 1996) does not throw any fresh light on interpretation of the provision that existed prior to the amendment (between 1991 and 1993). In the absence of any explicit positive legislative stipulation requiring the deduction u/s 33AC to be disregarded when computing the deduction u/s 80-I we have no hesitation in upholding the concurrent views expressed in the proceedings so far prior to the institution of these appeals. Indeed no case law has been cited at the bar to indicate that the deduction allowed u/s 33AC (which deals only with shipping companies) must have no impact on or holds no relevance for the deduction allowed u/s 80-I. We find no reason to interfere with the impugned order. As indicated by Revenue the concurrent outcome in the proceedings so far result in an eminently plausible and reasonable view. For the reasons articulated above we independently find that for computing the deduction under Section 80-I (25% of profits from a ship) it would be necessary to give effect to and factor in the deduction allowed under Section 33AC. If the result of such deduction under Section 33AC is that there is no profit from the ship the necessary consequence would be that the deduction u/s 80-I (a percentage of profits) cannot be claimed. Proportionate Allocation of Section 33AC Deduction - Under Section 80-I (6) the profits and gains from all qualifying ships would have been the base for computing the deduction under Section 80-I (1). Therefore applying Section 80-I (6) the qualifying ships must be treated as the only source of income (in this case income from Prabhu Das) but it cannot be stated that the reserve created under Section 33AC could never be attributed to Prabhu Das. It would not be possible to make adjustments at this stage by apportionment between qualifying and non-qualifying ships. It would not be open to us as an appellate forum with a jurisdiction to hear appeals on substantial questions of law to provide our own basis and proportions for such apportionment.

Issues Involved:
1. Whether the deduction under Section 33AC should be reduced from the profits and gains of business for computing the allowance under Section 80-I.
2. Interpretation and application of Section 33AC and Section 80-I of the Income-tax Act, 1961.
3. The impact of the amendment to Section 33AC effective from April 1, 1996.
4. Proportionate allocation of the Section 33AC deduction.

Detailed Analysis:

1. Whether the deduction under Section 33AC should be reduced from the profits and gains of business for computing the allowance under Section 80-I:

The core issue is whether the deduction allowed under Section 80-I may be computed as a percentage of the profits and gains derived from a ship, after giving effect to the deduction for the creation of a reserve allowed under Section 33AC. The Appellant-Assessee argued that each section operates independently, and the base amount for Section 80-I should not consider the deduction under Section 33AC. Conversely, the Respondent-Revenue contended that the base amount for Section 80-I should be the net amount after the Section 33AC deduction.

2. Interpretation and application of Section 33AC and Section 80-I of the Income-tax Act, 1961:

Section 33AC allows a company engaged in the business of operating ships to deduct an amount not exceeding the total income and credit it to a reserve for acquiring a new ship. Section 80-I allows a deduction of 25% of the profits and gains derived from a ship that meets the qualifying criteria. The Appellant-Assessee claimed deductions under both sections without interposing the impact of Section 33AC on Section 80-I. The AO, CIT-A, and ITAT ruled that the deduction under Section 33AC must be factored in before computing the deduction under Section 80-I. The ITAT held that under Section 80-I (6), the profits and gains from the ship must be computed as if the ship were the only source of income, thus necessitating the deduction under Section 33AC to be considered.

3. The impact of the amendment to Section 33AC effective from April 1, 1996:

The Appellant-Assessee argued that the amendment to Section 33AC, which changed the linkage from "total income" to "profits and gains derived from the operation of ships," indicated a change in the legal position. However, the court found that the amendment only capped the deduction to 50% of the profits from operating ships, as opposed to 100% of the total income, and did not alter the core nature of the allowance. The court agreed with the ITAT that the amendment was only in connection with the computation of the cap on the amount of the allowance.

4. Proportionate allocation of the Section 33AC deduction:

The Appellant-Assessee proposed that the Section 33AC deduction should be proportionately reduced and attributed only to the ship Prabhu Das. The court disagreed, stating that the phrase "a ship" in Section 80-I should be read in the context of the business of a qualifying undertaking or hotel. The reserve created under Section 33AC could be attributed to Prabhu Das, and it would not be possible to make adjustments by apportionment between qualifying and non-qualifying ships at this stage.

Conclusion:

The court dismissed the appeals, holding in favor of the Respondent-Revenue and against the Appellant-Assessee. The court found that for computing the deduction under Section 80-I, it is necessary to give effect to the deduction allowed under Section 33AC. If the deduction under Section 33AC results in no profit from the ship, the deduction under Section 80-I cannot be claimed. The appeals were disposed of with no costs.

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