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2025 (3) TMI 707 - AT - Income TaxConsidering interest income as income from shipping activity - Lien Marked Fixed Deposits - Income from core shipping activities under the Tonnage Tax Scheme - HELD THAT - As per the assessee the fixed deposits were placed with the banks out of commercial expediency with a view to advance its business interest in the sole business carried out on by it of operating qualifying ships. Thus the assessee claims that interest earned on such deposits should be regarded as profits and gains on business. As in the present case it is undisputed that the only business activity pursued by the assessee relates to shipping. Thus there cannot be any dispute regarding the fact that the various facilities availed by the assessee from the banks with respect to which it has placed fixed deposits as a lien are also for the purpose of effectively and efficiently running its business of operating qualifying ships. Therefore we are of the considered view that the interest earned by the assessee from such fixed deposits maintained with the banks which are marked as lien is inextricably linked with the business of operating qualifying ships and therefore should be treated as an item of receipt from core activity of a tonnage ship company. Conditional Fixed Deposits out of funds raised by way of Public Offering - The funds generated by the assessee from the public offering were also for the purpose of part-financing of capital expenditure on ship building projects and since some of the contracts were rescinded the refund received was agreed to be redeployed vide shareholders resolution towards various other ship building projects including acquisition of vessels. From the details as noted audited financial statements it is evident that out of the amount of Rs. 330.65 crore an amount of Rs. 196.80 crore was utilized for acquiring the equity portion of various ships and vessels. The amount pending utilization for the said purpose has been placed by the assessee as fixed deposits with the banks on which the assessee has earned interest income. Therefore we are of the considered view that the interest arising on the said fixed deposits is in the nature of business income since the only business carried out by the assessee is that of operation of qualifying ships. Fixed Deposits placed to comply Facility Agreement - In the present case there is no dispute regarding the fact that the fixed deposits were placed with the bank in view of the agreement entered into by it with the lender from whom the loan was received by the assessee for the purpose of acquiring ships and vessels. Thus we are of the considered view that the fixed deposits maintained with the bank are inextricably linked with the business of the assessee of operating qualifying ships and the interest earned by the assessee on fixed deposits placed with the banks complying with the covenants in the loan agreement entered for the purpose of acquiring ships and vessels is in the nature of business income of the assessee and relates to core shipping activity. Fixed Deposits placed for meeting Working Capital Requirement - We find that the interest income earned from fixed deposits of funds which are required for meeting the working capital requirement and repayment of loans was held to be in the nature of business income since the funds are nothing but the funds required for running the shipping business by the Co-ordinate Bench of the Tribunal in assessee s own case for the assessment year 2008-09. Therefore respectfully following the decision rendered in assessee s own case the interest income earned from fixed deposits placed with the banks for meeting working capital requirement in the year under consideration is held to be in the nature of business income and relates to the core shipping activity. Therefore AO is directed to treat the interest income as part of the profits from core shipping activities carried on by the assessee. Accordingly Ground No. 1 raised in assessee s appeal is allowed. Disallowance made u/s 14A r.w. Rule 8D - HELD THAT - We find that the CIT(A) deleted the disallowance made under section 14A r.w. Rule 8D of the Rules by placing reliance upon the decision of the Co-ordinate Bench of the Tribunal in M/s Varun Shipping Company Ltd. 2011 (11) TMI 370 - ITAT MUMBAI In the absence of any contrary decision being brought on record we find no infirmity in the findings of the learned CIT(A) on this issue which are based on the judicial pronouncement by the Coordinate Bench of the Tribunal. Accordingly the same is upheld and Grounds No. 1 and 2 raised in Revenue s appeal are dismissed. Disallowance of administrative expenditure incurred towards earning income from incidental activities - HELD THAT - We find that while considering a similar issue of disallowance of administrative expenses against income from incidental shipping activities the Co-ordinate Bench of the Tribunal in assessee s own case in The Shipping Corporation of India Ltd. 2024 (10) TMI 736 - ITAT MUMBAI DR could not show us any reason to deviate from the aforesaid decision rendered in assessee s own case and no change in facts and law was alleged in the relevant assessment order. Therefore we find no infirmity in the impugned order passed by the learned CIT(A) on this issue.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS Interest Income as Core Shipping Activity
Disallowance under Section 14A
Allocation of Administrative Expenses
3. SIGNIFICANT HOLDINGS
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