1970 (9) TMI 27 - HC - Income Tax

Business of deep sea fishing with the help of trawlers and selling the same - proper construction of the expression any profits and gains derived from a ship occurring in section 80J of the Income-tax Act, 1961 - applicability provisions of section 80J(1) of the profits and gains from fishing using ships

Issues Involved:

1. Proper construction of the expression "any profits and gains derived from a ship" under section 80J of the Income-tax Act, 1961.
2. Entitlement of the petitioner-company to relief under sections 80J and 80K of the Income-tax Act, 1961.
3. Interpretation of the term "derived" in the context of income tax benefits.
4. Application of the conditions in sub-section (5) of section 80J to the petitioner's case.

Issue-wise Detailed Analysis:

1. Proper Construction of the Expression "Any Profits and Gains Derived from a Ship" under Section 80J:

The primary issue revolves around the interpretation of the phrase "any profits and gains derived from a ship" in section 80J of the Income-tax Act, 1961. The petitioner-company argued that the profits earned from using trawlers for deep sea fishing should qualify as profits derived from a ship. The court, however, held that the term "derived from a ship" should be construed as profits directly originating from the ship itself, not merely using the ship as an instrument for business activities. The court emphasized that the ship must be a direct source of income, such as earning freight by transporting passengers or cargo.

2. Entitlement of the Petitioner-Company to Relief under Sections 80J and 80K:

The petitioner-company claimed entitlement to relief under sections 80J and 80K, arguing that the trawlers used for deep sea fishing fulfilled all the conditions mentioned in sub-section (5) of section 80J. The company contended that since the profits were derived from the use of these trawlers, they should be eligible for the tax benefits. However, the court concluded that the profits and gains must be directly derived from the ship itself, not from the business activity using the ship as an instrument. Thus, the petitioner's claim for relief under sections 80J and 80K was not upheld.

3. Interpretation of the Term "Derived" in the Context of Income Tax Benefits:

The petitioner-company relied on the Privy Council decision in Commissioners of Taxation v. Kirk, where the term "derived" was interpreted as synonymous with "arising" or "accruing." The court, however, distinguished this case, noting that the principle established in Kirk was not applicable to the present case. The court stated that the expression "derived from a ship" must mean originating from the ship as a direct source of income, rather than as an instrument for generating income from business activities.

4. Application of the Conditions in Sub-section (5) of Section 80J to the Petitioner's Case:

The court acknowledged that the trawlers owned by the petitioner-company fulfilled all the conditions mentioned in sub-section (5) of section 80J. However, fulfilling these conditions alone was not sufficient to claim the benefits under section 80J. The court emphasized that sub-section (5) merely prescribes conditions and does not confer any benefits. The benefits are conferred by the operative part in sub-section (1) of section 80J, which requires that the profits and gains must be directly derived from the ship. Since the petitioner's profits were derived from the business activity of catching and selling fish, and not directly from the ships, the court concluded that the petitioner was not entitled to the benefits under section 80J.

Conclusion:

The court held that the interpretation put by the respondent on the expression "any profits and gains derived from a ship" was proper and justified. The refusal to issue the certificate applied for by the petitioner-company was upheld, and the rule was discharged with no order as to costs.

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