2013 (4) TMI 391 - AT - Income Tax

Recruitment fees - Whether treated as the income not incidental for computing its shipping income under Tonnage Tax Scheme u/s 115 VI read with Rule 11-R of the Income Tax Rules - assessee in the present case is a company which is engaged in the business of shipping operations - Held that - Prior to A.Y. 2005-06 the benefits of shipping company were provided in section 33AC of the Act by way of deduction of an amount not exceeding 50% of profits derived from the business of operation of ships. As rightly submitted by the ld. counsel for the assessee, the scope of benefits provided u/s 33AC of the Act thus was limited to the profits derived from the operation of ships in which the recruitment fees arising from incidental activities was not covered. Chapter XII-G, however, has extended this scope from A.Y. 2005-06 which in addition to the profits from core activities from operating qualifying ships also includes profits from incidental activities. Keeping in view this extended scope of benefits available now under Chapter XII-G inserted in the statute w.e.f. 1-4-2005, the assessee has claimed the benefit in respect of recruitment fees which was earlier not available u/s 33AC of the Act, the scope of which was limited only to profits derived from the operations of ships. Therefore, delete the addition made by the A.O. and confirmed by the ld. CIT(A) on account of recruitment fees. In favour of assessee. Disallowance of expenses claimed against miscellaneous income - Held that - As rightly submitted by the D.R., the details of the expenses claimed by the assessee have not been furnished by the assessee either before the authorities below or even before the Tribunal and in the absence of the same, agreeing with the contention of the D.R. that there is no case made out by the assessee for the assessee to justify any more opportunity to be given to the assessee at this stage to support and substantiate its claim on this issue. Thus uphold the impugned order of the ld. CIT(A) confirming the disallowance made by the A.O. on this issue. Against assessee.

Summary

Issues Involved:
1. Taxability of recruitment fees under the Tonnage Tax Scheme.
2. Alternative claim for deduction of expenses if recruitment fees are taxed separately.
3. Disallowance of expenses claimed against miscellaneous income.

Detailed Analysis:

1. Taxability of Recruitment Fees under the Tonnage Tax Scheme:
The primary issue is whether the recruitment fees received by the assessee can be considered as part of the relevant shipping income under the Tonnage Tax Scheme as per section 115VI read with Rule 11-R of the Income Tax Rules. The assessee, a company engaged in shipping operations, argued that recruitment fees received for recruiting personnel for foreign ships should be treated as incidental to the core shipping business. The Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that these services were administrative and not linked to the operation of ships, thus not qualifying as incidental activities under Rule 11-R.

Upon review, it was noted that the recruitment fees fell under "maritime education or recruitment fees" as prescribed in Rule 11-R. The tribunal found that the services provided by the assessee, such as screening, hiring, and other recruitment-related activities for foreign ship owners, were indeed incidental to the core shipping activities. Consequently, the recruitment fees were deemed part of the relevant shipping income under the Tonnage Tax Scheme, and the addition made by the A.O. and upheld by the CIT(A) was deleted.

2. Alternative Claim for Deduction of Expenses:
The assessee's alternative claim was that if the recruitment fees were to be taxed separately, the expenses incurred for earning these fees should be deducted. Since the tribunal decided that the recruitment fees are part of the relevant shipping income and not chargeable separately, this alternative claim became infructuous and was dismissed.

3. Disallowance of Expenses Claimed Against Miscellaneous Income:
For the assessment year 2006-07, the assessee claimed adhoc expenses of Rs. 2,06,299/- against miscellaneous income of Rs. 3,58,636/- on account of VISA processing fees and charges for the seaman book. The A.O. disallowed these expenses due to lack of details and because no such expenses were claimed in the previous year. The CIT(A) upheld this disallowance as the assessee failed to provide specific submissions or details to substantiate the claim.

The tribunal agreed with the CIT(A) and the A.O., noting that the assessee did not furnish the necessary details either before the lower authorities or the tribunal. Therefore, the tribunal upheld the disallowance of the expenses claimed against the miscellaneous income.

Conclusion:
Both appeals of the assessee were partly allowed, with the tribunal ruling in favor of the assessee on the issue of recruitment fees being part of the relevant shipping income under the Tonnage Tax Scheme, while dismissing the alternative claim and upholding the disallowance of expenses against miscellaneous income.