2014 (1) TMI 1316 - AT - Income Tax

Qualification u/s 115VD and 115VC of the Act Tonnage tax on qualifying ship Qualifying Company Held that - The decision in Assistant Commissioner of Income-tax Versus West Asia Maritime Ltd. 2011 (7) TMI 1017 - ITAT CHENNAI followed for the purpose of qualification of tonnage tax benefit - the ship was operated by the assessee for transporting thermal coal from one location to another location within the country, is a qualifying ship u/s 115VD and the assessee is entitled for the benefit of tonnage tax scheme provided under Chapter XII-C - The place where the board of directors of the company made their decision would not be India just because the two of the directors were in India - Attendant circumstances as to whether the said persons were residents of India or residing abroad or whether functioning from an office abroad were all required to be seen before coming to a decision regarding the place of effective management the aspect requires a fresh look by the Assessing Officer for verifying the actual and effective place where the decisions were taken by the board of directions with regard to the affairs of the assessee company - Therefore, while holding that the ship was indeed a qualifying ship for enjoying the TTS, the issue as to whether assessee qualified under section 115VC of the Act, remitted back to the Assessing Officer for fresh consideration Decided partly in favour of Revenue. Deletion made u/s 14A of the Act Held that - As the disallowance under section 14A is concerned, there is no doubt that Rule 8D applied only from A.Y.2008-09 as decided in Varun Shipping Co. Ltd. Versus Additional Commissioner of Income-tax - 5(3), Mumbai 2011 (11) TMI 370 - ITAT MUMBAI the matter is already set aside the issue as to whether assessee was eligible for TTS, back to the Assessing Officer for consideration afresh - thus, it will be appropriate if the Assessing Officer once again consider the question of disallowance if any, to be made under section 14A of the Act for all these years, afresh. Addition to be made in book profits u/s 115JB of the Act - Provision for loan on revision of foreign currency loans Held that - It was included by the assessee as a part of establishment and other expenses, Assessing Officer had simply taken a presumption that it was a provision - Assessing Officer had not gone into the accounts to see whether the claim was made by the assessee through its Profit and Loss appropriation account or, its P&L account. Ld. CIT(A) had given relief to the assessee for a reason that, assessee was eligible for TTS under Chapter XIIG of the Act - CIT(A) had relied on Sec.115VO, which exempted a tonnage tax company from the application of Sec.115JB of the Act the matter is already set aside the issue as to whether assessee was eligible for TTS, back to the Assessing Officer for consideration afresh thus, the order set aside and the matter remitted back for the fresh adjudication Decided partly in favour of Revenue.

Summary

Issues Involved:
1. Application of Tonnage Tax Scheme (TTS) under Chapter XIIG of the Income Tax Act, 1961.
2. Disallowance under Section 14A of the Income Tax Act.
3. Addition of provision for foreign currency loan revaluation to book profits under Section 115JB of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Application of Tonnage Tax Scheme (TTS) under Chapter XIIG of the Income Tax Act, 1961:

The Revenue challenged the application of the Tonnage Tax Scheme (TTS) on two grounds:
(i) The ship on which the assessee claimed the tonnage tax was not a qualifying ship as defined under section 115VD of the Act.
(ii) The assessee was not a qualifying company as defined under section 115VC of the Act.

The assessee, engaged in the business of shipping/port services, owned a ship named 'M V Gem of Ennore,' which was given on a long-term lease to M/s. Poompuhar Shipping Corporation for transporting thermal coal. The Assessing Officer (AO) denied the TTS benefit, arguing that coal is typically transported by road, and the ship did not qualify under section 115VD. Furthermore, the AO contended that the assessee did not meet the definition of a qualifying company under section 115VC due to the significant influence of a major shareholder based in Mauritius.

The CIT(A) allowed the TTS benefit, referencing a Tribunal decision in the case of West Asia Maritime Ltd., a co-owner of the ship. The Tribunal had previously ruled that the ship qualified for TTS despite transporting coal between Indian ports.

Upon appeal, the Tribunal upheld that the ship 'M V Gem of Ennore' was indeed a qualifying ship under section 115VD, as the Tonnage Tax Scheme does not distinguish between coastal and international shipping. However, the Tribunal noted that the issue of whether the assessee was a qualifying company under section 115VC required further examination. The case was remitted back to the AO to verify the effective place of management of the assessee company, considering the significant shareholding by a Mauritius-based company.

2. Disallowance under Section 14A of the Income Tax Act:

For the Assessment Years 2006-07, 2008-09, and 2009-10, the Revenue contested the deletion of disallowance made by the AO under section 14A. The AO had applied Rule 8D for disallowance, which was upheld by the CIT(A) based on the Tribunal's decision in Varun Shipping Co. Ltd., stating that no disallowance under section 14A could be made if the assessee was eligible for TTS.

The Tribunal acknowledged that Rule 8D applies from AY 2008-09, as per the Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd. However, for earlier years, appropriate disallowance under section 14A was still required. Given that the issue of TTS eligibility was remitted back to the AO, the Tribunal also remitted the disallowance issue under section 14A for fresh consideration.

3. Addition of provision for foreign currency loan revaluation to book profits under Section 115JB of the Income Tax Act:

For AY 2009-10, the Revenue challenged the CIT(A)'s decision that provision for loss on foreign currency transactions should not be added back while computing book profits under section 115JB. The AO had added back the provision, considering it a provision for fluctuations in foreign currency.

The CIT(A) ruled that the question of computing tax under section 115JB did not arise as the assessee was eligible for TTS. The Tribunal noted that the AO had not verified whether the loss was claimed as a provision. Given that the issue of TTS eligibility was remitted back, the Tribunal also remitted this issue for fresh examination by the AO.

Conclusion:

The appeals of the Revenue for all the years were partly allowed for statistical purposes, with the issues remitted back to the AO for fresh consideration. The Tribunal upheld the CIT(A)'s view that the ship qualified for TTS but required further verification on whether the assessee was a qualifying company under section 115VC. The disallowance under section 14A and the addition of provision for foreign currency loan revaluation under section 115JB were also remitted for fresh consideration.