2015 (2) TMI 16 - HC - Income Tax

Income derived from slot charter' operations of a tonnage tax company' - whether liable to be excluded while determining the tonnage income' under the tonnage tax scheme' if such operations are carried on in ships which are not qualifying ships' in terms of the provisions of that Chapter of the Act and the relevant provisions of the Income Tax Rules, 1962? - Held that - Reverting to Sections 115VB, 115VC and 115VD, it can be seen that while it is necessary to own at least one qualifying ship for a company to be a qualifying company, operating ships may be either owned or chartered by the company and include slot charter, space charter or joint charter. These provisions clearly show that income derived from slot charter operations of a tonnage tax company is to be included to determine the tonnage income of a tonnage tax company even if such operations are carried on in ships which are not qualifying ships in terms of the provisions of Chapter XII G of the Act. We answer the question formulated above by holding that the income derived from slot charter operations of a tonnage tax company is not liable to be excluded while determining the tonnage income under the tonnage tax scheme on the ground that such operations are carried on in ships which are not qualifying ships in terms of the provisions of Chapter XII G of the Act.

Issues:
1. Whether income from 'slot charter' operations of a 'tonnage tax company' should be included in determining 'tonnage income' under the 'tonnage tax scheme' only if carried out in 'qualifying ships'?
2. Interpretation of the provisions of Chapter XII G of the Income Tax Act, 1961 regarding 'slot charter' operations and 'qualifying ships'.

Analysis:

Issue 1: The primary question in this case is whether the income derived from 'slot charter' operations of a 'tonnage tax company' should be considered while determining the 'tonnage income' under the 'tonnage tax scheme' only if such operations are conducted in 'qualifying ships'. The appellant, a 'qualifying company', operated a 'qualifying ship' and had 'slot charter' arrangements in other ships during the assessment years. The department contended that to avail the benefits of Chapter XII G, the ships involved in 'slot charter' arrangements must also be 'qualifying ships' with valid certificates. However, the appellant argued that the provisions of the Act and Rules do not mandate such a requirement and that the concept of 'slot charter' is included through deeming provisions. The Court analyzed various statutory provisions, including Sections 115VA, 115VB, and 115VG, along with Rule 11Q of the Rules, to conclude that the income from 'slot charter' operations should be included in determining 'tonnage income' irrespective of the ships being 'qualifying ships'.

Issue 2: The Court delved into the provisions of Chapter XII G of the Act, inserted in 2004, to define the 'tonnage tax scheme' and 'tonnage income'. It highlighted that the computation of 'tonnage income' is governed by Section 115VG, which includes the concept of 'deemed tonnage' for arrangements like 'slot charter'. The Court emphasized that the statutory form, Form No.66, prescribed for audit reports under Rule 11T, supports the inclusion of 'slot charter' income in determining 'tonnage income'. Additionally, the Court analyzed Note 3 of the form, which provides a formula for converting slots hired into net tonnage, reinforcing the position that 'slot charter' operations are integral to the 'tonnage tax scheme'.

Conclusion: The Court held that the income from 'slot charter' operations of a 'tonnage tax company' should not be excluded while determining 'tonnage income' under the 'tonnage tax scheme' based on the ships being 'qualifying ships'. The judgment set aside the orders of the Income Tax Appellate Tribunal and directed the Assessing Officer to modify the assessment orders in accordance with the law, emphasizing the inclusion of 'slot charter' income in the computation of 'tonnage income'.

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