2017 (11) TMI 58 - AT - Income Tax

Addition relating to interest on house building and other advances - tonnage tax - AO computed the income as per the provisions of section 115 VG - receipts on account of interest earned on house building advances had been reduced from the tonnage tax receipts and assessed separately as receipts from non core activities - CIT(A) confirmed the order of the assessing officer following the ITAT s order in assessee s own case for the assessment year 2006-07 to 2008-09 - Held that - As AR did not bring any other decision supporting the subject receipt as the receipt from the core activity. The source of receipt is the interest on house building advances given by the assessee and not from the dredging operations carried on by the assessee. The income from shipping is defined in section 115VI and the incidental activity in Rule 11R of Income tax Rules and the receipt of interest from the house building advance is not covered by the Section 115VI and Rule 11R. The Ld. CIT(A) has confirmed the addition following the order of this Tribunal. As discussed above the receipts are not from the core activity of shipping operation but from the interest on House building and other advances. Hence we uphold the order of the Ld. CIT(A) and dismiss the ground of the assessee on this issue. Liquidated damages collected from various contract parties as compensatory payment for failure to execute contract work within the stipulated time - Held that - Profits and gains for the purpose of industrial undertaking required to be computed as per the provisions of section 28 to 43C of I.T. Act and the deduction required to be allowed u/s 80IA of I.T. Act from the business income. Whereas in the case of tonnage tax as provided u/s 115VI, the income required to be computed as per Chapter XIIG of I.T. Act at the option of the assessee. Once, the assessee opts tonnage tax scheme, the income of the assessee from shipping company required to be computed as provided in Chapter XIIG. Therefore, the decision relied upon by the Ld.AR is distinguishable and not applicable in the assessee s case. Accordingly, we hold that Ld.CIT has rightly confirmed the addition and dismiss the appeal of the assessee on this ground. Interest on arbitration award for Link Road Project, Kochi and Essar Steel Projects Ltd - Held that - Since the income from shipping activity is clearly spelt out in section 115VI and Rule 11R, we hold that the interest on arbitration award is not from the core activity and should be separated from the core activity and to be taxed separately. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the assessee s appeal. Miscellaneous receipts - Recovery towards lease quarters,Staff car recoveries, Fee for RTI, Sale of tender documents, Mess charges,Rent for hiring quarters / offices, Late attendance receipts - Held that - Above receipts do not form part of income from shipping within the meaning of section 115VI and Rule 11R as discussed above. During the appeal hearing, Ld.AR did not demonstrate how the above receipts are from the shipping within the meaning of section 115VI and Rule 11R of I.T.Act. The issue with regard to shipping for tonnage tax scheme was discussed in detail in para No.4 in Liquidated damages. The above receipts do not fall under the tonnage tax scheme as envisaged in section 115VI and Rule 11R of I.T. Rules. This tribunal in assessee s own case expressed the same view in the case cited (supra). Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee Miscellaneous income - Held that - In both the years the assessee has not furnished the details to ascertain whether the receipts qualify for tonnage tax or not. Both the Ld. DR and Ld. AR agreed to remit the matter back to the file of the AO to examine the nature of receipts and to decide the issue on merits. Therefore, we remit the matter back to the file of the AO with a direction to examine the issue and decide the issue afresh on merits. Claim of expenses - Held that - In this case, the assessee did not demonstrate that it had incurred the expenditure separately over and above the expenditure debited to the Profit & Loss Account. No separate books of accounts are maintained for non core income and core income, thus we dismiss the appeal of the assessee on this ground Liquidated damages and arbitration award - Held that - We have elaborately discussed the issue what constitutes core income. The assessee has opted for tonnage tax scheme under the provisions of 115VI under Chapter XIIG of I.T. Act. This is known an tonnage tax scheme under which the income is computed at specified rate, net tonnage of the ship under section 115VG. The definition of core activities has been defined as activities from operating qualifying ships and other shipping related activities. Therefore, the interest received on delayed payments and other miscellaneous receipts such as recruitment fee, cancellation of DD, seminar expenses, EMD forfeited, vender registration form/tender form, transportation of pipeline guarantee amount forfeited and miscellaneous receipts (bifurcation under process) cannot be held to be received from the shipping activities. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and the appeals of the assessee are dismissed. Provisions written back - Held that - The provisions were debited to the Profit & Loss account in the earlier years in which it was created. The provisions are not allowed as deduction as per the act while computing the income of the corresponding assessment year. However, the expenditure debited to Profit & Loss account has no relevance for computation of the income under tonnage tax, as the income is computed as per Section 115VG of the Act and the expenditure is not allowed as deduction irrespective of the expenditure debited to the Profit & Loss account. Therefore, debiting of expenditure to the Profit & Loss account and reversal of expenditure has no relevance in computation of income under tonnage tax scheme when the income is being determined under the special provisions applicable to the assessee. Therefore, there is no case for excluding the items or provision written back from the core income and to tax separately. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld. Employees Contribution to PF - Held that - Assessee would be entitled for deduction of the employees contribution of PF made before the due date for filing of the return of income u/s.139(1) of the I.TAct Computing the income under tonnage tax scheme the expenses debited in profit and loss account has no relevance - Held that - This is an item of credit which is only reversal of debit made earlier. When it was debited to Profit & Loss Account, it was added back in the computation of income when such item was not allowed/claimed as deduction while computing the income, the same cannot be considered as an item of income. Further when the assessee has opted for tonnage tax scheme, the amounts debited to Profit & Loss account has no relevance in computation of tonnage income. Therefore, we do not find any infirmity in the order of the CIT(A) and the same is upheld. The appeal of the revenue is dismissed.

Summary

Issues Involved:

1. Addition of interest on house building and other advances.
2. Treatment of liquidated damages.
3. Interest on arbitration awards (Link Road Project, Kochi and Essar Steel Ltd.).
4. Various miscellaneous receipts.
5. Claim of expenses related to non-core income.
6. Interest on foreign exchange and other minor credits.
7. Sale of scrap, insurance, and foreign exchange as core income.
8. Provisions written back.
9. Employees' contribution to PF.

Detailed Analysis:

1. Addition of Interest on House Building and Other Advances:
The assessee included interest earned on house building advances in the core activity of dredging for the assessment years 2009-10, 2010-11, and 2011-12. The Assessing Officer (AO) assessed this interest as non-core income and taxed it separately. The CIT(A) confirmed the AO's order, and the ITAT upheld this decision, stating that the interest on house building advances is not from the core activity of dredging as defined in Section 115VI and Rule 11R of the Income Tax Act.

2. Treatment of Liquidated Damages:
The AO treated liquidated damages collected from various contractors as non-core income for the assessment years 2010-11 and 2011-12. The CIT(A) confirmed this view, and the ITAT upheld the decision, stating that liquidated damages are compensatory payments and not directly from the shipping activity. The ITAT noted that the liquidated damages do not fall under the core or incidental activities defined in Section 115VI and Rule 11R of the Act.

3. Interest on Arbitration Awards (Link Road Project, Kochi and Essar Steel Ltd.):
The AO assessed interest on arbitration awards as non-core income for the assessment years 2008-09 and 2009-10. The CIT(A) confirmed this, and the ITAT upheld the decision, stating that the interest on arbitration awards is compensatory in nature and not directly from the shipping activity. The ITAT emphasized that such interest does not fall under the core or incidental activities defined in Section 115VI and Rule 11R.

4. Various Miscellaneous Receipts:
The AO treated various miscellaneous receipts (e.g., recovery towards lease quarters, staff car recoveries, sale of tender documents) as non-core income for the assessment years 2010-11 and 2011-12. The CIT(A) confirmed this, and the ITAT upheld the decision, stating that these receipts do not form part of income from shipping within the meaning of Section 115VI and Rule 11R.

5. Claim of Expenses Related to Non-Core Income:
The assessee argued that if certain receipts are not considered core income, the related expenses should be allowed as deductions. The CIT(A) dismissed this ground, and the ITAT upheld the decision, stating that allowing such deductions would amount to double deduction of the same expenditure, which is not permitted under the Act.

6. Interest on Foreign Exchange and Other Minor Credits:
The AO treated interest on foreign exchange and other minor credits (e.g., recruitment fee, seminar registration fee) as non-core income for the assessment years 2006-07 to 2008-09. The CIT(A) confirmed this, and the ITAT upheld the decision, stating that these receipts are compensatory in nature and not directly from the shipping activity.

7. Sale of Scrap, Insurance, and Foreign Exchange as Core Income:
The AO treated receipts from the sale of scrap, insurance, and foreign exchange as non-core income for the assessment years 2009-10 to 2011-12. The CIT(A) held these receipts as core income, following the ITAT's earlier order. The ITAT upheld the CIT(A)'s decision, stating that these receipts are directly relatable to the activity of operating qualifying ships.

8. Provisions Written Back:
The AO treated provisions written back (e.g., bad debts, impairment of loss) as non-core income for the assessment year 2011-12. The CIT(A) deleted the addition, stating that such reversals are not items of income. The ITAT upheld this decision, noting that the provisions were not allowed as deductions in earlier years and have no relevance in the computation of income under the tonnage tax scheme.

9. Employees' Contribution to PF:
The AO added employees' contribution to PF paid after the due date under the PF Act but before the due date for filing the income tax return. The CIT(A) deleted the addition, following various High Court decisions that allowed such deductions. The ITAT upheld the CIT(A)'s decision, stating that the deduction should be allowed if the payment is made before the due date for filing the return of income.

Conclusion:
The ITAT dismissed the appeals of the assessee for the assessment years 2009-10, 2010-11, and 2011-12 on various grounds, while partly allowing the appeals for statistical purposes. The appeals of the revenue for the assessment years 2009-10 to 2011-12 were dismissed. The cross-objections filed by the assessee in support of the CIT(A) were allowed.