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TMI Blog1989 (1) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction of giving the barge on lease was not assessable as business income but was assessable as income from other sources. Since, the said income was not business income, investment allowance, according to the ITO, was not allowable. The ITO accordingly disallowed the claim for investment allowance. Attention of the ITO had been drawn to certain passages in the book on " Charter parties and Bills of Lading " by Scrutton (18th Edition). One of the passages towards which attention of the ITO had been drawn is as follows : " Charter parties may be categorised according to whether or not they amount to a demise or lease of the ship. A charter by demise operates as a lease of the ship itself, to which services of the master and crew may or may not be superadded. A charter by demise of a ship without master or crew is sometimes called a " bareboat " or " net " charter. In contract ordinary " time charter " is sometimes called a " gross " charter. Under Charter by demise, the Charterer becomes for the time being the owner of the vessel, the master and crew become to all intends his servants, and through him the possession of the ship is with him. Under charter not by demise (tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was not entitled to investment allowance. He accordingly confirmed the disallowance. The assessee is now in further appeal before us and the first point raised is that both the authorities below had erred in coming to the conclusion that the act of the assessee did not amount to engaging in the business of operation of ships. 4. Shri Dilip Choksi, who appeared on behalf of the assessee, drew our attention to certain passages in the following books : (i) Scrutton on Charterparties and Bills of Lading (19th Edition) (ii) Patrick M. Alderton on Sea Transport (iii) Payne and Ivamy's Carriage of Goods by Sea (iv) C.J.S. Hills on an Introduction to the Law of Carriage of Goods by Sea (v) C.F.H. Cufflay on Ocean Freights and Chartering. He submitted that one of the methods by which a person may be engaged in the business of operation of ships was by means of which is technically known as a " Charter by demise " without master or crew, which is called as " bareboat " or " net " charter. In the present case, the assessee had entered into such charter and that the said act of entering into the charter amounting to engagement in the business of operation of ships and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or thing specified in the list in the Eleventh Schedule. " 8. We are concerned with sec. 32A(2)(a) of the Act. What we have to consider is whether the assessee was engaged in the business of operation of ships. 9. The business of operation of ships was a specialised business. Consequently, the expression " business of operation of ships " as it occurs in sub-section (2) of Sec. 32A shall have to be considered from the point of view of the businessman who is engaged in such business and not from the point of view of a person who has no detailed knowledge about the manner in which the business of operation of ships is carried on. It is for that reason that the observations in the standard books on this subject become relevant. 10. Copies of relevant passages from the above mentioned books have been filed before us. It is not necessary to quote all those passages in detail. On reading those authorities, the position that emerges may be stated as follows : 11. When a shop-owner or a person agrees to carry goods by water or to furnish a ship for the purposes of so carrying goods, in return for a sum of money to be paid to him, such a contract is called a contract of affreightmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there are for voyage and time charters each contract will be negotiated afresh. Basically the shipowner's only costs are depreciation, the survey to establish the actual condition of the ship before the charter and the fees of the broker (brokerage) who usually gets a percentage of the hire money (which is paid monthly in advance by the Charterer). The charterer is responsible for all the daily running costs, the bunkers and all the port costs. He also usually has to for the survey before handing the vessel back to the owner. This charter is usually for a longish period say from about five years or perhaps the whole life of the ship ". In Payne and Ivamy's Carriage of Goods by Sea, it is observed as follows : " Let us now examine the nature of Charterparties as contracts of affreightment. Unlike bills of lading which, as we have seen, are only the best available evidence of the contract, itself, and as such contains the signatures of both parties at the foot. The bill of lading, as has already been observed is significant by only one of the contracting parties. Charterparties cover basically two forms of contract, time charter and voyage charter. The variation of the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance that the business of manufacture or production should be carried on by the assessee and that if the assessee never carries on such business and merely leases the plant and machinery with intention to obtain rent as owner the activity would not amount to activity of manufacture or production of any article or thing and as such the income would not be business income. However, as already stated the position is different when we have to consider the expression 'business of operation of ships' in clause (a) of sec. 32A(2) of the Act. That expression, as already stated, would include within its compass the act of entering into what is known as " charterparty by demise ". 15. We may here refer to the decision of the Madras Bench of the Tribunal in the case of First Leasing Co. of India Ltd, v. ITO [1983] 3 ITD 808. In that case, the main purpose of the assessee-company for which it came into existence was to purchase machinery and equipments and to lease or otherwise deal with them in any manner whatsoever. The assessee purchased machinery of various kinds and pursuant to its main object of leasing it to others, leased the said machinery to various persons. The machinery leased o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the registration was obtained on 30-11-1983 had only the effect that it could be plied with effect from that date unless prior to that date some temporary permit had been obtained. However, this is not relevant as far as the point in controversy is concerned. 17. Another aspect to which the CIT(A) has made a reference is that the assessee himself had not carried on the business of shipping. This aspect is not relevant. As already stated, the requirement in sec. 32A(2)(a) is not that of carrying on business of operating the ships. We have already pointed out that charterparty by demise is one of the modes of business of operation of ships recognised in standard books on the subject. Consequently the fact to which the learned CIT(A) has drawn the attention is not relevant. The ITO has quoted a passage from the book of Mr. Scrutton to which we have already made a reference. In the passage quoted by the ITO it is mentioned that a charter by demise of a ship without master or crew is sometimes called a " bareboat " or " net " charter that under net charter by demise the charterer becomes for the time being the owner of the vessel to all intents. From this passage, the ITO has drawn th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal Pune Bench, Pune in the case of Banko National Ultra Marine and other cases. It is the appellant's contention that the interest subsidy is in the nature of a grant and not a revenue receipt and therefore it should not be deducted from the interest payment. According to the grant of subsidy the difference between the rate of interest normally chargeable for such loans from time to time would be subsidised by the Govt. of India. Therefore, as the interest subsidy reduces the interest payable by the appellant and on the basis of the decisions of the Tribunal, the deduction of the interest subsidy from the interest payments is in order and is confirmed ? " 21. The assessee is now in further appeal before us. The submission of the learned representative of the assessee before us is that subsidy regarding interest is in the nature of capital subsidy for promoting investment in barges and as such, although the amount of subsidy goes to reduce the overall interest liability, its nature is that of capital subsidy. He relied on those decisions of the Tribunal in which it has been held that cash subsidy under Central Government scheme should not be deducted from written down value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it represented additional assistance given by the government as an incentive to the small scale industries in backward areas for capital investments and not to supplement the profits of the assessee. The High Court accepted the said submission land held that the subsidy did not amount to refund of sales-tax as the same was subject to certain terms and conditions and that subsidy was a receipt of capital nature and not liable to tax. It was emphasised that the subsidy had been given on the basis of a particular scheme in respect of industries situated only in backward area and that the same had been given by way of an incentive for capital investments and not by way of additions to the profits of the assessee. In the present case, the subsidy has been given by way of relief in payment of higher rate of interest on the loans taken by the assessee. There is a direct nexus between the loan and the subsidised rate of interest. In these circumstances, the ratio of the said decision would not be applicable to the facts of the present case. We accordingly reject the submission of the assessee to the effect that we should not follow the earlier decision of the Tribunal in which a view aga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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