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TMI Blog2012 (12) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in case of Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) that provisions of Rule 8D are applicable from A.Y 2008-09 and cannot be applied retrospectively. Rule 8D applied by the AO to work out the disallowance u/s 14A was not applicable to the year under consideration. In favour of assessee Tonnage taxation – Chapter-XII-G - Computation of income from business of operating qualifying ships u/s 115VA - Exclusion from tonnage income - Bad debts recovered - Crude oil refund - General average claims received - Held that:- Following the decision in case of Shipping Corporation of India Ltd. (2011 (7) TMI 588 - ITAT, MUMBAI) that when all the ships of the assessee are qualifying ships and when there is no other activity other than core activities and incidental activities, in our opinion, a third category of other business income cannot be created. In favour of assessee Tonnage taxation - Chapter-XII-G - Exclusion from tonnage income – liabilities u/s 41(1) of prior periods written back – Expenditure claimed in pre-tonnage tax scheme - Held that:- Following the decision in case of Shipping Corporation of India Ltd. (2011 (7) TMI 588 - ITAT, MUMBAI) that section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Part of year) 25,06,178 The loan was initially utilized for acquisition of vessel Jag Prakash which is qualifying ship. The said vessel was sold during the year on 09/11/2005, and it is the assessee's contention that the sale proceeds realized were utilized for nontonnage activities. However, there is nothing on record to substantiate such assertion. Rs.23,33,33,333 (Part of year) 1,28,20,998 The loan was initially utilized for acquisition of vessel Jag Laila. The The said vessel was sold during the year on 27/08/2005, and it is the assessee's contention that the sale proceeds realized were utilized for non-tonnage activities. There is, however, nothing on record to substantiate such contention. Earlier Period Loan 84,61,557 The Loan Fund was utilized for acquisition of ships. The assessee's contention that before such acquisition, the loan was kept in bank is not borne out by anything on record. Otherwise also, it is difficult to believe that interestbearing loan would be taken for immediate transfer to bank as deposit. Earlier Period Loan 17,98,528 The Loan Fund was utilized for acquisition of ships. The assessee's contention that before such acquisition, the loan was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such loan towards the nontonnage tax activities was also explained and the annual loan utilization statements for each such loan were explained to the Assessing Officer. The day-wise loan utilization statements for investments were also produced before the Assessing Officer and it was explained that the interest claimed against the non-tonnage tax activities, was on the basis of the actual loan utilization towards such activities. The aforesaid statements were also furnished during the course of the appellate proceedings and the utilization of such loans by way of investments in mutual funds and bank deposits was duly explained. It was also explained that such interest expenditure was therefore also considered for the purposes of computing the disallowance under section 14A of the Act. c) It was explained that there are instances where a loan transaction is finalized and the loan is disbursed, but such funds are not immediately required for tonnage activities. Thus, such funds are utilized for nontonnage tax activities and consequent thereto, the interest expenditure for such funds, forms part of the non-tonnage tax activities of the Appellant. d) It was further explained tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan towards the nontonnage tax activities was also explained and the annual loan utilization statements for investments have also been furnished and it was explained that the interest claimed against the non-tonnage tax activities, was on the basis of the actual loan utilization towards such activities. It is apparent that the loan funds have been utilized for investments in bank deposits and other investments. Such funds have not been utilized for tonnage tax activities. The commercial rationale for treating such funds as part of the non-tonnage tax business was also explained. The Assessing Officer has also stated that the loans which were availed for ship related activities have been diverted to non-tonnage tax activities. If that is so, the interest expenditure on such loans would have to be treated as non-tonnage tax expenditure and cannot be attributed to the tonnage tax business of the Appellant Company. The expenditure incurred for earning such income has to be allowed against such income. In view of the above, the Assessing Officer's action of attributing interest expenditure to the tonnage income of the appellant is erroneous and contrary to the facts on record and such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances and in the law, the Ld. CIT(A) erred in computing the disallowance u/s 14/8D at Rs.5,98,139/- as against Rs.1,30,41,628/- computed by the A.O. and further holding that Rule 8D provisions are not applicable for the year for the purpose to compute disallowance u/s 14A of the I.T. Act, 1961." 8. During the year under consideration, the assessee company had earned total dividend income of Rs.8,58,27,056/- out of which a sum of Rs.8,42,59,363/- was claimed as exempt u/s 10(34) of the Act. In the computation of total income, a disallowance of Rs.1,42,35,303/- was suo motu made by the assessee u/s 14A being the expenditure incurred in relation to earning of exempt dividend income. The working furnished by the assessee to arrive at the said figure of Rs.1,42,35,303/- was not according to Rule 8D of the Income Tax Rules which, according to the AO, was applicable to the year under consideration. He, therefore, recomputed the disallowance of expenses to be made u/s 14A by applying the said Rule 8D at Rs.1,48,33,441/- which resulted in additional disallowance of Rs.5,98,139/- u/s 14A. 9. The additional disallowance of Rs.5,98,139/- made by the AO u/s 14A was disputed by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view the above submissions and relying on the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. 328 ITR 81 wherein it was held that the provisions of Rule 8D are applicable only from assessment year 2008-09, the assessee submitted before the learned CIT(Appeals) that the additional disallowance made by the AO u/s 14A is not sustainable. 10. The learned CIT(Appeals) found merit in the submissions made on behalf of the assessee on this issue and deleted the additional disallowance of Rs. 5,98,139/- made by the AO for the following reasons given in paragraph No. 4.7 and 4.8 of his impugned order : "4.7 I have carefully considered the facts of the case. Based on the factual matrix of the case, the issue in dispute is regarding the attribution of administrative expenditure to the earning of dividend income. The point to be noted is that the Appellant Company had disallowed an amount of Rs. 142.35 lakhs while filing the return of income. This consisted of interest expenditure of Rs.134.11 lakhs and administrative expenditure of Rs.8.24 lakhs. The Assessing Officer has while relying on the provisions of Rule 8D disallowed interest expenses of Rs.17.91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses disallowed by the Appellant are upheld. The said disallowance computed by the Appellant Company under section 14A, while filing the return of income is therefore upheld and these grounds of appeal are therefore disposed of accordingly and partly allowed. 11. We have heard the arguments of both the sides and also perused the relevant material on record. As rightly submitted by the learned counsel for the assessee, the impugned order of the learned CIT(Appeals) is well reasoned and well discussed on this issue and the same is self explanatory as regards the reasons given by him for deleting the additional disallowance of Rs.5,98,139/- made by the AO u/s 14A. As held by him relying on the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co.Ltd. (supra), Rule 8D applied by the AO to work out the disallowance u/s 14A was not applicable to the year under consideration. The said disallowance for the year under consideration, therefore, was required to be worked out on some reasonable basis as held by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra) and since the working furnished by the assessee for making the disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid items are to be treated as forming part of the tonnage income as claimed by the Appellant in its Return of Income. 13. At the time of hearing before us, the learned counsel for the assessee has not pressed ground No.1. The same is accordingly dismissed as not pressed. 14. As submitted by the learned counsel for the assessee and remained uncontroverted/unrebutted by the by the learned DR who has simply relied on the order of the AO in support of the Revenue's case, the issues raised in ground Nos. 2, 3 and 4 of the assessee's appeal are squarely covered in favour of the assessee by the decision of coordinate bench of this Tribunal in the case of Shipping Corporation of India Ltd. rendered vide its order dated 29th July, 2911 passed in ITA No. 145/Mum/2011. A copy of the said order is placed on record before us and perusal of the same shows that similar issues involved in the case of Shipping Corporation of India Ltd. have been decided by the Tribunal in favour of the assessee wherein after identifying the issues and referring to the relevant provisions of the Act laying down the tonnage tax scheme, the Tribunal has given its findings/decision in paragraph No. 29 and 30 which r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is clearly provided that sections 28 to 43C would not over ride the computation of profits and gains under section 115VA. As section 41(1) falls within sections 28 to 43C, no separate addition under that section can be made. As section 41(1) seeks to bring to tax certain specified items of receipts under the head "profits and gains of business"" the scheme should not be invoked while computing profits and gains of business under Chapter-XII-G. Hence, we are of the opinion that the argument of the assessee should succeed. 30. With the introduction of chapter-XII-G, the entire methodology of taxing income from the business of operating qualifying ships has changed and recourse to the normal provisions of the Act in a peace-meal manner is not authorised by law. Though the assessee has computed other income while filing its return of income, in our opinion, the income arising from section 41(1), cannot be classified as, either income from other sources or income from incidental activities. When all the ships of the assessee are qualifying ships and when there is no other activity other than core activities and incidental activities, in our opinion, a third category of other busines ..... X X X X Extracts X X X X X X X X Extracts X X X X
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