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TMI Blog2018 (10) TMI 497X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the AO to verify whether the provisions are created in relation to the core activity transaction or not. If the provisions are related to the income from core activity which was already included in tonnage income in the earlier years the same are required to be excluded from the non-core income. Accordingly, the AO is directed to verify the facts and reconsider the issue on merits after giving opportunity to the assessee Damages from IHC Holland for deficiency in the Dredger supplied - Held that:- For the said deficiencies, the assessee had received the damages from IHC Holland which are directly relatable to the core activity of the assessee. Therefore, required to be assessed as core income. The assessee’s activity is dredging operations. The damages received from the IHC Holland were for compensation of the deficiencies in the dredger. The receipt was neither from dredging activity nor from any other operational activity of shipping of the assessee. The receipts are similar to that of liquidated damages and the receipt should fit into the definition of the shipping activity as specified in section 115VI of the Act r.w.Rule 11R to treat the same as core income. In the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tonnage tax scheme. Accordingly, the receipts of EMD and SD are one step away from the dredging activity and would not be eligible for tonnage tax scheme. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and dismiss the appeal of the assessee. Deduction of expenses in respect of incomes considered as not forming part of core activity - Held that:- This Tribunal in the assessee’s own case for the assessment year 2012-13 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 and this issue is squarely covered by the decision of this Tribunal cited supra. Therefore, following the order of this Tribunal, we dismiss the appeal of the assessee on this ground. Receipts on account of sale of scrap, sale of empties, sale of condemned stores and spares and sale of waste oil, sale of assets and exchange difference - AO treated the receipts from the above activity as non core receipts and accordingly brought to tax other than the income from tonnage tax scheme - Held that:- As de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,79,175.71 2. Sale Scrap, Empties, Condemned Stores, Waste Oil, Condemned Assets 50,79,282.00 3. Provision for bad debts previously created now written back 6,88,01,067.00 4. Provision no longer required, written back Finance Accounts Section 8,78,893.00 5. Provision for expenses written back 39,28,989.00 6. Liquidated damages 9,03,93,437.00 7. Damages IHC Holland for deficiency in the dredger supplied 6,24,00,000.00 8. EMD and SD forfeiture 12,54,473.00 9. Staff Car recoveries 11,960.00 10. Recovery towards leased quarters 11,45,980.00 11. Sale of tender documents 2,75,521.00 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and revenue have filed cross appeals. I.T.A. No.437/Viz/2017 A.Y 2012-13 -Assessee s appeal 5. Ground No.1 and 8 are general in nature which does not require specific adjudication. 6. Ground No.2 is related to the addition of ₹ 9,03,93,437/- relating to the liquidated damages assessed as separate income other than the core income. During the assessment year under consideration, the assessee has received liquidated damages of ₹ 9,03,93,437/- which was included in the tonnage tax scheme. The AO has called for the explanation of the assessee and after considering the explanation, the AO held that the liquidity damages does not fall into the definition of core income as per section 115VI r.w.Rule 11R of income tax rules and accordingly excluded the receipt of liquidated damages from the core income of the shipping activity and brought to tax as per the normal provisions and made the addition to the returned income. 7. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO following the order of this Tribunal in the assessee s own case for the assessment year 2006-07, 2007- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f no relevance, as the determination of income in regard to a transaction has to be examined with regard to its legal nature. Therefore, the pleas raised in this regard are rejected and the impugned addition of ₹ 9,03,93,437/- is upheld. 8. We have considered the submissions made by both the parties and perused the material placed on record. This Tribunal has decided the identical issue for the assessment year 2009-10 to 2011-12 in I.T.A. Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014 and 167/Viz/2016 in assessee s own case dated 25.10.2017 and upheld the addition made by the AO with regard to the receipt of liquidated damages. For the sake of clarify and convenience, we extract relevant part of the order of this Tribunal in para Nos. 4.3. to 4.4 which reads s under : 4.3 We have heard both the parties and perused the material placed on record. In the earlier order the coordinate bench interpreted the word used in shipping income u/s 115VI Income from holding that it is akin to the term derived from since both the Ld. A.R. and the Ld. D.R. agreed that the term derived from is akin to Income from . However, in the present appeals, the Ld. D.R. vehemently opposed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified quantity of specified products at a specified rate, between designated loading and discharging ports over a specified period; (B) specific shipping trades, being- (i) on-board or on-shore activities of passenger ships comprising of fares and food and beverages consumed on board; (ii) slot charters, space charters, joint charters, feeder services, container box leasing of container shipping. (3) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, exclude any activity referred to in clause (ii) of sub-section (2) or prescribe the limit up to which such activities shall be included in the core activities for the purposes of this section. (4) Every notification issued under this Chapter shall be laid, as soon as may be after it is issued, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the notification, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of this Chapter, take the amount of income as may reasonably be deemed to have been derived therefrom. Explanation.-For the purposes of this Chapter, in case the relevant shipping income of a tonnage tax company is a loss, then, such loss shall be ignored for the purposes of computing tonnage incom e. 4. See rule 11R. Similarly, profits from incidental activities are defined in Rule 11R as under : Incidental activities for purposes of relevant shipping income. 11R. The incidental activities (details given in Note 5 appearing after the corresponding Form No. 66) referred to in sub-section (5) of section 115V-I shall be the following, namely :- (i) maritime consultancy charges; (ii) income from loading or unloading of cargo; (iii) ship management fees or remuneration received for managed vessels; and (iv) maritime education or recruitment fees. 4.4. The liquidated damages collected from various contractors do not cover any of the receipts in section 115VI or within the scope of Rule 11R of I.T. Act. There is no dispute that the assessee had opted for tonnage tax scheme and the income has to be computed as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (ii) Provision no longer required written back Rs.8,78,893/- (iii) Provision for expenses written back Rs.39,28,989/- The AO held that the above receipts are not pertaining to the core activity of the assessee accordingly assessed the same outside the purview of section 115VI of the Act. On appeal to the CIT(A), the Ld.CIT(A) observed that the assessee had not furnished the basic information for creation of provision for bad and doubtful debts and provision for expenses was neither furnished nor examined by the AO. Therefore, the Ld.CIT(A) remitted the matter back to the file of the AO to verify whether the provisions were created in relation to core transactions as per the test already laid down in the order of the ITAT and for re adjudication. For the sake of clarity and convenience, we extract relevant part of the order of the Ld.CIT(A) which reads as under : 5.3. 1 have considered the above submissions. I find that the basic information relating to the impugned creation of provision for bad and doubtful debts and provision for expenses has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, it was in the nature of capital receipt. The second proposition made by the assessee before the Ld.CIT(A) is that the damages received from IHC Holland for deficiency in the dredger supplied was directly related to the dredging activity of the assessee company, the same should be treated as a core income or alternatively it should be treated as capital receipt. However, the Ld.CIT(A) observed that it was received as compensation for deficiency in the dredger supplied from IHC Holland and on account of compromise with the other party and the said compensation cannot be held to be derived from the dredging activity. Similarly with respect to the assessee s argument for capital receipt, there is no information that the compensation was received in relation to losses suffered by the assessee. Accordingly rejected the claim of the assessee and upheld the addition. We extract relevant part of the order of the Ld.CIT(A) which is made available in para No.6.2 and 6.3 which reads as under : 6.2. I have considered the submissions and the details filed. It is evident the assessee had obtained compensation for deficiency in dredger supplied from IHC, Holland. From the perusal of Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... core income. According to the assessee, IHC Holland has supplied the dredger with lot of deficiencies and the assessee had incurred the expenses to rectify the deficiencies to make it operational. For the said deficiencies, the assessee had received the damages from IHC Holland which are directly relatable to the core activity of the assessee. Therefore, required to be assessed as core income. The assessee s activity is dredging operations. The damages received from the IHC Holland were for compensation of the deficiencies in the dredger. The receipt was neither from dredging activity nor from any other operational activity of shipping of the assessee. The receipts are similar to that of liquidated damages and the receipt should fit into the definition of the shipping activity as specified in section 115VI of the Act r.w.Rule 11R to treat the same as core income. In the instant case, the receipt was neither from the shipping activity nor from the operational activity, therefore, the receipt cannot be held to be from core activity. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee on this issue. 16. The next argument of the assessee was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Staff car recoveries Rs.11,,960/- (c) Fee for right to information Rs.1,908/- (d) Sale of Tender documents Rs.2,75,521/- (e) Rent for hiring of the quarter/office Rs.1,78,292/- (f) Late attendance receipt Rs.44,624/- (g) Recovery of tower rent from Bharti Airtel Rs.5,920/- (h) Training fee Rs.19,722/- (i) Financing Storage charges recoveries Rs..5,724/- The AO has treated the above receipts as non core income and brought to tax other than the tonnage tax scheme. 18. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the additions made by the AO. The Ld.CIT(A), followed the order of this Tribunal in the assessee s own case supra and the order of his predecessor in assessee s own case for the A.Y. 2010-11 and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect and accordingly, the assessee s ground is dismissed. 19. The Ld.CIT(A) has followed the order of this Tribunal in assessee s own case. Similar issue has come up before this Tribunal in the assessee s own case with regard to the above nature of receipts including miscellaneous income. This Tribunal in I.T.A. No.78-80/Viz/2014 dated 25.10.2007 held that the income from the above receipts cannot be considered to be connected with the dredging activity. For ready reference, we extract para No.9.3 of the order of the Tribunal which reads as under : 9.3 We have heard both the parties and perused the material placed on record. While deciding the issue with regard to the liquidated damages and arbitration award, 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 as 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 intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Vizag/2011 cited supra. The Hon ble ITAT in the assessee s own case cited supra decided the issue against the assessee as under : 10.1. The assessee has also taken a stand that if any item of receipts is not considered as receipts relating to the core activity of dredging, then the deduction towards the expenditure incurred towards earning such receipts should be allowed as a deduction and accordingly only net income should be charged to tax. The tax authorities have pointed out that all the expenses incurred by the assessee shall be deemed to have been allowed while computing the income of the assessee under the special provisions of the Act, cited above and hence there cannot be any further deduction of the same expenditure. We agree with the observations of tax authorities in this regard. If the claim of the assessee is allowed, then it would amount to double deduction of the same expenditure, which is not permitted under the Act. Accordingly we dismiss this ground of the assessee. 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the qualifying ships. For ready reference, we reproduce Para No.9 of the ITAT s order supra which reads as under: 9. In the case of Dy. CIT v. Core Healthcare Ltd. [2009] 308 ITR 263 (Guj.), the question whether the income generated from the sale of empty containers can be treated as income derived from industrial undertakings was raised before the High Court. The question was answered in affirmative and for the sake of convenience, we extract below the relevant head note: Held that it was an accepted position that the empty containers, which were sold, were containers in which raw material in bulk had been purchased by the assessee. The cost of the containers was part of the purchase price which went to make up the total cost of the manufactured product and was thus directly relatable to the manufacturing activity of the industrial undertaking. The income generated on sale of such empty containers could be set off against the purchase cost, in other words bringing down the purchase price of raw material, or it could be treated as income directly relatable to the activity of industrial undertaking. The net result would be the same-either the cost of raw material gets ..... X X X X Extracts X X X X X X X X Extracts X X X X
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