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TMI Blog2019 (3) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... ipping business under Section 115VI of the Act. Further the variation in exchange rates on account of loan taken on purchase of ships and which gives rise to profit / loss on account of foreign exchange variation of loan taken would in our view be considered to be a part of core activity of the shipping company entitled the benefit of Chapter XII-G of the Act. Tribunal was justified in deleting the addition made by AO who held that the exchange gain on account of restatement on foreign loan is not covered under the tonnage tax scheme and is taxable as normal business income - Decided against revenue - Income Tax Appeal No. 1578 of 2016 - - - Dated:- 25-2-2019 - AKIL KURESHI M.S. SANKLECHA, JJ. Mr. Sham Walve for the Appellant Mr. Jehangir Mistri, Senior Counsel a/w Mr. Ryan Saldanha for the Respondent P.C.: 1. This appeal under Section 260 A of the Income Tax Act, 1961 ( the Act for short), challenges the order dated 26.8.2015 passed by the Income Tax Appellate Tribunal, Mumbai ( the Tribunal for short). 2. This appeal relates to the Assessment Year 2008-09. 3. The Revenue urges following question of law for our consideration:- Whether on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e foreign exchange gain / loss arising on account of loan taken for the purpose of acquisition of ships as forming part of the core activity of the respondent assessee and thus, entitled to the benefit of Chapter XIIG of the Act. It also placed reliance upon the decision of its coordinate bench in case of Dredging Corporation of India Ltd Vs. ACIT [2011] 13 taxmann.com 37 (Vishakhapatnam) wherein it has been held that the gains realized on the foreign exchange fluctuation in connection with the core activity of the assessee would be treated as gains falling under the tonnage tax scheme as provided in Chapter XIIG of the Act. Thus, allowing the appeal of the respondent. 8. The learned counsel Mr. Walve in support of the appeal submits:- a. Exchange gain on account of restatement on foreign loan would not be covered under the tonnage tax scheme but would be taxable as normal business income. Thus, the appeal is restricted to only an amount attributable to the notional foreign exchange gain on account of restatement of liability of foreign loan taken to purchase ships; and b. The activity of purchasing of ships cannot be considered to be a core activity of the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount (Rs.) Explanation Notional gain on account of restatement of foreign exchange liabilities on account of purchase of ships as on the end of the year. 5,91,41,900(*) These are the entires passed in order to comply with Accounting Standard 11 - 'The effects of Changes in Foreign Exchange Rates.' Realized gains on foreign exchange on account of purchase of ships. 2,78,79,481(*) This is the entry passed at the time of repayment during the year of the loans taken for the purchase of ships. Gains on foreign exchange fluctuations in balances on account of debtors etc, arising from the shipping activates 19,13,239 These arise basically on account of movement in the debtors' accounts. Mr. Walve, the learned counsel appearing for the Revenue, on instructions, states that this appeal is only restricted to Serial No. 1 above. The notional gain on account of restatement of foreign exchange liabilities on account of purchase of ships as on the end of the year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of shipping companies. As per Section 115VA, the income of a company from the business of operating qualifying ships, at its option, be computed in accordance with the provisions of the said chapter. The term 'Qualifying Company' is defined in Section 115VC and term Qualifying ship is defined in Section 115VD of the Act. For being categorized as 'Qualifying Company', one of the requirements is that the company owns at least one qualifying ship. Section 115VB of the Act pertains to operating of ships and provides that a company shall be regarded as operating a ship if it operates any ship whether owned or chartered by it. Section 115VE of the Act contains provisions for manner of computation of income under tonnage tax scheme. Section 115VG makes provision for computation of tonnage income. Section 115VI pertains to relevant shipping income. As per sub-clause (i) of subsection (1), the relevant shipping income of a tonnage tax company would mean its profits from core activities referred to in sub-section (2). Sub-section (2) of Section 115VI lists the core activities of the tonnage tax company which includes its activities from operating qualifying ships. 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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