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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 ..... he facts of the case and in law, the Tribunal was justified in deleting the addition made by the Assessing Officer 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?" 4. The respondent assessee is engaged in the business of shipping. For the purpose of its business, it owns ships, boats, barges etc and also hires them. 5. The respondent filed return of income on 27.9.2008 declaring income of Rs. 1.62 crore (rounded off). During the course of assessment proceedings, the Assessing Officer noted that the respondent had opted for tonnage tax scheme under Chapter XIIG of the Act i.e special provisions relating to income of shipping comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent assessment year namely assessment year 2010-11, on identical facts situation, the Assessing Officer has allowed the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange 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. 10. We may note that Chapter XII-G of the Act is a special chapter relating to income of the shipping companies. It inter alia provides to tax the income of shipping companies on deemed basis i.e on the basis of tonnage of the vessels. In terms of Section 115VF of the Act, the deemed income is to be computed on the basis of tonnage income and shipping income referred to Section 115VI shall not be chargeable to tax. Section 115VI of the Act inter alia refers to profits and gains of shipping companies obtained from core activities of the Company. Sub-section 2 of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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. Therefore, according to the Revenue before us the foreign exchange gain / loss on account of Serial No. 2 & 3 above would form a part of the shipping income. The Revenue has not been able to give any rationale for submitting that gain arising in view of exchange variation on purchase of ships is taxable as shipping business and the gain as reinstatement of foreign exchange liability is not taxable as shipping business. This itself would warrant no interference of the impugned order dated 26.8.2015 of the Tribunal. 12. We also note that the Assessing Officer has allowed the gain made on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in the decision Dredging Corporation of India Ltd (supra), we are of the view that the activity of loss or gain on account of exchange variation is in the nature of core activity of the respondent. 14. Chapter XII-G of the Act contains special provisions relating to income 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 shi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of constructing and erecting its plant. While this process was going on, the company had earned from different activities the income including rent from quarters let out to employees of the contractors. In such background, it was held that the amount was directly connected and incidental to the construction of plant by the assessee and therefore, a capital receipt. Similarly in the present case, we find that the assessee's act of acquiring the ships was closely connected, interlinked and integral to its core activities of operating qualifying ships. 17. We see no reason to interfere with the impugned order of the Tribunal, as the Revenue itself contends that its appeal is restricted only to Serial No. 1 referred to herein above i.e o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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