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TMI Blog2019 (6) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... l receipts and expenditure of the assessee. The perception of AO that chapter X of the Act creates an independent or a separate charge of income, an aspect which is contrary to the judgment in the case of Vodafone Services Pvt.ltd. vs. UOI [ 2014 (11) TMI 881 - BOMBAY HIGH COURT] wherein after referring to an earlier judgment [ 2014 (10) TMI 278 - BOMBAY HIGH COURT] , held that chapter X does not contain any charging provision but is a machinery provision to arrive at an arms length price of a transaction between associated enterprises. In the instant case, the provisions of chapter X have been invoked to alter an expenditure, namely the mobilisation and demobilisation charges paid for a qualifying ship, an item which has no bearing on the income as computed under Chapter XIIG and accordingly the provisions of Chapter X have no application in computing the income of the assessee chargeable to tax as per Chapter XII-G of the Act. Transfer pricing regulations do not apply to the assessee to the extent of operations carried out through operating qualifying ships where the income is taxed under TTS - Appeal of the assessee is allowed. - ITA No. 7228/Mum/2012 Assessment Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a computation mechanism for determination of arm's length price and that if the income is not chargeable to tax, the application of the computation mechanism has no relevance. 5. The learned CIT(A) failed to appreciate the fact that proviso to section 92C(4) does not cover the sections 115V to section 115VZC or Chapter XII - G pertaining to taxability of companies covered under the Tonnage Tax Scheme and thus the adjustment made by the learned AO/ TPO would have no impact on the income pertaining to the tonnage tax activities of the Appellant, and hence, ought to be deleted. 6. The learned CIT(A) erred in not appreciating the fact that the Tonnage Tax Scheme of the Act is a self contained code and the income can only be computed as per the provisions mentioned under Chapter XII - G of the Act (ie section 115VA to section 115VZC). 7. The learned CIT(A) erred in not appreciating the fact that section 115VA of the Act starts with a non-obstante clause and thus overrides the provisions contained in section 28 to section 43C of the Act. 8. The learned CIT(A) erred in not appreciating the fact that the Appellant has filed the accountants repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,747,814/- on account of nontonnage operations. Subsequently, pursuant to the retrospective amendment introduced to the section 115JB (i.e. Minimum Alternate Tax provisions) by the Finance Act, 2008, the appellant filed a revised return on 19th November, 2008 declaring income of ₹ 3,149,813 under section 115JB of the Act. During the course of scrutiny assessment proceedings initiated by the Assessing Officer, a reference was made to the Transfer Pricing Officer ( TPO ) for the computation of the arm s length price in relation to the international transactions carried out by the assessee with its associated enterprise. The TPO suggested an adjustment of ₹ 540,887 to the value of international transactions on account of the charter hire rentals paid by the assessee to its associated enterprise for lease of dredger HAM 312 ( Qualifying Ship ). In the Assessment Order, while computing the final income made an addition to the income of the appellant of ₹ 5,40,887, based on the findings of the learned TPO. The TPO suggested an adjustment of ₹ 5,40,887/- to the value of international transaction on account of charter hire/lease charges paid to its associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Pvt Ltd (Supreme Court (Civil Appeal No. 5869 and 5870 of 2016) 5. In this background, the Ld. Departmental Representative for the Revenue has merely reiterated the stand of the lower authorities which is to the effect that any person who has undertaken international transaction with its associated enterprise has to be taxed as per the normal /applicable provisions of the Act and in addition, he has to be governed and consequently taxed, if there is an additional income that is arrived at, out of the international transactions on account of transfer pricing adjustment. It only leads to the conclusion that in the scheme of the things under the Act, the income from the international transactions is to be treated as additional income and separate source of the income and that such income from the international transaction is to be determined having regard to the arm s length principle and taxed accordingly. 6. We have carefully considered the rival submissions, perused the relevant material, including the orders of the lower authorities as well as the case laws referred at the time of hearing. Notably, the controversy before us primarily revolves around the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Section 115VA of the Act starts with Notwithstanding any to the contrary contained in section 28 to section 43 . . TTS thus, provides for computation of income to the exclusion of section 28 of the Act. In case of an assessee entering into international transactions with associated enterprise, the amount of allowable expenses is required to be determined as per the arm's length principle as per the machinery provisions of Chapter X (Section 92 to section 92F). The amount of allowable expenses determined as per the arm's length principle under section 92(1) of the Act would thus be relevant to compute business profits as provided for in sections 28 to 43C of the Act. The Assessee has opted to be governed by TTS, thus the provisions of section 115VA would override section 28 to section 43C and hence income has to be calculated with reference to the registered tonnage of the ships and not on basis of net profits depicted in the financial statements or as per the profits adjusted in terms of Chapter-X. In fact, the related party transactions are not relevant for computing income chargeable to tax as per Chapter-XII G of the Act and therefore, the arm's length price d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed at affixed rate and all other provisions of the Act are not to be applied, once an assessee opts for the scheme. In short, if the assessee cannot claim any expenditure after opting out of the scheme, then the AO is also barred by making any disallowance for incurring of expenditure. Legislature, in its wisdom, has allowed the assessees for opting for the said scheme and with a specific purpose. Therefore, while computing the income of the assessee u/s. 115VP, the AO has to put on blinkers and assess the income as suggested by the Parliament. There is no scope for tinkering with the provisions of section 115 VP of the Act. He has to follow the simple rule that no deduction is to be allowed or no disallowance is to be made under any of the normal provisions of the Act, once it is found that an assessee is to be assessed as per the provisions of chapter XIIG of the Act. Section 14A is not an exception to the TTS. Rather the scheme is an exception to the normal computation provisions, including the section 14A.Therefore,it cannot be said that when the income of the assessee from the business of operating ships was computed under the special provisions of Chapter XII-G, expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclusion from TTS. From the above it is clear that chapter XII-G is a complete code in itself and it provides for non applicability of section 28 to 43C of the Act i.e. chapter IV of the Act, when income is to be computed as per the provisions of the said section. Chapter-XII-G, was introduced by the Finance (No.2)Act,2004,with effect from April 1,2005,and it provides for TTS, which is optional. The Notes on Clauses appended to the Finance (No.2) Bill,2004,referring to clause 28 as regards the introduction of section 115VA specifically states that the provision relates to the computation of profits and gains of the shipping business. Tonnage tax was intended to make the industry internationally competitive and also to induce more ships to fly the Indian flag. As the whole of FEFG is covered by the provisions of chapter XII-G of the Act, there is no justification in computing it under a different chapter or section. (underlined for emphasis by us) 12. Before parting, we also think it apposite to refer to the judgment rendered by the Hon'ble Supreme Court in the case of Trans Asian Shipping Services Pvt Ltd (supra). In the said case, the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able income which is not dependent on actual receipts and expenditure of the assessee. 15. In fact, the fallacy in the approach of the Assessing Officer can be gauged from a perusal of the computation of taxable income made in para 11 of the assessment order. The Assessing Officer has sought to add ₹ 5,40,887/- as a separate line item captioned as Proposed adjustment/addition in view of the above discussion. Thus, as per the perception of Assessing Officer, chapter X of the Act creates an independent or a separate charge of income, an aspect which is contrary to the judgment of the Hon'ble Bombay High court in the case of Vodafone Services Pvt.ltd. vs. UOI ( 2015) 53 Taxman.com 286 (Bom), wherein after referring to an earlier judgment dated 10th October, 2014 in the case of same assessee reported in 50 taxmann.com 300 (Bom) interalia, held that chapter X does not contain any charging provision but is a machinery provision to arrive at an arms length price of a transaction between associated enterprises. 16. In the final analysis, it is seen that in the instant case, the provisions of chapter X have been invoked to alter an expenditure, namely the mobi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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