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TMI Blog2023 (3) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... at the receipt of Insurance and P I claim by the assessee is in respect of its 2 ships, which were damaged in preceding years but post-tonnage tax era. The assessee first incurred the cost of the repair, which was thereafter claimed as per the insurance policy. Since the receipt of the Insurance and P I claim is directly in relation to the core shipping activity of the assessee in respect of its ships, which are qualifying ships, therefore the receipt is covered under section 115VI of the Act. Course fees - As per the assessee though the said receipt is in incidental income in accordance with clause (iv) of Rule 11R of the Income Tax Rules, 1962, since the threshold of 0.25% of the turnover from core activities is already crossed, the said amount would be chargeable to tax. Accordingly, the same is held to be taxable under the provisions of the Act as per proviso to section 115 VI(1) of the Act. Recovery of the container-related cost credited as prior period income was treated as income of the pre-tonnage tax era and taxable as income from the incidental activity - Since the aforesaid receipt is mere reimbursement of expenditure, therefore respectfully following the judicial preced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the liquidated damages are credited. Since the liquidated damages on account of delay or deficiency in service in respect of the qualifying ships, therefore, we are of the considered opinion that such receipt is part of the core shipping activity of the assessee. Sundry receipts - Assessee submitted additional evidences in relation to volume incentives from CFS, additional free days charges, container damage/maintenance charges, documentation charges, ship-owners expenses recovery, additional terminal handling charges, non-manifested charges, and other receipts - We allow the admission of the additional evidence filed by the assessee. Since the aforesaid evidence was not placed before the lower authorities, therefore the same could not be examined during the assessment proceedings. Accordingly, we deem it appropriate to remand this issue of taxability of sundry receipts under Chapter XII-G to the file of the AO for de novo adjudication after the necessary examination of details filed by the assessee. Profit on bar plus shop sale are held as incidental activity of the operation of the qualified ship. Adjusting the turnover by reducing the sundry receipts and profit on sale of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following grounds:- "Ground no 1: Income under the head Prior Period Adjustments: The CIT(A) erred in upholding the action of the A.O. in assessing the prior period income of Rs. 4,95,81,902. He failed to appreciate that the prior period income constituted profits from core activities and therefore could not be brought to tax under the Act. Ground no 2: Additions under Sundry Receipts: 2.1 The CIT (A) has erred in holding that sundry receipts of Rs. 12.88 crore were not arising out of the core activity of operation of qualifying ships and the provisions of Tonnage Tax Scheme was not applicable to these receipts. 2.2 In the alternative and without prejudice to the above since the sundry receipts are assessed to tax as business income, The CIT (A) ought to have granted deduction in respect of expenditure laid out or expended wholly and exclusively for the purpose of its business and earning such income. 2.3 The CIT (A) failed to appreciate that the expenses Rs. 14.25 crores were incurred on account of rent to take the premises on lease which were subsequently let out to the employees from whom income by way of house rent was earned. Ground no 3: Adjustment to calculate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 26,519/- made by the A.O by denying tonnage tax provisions to the prior period income under normal provisions. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing relief to the assessee, holding that the reimbursement of overheads for managed vessels is to be included in the turnover while working out the income as per the Tonnage Tax. 5. The appellant prays that the order of the ld. CIT(A) on the above ground be set aside and that of the Assessing Officer restored. 6. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 4. The brief facts of the case as emanating from the record are: The assessee is a private sector undertaking engaged in the business of merchant shipping. From the assessment year 2005-06, the assessee has opted for the Tonnage Tax Scheme, i.e., the presumptive taxation scheme provided in Chapter XII-G of the Act. Under the scheme, the income from business of operation of qualified ships related to core activities is taxed on a presumptive basis instead of according to the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sundries-Incidental Activity - Rs. 84,612/- 3. Remuneration-Managed Vessels - Rs. 435/- Total: - Rs.1,77,06,939/- Taxable under normal provisions of the Act 1. THC receivable-pre tonnage - Rs. 8,878/- 2. Commission on disbursements - Rs. 17,641/- Total: - Rs. 26,519/-" 7. The Assessing Officer further held that any item belonging to pre-tonnage tax era is not income from the core activity of qualified ships and, therefore, needs to be taxed under normal provisions of the Act. Further, in the post-tonnage tax era, any income other than covered under the core activity of qualified ship is also taxable under normal provisions of the Act. The learned CIT(A) vide impugned order granted partial relief observing as under:- "3.2 This issue is identical to the issue raised by the assessee in ground no. 4 of the grounds of appeal taken by it in the AY 2005-06. For the detailed reasons given in the appellate order for the AY 2005-06 and following the decision of the Hon'ble ITAT, I have held that the addition on account of the income under normal provisions of the prior to Tonnage tax era (before FY 2004-05) is to be deleted. The findings are contained in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to tax separately and it is business income from core activity. Hence this ground is allowed." 10. Therefore, respectfully following the aforesaid decision of the coordinate bench of the Tribunal in assessee‟s own case, the interest income on housing loans given to the employees is held to be income from core shipping activity and thus, is not separately chargeable to tax. 11. As regards the Insurance and P & I claims of Rs.3,17,91,248, as per the assessee said receipt comprises of recovery made from Hull underwriters (property insurance)/protection and indemnity club (liability insurance). During the year, the assessee received pending claim of Rs.3,17,91,248 of insurance, which was credited in the assessee‟s books of account under the head prior period adjustments. These claims are related to 2 of its ships. The first one was 'Bankim Chandra Chatterjee‟ which had met with an accident on 22/03/2006 and the insurance claim was partially settled around May 2007. The other ship was 'Rishikesh' which had rudder damage in December 2006/January 2007 for which the claim was again partially settled around September 2007. As per the insurance policy, the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst incurred by the assessee and then recovered. Further, the incurring of cost and its recovery may be indifferent years. 15. During the year the assessee recovered container related cost of Rs.1,76,21,892 in respect of handling expenses, transshipment handling charges, other cargo expenses, handling expenses Inland/port, container storage charges, container monitoring fees, container leasing cost and expenses for chassis for cargo. We find that while dealing with a similar issue pertaining to recovery of cost incurred by the assessee on container business, the coordinate bench of the Tribunal in assessee‟s own case cited supra for the assessment year 2007-08, observed as under:- "35. Reading of this rule does not permit treating recovery of container related costs and detention charges as income from incidental activities for the purpose of relevant shipping income. In any event, when it is accepted that this receipt is nothing but recovery of cost, it would not be open for the Assessing Officer to bring to tax the gross receipt without eliminating the expenditure incurred for earning this income. If this receipt is to be treated as income from incidental activities, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the normal provisions of the Act. The Assessing Officer further held that the assessee has not given any details of expenses said to have been incurred against earning these incomes, and no such expenses are found in the statement of income and expenditure. Accordingly, the Assessing Officer allowed administrative cost @20% and taxed the balance of sundry receipts of Rs.10,30,91,601 under normal provisions of the Act. The learned CIT(A) vide impugned order and upheld the findings of the Assessing Officer. Being aggrieved, the assessee is in appeal before us. 22. We have considered the rival submissions and perused the material available on record. The assessee has taken accommodation on rent for its employees involved in the core activity of the organisation, which was further sublet to those employees. As per the assessee, it incurred an expenditure of Rs.14,25,55,708 and recovered the house rent from his employees only to an extent of Rs.1,21,83,784. It is the plea of the assessee that the accommodation was taken on rent in respect of employees involved in the core activity of the organisation and therefore the recovery of rent is nothing but related to its core activity. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dure to maintain the vessels seaworthy. Further, periodically vessels are sent to the shipyard or to the maintenance workshop and this process is called dry docking. The liquidated damages are recoveries from the shipyard or maintenance agencies. The entire dry-dock expenses incurred on the operation of qualifying ships are debited to the revenue account, whereas the liquidated damages are credited. Since the liquidated damages on account of delay or deficiency in service in respect of the qualifying ships, therefore, we are of the considered opinion that such receipt is part of the core shipping activity of the assessee. 28. As regards the sundry receipts of Rs.1,44,81,883, the assessee has filed an application dated 12/02/2020 seeking admission of additional evidence. As per the assessee, the sundry receipts are in relation to volume incentives from CFS, additional free days charges, container damage/maintenance charges, documentation charges, ship-owners expenses recovery, additional terminal handling charges, non-manifested charges, and other receipts. As per the assessee, the learned DRP in the assessment year 2014-15 has held the similar receipt as integral to the core activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rresponding deduction of expenditure incurred. As a result, ground No. 2 raised in assessee‟s appeal is partly allowed for statistical purposes. 32. The issue arising in ground No. 3, raised in assessee‟s appeal, is pertaining to adjusting the turnover by reducing the sundry receipts and profit on sale of assets. 33. We find that the coordinate bench of the Tribunal in assessee‟s own case for the assessment year 2007-08 vide order dated 29/07/2011 cited supra held that the profit on the sale of assets is taxable under the head "capital gains" and thus the same cannot be considered as turnover in view of the provisions of section 115VA of the Act and consequently, out of the purview of chapter XII-G. The relevant findings of the coordinate bench in the aforesaid decision are as under:- "39. Coming to ground no.10, as already stated, the assessee has no other sctivity which would result in income. It also does not have any other business. Thus, the income is from core activity only. Nevertheless, the income in question is taxable under the head "Capital Gains" and does not fall within the ambit of sections 28 to 43C. Thus, the receipt cannot be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder which the aforesaid receipts are to be taxed. 37. We find that Hon'ble Supreme Court in Goetze India Ltd. (supra) and Hon'ble Jurisdictional High Court in CIT Vs. Pruthvi Brokers and Shareholders Pvt. Ltd., [2012] 349 ITR 336 (Bom.) has held that the appellate authority can entertain a fresh claim made by the assessee, even if such a claim was not made in return of income or by way of revised return of income. Therefore, the additional ground raised by the assessee is admitted for adjudication. 38. At the outset, the learned AR wishes not to press its claim in respect of dividend income. Accordingly, to this extent, ground No. 4.1 is dismissed as not pressed. As regards the interest income of Rs. 227.68 crores, the assessee submitted that the said receipt forms part of the core shipping activity of the assessee and therefore should be taxed on a presumptive basis under Chapter XII-G of the Act. As per section 115VT of the Act, tonnage tax company is required to credit to Tonnage Tax Reserve Account an amount not less than 25% of the book value derived from the activities referred to in section 115VI in each previous year. As per section 115VT(3) of the Act, the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c and therefore require no separate adjudication. 39. The issue arising in ground No. 5, raised in assessee‟s appeal, is pertaining to the levy of interest under sections 234D of the Act. 40. As per the assessee, pursuant to the intimation issued under section 143(1) of the Act, the refund was determined, however, the same was not issued to the assessee and thus no interest under sections 234D of the Act is leviable. The learned AR submitted that in this regard the assessee has also filed a rectification application dated 14/02/2011 under section 154 of the Act, which is pending disposal. Therefore, in view of the above, we deem it appropriate to remand this issue to the file of the Assessing Officer for de novo adjudication, after verification of whether any refund was granted to the assessee. If the claim of the assessee is found to be true, the Assessing Officer is directed to delete the interest levied under section 234D of the Act. As a result, ground No. 5 raised in assessee‟s appeal is allowed for statistical purposes. 41. The issue arising in ground No. 1, raised in Revenue‟s appeal, is pertaining to allowing the tonnage tax provisions to the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tonnage tax scheme assessment years and the second being expenditure claimed in post tonnage tax scheme assessment years. Such a segregation is not permissible under the Act. Both the incomes are incomes from core activity and just because tax rates different, they cannot be treated as non-business income. The Assessing Officer as well as the Commissioner (Appeals) seem to have been influenced by the fact that the assessee has an income of ₹ 800 crores in its Profit & Loss account and whereas he has offered only ₹ 18 crores to tax under the tonnage tax scheme. The decision whether a particular income has to be brought to tax or not, cannot be based on such a view of the matter. The legislature in its wisdom provided the manner of computation of income under the tonnage tax scheme. In section 115VA, it 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 shoul dnot be in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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