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TMI Blog2022 (11) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. It may be mentioned here that on specific requisition by the undersigned the AR has filed an additional paper book enclosing herewith the computation of total income filed with the return of income and the computation of such income separately in respect of shipping unit and port infrastructure unit. The relevant certificates of registration, tonnage certificate, mobile offshore drilling unit (MODU) safety certificate, and all other such certificates in respect of the three vessels namely Deepsea Matdrill, Deepsea Fossil and Deepsea Fortune have also been filed. Although not discussed by the AO in the Assessment Order perusal of these certificates show that the three vessels owned by the appellant are of the same nature as that of the Deepsea Matdrill on which the Hon'ble High Court rendered its decision, Accordingly, ground is allowed. Applicability of MAT provisions - HELD THAT:- CIT(A) held that income of assessee is taxable under provisions of section of Chapter XIIG of the Act, and since income of shipping unit is exempt u/s 115V-I of the Act, in view of section 115VO of the Act, same is liable to be excluded from the computation of book profit under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment or a fixed place for a business through which the foreign enterprise carries out its business in India, wholly and partly. It is also seen that during the appellate proceedings relating to A.Y. 2011-12 my Ld. Predecessor considered the letter issued by Nobel Denton Middle East Ltd. clarifying that they did not have a permanent establishment in India as per Article 5 of the DTAA and were assessed to tax in the UAE. Also find from the tax audit report for the impugned years placed at pages 28 69 of the paper book that the auditors have clarified that no amount is inadmissible u/s 40(a). Keeping in view the above facts it is held that neither the provisions of section 40(a)(ia) nor 40(a)(i) are applicable. Ground are allowed. - SH. C. N. PRASAD, JUDICIAL MEMBER AND DR. B. R. R. KUMAR, ACCOUNTANT MEMBER For the Assessee : Sh. Rajiv Saxena, Adv. Sh. Sumangla Saxena, Adv. For the Revenue : Sh. Rajesh Kumar, CIT DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The present appeals have been filed by the Revenue and the Cross Objection by the assessee against the orders of ld. CIT(A)-5, Delhi dated 23.08.2018 and 18.03.2019. 2. In ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in law as well as on facts in not disposing ground no. 1 by treating the same general in nature and ignoring the submissions raised by the assessee for re-computing income under section 115JB as MAT provisions are not applicable on tonnage tax companies as per section 115VO of the IT Act. 2. That Ld. CIT(A) has erred in law as well as on facts in sustaining the addition made by AO of Rs. 73,11,794/- i.e., interest earned on refund which was already declared by the Assessee during assessment proceedings and so cannot be treated as Addition once declared as income. 3. The Ld. CIT (A) and AO have erred in law as well as on facts in making addition of Rs. 1,54,62,672/- for computing income u/s. 115JB of the IT Act. 5. All the relevant facts have been taken from the order of the ld. CIT(A). 6. The assessee filed return of income on 05.10.2016 declaring total income of Rs. Nil . The same has been assessed u/s 143(3) determining total income at Rs. 31,10,78,215/- by making additions of Rs. 36,09,700/- on account of disallowance u/s 14A, Rs. 1,39,63,535/- on account of disallowance on interest free loans to sister concern, disallowance u/s 36(i)(va) of Rs. 30,61,331/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07 and 2007-08 by the Hon ble Delhi High Court followed in subsequent years till AY 2015-16 1 to 5 2. Disallowance u/s 14A and claiming alternate plea to enhance tonnage tax income on any such disallowance if any made of Rs. 36,09,700/- 2007- 08 by CIT Appeal and no appeal filed by revenue 2008-09 no such disallowance 2009-10 and 2010-11 ITAT allowed and revenue s appeal before High Court has been dismissed. 2011-12 ITAT followed earlier years and dismissed the appeal and Hon ble Delhi Court also dismissed. 2012-13 and 2013-14 the CIT appeal allowed the appeal in AY 2012-13 and directed to enhance tonnage tax income in AY 2013- 14. AY 2014-15 CIT appeal accepted the alternate plea to enhance the tonnage tax income. AY 2015-16 by CIT appeal allowing the ground by following earlier orders. 6 to 35 Para 7 in AY 2009-10 Para 13 in AY 2010-11 by ITAT and by the High Court at pages 38 to 40 at Pgra 5 and 6. Para 14 in AY 2011-12 at page 51 by IT AT Para 1 and 2 of Page 56 by High Court Para 4.2 and 4.3 in AY 2012-13 and 2013-14 by CIT app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions have been filed on these issues which are necessary to be referred to for your kind consideration in relation to issues involved raised in grounds of appeal. The assessee wants to submit as under on the grounds of appeal. 3. Ground no. 1 relates to disallowance of claim made of Rs. 29,04,43,649/- on the income from operation of ships and Rs 94,05,22,492/- under the MAT provisions. The A.O. has discussed this issue in the assessment order at Para 7 of the assessment order. It is submitted that apart from referring to earlier decisions she has reproduced various provisions of Tonnage Tax Scheme and she has highlighted that relevant shipping income of Tonnage Tax company means its profits from core activities and from incidental activities as mentioned in subsection (2) and (5). She has also referred to certain debates and deliberations before introducing chapter XII G of the IT Act i.e. Tonnage Tax Scheme and express her opinion at page 13 that main intent of the introduction of tonnage tax scheme was to provide a level playing field for Indian shipping companies to compete with their global counterparts and to increase the growth of trade and export competitivenes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the orders and submissions raised before her predecessor as well as before the appellate authorities. The shipping industry is not limited to passengers and cargos in this modern times. The deduction u/s 33AC was earlier available to shipping industries but later on while introducing Tonnage Tax Scheme certain ships which are not movable have been excluded except pleasure crafts/ motorboats and dredgers. The vessels mentioned u/s 115VD under serial no. (i), (ii), (iii), (vi) and (viii) are all those vessels which are fixed and stationary not moving at all. The vessels mentions in sr. no. (iv) and (v) are basically for coastal area and river ferries and pleasure crafts are meant also for entertainment and so legislature has excluded them specifically. The vessels in high seas are not only cargo and passenger ships but are meant for various other purposes like tugs, barges, dredgers, submarines, war ships, tankers and so on. The vessels are built for the purpose it is meant and therefore the nomenclature of the vessels are also given according to the use of the vessels. The vessels used for drilling and off shores are carrying rigs which is not separately installed but the vessel i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is commonly known as offshore installation but the vessels used by the assessee company are moving from one place to another and so are not installations as understood by the AO. The Hon'ble Delhi high Court twice while interpreting sec 35AC and later on while Interpreting Tonnage Tax Scheme analyzed that vessels operated by the assessee company are ships and not offshore installations. 6. It is submitted that the AO also incorrectly understood that income of the assessee in the computation of income in ITR was showing zero. In this connection your kind attention is invited to the various portions of the ITR in which it clearly and specifically mentioned. PB 158 is the part of ITR and operating revenues from drilling operations has been mentioned at 302,70,45,912/-. The profit and gains from business was declared after adjusting the claim of tonnage tax benefit at page 164 and losses of earlier years have been adjusted against the income at page 166 computation of income from business or profession has been mentioned and profit has been declared at 97,14,72,783/- and deduction under chapter 12G has been taken of Rs 29,04,43,649/-. The AO has incorrectly not adjusted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholding while loans were given out of the interest free funds available with the assessee and so issue is covered by the decision of Hon'ble Supreme Court and the same has been followed by your predecessor as well as Hon'ble ITAT. 11. It is submitted that gr. no. 4 is in relation to disallowance u/s 36(i)(v) of the IT Act for non-payment of ESI and PF before the due date prescribed in those acts. It is submitted that law has been amended as proviso introduced by the legislature has been amended w.e.f. 01.04.2004 by which payments made before the due date of filing are allowable. It is not disputed that payments have been made before the due date and the details of such payments are required to be provided under the tax audit report itself, kindly refer page 145 and 146 of the PB. The due date have been mentioned and actual date of payment is also mentioned, it would be seen all the dates are much before the due date of filing income tax return though there was a delay in depositing as per the relevant act i.e. PF and ESI. In this connection your kind attention is also invited to the decision of Hon'ble Supreme Court in the case of PCIT Jaipur vs. Rajasthan State Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein the High Court considered its earlier decision in Jagson International (214 CTR 227) wherein the 'Deepsea Madrill' vessel owned or leased by the assessee was held to be ships for the purposes of section 33AC. It was noted that the vessel owned by the assessee was a qualifying ship in terms of clause(a) of section 115VD and the very nature of the activity in which the assessee engaged is to carry out operations at different places, whereby necessarily, at least for a short duration, the vessel had to be stationed at one place. In these circumstances, the court held that the revenue's contention that the vessel is nothing but 'off shore' installations had no merit. Since the Hon'ble High Court has rendered the findings in the appellant's own case for the A.Y. 2006-07 2007-08, that the appellant is taxable under the provisions of Chapter XIIG, no change in the facts and circumstances are brought out by the AO in the assessment order vis-a-vis those years, it is held that the benefit of the said Chapter is to be allowed to the appellant. It may be mentioned here that on specific requisition by the undersigned the AR has filed an additional paper book e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessee is taxable under provisions of section of Chapter XIIG of the Act, and since income of shipping unit is exempt u/s 115V-I of the Act, in view of section 115VO of the Act, same is liable to be excluded from the computation of book profit under section 115JB of the Act. Since, the decision of the ld. CIT(A) is inconsonance with the provisions of the Act, we decline to interfere with the order of the ld. CIT(A). Disallowance of interest: 17. This addition has been made by the AO as appellant company has provided interest free loans amounting to Rs. 11,63,62,793/- to its subsidiary companies due to the reason that there is no business exigency for advancing these loans and the appellant has incurred substantial interest expenditure towards its borrowed fund. 18. It is contended by the appellant that this issue is duly covered for the AY 2010-11 2011-12 by the decision of Hon'ble ITAT, where the revenue appeal was dismissed and no further appeal was filed on this issue before the Hon'ble Delhi High Court. In subsequent years, the then CIT(A) has allowed this issue in appeal. 19. This issue has been found duly covered by the order of CIT(A) dated 23. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been paid, no disallowance can be made by invoking section 36(1)(iii) of the Act without establishing the nexus between the payment of interest and loan advanced. a) ITA No. 1231 with CM 16759/2009 dated 02.12.2009 CIT vs. Jet Air Pvt. Ltd. b) 260 ITR 637 (Dei) CIT vs. Tin Box Co. c) 177 Taxman 300 (Del) CIT vs. DCM Ltd. d) 184 Taxman 352 (Del) CIT vs. H.B. Stock Holdings Ltd. e) 313 ITR 340 (Bom) CIT vs. Reliance Utilities and Power Ltd. f) 29 SOT 531 (Mum) Metro Exports Ltd. vs. ITO g) 20 SOT 47 (Mum) Tata Finance Ltd. vs. ACIT h) 194 CTR 451 (All) CIT vs. RadicoKhaitan Ltd. The ld. CIT(A) held that the Hon'ble Supreme Court while giving judgment in the case of Madhav Prasad Jatia V. CIT, (SC) 118 ITR 200 has established that the expression for the purposes of Business Profession occurring in Section 36(1)(iii) is wider in scope than the expression occurring in Section 57(iii), meaning thereby that the scope for allowing a deduction under Section 36(1)(iii) would be much wider than the one available under Section 57(iii). This phrase, as held in many legal pronouncements, is the most important yardstick for the allowability of deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... run by the said airline on tease basis for last many years and advance had been also taken for the airline for business purposes in the past, on which no interest had been charged. The AO has disallowed the interest on loan without recording any finding that the interest bearing loan had been diverted by the appellant for providing interest free advances to the sister concern. It is not the case of the A.O that the interest free funds available with the appellant were not sufficient to advance the interest free money in question, as the appellant has shown a profit of Rs. 64,93,03,890/- (before tax) and had reserves and surplus of Rs. 464 Crores. 22. In accordance with the legal position u/s 36(1)(iii) the assessee is entitled to claim interest expenditure incurred for its purposes of business. As already stated above, the loans and advances have been established to have been made by the appellant for business purposes only and no personal nature of any kind has been attributed by the AO nor does it emerge from the assessment proceedings. The AO has presumed that the appellant has made the interest free advances from out of borrowed funds but perusal of the balance sheet for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO to establish such nexus between the borrowings and advances to prove that the expenditure was for non-business purposes, which the AO failed to do. In the present case also, it is found that the appellant has sufficient funds of its own which he could have advanced and therefore the interest liability on the borrowings made could not be disallowed, particularly when the AO failed to prove that the expenditure was for non-business purposes. 24. Accordingly, it is held that no notional interest can be attributed towards the interest free advances made during the impugned year. The decision of the ld. CIT(A) is affirmed. Disallowance of Rs. 30,61,331/- on account of late deposit of PF ESI: 25. Ground no. 6 relates to the disallowance of Rs. 30,61,331/- on account of late deposit of PF ESI u/s 36(i)(va) of the Act as it was paid after due date as prescribed in the relevant Act. 26. It is contended by the appellant that this issue is covered by the decision of Hon'ble Supreme Court in the case of PCIT vs. Rajasthan State Beverages Corp Ltd. 84 Taxmann.com 185 dismissing SLP and confirming the decision of Rajasthan High Court reported in 84 Taxmann.com 173 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43 B which is to ensure timely payment before the returns are filed, of crtain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appropriate survey and inspection of the Deep Sea Rigs that are used for the shipping operations and these personnel meet the stringent requirements and standards set by the ONGC. Undoubtedly the payments amount to fees for technical services which are ordinarily taxable under the provisions of section 9(l)(vii). In this view of the matter, the income accrued in the hands of the foreign resident as per section 5 sub section (2) of the IT Act. However, section 90(2) of the IT Act provides that where India has a DTAA with any other country, then in relation to the assessee to whom such agreements applies, the provisions of this Act shall applied to the extent they are more than beneficial to that assessee. In the present case it is seen that the foreign party M/s Noble Denton Middle East Ltd. (Dubai Branch) is based in Dubai in the United Arab Emirates and India has a comprehensive DTAA with UAE w.e.f. 22.09.1993, which was amended by notification No. SO 2001 (E), dated 28.11.2007 notification no 29/2013 [F. No. 503/5/2004-FTDII], dated 12.04.2013. Perusal of the current Double Tax Avoidance Agreement shows that the entire income of Noble Denton Middle East would be assessable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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