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TMI Blog2024 (7) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to the extent of operations carried out through operating qualifying ships where the income is taxed under TTS - HELD THAT:- The issue is covered in favour of assessee s own case [ 2019 (12) TMI 815 - ITAT MUMBAI] , A.Y. 2010-11, [ 2019 (6) TMI 1238 - ITAT MUMBAI] , A.Y. 2007-08 as held that 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 XII-G 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. In view of the aforesaid discussion, the transfer pricing regulations do not apply to the assessee in taxed under TTS. - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER For the Appellant : Shri Divesh Chawle, Ld. AR For the Respondent : Shri Asif Karmali, Ld. DR ORDER PER GAGAN GOYAL, A.M: 1. These cross appeals by Assessee and Revenue are directed against the order of Ld. CIT (A) 55, Mumbai dated 20.09.2021 passed u/s. 250 of the Income Tax Act, 1961 (in short the Act ) for A.Y. 2012-13. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transaction with Associated Enterprises in order to adjust profits and gains. 4. Whether on the facts and circumstances of the case and in law, Hon'ble CIT(A) was not appreciating the facts that income under TTS does not take into consideration, the effect of International transactions between assessee and its AEs on its income and to mitigate this, Section 92(1) of the Act is there, which reads as computation of income from international transaction having regards to arm's length price ; thus thereby the provisions contained in the Chapter X are distinct, separate and over and above the provisions of the computation of income under section 28 and 43C or even TTS. 5. Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) is correct in not appreciating the fact that the assessee did not furnish the records and documents maintained for the expenses incurred for the Indian entity by VODMCBV despite this being a mandatory condition as provided in the agreement dated 01.04.2004 for the rendering of services between the assessee company and its AE, indicating that the assessee is not interested in disclosing the true facts further indicating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables are due to the recovery difficulties or some business exigencies or some other factors and the same is exceptional and this cannot be used to claim that the same (i.e. pertaining to interest realizable on non AE receivable) should be the norm while dealing with the interest realizable on AE receivable. 3. The brief facts of the case are that assessee is a company registered in India, engaged in the activity of undertaking dredging, maintenance dredging projects and other dredging related activities. Assessee filed its return of income on 30-11-2012 declaring total income at Rs. 59,57,440/- under the normal provisions of the Act and at Rs. 53,42,020/- as per the provisions of section 115JB of the Act. Case of the assessee was selected for scrutiny under CASS. 4. During the assessment proceedings based on the report of TPO u/s. 92CA(3) of the Act an addition of Rs. 2,12,16,629/- was made and total income was assessed at Rs. 2,71,74,068/-. The above addition of Rs. 2,12,16,629/- was made on account of Rs. 1,92,98,946/- (Allocation of head office cost) and Rs. 19,17,683/- on account of receivables. Assessee being aggrieved with this order passed u/s. 143(3) r.w.s. 144C (3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the provisions of this section (i.e., section 115-O)' is an indication that the charge under the said section is independent and divorced from the concept of 'total income' under the Act. The tax on distributed profits so paid by the company shall be treated as the final payment of tax in respect of the amount declared, distributed or paid as dividends and no further credit therefore shall be claimed by the company or by any other person in respect of the amount of tax so paid. No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub-section (1) of section 115-O or the tax thereon. This scheme of section 115-O was abolished by the Finance Act of 2002. Section 115-O was reintroduced by Finance Act, 2003 reverting to the simplistic system. Ultimately, DDT was abolished by the Finance Act, 2020 and the Government reverted to the classical system of taxation of dividend. [Para 58] During existence of section 115-O between 1997 to 2020, one of the amendments to section 115-O by the Finance Act, 2014 was by insertion of sub-section (1B) to section 115-O with effect fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a tax on agricultural income, which was rejected by the Supreme Court. The law is well settled that a judicial precedent is only 'an authority for what it actually decides and not what may come to follow from some observations which find place therein'. The Supreme Court was not dealing with the nature of DDT as to whether it is tax on the company or a tax on the shareholder. [Para 70] The charge under section 115-O is on the amount declared, distributed or paid as dividend out of accumulated profits. Intrinsic evidence is available in the form of the structure of the section. The section starts with a non obstante clause overriding the other provisions of the Act, including section 4. The provisions of section 115-O are subject to the other provisions of the section. Section 115-O fixes responsibility for compliance on the domestic company and it s Principal Officer. Sections 115P and 115Q provide for machinery provisions for recovery. The chapter XII-D is a complete code in itself on DDT. The provisions of TDS and TCS specifically provide that tax deducted at source and tax collected at source are payments on behalf of the payee i.e., the person liable to pay income tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation which has harmful effects on the international exchange of goods and services and cross-border movements of capital, technology and persons. Bilateral tax treaties address instances of double taxation by allocating taxing rights to the contracting States. Most existing bilateral tax treaties are concluded on the basis of a model, such as the OECD Model Tax Convention or the United Nations Model, which are direct descendants of the first Model of bilateral tax treaty drafted in 1928 by the League of Nations. As a result, while there can be substantial variations between one tax treaty and another, double tax treaties generally follow a relatively uniform structure, which can be viewed as a list of provisions performing separate and distinct functions: (i) Articles dealing with the scope and application of the tax treaty, (ii) Articles addressing the conflict of taxing jurisdiction, (iii) Articles providing for double taxation relief, (iv) Articles concerned with the prevention of tax avoidance and fiscal evasion, and (v) Articles addressing miscellaneous matters (e.g. administrative assistance). Articles 23A and 23B of the OECD model convention give methods to eliminate doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... domestic company paying dividend distribution tax, only then, the domestic company can claim benefit of the DTAA, if any. Thus, the question before the Special Bench is answered, accordingly. [Para 83] 7. In view of above findings of Special Bench, we respectfully followed the same ratio as laid down in the case of Total Oil India (P.) Ltd. (supra) and grounds raised by the assessee are dismissed. 8. In the result, appeal of the assessee is dismissed. 2323/Mum/2021 (A.Y. 2012-13) 9. As far as appeal of the revenue is concerned same is covered in favour of assessee s own case vide ITA (TP) No. 720 (Mum.)/2015, A.Y. 2010-11, ITA No. 7228 (Mum.)/2012, A.Y. 2007-08 and held as under: The Tonnage Tax Scheme (TTS) was introduced in the Finance (No. 2) Act, 2004, with the intention of increasing foreign direct investment in the Indian shipping industry and making it globally competitive. The income of a tonnage tax company depends on the tonnage capacity of the qualifying ships and the number of days for which it has been held. A reading of the provisions of TTS in Chapter XII-G suggest that the TTS is a charging section for the income generated by carrying out business of operating ship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 and therefore, the arm's length price determined under transfer pricing provisions would be of no relevance. In other words, determination of income/expense having regard to arm's length price would not alter the computation of income and the taxability of tonnage income of an assessee covered by TTS. [Para 7] Further, tonnage income is based on the weight of the vessel and not on 'arm's length price'. Section 92C prescribes methods for computation of arm's length price. None of the methods prescribed can have any application to computation of the tonnage income. In these circumstances, the computation provisions of Chapter-X would fail and therefore, application of Chapter-X in such circumstances has to fail. Tonnage tax provisions determine the entire chargeable income earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5.41 lakhs 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 creates an independent or a separate charge of income, an aspect which is contrary to the judgment of the Bombay High court in the case of Vodafone Services (P) Ltd. v. UOI [2015] 53 taxmann.com 286/231 Taxman 645/[2014] 369 ITR 511 (Bom.), wherein after referring to an earlier judgment dated 10-10-2014 in the case of same assessee reported in Vodafone India Services (P) Ltd. v. UOI [2015] 228 Taxman 25/[2014] 50 taxmann.com 300/368 ITR 1 (Bom.) inter alia, held that chapter X does not contain any charging provision but is a machinery provision to arrive at an arm's length price of a transaction between associated enterprises. [Para 15] 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 mobilisation and demobilisation charges paid for a qualifying ship, an item which has no bearing on the income as computed under Chapter XII-G and accordingly the provisions of Chapter-X have no application in computing the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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