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TMI Blog2024 (8) TMI 1246X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpretation of the provision that existed prior to the amendment (between 1991 and 1993). In the absence of any explicit positive legislative stipulation requiring the deduction u/s 33AC to be disregarded when computing the deduction u/s 80-I, we have no hesitation in upholding the concurrent views expressed in the proceedings so far prior to the institution of these appeals. Indeed, no case law has been cited at the bar to indicate that the deduction allowed u/s 33AC (which deals only with shipping companies) must have no impact on or holds no relevance for, the deduction allowed u/s 80-I. We find no reason to interfere with the impugned order. As indicated by Revenue, the concurrent outcome in the proceedings so far result in an eminently plausible and reasonable view. For the reasons articulated above, we independently find that for computing the deduction under Section 80-I (25% of profits from a ship), it would be necessary to give effect to, and factor in, the deduction allowed under Section 33AC. If the result of such deduction under Section 33AC is that there is no profit from the ship, the necessary consequence would be that the deduction u/s 80-I (a percentage of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 33AC of the Act allowed a company engaged in the business of operating ships to deduct an amount not exceeding the total income, and credit the same to a reserve, which could be utilized within the next eight years to acquire a new ship for business purposes. Section 80-I of the Act allowed another deduction of 25% of the profits and gains derived from a ship , that met the qualifying criteria for deduction under that provision. 5. According to the Appellant-Assessee, the base amount on which the percentage deduction is to be computed under Section 80-I should not be the amount arrived at after giving effect to the deduction under Section 33AC. According to the Appellant-Assessee, each of Section 80-I and Section 33AC operates in a distinct field, and one must not interpose the impact of the deduction under Section 33AC into the computation of the permissible deduction under Section 80-I. 6. In direct contrast, according to the Respondent-Revenue, the base amount on which the percentage deduction under Section 80-I is to be computed should be the net amount arrived at after giving effect to deduction under Section 33AC. 7. At the threshold, it may be noted that each of these S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profit and loss account would be credited to a reserve account; d) Pursuant to Section 33AC(2), the use to which such reserve may be put is primarily the acquisition of a new ship within the next eight years; and e) The new ship acquired must be for purposes of the business of the company. Section 80-I: 10. It would also be necessary to extract the relevant provisions of Section 80-I of the Act, as applicable at all times relevant to these Appeals:- (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof : Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel as if for the words twenty per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee during the relevant previous year. Core Issue and the Computations: 12. In the instant case, at all times relevant to these Appeals, the Appellant-Assessee, a public limited company, was engaged in the shipping business and derived profits and gains from business carried on with two ships namely, Prabhu Das and Prabhu Gopal. Consequently, it was entitled to create a reserve under Section 33AC to be utilised for buying a new ship. The Appellant-Assessee was also entitled to the allowance of a deduction from its total income under Section 80-I in respect of Prabhu Das, to which Section 80-I applied. 13. The Appellant-Assessee availed of Section 33AC and effected a debit to its profit and loss account to create a reserve. In computing the deduction under Section 80-I, the Appellant-Assessee computed the deduction of 25% on the profits and gains from Prabhu Das, without factoring in any element of deduction effected under Section 33Ac. In other words, the deduction effected under Section 33AC and the deduction under Section 80-I were treated as separate and distinct deductions, each of which, would independently reduce the size of income offered to tax. 14. Learned Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Assessee, the deduction of Rs. 2.50 Crores availed of under Section 33AC must be reduced from the profits and gains from Prabhu Das. Since such allowance deducted under Section 33AC was substantially higher than the profits and gains from Prabhu Das of Rs. 75,20,175/-, the AO ruled that there were no profits and gains from the ship to be used as a base for allowing a deduction under Section 80-I. 17. On appeal, the Learned Commissioner of Income-tax, Appeals ( CIT-A ), vide order dated 25th August, 1995, agreed with the computation made by the AO. Noting that the Appellant-Assessee was entitled to deduction under Section 80-I out of the profits attributable to Prabhu Das, the CIT-A agreed that for the computation of amount deductible under Section 80-I, the effect of the debit to the profit and loss account under Section 33AC would need to be factored in. The CIT- A ruled that since the deduction under Section 33AC is to be made before determining the profits and gains of business derived from a ship, the deduction allowed under Section 33AC must be factored into the computation of the profits and gains. The 25% deduction under Section 80-I may be computed only on the amount arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and expenditure relating to Prabhu Das. Citing case law declared in the context of industrial undertakings seeking to avail of Section 80-I, he submitted that it is now settled law that there has to be a first degree nexus between the receipt (i.e. the income) and the business, for the income to be regarded as derived from the business. Since the credits to the profit and loss account i.e. the receipts from the business must necessarily have a direct nexus with the operation of the ship, he would submit, the debits i.e. expenditure and deductions must also have a direct nexus with the operation of Prabhu Das. The deduction under Section 33AC has nothing to do with the operation of Prabhu Das, he would submit, since it is only a notional deduction under Section 33AC to enable creation of a reserve, by which a new ship could be acquired. Mr. Joshi would emphasise that the debit allowed to the profit and loss account under Section 33AC is not an expenditure that could have the first degree nexus with operating Prabhu Das, and therefore, such deduction cannot be relevant for purposes of the allowance under Section 80-I. 23. Mr. Joshi would also argue that the income on which the ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant financial year. The deduction and the reserve under Section 33AC also relates only to acquiring a new ship. Consequently, there is no inconsistency in the seamless application of Section 33AC and Section 80-I to the facts of the Appellant-Assessee, Mr. Sharma would submit. Besides, he would also submit that the concurrent view endorsed thrice in the proceedings prior to these appeals is clearly a plausible view, and this Court, should be circumspect in disturbing a concurrent plausible view iterated thrice in prior proceedings. Discussion and Analysis: 26. Having heard the Learned Counsel for the parties and having examined the record, we are not persuaded by the submissions made on behalf of the Appellant-Assessee, for the reasons articulated below. 27. First, it should be noted that in the process of computing the taxable income under the Act, the deduction under Section 33AC of the Act would be effected prior to the computation of the deduction under Section 80-I. Section 33AC (1) enables creation of a reserve that can be used only for purposes of acquiring a new ship for business purposes within eight years. Pending such acquisition, the reserve may be used for other busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutes the profit, one of the debits to the profit and loss account is the allowance under Section 33AC. If after that debit, there is a profit, there would be a base on which the deduction under Section 80-I may be computed. If there is no profit left after that deduction, there cannot be a base amount on which the deduction under Section 80-I may be computed. Either way, the nexus between the deduction under Section 33AC and the shipping business is legislatively supplied by that very provision. In the matter at hand, for the Assessment Year 1992-93, without factoring in the deduction under Section 33AC, the excess of income over expenditure derived from Prabhu Das was over Rs. 75 lakh, but the deduction claimed and allowed under Section 33AC was Rs. 2.5 Crores, leading to the absence of profits from Prabhu Das for purposes of Section 80-I. 30. Third, the usage of the phrase total income in Section 33AC enabled indicating the numerical cap applicable to the allowance amount. No allowance could have been claimed in excess of the total income. Therefore, the example provided by Mr. Joshi about there being an allowance under Section 33AC despite the shipping operations having a loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the profits, but an amount charged from the gross income, after which profit is arrived at. Therefore, evidently, the amount deducted under Section 33AC would be an amount that aids acquiring a new ship, and after availing of such aid by making the deduction, one would know if there has been a profit or a loss. Should there arise a profit after such an exercise, then on such amount, a further amount of 25% may be deducted under Section 80-I. 33. Finally, Mr. Joshi s argument that the amendment effected to Section 33AC of the Act with effect from 1st June, 1996, would point to what the pre-amendment position of the law was, is to be stated only to be rejected. According to him, after the amendment, Section 33AC has changed reference from total income to profits and gains derived from the business of operation of ships . Therefore, he would argue, it is only the amendment that brought in a link to the profits from operation of ships, and before the amendment, simply a deduction of an amount linked to total income was envisaged, without any linkage to operation of ships. In our opinion, such an argument would be destructive of the earlier argument that there is need for a nexus wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case law cited, we have not extracted from the same. In any case, the judgements cited, buttress the proposition of the need for a nexus between the income or expense and the business in question. We have held that by the very design of Section 33AC, there is a nexus between the deduction allowed under Section 33AC and the shipping business operations. In the absence of any explicit positive legislative stipulation requiring the deduction under Section 33AC to be disregarded when computing the deduction under Section 80-I, we have no hesitation in upholding the concurrent views expressed in the proceedings so far prior to the institution of these appeals. Indeed, no case law has been cited at the bar to indicate that the deduction allowed under Section 33AC (which deals only with shipping companies) must have no impact on or holds no relevance for, the deduction allowed under Section 80-I. 37. Consequently, we find no reason to interfere with the impugned order. As indicated by Mr. Sharma on behalf of the Respondent-Revenue, the concurrent outcome in the proceedings so far result in an eminently plausible and reasonable view. For the reasons articulated above, we independently f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l waters before its acquisition by the assessee; and it should have been brought into use at any time between 1st April, 1981 and 31st March, 1991. If Prabhu Das alone qualified under Section 80-I, indeed only income from Prabhu Das would be considered at the gross level. However, it is not a necessary corollary that Section 33AC is not attributable to the profit and loss derived from Prabhu Das. To compute the net income i.e. profits and gains, without factoring in the full amount of the deduction under Section 33AC, one must be satisfied that the full amount can never be relatable to Prabhu Das. The reserve created under Section 33AC could help replace Prabhu Das, and therefore can be attributed to Prabhu Das. 41. Under Section 80-I (6), the profits and gains from all qualifying ships would have been the base for computing the deduction under Section 80-I (1). Therefore, applying Section 80-I (6), the qualifying ships must be treated as the only source of income (in this case, income from Prabhu Das), but it cannot be stated that the reserve created under Section 33AC could never be attributed to Prabhu Das. It would not be possible to make adjustments at this stage by apportionm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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