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TMI Blog2024 (10) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the normal provision of the Act. Similarly in respect of excess written back of Rs. 62.85 crores the assessing officer observed that a sum of Rs. 24,27,86,267/- pertained to the pre-tonnage tax era and he treated 80% of such excess provision written back as pertaining to the pre-tonnage period and same was taxed under the normal provision of the Act. As relying on assessment year 2007-08 [ 2015 (3) TMI 751 - ITAT MUMBAI ] issue on hand being squarely covered we find merit in the submission of the assessee and allow the claim of the assessee for treating the income under the core activity, therefore, ground no. 1 of the assessee is allowed. Taxing the sum being 80% of the sundry receipts pertaining to certain receipts recorded under sundry receipts - HELD THAT:- During the course of assessment the assessing officer has taxed the sundry receipt under the normal provision of the Act as discussed supra in this order on the ground that tonnage tax scheme was applicable to the income earned from operation of qualified ships and that too from the activities which was listed as core activities. The assessee explained that sundry receipts were related to the operation of ships therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest income is taxable as business income. Thus, since the funds are nothing but the funds required for running the shipping business, which has been invested by the assessee, and interest income is earned, therefore, we are of the considered opinion that income by way of interest arising from the said deposits is in the nature of business income and relates to the core shipping activity. Disallowance of administrative expenses against income from incidental shipping activities - HELD THAT:- After referring the aforesaid provision of Sec. 115VI DRP agreed that in respect of profit from incidental activities only the net receipt cannot be treated as income and reasonable allocation of administrative expenditure is required to be made. Also stated in the finding of the DRP that assessee has shown the same on the basis of turnover, therefore, the same is reasonable. Considering submission of the assessee that administrative expenses are required to be incurred for all activities of the assessee company, therefore, we consider that the same is required to be attributed on a reasonable basis to arrive at profit from the incidental activities in the case of the assessee in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are related to the core shipping activity. Considering the aforesaid findings of the CIT(A) we don t find any reason to interfere in the decision of ld. CIT(A) therefore, this ground of revenue stand dismissed. Treatment of recovery of water charges as part of profit and turnover from core activity - HELD THAT:- Water charges recovery are made from the vessel owners towards supply of fresh water for use by crew staff which showed that this recovery is part of the shipping activity therefore, we don t find any error in the decision ld. CIT(A), therefore, this ground of appeal of revenue are dismissed. Credit of Foreign Taxes paid u/s 90 and 91 - CIT(A) held that tax deducted in countries with whom India does not have a DTAA, the manner of determining the independent rate of tax has been specifically provided by explanation to Sec. 91 and the effective rate of tax determined by the AO was not proper, therefore, AO was directed to follow the same as per Sec. 91 - HELD THAT:- We find that similar issue on identical fact has been decided by the ITAT in the case of the assessee itself vide [ 2015 (3) TMI 751 - ITAT MUMBAI ] for A.Y. 2007-08 on 21.03.2014 and the matter was restored to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing officer noticed that assessee has declared certain income in the nature of excess provision/sundry credit balance written back of Rs. 67.17 crores. On further verification the AO found that the following income have been categorised (under core activities) whereas the same were not qualified for categorised as relevant core activity as per the provision of Sec. 115BVII (2) of the Act. Sr. No. Nature of Income Amt (Rs.) 1. Excess Provisions/Sundry Credit Balances 62,85,16,392 2. Sundry creditors Written back 3,32,33,477 3. Sundry Receipts 28,42,44,559 The AO noticed that the assessee had opted for the tonnage tax scheme w.e.f 2005-06 therefore any receipt arising from prior to A.Y. 2005-06 cannot be formed part of the tonnage tax computation and same would not qualify to be categorised as shipping income from the core activity in their entirety. Out of the sundry credits written back of Rs. 3.32 crore a sum of Rs. 19,58,670/- was pertained to the pre-tonnage tax era. Out of excess provision back of Rs. 62.85 crore a sum of RS. 24,27,86,267/- pertained to pre-tonnage tax era. The AO on his own excluded certain items and estimated 80% of the such provision to be added to the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed certain income relating to earlier years pertained to excess provision/sundry credit written back amounting to Rs. 66.17 crores out of which an amount of Rs. 62.85 crores had been considered as core shipping income of the assessee as defined in Sec. 115V(2) of the Act. The assessee has also declared sundry creditors written back of Rs. 24,27,86,267/- as its core shipping income from the core activity as defined in Sec. 115V(2) of the Act. The assessing officer observed that assessee has opted for Tonnage Tax Scheme w.e.f assessment year 2005-06, therefore, aforesaid income would not qualified to be categorised as shipping income from core activity. Therefore, the assessing officer noticed that out of the sundry credit written back of Rs. 3.32 crores a sum of Rs. 19,58,670/- was pertained to the pre- tonnage tax era, therefore, he brought the same to tax under the normal provision of the Act. 9. Similarly in respect of excess written back of Rs. 62.85 crores the assessing officer observed that a sum of Rs. 24,27,86,267/- pertained to the pre-tonnage tax era and he treated 80% of such excess provision written back as pertaining to the pre-tonnage period at Rs. 19,42,29,013/- and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of sub-section (1), the tonnage income of each qualifying ship shall be the daily tonnage income of each such ship multiplied by (a) the number of days in the previous year; or (b) the number of days in part of the previous year in case the ship is operated by the company as a qualifying ship for only part of the previous year, as the case may be. (3) For the purposes of sub-section (2), the daily tonnage income of a qualifying ship having tonnage referred to in column (1) of the Table below shall be the amount specified in the corresponding entry in column (2) of the Table: Qualifying ship having net tonnage Amount of daily tonnage income (1) (2) Up to 1,000 Rs. 46 for each 100 tons Exceeding 1,000 but not more than 10,000 Rs. 460 plus Rs. 35 for each 100 tons exceeding 1,000 tons Exceeding 10,000 but not more than 25,000 Rs. 3,610 plus Rs. 28 for each 100 tons exceeding 10,000 tons Exceeding 25,000 Rs. 7,810 plus Rs. 19 for each 100 tons exceeding 25,000 tons (4) For the purposes of this Chapter, the tonnage shall mean the tonnage of a ship indicated in the certificate referred to in section 115VX and includes the deemed tonnage computed in the prescribed manner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, being (i) on-board or on-shore activities of passenger ships comprising of fares and food and beverages consumed on board; (ii) slot charters, space charters, joint charters, feeder services, container box leasing of container shipping. (3) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, exclude any activity referred to in clause (ii) of sub-section (2) or prescribe the limit up to which such activities shall be included in the core activities for the purposes of this section. (4) Every notification issued under this Chapter shall be laid, as soon as may be after it is issued, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the notification, or both Houses agree that the notification should not be issued, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en, such loss shall be ignored for the purposes of computing tonnage income. 29. Provisions of section 115VA provides that the income from business of operating qualifying ships may be computed in accordance with the provisions of chapter XII-G, and that the income so computed shall be deemed to be the profits and Income from qualifying ships are defined in section 115VC, and there is no dispute on this aspect. Section 115VE mandates that profits from business of a company engaged in the business of operating qualifying ships shall be computed under the tonnage tax scheme. It also specifies that such business of operating qualifying ships shall be considered as a separate business distinct from all other activities or business carried on by the company. The mode of computation of tonnage income is given under section 115VG. The term relevant shipping income has been defined in section 115VI. It is basically classified into two categories i.e., profits from core activities referred to in sub-section 2 and profits from incidental activity referred to in sub-section 5. The issue is, whether the income by way of right back of provisions of sundry credit balances and prior period expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our opinion, a third category of other business income cannot be created. As pointed out by the learned Sr. Counsel, if such introduction is allowed then, a claim of the assessee of deduction under section 43B i.e., deduction only on actual payment would be required through the expenditure actually belongs to pre-tonnage period. to be allowed. The Assessing Officer cannot take recourse to sections 28 to 43C, when there is no other activity or business carried on by the company, other than business of operating qualifying ships. In view of the above discussion, we allow ground no.1 of the assessee. 11. There is nothing before us on hand to differ from the issues raised in the cases cited supra so as to take a different view on this issue. Therefore, since issue on hand being squarely covered we find merit in the submission of the assessee and allow the claim of the assessee for treating the income under the core activity, therefore, ground no. 1 of the assessee is allowed. Ground No. 2: Taxing the sum aggregating to Rs. 387,01,556/- (being 80% of the sundry receipts amounting to Rs. 4,83,76,945/- pertaining to certain receipts recorded under sundry receipts: 12. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has upheld the decision of assessing officer. 14. During the course of appellate proceedings before us the ld. Counsel submitted that Liquidated damages/dry dock, Refund of Directors fees, Contribution to employees new PRMS (post Retirement Medical Scheme), Rent on furniture, Application Money-Right to Information Act, 2005 has been decided by the ITAT in the earlier years in favour of the assesse for assessment year 2008-09 and 2009-10. 15. On the other hand, the ld. D.R supported the order of lower authorities. 16. Heard both the sides and perused the material on record. During the course of assessment the assessing officer has taxed the sundry receipt amounting to Rs. 649,98,758/- under the normal provision of the Act as discussed supra in this order on the ground that tonnage tax scheme was applicable to the income earned from operation of qualified ships and that too from the activities which was listed as core activities. The assessee explained that sundry receipts were related to the operation of ships therefore the same was required to be considered as income from core activities. The relevant part of the submission of the assessee filed before the ld. CIT(A) explaining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deliver the cargo is changed by the customer the Cargo needs to be re stuffied in the storage space in such a Wariner that the goods to be delivered at last should be placed at last in the Storage arca Therefore. additional charges are levied to customer for re scheduling the cargo 11. Stop removal charges When the ships are given for maintenance. service Purpose then the oil and other petroleum product stuck in between the machines is removed and sold as a Scrap The said income fs on account of Such Scrap recovery, 12. Mounting /de mounting charges Addirional charges recovered from customer for loading cargo from ports to the trucks of the customer as per their request. 13. Additional free Days The customer has to clear the cargo from the Port within 5 days of Unloading. if on customers request the cargo is taken after the eligible period then charges are recovered for the Storage at the port 14. Owners expenses recovery/Val recovery When on the in chartered vessel any expenditure is incurred by the appellant which are Supposed to be incurred by the Ship owner then these expenses are recovered font them are accounted here 15. Recovery of late gate in charges The customer has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of Rs. 6,05,004 is on account of commission on disbursement which the assessee earned over and above the disbursement amount paid to the agents, Captain, and crew of ships when the ship is abroad. As per the assessee, such disbursement was pursuant to an agreement with certain shipowners. We have already upheld the taxability of commission on disbursement under Chapter XII-G, which was forming part of the prior period income. Since this commission is also of a similar nature and that too pertaining to the post tonnage tax era, therefore, same forms part of core shipping activity. 26. Similarly, the receipt of Insurance and P I claims forming part of prior period income has been held to be forming part of core shipping activity. Therefore the receipt of Rs. 3,35,51,032 on account of Insurance and P I claims, which relates to the qualifying ship also forms part of the core shipping activity. 27. As regards the receipt of Rs. 6,65,11,332 on account of liquidated damages (dry docks), it is the plea of the assessee that the ships are sent for drying rocks repair as it is mandated procedure to maintain the vessels seaworthy. Further, periodically vessels are sent to the shipyard or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m core shipping activities, therefore, same was excluded from turnover of core shipping activities. 22. During the course of appellate proceedings before us, regarding insurance and PI claim the ld. Counsel submitted that as per the insurance policy the assessee had incurred the cost of the repair which was thereafter claimed as per the insurance policy and the same was directly related to the core activity of the assessee. In respect of receipt from house rent the ld. Counsel submitted that assessee has taken accommodation or rent for its employees and incurred expenses on a lease rent and recovered from normal house rent of Rs. 126,74,819/- from the employees, therefore, the same was related to the core activity. In respect of company receipt from company bus service he submitted that assessee has provided bus service to its employees, therefore recovery of the bus services amount required to be treated as part of core activity. The ld. Counsel has also submitted that identical issue on similar facts has been adjudicated by the ITAT, Mumbai in favour of the assessee in the case of the assessee itself for the assessment year 2008- 09. 23. On the other hand, the ld. D.R supported t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred 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 the assessee does not have any other business other than the business of operating qualifying ships and as it has no other activity as contemplated under Chapter XII-G, we are of the considered opinion that the income cannot be brought to tax separately and it is the income from the core activity. 23. Similarly, the receipt of rent on furniture of Rs. 30,404, company s bus service of Rs. 1,795, contribution for employees ‟ new post-retirement medical scheme of Rs. 5,000, and penal charges levied on employees of Rs. 9,150, are is in respect of employees involved in the core activity of the business of the assessee, we are of the considered opinion that same is not taxable under the normal provisions of the Act. 25. We find that issues raised before the Tribunal in this year are similar to preceding assessment year 2008-09. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ping activity. In this regard the ld. Counsel submitted that similar issue on identical facts for the assessment year 2008-09 was adjudicated by the ITAT, Mumbai in favour of the assessee vide order of the ITAT vide ITA No. 2550/Mum/2012 dated 14.03.2023. 29. On the other hand, the ld. D.R supported the order of lower authorities. 30. Heard both the sides and perused the material on record. With the assistance of the ld. representative we have gone through the decision of ITAT for A.Y. 2008-09 as referred above by the ld. Counsel. The relevant operating part of the decision is reproduced as under: 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 referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur aforesaid findings, the other aspects raised in ground No. 4 are rendered academic and therefore require no separate adjudication. 31. Since the aforesaid issue in the additional ground no. 1 of the assessee is squarely covered by the decision of ITAT in the case of the assessee itself as referred above, therefore, the following the decision of ITAT this additional ground of appeal of the assessee is allowed. Ground No.4: Disallowance of deduction of administrative expenditure of Rs. 11,51,75,710/- against income from other sources amounting to Rs. 220,47,19,141/-: 32. Since we have allowed the additional ground no.1 of the assessee by treating the interest income as arising from core shipping activity after following the decision of the ITAT, therefore, this ground of appeal no. 4 become academic and no separate adjudication is required. Ground No. 5: Disallowance of administrative expenses amounting to Rs. 2,31,73,820/- against income from incidental shipping activities: 33. During the course of assessment the assessing officer noticed that assessee has claimed an expenditure of Rs. 231,73,820/- against income from incidental activities. The assessing officer stated that alloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative expenditure on the basis of turnover therefore this ground of appeal is allowed. ITA No.482/Mum/2021 (Revenue s Appeal) Ground No. 1 5: Treatment of commission of disbursement as part of profit and turnover from core activity: 38. During the course of assessment the assessing officer noticed that assessee has earned commission @ 25% on the disbursement of payment to shipping owners. After allowing deduction @ 20% the assessing officer treated the amount of Rs.649,98,758/- as not part of core activity of the assessee. 39. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) agreed with the assessee s claim that this income was integral part of the chartering activity and treated the same as income from core activities. 40. During the course of appellate proceedings before us the ld. Counsel submitted that similar issue on identical fact has been adjudicated by the ITAT for the assessment year 2008-09 in favour of the assessee. 41. On the other hand, the ld. D.R supported the order of lower authorities. 42. Heard both the sides and perused the material on record. The assessee sometimes takes vessels owned by third parties on a charter basis and further out-chart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit was held to be directly related to the incidental activity of the operation of the qualified ship by the coordinate bench of the Tribunal in assessee s own case in The Shipping Corporation of India Ltd vs ACIT, in ITA No. 3546/Mum/2013, for the assessment year 2009-10, vide order dated 19/08/2015. As per the assessee, though the receipts have been referred to as incidental in the aforesaid order, what was meant was that it is a receipt from core activity. However, no order modifying the aforesaid findings by the coordinate bench is placed on record. Thus, respectfully following the judicial precedent in assessee s own case, the profit on bar plus shop sales are held as incidental activity of the operation of the qualified ship. 47. Following the decision of the ITAT as discussed supra in the case of the assessee for A.Y. 2008-09 we don t find any merit in this ground of appeal of the revenue therefore the same stand dismissed. Ground No. 3 6: Treatment of Sundries core shipping as part of profit and turnover from core activity: 48. The assessing officer has considered the sundry receipt as unrelated to the operations of qualifying ships, therefore, taxed 80% of such receipts u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the decision of ITAT in the case of the assessee for assessment year 2005-06 vide ITA No. 2944/Mum/2010 dated 21.03.2014. The relevant part of the decision is reproduced as under: 13. We have heard the arguments of both the sides and also perused the relevant material available on records. It is observed that the claim made by the assessee for relief u/s 90 and 91 of the Act on account of foreign taxes paid outside India was disallowed by the A.O. as well as the ld. CIT(A) mainly on the ground that the same was not made by the assessee by filing a revised return. Reliance in this regard was placed by the authorities below on the decision of Hon ble Supreme Court in the case of Goetze (India) Ltd. (supra). As held by the Hon ble Bombay High Court in the case of CIT vs. Pruthvi Brokers and Shareholders P. Ltd. [2012] 349 ITR 336 (Bom) cited by the ld. Counsel for the assessee, the assessee is entitled to raise any additional claims before the appellate authorities as per the decision of Hon ble Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT [1998] 229 ITR 383 (SC) and the Hon ble Supreme Court in the case of Goetze (India) Ltd. (supra) did not hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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