9911796707
TMI Blog2025 (3) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court's decision in the case of Goetz (India) Ltd. vs. CIT [2006] 157 Taxman 1 (SC). GROUND NO. 2 Without prejudice to Ground no. 1, the CIT(A) has erred in disallowing deduction of administrative expenses amounting to Rs. 13,49,14,042/- against interest income of Rs. 84,01,13,062/-." 3. 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 the business of operation of qualifying ships is taxed on a presumptive basis instead of according to the provisions of section 28 to section 43C of the Act. For the year under consideration, the assessee filed its return of income on 28/11/2018 declaring a total income of Rs. 161,55,42,230. The return of income was selected for complete scrutiny under CASS and statutory notices under section 143(2) and section 142(1) were issued and served on the assessee. The Assessing Officer ("AO"), vide order dated 19/04/2021 passed under section 143(3) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Authorised Representative ("learned AR") submitted that the issue whether the interest income earned by the assessee from the deposits maintained with banks and financial institutions out of the funds required for the purpose of business, but temporally lying idle, constitutes income from core shipping activity came up for consideration before the coordinate bench of the Tribunal in assessee's own case for the assessment year 2008-09. It was submitted that the Co-ordinate Bench of the Tribunal following the decision of the Hon'ble Jurisdictional High Court in CIT v/s Varun Shipping Co Ltd, reported in [2011] 324 ITR 263 (Bom.), allowed the plea of the assessee and held that income by way of interest arising from the deposits is in the nature of business income and relates to the core shipping activity of the assessee. 8. On the other hand, the learned Department Representative ("learned DR") placed reliance upon the decision of the Co-ordinate Bench of the Tribunal in assessee's own case for the assessment years 2005-06 and 2006- 07 and submitted that the interest income earned by the assessee shall be taxable under the head "income from other sources". 9. From the perusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 2005-06 and 2006-07, it is clearly evident that the issue as raised by the assessee, in the year under consideration, being that the interest income should not be separately charged to tax being in the nature of income from core activities was not raised as an independent ground before the Tribunal and the issue under consideration before the Tribunal, as noted in the foregoing paragraphs, was limited to claim of allocation of common costs as per the provisions of section 115VJ of the Act. Thus, though in the assessment years 2005-06 and 2006-07 the interest income was offered under the head "income from other sources" in the return of income, however, unlike in the year under consideration there was no claim that the same should not be separately charged to tax, even though, the assessee has treated the interest income as income from core shipping activity and the Co-ordinate Bench also agreed that the same was earned by carrying on tonnage tax business. However, we find that this very issue came up for consideration before the Co-ordinate Bench in assessee's own case in The Shipping Corporation of India v/s Additional CIT, in ITA No. 2550/Mum/2012, for the assessment year 2008- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed. 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 amount credited to the Tonnage Tax Reserve Account is required to be utilised by the company before the expiry of 8 years for acquiring a new ship for the purpose of the business of the company and until the acquisition of the new ship for the purpose of the business of operating qualifying ships. As per the assessee, in its Tonnage Tax Reserve, following the procedure prescribed under the aforesaid section, is Rs. 695 crores as on 31/03/2008. Further, the assessee earned interest on deposits placed with the banks and financial institutions out of the funds required for purpose of the business but temporarily lying idle. The funds are required for meeting the working capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posits 13. As per the assessee for carrying on its business of operation of qualifying ships, it has to obtain various facilities from the banks, which could be for the purpose of its meeting its contractual or statutory obligations. As per the assessee, before sanctioning the facilities, the banks insist on placing of fixed deposits over which they have a lien over the period for which the facility is operative. It is the plea of the assessee that an amount of Rs. 144 crore was placed with the banks for availing various facilities as on 01/04/2017, which was reduced to Rs. 123 crore as on 31/03/2018. Thus, as per the assessee, the fixed deposits were placed with the banks out of commercial expediency with a view to advance its business interest in the sole business carried out on by it of operating qualifying ships. Thus, the assessee claims that interest earned on such deposits should be regarded as profits and gains on business. Having considered the aforesaid submissions, it is pertinent to note that in the present case, it is undisputed that the only business activity pursued by the assessee relates to shipping. Thus, there cannot be any dispute regarding the fact that the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27.63 Equity portion of PSV - SCI Saraswati September 2017 70.98 Equity portion of VLGC - Nanda Devi Total Utilized till date 196.80 " 15. As per the assessee, the said amount at the beginning of the year stood at Rs. 298 crore and as at the end of the year stood at Rs. 138 crore. It is further the plea of the assessee that pending its utilization for the said purpose the funds have been placed as fixed deposits with the banks, and the interest was earned thereon. In the present case, it is undisputed that only business activity pursued by the assessee related to shipping and thus, the entire receipts are from shipping activity, which qualifies for computation of presumptive basis under the tonnage tax provisions. From the facts as noted above, it is evident that the funds generated by the assessee from the public offering were also for the purpose of part-financing of capital expenditure on ship building projects, and since some of the contracts were rescinded, the refund received was agreed to be redeployed, vide shareholders' resolution towards various other ship building projects, including acquisition of vessels. From the details, as noted above on page 45 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vessels, is in the nature of business income of the assessee and relates to core shipping activity. (d) Fixed Deposits placed for meeting Working Capital Requirement 17. By referring to pages 98 and 99 of the Audited Financial Statement, forming part of the paper book-3, the assessee submitted that the current liabilities were in excess of the current assets, during the year under consideration, and therefore, the assessee had to maintain sufficient funds for the purpose of meeting its working capital requirement as and when they arise. The assessee further submitted that the fixed deposits which stood at Rs. 1295.35 as at the beginning of the year have been reduced to Rs. 1081.45 crore as at the end of the year, which shows that the fixed deposits have not been placed out of surplus funds, however these are the funds which are required for the purpose of its business and have been placed in the fixed deposits temporarily. Thus, as per the assessee, the funds are required for meeting the working capital requirement and repayment of loans taken in earlier years for the acquisition of ships and vessels. In respect of the aforesaid submission, the assessee has placed on record, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A that provisions shall be applicable retrospectively?" (iii) "Whether on the facts of the case and in law, Ld. CIT(A) was justified in allowing administrative expenses being apportionment of common cost against income from incidental activities"?" 22. In the interest of justice, the slight delay of 7 days in filing the appeal by the Revenue is condoned. 23. The issue arising in Grounds No. 1 and 2, raised in Revenue's appeal, pertains to the deletion of disallowance made under section 14A r.w. Rule 8D of the Income-tax Rules, 1962 ("the Rules"). 24. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, the assessee was asked to furnish the opening and closing balance of monthly investments and working of disallowance under section 14A of the Act. It was observed that the assessee has not recorded any expenditure for earning exempt income. Accordingly, the assessee was asked to show cause why the disallowance under section 14A of the Act should not be worked out as per the provisions of Rule 8D of the Rules. In response, the assessee submitted that it is a shipping company and has opted for tonnage tax schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee from the business of operating ships is computed as per the special provisions contained in Chapter XIIG, only the expenses incurred by the assessee for earning income of the said business are deemed to be allowed and nothing else. It, therefore, cannot be said that when the income of the assessee from the business of operating ships is computed as per the special provisions of Chapter XIIG, any expenditure other than the expenditure incurred for the purpose of the said business has been allowed and consequently no addition to income so computed can be made by way of disallowance u/s 14A on account of expenditure incurred by the assessee in relation to earning of exempt dividend income. We, therefore, find merit in the contention of the learned counsel for the assessee that the income of the assessee from the business of operating ships having been computed in accordance with the provisions of Chapter XIIG, only the expenses incurred for the said business are deemed to have been allowed and no addition to such income can be made by way of disallowance u/s 14A on account of any expenditure incurred in relation to earning of exempt dividend income..." Not on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistrative expenses are incurred for the entire business comprising of core shipping activities, incidental activities which generate other income. It was further submitted that administrative expenses are required to be incurred for all activities of the company and as such in terms of provisions of section 115VJ of the Act these expenses should be allocated to activities other than tonnage tax business on a reasonable basis. The AO, vide assessment order, following the approach adopted in the preceding year, disallowed the administrative expenditure claimed by the assessee. 29. The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue by following the decision of the Co-ordinate Bench of the Tribunal in assessee's own case in preceding years. Being aggrieved, the Revenue is in appeal before us. 30. Having considered the submissions of both sides and perused the material, we find that while considering a similar issue of disallowance of administrative expenses against income from incidental shipping activities, the Co-ordinate Bench of the Tribunal in assessee's own case in The Shipping Corporation of India Ltd. v/s Additional CIT, in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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