ACIT, CHENNAI V. M/s. Sanmar Shipping Ltd., CHENNAI

ITA 1336/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1136 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-02-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 15-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T N BETGIRI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE , ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1336/MDS/2012 (ASSESSMENT YEAR : 2008-09) ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-VI(1), AAYAKAR BHAVAN 7 TH FLOOR, 121, M.G.ROAD, CHENNAI-600 034. VS. M/S. SANMAR SHIPPING LTD. 9, CATHEDRAL ROAD, CHENNAI-600 086. PAN: AABCS0545C (APPELLANT) (RESPONDENT) APPELLANT BY : MR. T.N.BETGIRI, JCIT RESPONDENT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE DATE OF HEARING : 28 TH FEBRUARY, 2013 DATE OF PRONOUNCEMENT : MARCH, 2013 O R D E R PER VIKAS AWASTHY, JM: THE APPEAL HAS BEEN FILED BY THE REVENUE IMPUGNING THE ORDER OF THE CIT(A)-V, CHENNAI DATED 15.03.2012 , WHEREBY THE CIT(A) HELD THAT THE AMOUNT OF SUNDRY C REDITORS WRITTEN BACK AND THE OVERDUE CHARGES RECEIVED FROM THE POOL MANAGERS WOULD COME WITHIN THE MEANING OF RELEVANT SHIPPING INCOME OF A TONNAGE TAX COMPANY AS STIPU LATED UNDER THE PROVISIONS OF SECTION 115V-I. ITA NO.1336/MDS/2012 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PUBLIC LIMITED COMPANY CARRYING ON THE BUSINESS OF SHIPPING. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2008-09 ON 25.09.2008 DECLARING TOTAL INCOME O F ` 74,22,580/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED TO THE ASSESSEE ON 12.8.2009. THE ASSESSEE OPTED FOR TONN AGE TAX SCHEME AND OBTAINED APPROVAL FROM THE APPROPRI ATE AUTHORITY UNDER SECTION 115VP OF THE ACT. THE ASSE SSEE COMPUTED TOTAL INCOME OF ` 67,73,562/- UNDER TONNAGE TAX SCHEME AND COMPUTED TAX PAYABLE AT ` 20,93,031/- UNDER THE PROVISIONS OF SECTION 115VF OF THE ACT. THE TAXABL E INCOME IN ACCORDANCE WITH THE OTHER PROVISIONS OF THE ACT WAS COMPUTED AT ` 6,07,576/- AND TAX THEREON WAS COMPUTED AT ` 1,87,741/- BY THE ASSESSEE. DURING THE COURSE OF SCRUTINY PROC EEDINGS, THE ASSESSING OFFICER ASKED FOR DETAILS OF MISCELLA NEOUS INCOME AMOUNTING TO ` 1,41,97,096/-. THE ASSESSEE FURNISHED THE DETAILS AS UNDER:- MISCELLANEOUS INCOME:- 1. INSURANCE CLAIM RECEIVED : ` 1,32,49,868 2. OTHERS: ` 53,692 ITA NO.1336/MDS/2012 3 3. CREDITORS WRITTEN BACK ` 3,63,340 4. FINANCIAL INCOME (POOL MANAGERS INCOME) ` 5,30,196 TOTAL ` 1,41,97,096 THE ASSESSEE VIDE ITS LETTER DATED 8.12.2010 CLARIF IED THAT THE INCOME RECEIVED FROM POOL MANAGERS REPRESENT INCOME RECEIVED FROM SUNDRY CREDITORS FOR THE AMOUNT RETAI NED BY THEM FOR WORKING CAPITAL PURPOSES FOR OPERATING THE SHIPS. IT RELATES TO SHIPPING ACTIVITIES AS PER SECTION 115V- I OF THE ACT. ACCORDINGLY, THE SAME SHALL NOT BE CHARGEABLE TO TA X UNDER THE PROVISIONS OF SECTION 115VF OF THE ACT. THE AS SESSING OFFICER VIDE ASSESSMENT ORDER DATED 27.12.2010 HELD THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE CREDITORS WRITT EN BACK AND INCOME RECEIVED FROM POOL MANAGERS RELATING TO SHIPPING INCOME . THE ASSESSING OFFICER EXCLUDED THE SAME FR OM SHIPPING INCOME AND TREATED AS REGULAR INCOME AND RECOMPUTED THE INCOME OF THE ASSESSEE. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) H ELD THAT THE AMOUNT OF SUNDRY CREDITORS WRITTEN BACK AND OV ER-DUE CHARGES RECEIVED FROM POOL MANAGERS FALL WITHIN THE MEANING ITA NO.1336/MDS/2012 4 OF RELEVANT SHIPPING INCOME OF TONNAGE TAX COMPAN Y UNDER THE PROVISIONS OF SECTION 115VI AND REMITTED THE MA TTER BACK TO THE ASSESSING OFFICER TO RE-DETERMINE THE TOTAL INCOME BY GIVING EFFECT TO HIS ORDER. AGGRIEVED AGAINST THE O RDER OF THE CIT(A), THE REVENUE HAS COME IN SECOND APPEAL BEFOR E THE TRIBUNAL. 3. SHRI T.N.BETGIRI APPEARING ON BEHALF OF THE REVE NUE SUBMITTED THAT SUNDRY CREDITORS WRITTEN BACK AND TH E OVER- DUE CHARGES RECEIVED FROM POOL MANAGERS DO NOT FALL WIT HIN THE MEANING OF RELEVANT SHIPPING INCOME OF TONNAGE TA X COMPANY WITHIN THE MEANING OF SECTION 115VI. THE DR SUBMITTED THAT THE ASSESSEE HAS MISERABLY FAILED TO PROVE THAT THE SAID INCOME RELATES TO SHIPPING ACTIVITIES. THE SAID INCOME IS NOT INCIDENTAL TO THE CORE ACTIVITY OF TONNAGE T AX COMPANY AND THUS ARE TAXABLE UNDER THE NORMAL PROVISIONS OF THE ACT. 4. ON THE OTHER HAND SHRI R.VIJAYARAGHAVAN, APPEARI NG ON BEHALF OF THE ASSESSEE SUBMITTED THAT INTEREST RECE IVED ON DELAYED PAYMENTS IS PART OF SHIPPING BUSINESS INCOM E AND THUS ELIGIBLE FOR INCLUSION AS RELEVANT SHIPPING I NCOME OF A ITA NO.1336/MDS/2012 5 TONNAGE TAX COMPANY. THE COUNSEL STRONGLY SUPPORTIN G THE ORDER OF THE CIT(A) FURTHER STRENGTHEN HIS CONTENTI ONS BY RELYING ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. MADRAS MOTORS LTD. / M.M. FORGI NGS LTD. REPORTED AS 257 ITR 60(MAD). 5. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE S IDES AND HAVE PERUSED THE ORDERS PASSED BY THE AUTHORITI ES BELOW AND THE JUDGEMENT CITED BY THE COUNSEL FOR THE ASSE SSEE. THE MAIN DISPUTE IN THE INSTANT CASE IS WITH REGARD TO INCOME RECEIVED BY THE ASSESSEE AS POOL MANAGERS INCOME. AS PER THE EXPLANATION FURNISHED BY THE ASSESSEE THE SAID INCOME REPRESENTS INCOME RECEIVED FROM SUNDRY CREDITORS FO R RETAINING THEIR AMOUNT USED BY THEM AS WORKING CAPITAL FOR OP ERATING THE SHIPS. THE PROVISIONS OF SECTION 115VI DEFINES RELEVANT SHIPPING INCOME. THE RELEVANT EXTRACT OF THE PROVI SIONS OF SECTION 115V-I ARE REPRODUCED HEREIN BELOW:- 115V-I. (1) FOR THE PURPOSES OF THIS CHAPTER, THE RELEVANT SHIPPING INCOME OF A TONNAGE TAX COMPANY MEANS (I) ITS PROFITS FROM CORE ACTIVITIES REFERRED TO IN SUB-SECTION (2); (II) ITS PROFITS FROM INCIDENTAL ACTIVITIES REFERRE D TO IN SUB-SECTION (5): PROVIDED THAT WHERE THE AGGREGATE OF ALL SUCH INCOMES SPECI FIED IN CLAUSE (II) EXCEEDS ONE-FOURTH PER CENT OF THE TURNOVER FROM CO RE ACTIVITIES REFERRED TO IN ITA NO.1336/MDS/2012 6 SUB-SECTION (2), SUCH EXCESS SHALL NOT FORM PART OF THE RELEVANT SHIPPING INCOME FOR THE PURPOSES OF THIS CHAPTER AND SHALL BE TAXAB LE UNDER THE OTHER PROVISIONS OF THIS ACT. (2) THE CORE ACTIVITIES OF A TONNAGE TAX COMPANY SH ALL BE (I) ITS ACTIVITIES FROM OPERATING QUALIFYING SHIPS; AND (II) OTHER SHIP-RELATED ACTIVITIES MENTIONED AS UND ER : (A) SHIPPING CONTRACTS IN RESPECT OF (I) EARNING FROM POOLING ARRANGEMENTS; (II) CONTRACTS OF AFFREIGHTMENT. EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE, (A) 'POOLING ARRANGEMENT' MEANS AN AGREEMENT BETWEE N TWO OR MORE PERSONS FOR PROVIDING SERVICES THROUGH A POOL OR OPERATING ONE OR MORE SHIPS AND SHARING EARNINGS OR OPERATING PROFITS ON THE BASIS OF MUTUALLY AGREED T ERMS; (B) 'CONTRACT OF AFFREIGHTMENT' MEANS A SERVICE CON TRACT UNDER WHICH A TONNAGE TAX COMPANY AGREES TO TRANSPORT A S PECIFIED QUANTITY OF SPECIFIED PRODUCTS AT A SPECIFIED RATE, BETWEEN DESIGNATED LOADING AND DISCHARGING PORTS OVER A SPE CIFIED PERIOD; (B) SPECIFIC SHIPPING TRADES, BEING (I) ON-BOARD OR ON-SHORE ACTIVITIES OF PASSENGER SH IPS 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) XXXXXXXXXX (4) XXXXXXXXXX (5) THE INCIDENTAL ACTIVITIES SHALL BE THE ACTIVIT IES WHICH ARE INCIDENTAL TO THE CORE ACTIVITIES AND WHICH MAY BE PRESCRIBED FOR THE PURPOSE.. 6. A PERUSAL OF SECTION 115V-I SHOWS THAT RELEVAN T SHIPPING INCOME OF TONNAGE TAX COMPANY MEANS PROFI TS ITA NO.1336/MDS/2012 7 FROM CORE ACTIVITIES REFERRED TO IN SUB-SECTION (2) AND PROFITS FROM INCIDENTAL ACTIVITIES REFERRED TO IN SUB-SECTI ON (5). THE CORE ACTIVITIES OF TONNAGE TAX COMPANY INCLUDES SHI P RELATED ACTIVITIES IN RELATION TO SHIPPING CONTRACTS IN RES PECT OF EARNING FROM POOLING ARRANGEMENTS AND CONTRACTS OF AFFREIGHTMENT ETC. WE FIND THAT POOL MANAGERS INCO ME WHICH REPRESENTS INCOME RECEIVED FROM SUNDRY CREDIT ORS FOR DELAYED PAYMENTS AND USING THE SAME AS WORKING CAP ITAL BY THEM IS AKIN TO INTEREST RECEIVED ON DELAYED PAY MENTS FOR GOODS SUPPLIED. 7. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. MADRAS MOTORS LTD.,(SUPRA) HAS HELD AS UNDER:- LET US NOW CONSIDER THE INTEREST EARNED BY THE ASSESSEE ON THE BELATED PAYMENTS. THERE CAN BE NO DOUBT THAT THIS INTEREST WOULD, HOWEVER, BE DIRECTLY RELATABLE TO THE BUSINESS OF THE ASSESSEE OF FORGINGS. IF THE PURCHASERS OF THE FORGINGS DID NOT MAKE THE PAYMENTS FOR THE FORGINGS AND THEN AGREE TO PAY THE INTEREST ON THE DELAYED PAYMENTS, THE SAID INTEREST WOULD HAVE DIRECT NEXUS WITH THE BUSINESS OF FORGINGS. THE TRUEST TEST WOULD BE WHETHER SUCH INTEREST WOULD BE AVAILABLE TO THE ASSESSEE OTHERWISE ALSO. THE ANSWER TO THE QUESTION WOULD BE CERTAINLY IN THE NEGATIVE. THE INTEREST BEING DIRECTLY RELATABLE ONLY TO THE AMOUN TS ITA NO.1336/MDS/2012 8 RECEIVABLE BY THE ASSESSEE DURING THE COURSE OF ITS BUSINESS ON ACCOUNT OF THE SALE OF FORGINGS, THIS INTEREST WOULD HAVE TO BE INCLUDED AS THE PROFITS A ND GAINS DERIVED FROM THE BUSINESS OF THE ASSESSEE. WE HOLD THAT THIS PART OF THE INTEREST WOULD BE ENTITLED TO BE COVERED BY SECTION 80HH OF THE ACT. 8. WE FIND THAT SIMILAR VIEW HAS BEEN TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. IN DO MATSUSHITA CARBON CO. LTD. REPORTED AS 286 ITR 201 (MAD). IN OUR CONSIDERED OPINION OVER DUE CHARGES RECEIV ED FROM POOL MANAGERS WOULD BE IN THE NATURE OF ADDITIONAL FREIGHT EARNINGS, FORMING PART OF THE CORE ACTIVITIES OF A SHIPPING COMPANY. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) , THEREFORE, THE SAME IS UPHELD. 9. THE APPEAL OF THE REVENUE IS DISMISSED AS IT IS DEVOID OF MERIT. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY, TH E 18 TH DAY OF MARCH, 2013 AT CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE ) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 18 TH MARCH, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.