PALLONJI SHIPPING P.LTD, MUMBAI V. DCIT CIR 1(2), MUMBAI

ITA 1623/MUM/2012

• Counselvise Citation: 162319914 RSA 2012
• Duration Of Justice: 3 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR SONIDR
• Assessee Lawyers: K K VEDI; J D MISTRY SHRI NIRAJ SHETH
• Keywords: Business income

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1623/MUM/2012 ASSESSMENT YEAR: 2008-09 M/S PALLONJI SHPPING PVT. LTD. C/O-TAJ PRINTING WORKS 46/A, CAWASJI PATEL STREET, FORT, MUMBAI-400001 / VS. THE DEPUTY COMM. OF INCOME-TAX, CIRCLE-1(2), AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI-400020 ( /ASSESSEE) ( / REVENUE) P.A. NO. AAECM4615L / ASSESSEE BY SHRI J.D. MISTRY, SHRI NIRAJ SHETH, AND SHRI K.K.VEDI / REVENUE BY SHRI VIJAY KUMAR SONI-DR / DATE OF HEARING : 10/08/2015 / DATE OF ORDER: 26/08/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DA TED 02/01/2012 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL . 1:0 RE.: COMPUTATION OF 'TONNAGE INCOME': PALLONJI SHIPPING PVT LTD. ITA NO.1623/MUM/2012 2 1 : 1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER OF HOLDING THAT THE GAINS ARISING TO THE APPELLANT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTU ATION DO NOT FORM PART OF ITS 'TONNAGE INCOME' AS DEFINED IN SECTION 115V(J) OF THE INCOME- TAX ACT, 1961. 1 : 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FA CTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE GAINS ARISING ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION ARE PART OF ITS TONNAGE INCOME AND TAXABLE IN ACCORDANCE WITH SECTI ON 115VG R.W.S. 115VI OF THE INCOME-TAX ACT, 1961 AND THE STAND TAK EN BY THE ASSESSING OFFICER IN RESPECT THEREOF IS MISCONCEIVED, ERRONEO US, ILLEGAL AND THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE HELD AS SUCH. 1 : 3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFI CER BE DIRECTED TO RE- COMPUTE ITS TONNAGE INCOME IN ACCORDANCE WITH LAW. WITHOUT PREJUDICE TO THE ABOVE: 2: 0 RE.: TAXING THE NOTIONAL FOREIGN EXCHANGE GAIN OF RS. 5,91,41,900/- ON RESTATEMENT OF LIABILITY BALANCES FOR PURCHASE OF FIXED ASSETS (I.E. SHIPS): 2 : 1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER OF HOLDING THAT THE NOTIONAL FOREIGN EXCHANGE GAIN ACCOUNTED FOR BY THE APPELLANT ON RES TATEMENT OF LIABILITIES FOR ACQUISITION OF FIXED ASSETS AS ON T HE BALANCE SHEET DATE IS TAXABLE AS INCOME FOR THE YEAR UNDER CONSIDERATION. 2 : 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FA CTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT T HE NOTIONAL FOREIGN EXCHANGE FLUCTUATION GAINS ACCOUNTED FOR BY THE APP ELLANT ARE NOT TAXABLE AND THE STAND TAKEN BY THE ASSESSING OFFICE R IN RESPECT THEREOF IS MISCONCEIVED, INCORRECT, ERRONEOUS AND THE COMMI SSIONER OF INCOME- TAX (APPEALS) OUGHT TO HAVE HELD AS SUCH. 2 : 3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFI CER BE DIRECTED TO DELETE THE ADDITION SO MADE BY HIM AND TO RE-COMPUT E ITS TOTAL INCOME ACCORDINGLY. 3 : 0 RE.: TAXING RS. 2,78,79,481/- BEING FOREIGN E XCHANGE FLUCTUATION GAIN ARISING AT THE TIME OF AN ACTUAL PAYMENT OF A LOAN TAKEN FOR PURCHASE OF FIXED ASSETS (I.E. SHIPS): 3 : 1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER OF HOLDING THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN ARISING AT THE TIME OF AN ACTUAL P AYMENT OF THE LOANS TAKEN FOR PURCHASE OF FIXED ASSETS IS TAXABLE AS IN COME FOR THE YEAR UNDER CONSIDERATION. 3 : 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FA CTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT R ELATING TO THE TAX TREATMENT OF FLUCTUATION GAINS ARISING ON ACTUAL RE PAYMENT OF LOANS TAKEN IN FOREIGN EXCHANGE FOR PURCHASE OF FIXED ASS ETS VIZ. SECTION 43A PALLONJI SHIPPING PVT LTD. ITA NO.1623/MUM/2012 3 OF THE INCOME-TAX ACT, 1961, THE STAND TAKEN BY THE ASSESSING OFFICER IN RESPECT THEREOF IS MISCONCEIVED, INCORRECT, ERRONEO US AND THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE HELD AS SUCH. 3 : 3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFI CER BE DIRECTED TO DELETE THE ADDITION SO MADE BY HIM AND TO RE-COMPUT E ITS TOTAL INCOME ACCORDINGLY. 4 : 0 RE.: TAXING THE NOTIONAL FOREIGN EXCHANGE GAI N OF RS. 19,13,239/- ON RESTATEMENT OF FOREIGN EXCHANGE BALANCES ON ACCO UNT OF DEBTORS ETC. ARISING FROM THE SHIPPING ACTIVITIES: 4 : 1 THE ASSESSING OFFICER HAS ERRED IN HOLDING TH AT THE NOTIONAL FOREIGN EXCHANGE GAIN ARISING ON RESTATEMENT OF DEBTORS BAL ANCES, ETC. DO NOT ARISE FROM THE APPELLANT'S SHIPPING ACTIVITIES AND ARE THEREFORE NOT COVERED UNDER THE TONNAGE TAX REGIME AND HENCE TAXA BLE UNDER THE NORMAL PROVISIONS OF THE INCOME-TAX ACT, 1961. 4 : 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FA CTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT T HE FOREIGN EXCHANGE GAINS ARISING ON RESTATEMENT OF DEBTORS BALANCES, E TC. ARISE PURELY FROM SHIPPING ACTIVITIES AND ARE THEREFORE TAXABLE UNDER THE 'TONNAGE TAX' REGIME AND THE STAND TAKEN BY THE ASSESSING OFFICER IN RESPECT THEREOF IS MISCONCEIVED, INCORRECT, ERRONEOUS AND THE COMMISSI ONER OF INCOME- TAX (APPEALS) OUGHT TO HAVE HELD AS SUCH. 4 : 3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFI CER BE DIRECTED TO DELETE THE ADDITION SO MADE BY HIM AND TO RE-COMPUT E ITS TOTAL INCOME ACCORDINGLY. 2. DURING HEARING OF THIS APPEAL, WE HAVE HEARD SH RI J.D. MISTRY, ALONG WITH SHRI NIRAJ SETH AND K.K.VED , LD. COUNSEL FOR THE ASSESSEE AND SHRI VIJAY KUMAR SONI, LD. DR. THE ONLY GROUND ARGUED BY THE LD. COUNSEL FOR THE A SSESSEE IS WITH RESPECT TO COMPUTATION OF TONNAGE INCOME U/S 1 15V(J) OF THE INCOME TAX ACT, 1961(HEREINAFTER THE ACT). AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, POINTED OUT THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION IN THE CA SE OF DREDGING CORPORATION OF INDIA LTD. VS ACIT (2011) 1 3 TAXMAN.COM 37 (VISHAKHA.); (2011) 41 SOT 112, IT WA S ALSO CONTENDED THAT FOR ASSESSMENT YEAR. 2010-11, IN THE CASE OF ASSESSEE ITSELF, THE ISSUE WAS DECIDED BY THE DEPAR TMENT PALLONJI SHIPPING PVT LTD. ITA NO.1623/MUM/2012 4 ACCEPTING THE CLAIM OF THE ASSESSEE TO BE TREATED A S UNDER TONNAGE TAX SCHEME. THE LD. COUNSEL SUPPLIED THE C OPY OF ASSESSMENT ORDER DATED 22/03/2013 (PAGE-12 OF THE P APER BOOK). THE LD. DR, DID NOT CONTROVERT THE ASSERTION OF THE ASSESSEE, HOWEVER, HE RELIED UPON THE IMPUGNED ORDE R. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF OWN, HIGHER, CHARTER, LEASE OF SHIPS, BOATS, BARGES, TUG S, DREDGERS, RIGS, MARINE TRANSPORTS, EQUIPMENTS, ETC. USED TO C ARRY ON THE BUSINESS OF SHIPPING AND ALSO ACTING AS OWNERS, LEA SORS, ADVISORS AND CONSULTANTS RELATING TO SHIPPING INDUS TRY AND MARINE TRANSPORT VENTURES. THE ASSESSEE DECLARED I NCOME OF RS.1,62,17,172/- IN ITS RETURN FILED ON 27/09/2008. FROM THE ACCOUNTS OF THE ASSESSEE, IT WAS NOTED BY THE ASSES SING OFFICER THAT THE ASSESSEE OPTED FOR TONNAGE TAX SCHEME UNDE R CHAPTER XIIG OF THE ACT. THE ASSESSING OFFICER VERIFIED THE CLAIM OF THE ASSESSEE WITH REFERENCE TO INCOME EARNED FROM OPERA TION OF SHIPS, COMPLIANCE OF VARIOUS CONDITIONS FOR CLAIMIN G TO THE TONNAGE TAX SCHEME AND NATURE OF INCOME DERIVED BY THE ASSESSEE. ON VERIFICATION OF DETAILS, IT WAS FOUND THAT THE ASSESSEE EARNED RS.8,89,34,620/- ON ACCOUNT EXCHANG E FLUCTUATION AND CREDITED TO THE PROFIT & LOSS ACCOU NT. THE ASSESSING OFFICER HELD THAT THE GAINS AROSE ON ACCO UNT OF EXCHANGE GAIN RESTATEMENT OF FOREIGN LOAN IS NOT CO VERED UNDER TONNAGE TAX SCHEME AND THUS HE CONSIDERED THE IMPUG NED AMOUNT AS NORMAL BUSINESS INCOME AND ADDED TO THE T OTAL PALLONJI SHIPPING PVT LTD. ITA NO.1623/MUM/2012 5 INCOME OF THE ASSESSEE. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS), THE STAND TAK EN IN THE ASSESSMENT ORDER WAS AFFIRMED AGAINST WHICH THE ASS ESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 2.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, THERE IS NO DISPUTE TO THE FACT THAT FOR A.Y. 2010-11(PAGE-12 TO 20 OF THE PAPER BOOK), THE DEPARTMENT ON IDENTICAL FACT, THAT TOO IN THE CASE OF THE ASSESSEE ACCEPTED THE CLAIM OF THE ASSESSEE. FOR RE ADY REFERENCE, WE ARE REPRODUCING HEREUNDER THE RELEVAN T PORTION FROM THE ASSESSMENT ORDER (PAGE-16 OF THE PAPER BOO K):- ON PERUSAL OF LEGAL PROVISIONS AS ABOVE, IT MAKES IT CLEAR THAT THOSE INCOME THAT DIRECTLY FROM SHIPPING OPERATION OR INCIDENTAL ACTIVITIES WILL BE COVERED UNDER TONNAGE TAX SCHEME. THE CORE SHIPPING INCOME SHOULD FLOW FROM PLYING OF SHIPS OR AND INCOME FROM INCIDE NTAL ACTIVITY SHOULD BE THOSE COVERED UNDER RULE 11R OF I.T. RULES. THE ASSESSEE HAS OBTAINED TERM LOAN FOR ACQUISITION OF SHIP ON WHICH FOREIGN EXCHANGE GAIN AT RS.3,21,66,963/- CREDITED. PRIMA FACIE LOAN WAS TA KEN FOR THE PURPOSE OF ACQUISITION OF SHIPS AND THE EXC HANGE GAIN ARISEN ON THAT LOAN WILL BE FORM PART OF CORE ACTIVITY AS PER THE PROVISION OF SECTION 115V1(2). HENCE, S AME WILL BE TREATED AS UNDER TONNAGE TAX SCHEME. PALLONJI SHIPPING PVT LTD. ITA NO.1623/MUM/2012 6 THUS, WITHOUT BRING ANY ADVERSE MATERIAL ON R ECORD, FOR THE SAKE OF CONSISTENCY, THE DEPARTMENT IS NOT PERM ITTED TO TAKE U TURN FOR THE YEAR UNDER CONSIDERATION. EVEN OTHERWISE, THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION OF THE TRIBUNAL OF VISHAKHAPATNAM BENCH IN THE CASE OF DRE DGING CORPORATION OF INDIA LTD. VS ACIT (2011) 47 SOT 112 (VISHAKHA.). IT IS ALSO NOTED THAT SHIPPING INCOME HAS BEEN DEFINED SECTION 115VI OF THE ACT, ACCORDING TO WHIC H PROFIT FROM CORE ACTIVITY REFERRED TO SUB-SECTION (2) TO S ECTION 115VI AND THE INCIDENTAL ACTIVITIES REFERRED TO IN SUB-SE CTION (5) OF THAT SECTION ARE TREATED AS RELEVANT SHIPPING INCOM E. ACCORDING TO SUB-SECTION (5), THE INCIDENTAL ACTIVI TY SHALL BE THE ACTIVITIES WHICH ARE INCIDENTAL TO THE CORE ACT IVITIES AND WHICH MAY BE PRESCRIBED FOR THE PURPOSE. THE INCID ENTAL ACTIVITIES FOR THE PURPOSE OF RELEVANT SHIPPING INC OME ARE PRESCRIBED IN RULE 11R OF THE INCOME TAX RULES. THE RATIO LAID DOWN IN PANDIAN CHEMICALS LTD. VS CIT (2003) 262 IT R 278 (SC) SUPPORTS OUR VIEW. HOWEVER, THE VISHAKHAPATNA M BENCH IN THE AFORESAID ORDER HELD THAT THE GAINS REALIZE ON THE FOREIGN EXCHANGE FLUCTUATION NORMALLY TAKE THE COLOUR OF PR IMARY TRANSACTION, HOWEVER, SINCE THE EXCHANGE DIFFERENCE WAS ARISING OUT OF THE CORE ACTIVITY OF THE ASSESSEE, T HUS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS RIGHT IN H OLDING THAT THE SAME WERE RELATED TO THE ACTIVITY OF OPERA TING SHIPS. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH AND THAT TOO IN THE ABSENCE OF ANY CONTRARY FACTS/C ASE LAW FROM THE REVENUE SIDE, WE ALLOW THIS GROUND OF THE ASSESSEE. SINCE, ALTERNATIVE GROUNDS WERE NOT ARGUED BY THE A SSESSEE, PALLONJI SHIPPING PVT LTD. ITA NO.1623/MUM/2012 7 THEREFORE, WE REFRAIN OURSELVES TO ADJUDICATE THEM. THUS, ON THE MAIN ISSUE, WE ALLOW THE APPEAL OF THE ASSESSEE . FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 10/08/2015. SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SINGH) ! / ACCOUNTANT MEMBER '! / JUDICIAL MEMBER /MUMBAI; /DATED : 26/08/2015 F{X~{T? P.S/. .. #'$%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#$ ! / THE RESPONDENT. 3. %$ %$ & ( ) / THE CIT, MUMBAI. 4. %$ %$ & / CIT(A)- , MUMBAI 5. ()*$ ' + , %$ $ + - , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, #$( ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI