The ACIT Corporate, Cochin V. M/s.Trans Asian Shipping Services P. Ltd, Cochin

ITA 256/COCH/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96691 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 07-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHANTAM BOSE
• Assessee Lawyers: HARIKRISHNAN G

Judgement Text

ITA NO. 256/COCH/2015 1 ITA NO. 256/COCH/2015 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 256/COCH/2015 (ASST YEAR 2011 - 12 ) THE ASST COMMR OF INCOME TAX CORPORATE CIRCLE 2(1) KOCHI VS M/S TRANS ASIA N SHIPPING SERVICES P LTD TRANS ASIA CORPORATE PARK XIV/396 - C SEAPORT AIRPORT ROAD CHITTETHUKARA KAKKANAD KOCHI 682 037 ( APP LICANT ) (RESPONDENT) PAN NO. AABCT 2760J ASSESSEE BY SHRI HARIKRISHNAN G, REVENUE BY SHRI SHANTAM BOSE, CIT - DR DATE OF HE ARING 14 TH JULY 2015 DATE OF PRONOUNCEMENT 31 ST AUG 2015 OR D ER PER GEORGE GEORGE. K. J M: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE CIT(A)S ORDER DATED 12 TH FEB 2015. THE RELEVANT ASSESSMENT YEAR IS 2011 - 12. ITA NO. 256/COCH/2015 2 2 THE SOLITARY E FFECTIVE GROUND RAISED BY THE REVENUE IS WHETHER THE CIT(A) IS JUSTIFIED IN DELETING THE INCOME FROM SLOT CHARTERING ACTIVITIES AMOUNTING TO RS. 3,22,76,722/ - AS SHIPPING INCOME UNDER TONNAGE TAX SCHEME. 3 THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: T HE ASSESSEE IS A PRIVATE COMPANY. IT IS ENGAGED IN THE BUSINESS OF OWNING OF SHIPS AND CHARTERING OF SLIPS. THE ASSESSEE COMPANY OWNS A SHIP BY NAME M V KANIVU WHICH IS CARRYING OUT SHIPPING ACTIVITIES AND THE ASSESSEE IS ALSO CHARTERING SLOTS ON VARIOUS O THER VESSELS AROUND THE WORLD. IN ITS COMPUTATION OF INCOME, SHIPPING BUSINESS IS DIVIDED INTO PARTS, TONNAGE INCOME CALCULATED ON M V KA NIVU WHIC H IS TAKEN AS THE QUALIFYING SHIP U/S 115VD OF THE ACT AND THE INCOME FROM DEEMED TONNAGE AS ENVISAGED U/S 115VG AGAINST LOTS CHARTERED IN OTHER VESSELS. IT WAS SUBMITTED BEFORE THE AO THAT THE ASSESSEE FILED APPLICATION BEFORE THE ACIT FOR APPROVAL UNDER THE TONNAGE TAX SCHEME AND OPTION HAS BEEN EXERCISED FOR AY 2005 - 06 ONWARD. FURTHER , THE ASSESSEES SHIP M V KANIVU HAS BEEN CONSIDERED AS QUALIFYING SHIP AND TONNAGE INCOME WAS CALCULATED ON THE BASIS OF TABLE PROVIDED IN SUB SEC (3) OF SEC 115VD. REGARDING THE DEEMED TONNAGE, IT WAS EXPLAINED THAT DEEMED TONNAGE INCOME WAS SHOWN ON PURCHASE OF SLOTS AND SLO T CHARTERING AND THE ASSESSEE HAS NOT CHARTERED ANY OTHER SHIPS BUT ONLY PURCHASED LOTS COMING UNDER THE PURVIEW OF DEEMED TONNAGE U/S 115VG AND THE TONNAGE INCOME HAS BEEN COMPUTED AS PER FORM NO.66 OF I T RULES. ITA NO. 256/COCH/2015 3 4 ACCORDING TO THE AO , FOR THE EARLIER ASSESSMENT YEAR, THE CLAIM FOR COMPUTATION OF INCOME UNDER THE TONNAGE SCHEME HAD BEEN DISALLOWED. ACCORDINGLY, THE ASSESSEE WAS REQUIRED TO SUBSTANTIATE ITS CLAIM. THE AO WAS NOT CONVINCED WITH THE REPLY GIVEN BY THE ASSESSEE. ACCORDING TO THE AO, THE F OLLOWING CONDITIONS SHOULD BE MET BY THE ASSESSEE TO ENTITLE FOR COMPUTATION OF INCOME UNDER THE TONNAGE SCHEME: I) ALL THE SHIPS OPERATED UNDER THE TONNAGE TAX SCHEME WHETHER OWNED OR CHARTERED IN, SHOULD BE QUALIFYING SHIPS IN TERMS OF SEC. 115VD OF THE I T ACT. ACCORDINGLY, REGISTRATION CERTIFICATE OR LICENSE AND TONNAGE CERTIFICATE SHOULD BE PRODUCED; II) INDIVIDUAL TONNAGE OF THE SHIPS CHARTERED FOR SLOTS SHOULD BE MADE AVAILABLE. ACCORDING TO THE ASSESSEE, THE ASSESSEE NEED NOT PRODUCE THE TONNAGE C ERTIFICATE FOR EACH SHIP IN WHICH SLOTS ARE CHARTERED. FURTHER, THE CERTIFICATE OF TONNAGE IS NECESSARY ONLY FOR SHIPS , WHICH IS OWNED BY THE ASSESSEE O R IF AN ENTIRE SHIP IS CHARTERED IN BY THE COMPANY. ACCORDING TO THE AO, REGISTRATION CERTIFICATE, LIC ENSE AND TONNAGE CERTIFICATE SHOULD BE PRODUCED IN RESPECT OF SHIPS ON WHICH SLOT CHARTERED. UNDER SECTION 115VG THE STARTING POINT OF THE COMPUTATION OF TONNAGE INCOME IS THE TONNAGE OF THE INDIVIDUAL SHIP. INSTEAD OF PROVIDING INDIVIDUAL TONNAGE, TONNAGE OF ALL TONNAGE DAYS OF ALL SHIPS WAS GIVEN AS A SINGLE FIGURE. ACCORDINGLY, THE AO CALCULATED THE ASSESSEES INCOME FROM SHIPS CHARTERED UNDER THE GENERAL PROVISIONS AS LAID DOWN IN SEC 115V - I(B). ACCORDING TO THE AO, FOR EARLIER ASSESSMENT THE STAND TAK EN BY THE DEPARTMENT ITA NO. 256/COCH/2015 4 IN DENYING THE TONNAGE TAX SCHEME FOR THE SLOT CHARTER PORTION OF THE ASSESSEES ACTIVITIES HAS BEEN UPHELD BY THE CIT(A) FOR AY 2005 - 06 AND 2008 - 09 AND THE ITAT ALSO UPHELD THE ADDITIONS MADE BY THE AO. WHILE GOING INTO THE CALCULATI ON OF INCOME FROM SLOT CHARTERING PORTION OF ITS ACTIVITIES, THE ASSESSEE EXPLAINED THAT THE EXPENSES ARE NOT DISTINGUISHABLE INTO THAT ON OPERATION OF OWN SHIP AND SLOT CHARTERING EXCEPT FOR ITEMS LIKE DEPRECATION AND ACCORDINGLY, PROPORTIONATE ALLOCATIO N OF EXPENSES TOWARDS SLOT CHARTERING WAS WORKED OUT ON THE BASIS OF PERCENTAGE OF TONNAGE AND THE METHOD HAS BEEN FOLLOWED IN EARLIER YEAR ALSO AND CALCULATIONS ARE MADE ACCORDINGLY. 5 AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), WHO ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE JUDGMENT DATED 23 RD JAN 2015 OF THE HONBL E KERALA HIGH COURT IN ITA NO. 128 & 129 OF 2012. 6 AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 7 W E HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE SOLITARY ISSUE FOR OUR CONSIDERATION IS WHETHER THE ASSESSEE IS ENTITLED TO THE BENEFIT OF TONNAGE TAX SCHEME ON SLOT CHARTER PORTIONS OF ITS ACTIVITIES. IT WAS HELD BY THE AO THAT IN ORDER TO AVAIL THE B ENEFIT OF CHAPTER XII - G, THE ASSESSEE HAS TO SHOW THAT THE SHIP OPERATED BY IT WAS QUALIFYING SHIP AND FOR THAT PURPOSE IT HAS TO PRODUCE A VALID CERTIFICATE INDICATING ITS NET TONNAGE AS ITA NO. 256/COCH/2015 5 PROVIDED U/S 115VX(1)(B). THE ASSESSEE, ADMITTEDLY IN THIS CAS E, HAS SUBMITTED THE CERTIFICATE IN RESPECT OF OWN SHIP AND NOT IN RESPECT OF THE SHIP OPERATED UNDER SLOT CHARTERED . THE AO, IN THE ABSENCE OF VALID CERTIFICATE IN RESPECT OF SLOT CHARTERED OPERATIONS OF THE ASSESSEES ACTIVITIES HELD THE ASSESSEE W AS NOT ENTITLED FOR TONNAGE TAX SCHEME UNDER CHAPTER XII - G OF THE I T ACT. THIS ISUSD IS NO LONGER REST - INTEGRA. THE HONLE HIGH COURT IN ASSESSEE S OWN CASE FOR AY 2005 - 06 AND 2008 - 09 (SUPRA) HAS DECIDED AN IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE COMP ANY. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT READS AS FOLLOWS: 7 CHAPTER XII G OF THE ACT, CONSISTING OF SECTIONS 115V TO 115VZC, WAS INSERTED BY FINANCE (NO.2) ACT, 2004 WITH EFFECT FROM 1.4.2005. 'TONNAGE TAX SCHEME' IS DEFINED IN CLAUSE (M) O F SECTION 115V TO MEAN A SCHEME FOR COMPUTATION OF PROFITS AND GAINS OF BU SI NESS OF OPERATING QUALIFYING SHIPS UNDER THE PROVISIONS OF CHAPTER XII G. SECTION 115V(J) DEFINES 'TONNAGE INCOME' TO ' MEAN THE INCOME OF THE TONNAGE TAX COMPANY COMPUTED IN ACCORD ANCE WITH THE PROVISIONS OF THAT CHAPTER AND 'TONNAGE TAX COMPANY' IS A QUALIFYING COMPANY IN RELATION TO WHICH TONNAGE TAX OPTION IS IN FORCE SECTION 115V(1). THE APPELLANT IS A QUALIFYING COMPANY AND IS A TONNAGE TAX COMPANY. SECTION 115VE PRESCRIBES THE M A NNER OF COMPUTATION OF INCOME UNDER TONNAGE TAX SCHEME. COMPUTATION OF TONNAGE INCOME IS GOVERNED BY SECTION 115VG . SUB SECTION 4 OF ' THAT SECT I ON SAYS THAT FOR THE PURPOSES OF CHAPTER XII - G, THE TONNAGE SHALL MEAN THE TONNAGE OF A SHIP INDICATED IN TH E CERTIFICATE REFERRED TO IN SECTION 115 VX AND INCLUDES THE DEEMED TONNAGE COMPUTED IN THE PRESCRIBED MANNER . THAT PROVISION STANDS WITH AN EXPLANATION TO THE EFFECT THAT FOR THE PURPOSES OF THAT SUB - SECTION, DEEMED TONNAGE F SHALL BE THE TONNAGE IN RESPE CT OF AN ARRANGEMENT OF PURCHASE OF SLOTS, SLOT CHARTER AND AN ARRANGEMENT ' OF SHARING OF BREAK - BULK VESSEL. THE MANNER OF COMPUTING THE DEEMED TONNAGE FOR THE PURPOSE OF SUB - SECTION 4 OF SECTION VG IS PRESCRIBED IN RULE LLQ OF THE RULES. S UB - RULE 1 OF T HAT RULE PROVIDES THE MANNER IN WHICH DEEMED TONNAGE IN RESPECT OF AN ARRANGEMENT OF PURCHASE OF SLOTS AND SLOT ' CHARTER SHALL BE COMPUTED FOR THE PURPOSE OF THE EXPLANATION TO S UB - SECTION 4 OF SECTION 115VG. S UB - RULE 2 OF THAT RULE DEALS WITH THE MANNER O F COMPUTATION OF DEEMED TONNAGE IN RESPECT OF AN ARRANGEMENT OF SHARING OF BREAK - BULK V ES SEL. BOTH OF THOSE SUB - RULES MAKE SPECIFIC REFERENCE TO FORM NO.66 OF THE RULES AND THE ILLUSTRATIVE FORMULA GIVEN IN THE RELEVANT NOTE APPEARING UNDER THAT FORM AS RE GARDS EACH OF THOSE SUB - RULES. THUS, THE DETERMINATION OF DEEMED TONNAGE FOR COMPUTING THE TONNAGE INCOME IS TO BE DONE HAVING ITA NO. 256/COCH/2015 6 REGARD TO THESE STATUTORY PROVISIONS AND THE CLEAR TERMS OF THE STATUTORY FORM PRESCRIBED FOR SUCH PURPOSE. RULE 11T OF THE RULES ENJOINS THAT THE REPORT OF AUDIT OF ACCOUNTS OF A QUALIFIED COMPANY WHICH IS REQUIRED TO BE FURNISHED UNDER CLAUSE ( I I) OF SECTION 115VW SHALL BE IN FORM NO.66. AT SL.NO.10 OF THAT FORM IS THE FORMAT IN WHICH DETAI L S HAVE TO BE PROVIDED FOR COMPUTATION OF TONNAGE INCOME UNDER SECTION 115VG. COLUMN NO.1 OF THAT FORMAT ' IS 'NAME OF QUALIFYING SHIP'. IT STANDS WITH AN ASTERISK THAT WOULD TAKE US TO THE FOOT OF THE FORM, JUST ABOVE THE DECLARATION, EXPLAINING THAT 'THERE IS NO NEED TO MENTION THE NAME OF THE S HIP, INCOME FROM WHICH 1S COMPUTED ON DEEMED TONNAGE BASIS.' 8 REVERTING TO SECTIONS 115VB, 115VC AND 115VD, IT CAN BE SEEN THAT WHILE IT IS NECESSARY TO OWN AT LEAST ONE QUALIFYING SHIP FOR A COMPANY TO BE A QUALIFYING COMPANY, OPERATING SHIPS MAY BE EI THER OWNED OR CHARTERED BY THE COMPANY AND INCLUDE SLOT CHARTER, SPACE CHARTER OR JOINT CHARTER. THESE PROVISIONS CLEARLY SHOW THAT INCOME DERIVED FROM SLOT CHARTER OPERATIONS OF A TONNAGE TAX COMPANY IS TO BE ' INCLUDED TO DETERMINE THE TONNAGE INCOME OF A TONNAGE TAX COMPANY EVEN IF SUCH OPERATIONS ARE CARRIED ON IN SHIPS WHICH ARE NOT QUALIFYING SHIPS IN TERMS OF THE PROVISIONS OF CHAPTER XII G OF THE ACT. . 9 THE PROVISIONS IN SUB - SECTION 4 OF SECTION 115VG ITSELF EXPLICITLY DEMON S TRATES THAT ' WHAT IS I NCLUDED AS DEEMED TONNAGE COMPUTED IN THE MANNER PRESCRIBED UNDER RULE LLQ IS NOT NECESSARILY REFERABLE TO THE TONNAGE OF A SHIP. THERE IS NOTHING 1N THE ACT OR RULES TO EVEN FAINTLY INDICATE THAT THE ARRANGEMENTS . WHICH FALLS WITHIN THE BASKET OF THE PRO VISION 'DEEMED TONNAGE' INCORPORATED THROUGH EXPLANATION TO SUB - SECTION 4 OF SECTION 115VG WOULD BE OPERATIVE ONLY IF SUCH ARRANGEMENTS ARE CARRIED OUT THROUGH QUALIFYING SHIPS. MORE IMPORTANTLY, WHEN THE LEGISLATURE HAS DEEMED A PARTICULAR SITUATION AND H AS CREATED A DEEMING PROVISION, IT IS TRITE 1 AW THAT THE SAID DEEMING PROVISION SHOULD BE PERMITTED TO PERMEATE TO THE EXTENT WITHIN WHICH THE DEEMING PROVISION STANDS. S.TEJA SINGH (SUPRA) AND COLLECTOR OF CUSTOMS, COCHIN (SUPRA) CITED ON BEHALF OF TH E APPELLANT APPLY ON ALL FOURS INTERPRETING THE PROVISIONS IN HAND. 10. FORM 66 UNDER RULE 11T OF THE RULES IS A STATUTORY FORM. IT PRESCRIBES A FORMULA FOR CONVERSION OF TEUS INTO NT (SLOT CHARTER) IN NOTE 3. NOTE 3 (I) READS AS FOLLOWS: '3. FORMULA FO R CONVERSION OF TEUS INTO NT (SLOT CHARTER) (I) IN ADDITION TO LOADING CONTAINERS ON THEIR OWN CONTAINER VESSELS, SHIPPING COMPANIES ALSO HIRE SLOTS ON CONTAINER SHIPS (NOT OWNED BY THEM) PLYING ON VARIOUS ROUTES. THESE SLOTS COULD BE HIRED FOR A SECTOR VOYAGE OR ON LONG TERM BASIS, ALL ROUND THE YEAR, IN VARIOUS VESSELS AND IN VARYING NUMBERS AND THUS CANNOT BE CONVERTED TO NET TONNAGE INDENTIFYING THE PARTICULAR VESSEL ON WHICH THE SLOT IS HIRED. THUS, A FORMULA HAS BEEN WORKED OUT TO CONVERT THE SLOTS HIRED INTO NET ITA NO. 256/COCH/2015 7 TONNAGE. (SEE THE WORKSHEET APPEARING AFTER THIS NOTE). THE WORKSHEET IS ILLUSTRATIVE OF THE INDISPUTABLE CONCLUSION THAT AS PER THE ACT AND RULES, THE SLOTS HI RED ARE CONVERTED INTO NET TONNAGE. THIS IS ENJOINED BY ' PROVIDING A FORMULA SINCE SLOTS ARE HIRED FOR A SECTOR VOYAGE OR ON LONG TERM BASIS, ALL ROUND THE YEAR, IN D IFFERENT VESSELS AND VAR YING NUMBERS AND THUS CANNOT BE CONVERTED TO NET TONNAGE IDENTIFY I NG THE PARTICULAR VESSEL ON WHICH THE SLOT IS HIRED . IT IS THEREFORE THAT A FORMUL A HAS BEEN PRESCRIBED TO CONVERT THE SLOTS HIRED INTO NET TONNAGE. THIS C1INCHINGLY CONCLUDES T HE ISSUE IN FAVOUR OF THE APPELLANT, EVEN GOING BY THE RULES AND FORMS. THE STAND TO THE CONTRARY AS TAKEN BY THE DEPARTMENT IS HEREBY REPELLED . FINALLY, IT WAS CONCLUDED BY THE HONBLE HIGH COURT IN PARA 12 AS UNDER: 12 FOR THE AFORESAID REASONS, WE ANSWER THE QUESTION FORMULATED ABOVE BY HOLDING THAT THE INCOME DERIVED FROM SLOT CHARTER OPERATIONS OF A TONNAGE TAX COMPANY IS NOT LIABLE TO BE EXCLUDE D WHILE DETERMINING THE TONNAGE INCOME UNDER THE TONNAGE TAX SCHEME ON THE GROUND THAT SUCH OPERATIONS ARE CARRIED ON IN SHIPS WHICH ARE NOT QUALIFYING SHIPS IN TERMS OF THE PROVISIONS OF CHAPTER XII G OF THE ACT. 8 IN VIEW OF THE ABOVE JUDGMENT OF THE HONBLE HIGH COURT IN ASSESSEES OWN CASE FOR AYS 2005 - 06 AND 2008 - 09 (SUPRA) , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT (A) AND ACCORDINGLY, THE SAME IS CONFIRMED. 9 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 S T DAY OF AUG 2015 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 31 ST AUG 2015 RAJ* ITA NO. 256/COCH/2015 8 COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN