M/s. Buharia Holdings Pvt. Limited, CHENNAI V. ACIT, CHENNAI

ITA 356/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5060 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 24-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TAPAS KUMAR DATTA
• Assessee Lawyers: DR ANITA SUMANTH
• Keywords: Revision of order; Depreciation; Opportunity of being heard; Difference of opinion; Competent authority; Set aside
• Section: 263; 63; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH C BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.S.SAINI, ACCOUNTANT MEMBER DATE OF HEARING :05.05.11 DRAFTED ON:10.05.11 ITA NO.356/MDS/2010 ASSESSMENT YEAR : 2005-2006 M/S.BUHARIA HOLDINGS PRIVATE LTD., 7 TH FLOOR, NO.4 MOORES ROAD, CHENNAI 600 006. VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE -1(2),NEW NO.46, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 034. PAN/GIR NO. : AAACB 2679 M (APPELLANT) .. (RESPONDENT) APPELLANT BY : DR.ANITA SUMANTH RESPONDENT BY: SHRI TAPAS KUMAR DATTA O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), CHENNAI-I, IN C.NO.218(12)/CIT-I/263/2009-10 DATED 25.01.10. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING THE GROUNDS OF APPEAL. I. GROUNDS ON JURISDICTION (A) THE ORDER OF THE COMMISSIONER OF INCOME-TAX, DATED 25.01.2010 IS ILLEGAL, ERRONEOUS AND LIABLE TO BE QUASHED. (B) THE COMMISSIONER OF INCOME-TAX OUGHT NOT TO HAVE RE VISED THE ORDER OF ASSESSMENT DATED 7.12.2007 PASSED UNDER SEC.143( 3) OF THE INCOME TAX ACT WHEN THE TWIN CONDITIONS ERRONEOUS AND P REJUDICIAL TO THE INTERESTS OF THE REVENUE PRESCRIBED UNDER SEC.263 HAVE NOT BEEN SATISFIED. (C) THE COMMISSIONER OF INCOME-TAX OUGHT TO HAVE SEEN T HAT BY VIRTUE OF THE IMPUGNED ORDER, THE DEPRECIATION AVAILABLE TO T HE APPELLANT IN FACT INCREASES. ACCORDINGLY, SEC.263 CANNOT BE CALL ED INTO OPERATION. (D) THE COMMISSIONER OF INCOME-TAX OUGHT NOT TO HAVE IN VOKED JURISDICTION UNDER SEC.263 WHEN THE ISSUE OF ELIGIB ILITY FOR TONNAGE - 2 - TAX WAS A MATTER THAT HAD BEEN CONSIDERED AND ACCEP TED AT THE INITIAL STAGE. THERE IS, THEREFORE, NO ERROR IN TH E STAND TAKEN IN THE ORIGINAL ASSESSMENT CALLING FOR REVISION UNDER SEC. 263. II. GROUNDS ON MERITS (WITHOUT PREJUDICE TO GROUNDS RAI SED ON JURISDICTION) (A) THE COMMISSIONER OF INCOME-TAX ERRED IN CONCLUDING THAT THE APPELLANT IS NOT ELIGIBLE FOR TONNAGE TAX SCHEME AS PER SEC.115V C. HIS INTERPRETATION OF THE STATUTORY PROVISIONS IS ERRON EOUS, UNJUSTIFIED AND ILLEGAL. (B) THE COMMISSIONER OF INCOME-TAX ERRED IN NOT NOTING THAT THE ISSUE OF ELIGIBILITY TO THE TONNAGE TAX SCHEME HAD BEEN CONS IDERED BY THE ADDITIONAL COMMISSIONER OF INCOME-TAX BY HIS ORDER DATED 28.01.2005. THE IMPUGNED REVISION, THUS, SEEKS TO REVISE THE OR DER OF THE ADDITIONAL COMMISSIONER OF INCOME-TAX, DATED 28.01. 2005 AND IS ACCORDINGLY BARRED BY LIMITATION. (C) THE COMMISSIONER OF INCOME-TAX FAILED TO NOTE THAT THE EXCLUSION PROVIDED IN SEC.115VD WOULD NOT APPLY TO THE APPELL ANTS CASE, IN SO FAR AS THE TRANSPORT OF COAL FROM ONE PORT TO ANOTH ER, BEING THE ACTIVITY THAT THE APPELLANT IS ENGAGED IN, IS NOT AN ACTIVITY FOR PROVISION OF GOODS AND SERVICES OF THE KIND NORMALL Y PROVIDED ON THE LAND. (D) THE CASE LAWS RELIED ON BY THE COMMISSIONER OF INCO ME-TAX ARE NOT RELEVANT TO THE ISSUE AT HAND. (E) THE COMMISSIONER OF INCOME-TAX ERRED IN EXERCISING JURISDICTION UNDER SEC.263 IN VIEW OF HIS CLEAR ADMISSION IN THE CONCL UDING PARAGRAPH THAT THE ISSUES DEALT WITH BY HIM IN THE IMPUGNED ORDER ARE DEBATABLE AND CAPABLE OF INTERPRETATION IN MORE THAN ONE WAY. TH IS ESTABLISHES THE APPELLANTS CASE THAT THERE IS NO ERROR IN THE OR IGINAL ORDER, LIABLE TO BE REVISED UNDER SEC.263. (F) ANY OTHER GROUNDS THAT MAY RAISE AT THE TIME OF PER SONAL HEARING. 3. THE BRIEF FACTS OF THE CASE ARE THAT CIT HAS PASSED AN ORDER U/S.263 OF THE ACT AND SET ASIDE THE ORDER OF THE LEARNED ASSESSING OF FICER WITH THE DIRECTION TO THE LEARNED ASSESSING OFFICER TO PASS HIS SPEAKING ORDE R. WHILE DOING SO, HE HELD AS UNDER:- - 3 - ORDER UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 THE ASSESSMENT IN THE ASSESSEES CASE FOR THE CAP TIONED ASSESSMENT YEAR WAS COMPLETED ON 07.12.2007 U/S.143(3_ OF THE INCOME-TA X ACT ACCEPTING THE INCOME RETURNED. WE BELIEVE THAT THE ASSESSMENT MADE BY T HE LEARNED ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERES TS OF REVENUE FOR THE FOLLOWING REASONS. 2. THE TOTAL INCOME OF THE ASSESSEE COMPANY WAS DE TERMINED AS NIL AND TONNAGE INCOME OF RS.5,72,904/- WAS DETERMINED U/S. 143(3). THE ASSESSEE COMPANY WAS A CO-OWNER WITH 20% OF OWNERSHIP OF THE SHIP GEM OF ENNORE AS PER THE CO-OWNERSHIP AGREEMENT DT.25.09.2001 FILED IN ITMR OF AY 05-06. 3. AS PER THIS AGREEMENT, M/S.WEST ASIS MART IME LTD., CHENNAI WAS AUTHORIZED AS EXECUTIVE AUTHORITY FOR THE PURPOSE O F CARRYING ON BUSINESS ON BEHALF OF THIS ASSESSEE COMPANY. 4. CLAUSE 6(B) OF THIS AGREEMENT, AUTHORIZE M/S.WEST ASIS MARTIME LTD.(WAM) CHENNAI TO CHARTER THE VESSEL TO M/S.POOM PUHAR SHIPPING CORPORATION LTD., CHENNAI (PSC) ON THE TERMS AS ALREADY AGREED BETWEEN PSC AND WAM FOR TRANSPORTING THERMAL COAL FROM PRADIP PORT TO ENNOR E PORT. 5. AS PER SECTION 115VD, A SEA GOING SHIP OR VESSEL , THE MAIN PURPOSE FOR WHICH IT IS USED IS THE PROVISION OF GOODS OR SERVICES OF A KIND NORMALLY PROVIDED ON LAND IS NOT A QUALIFIED SHIP FOR THE PURPOSE OF COMPUTAT ION OF TONNAGE INCOME. 6. AS PER SECTION 115VC(C), THE ASSESSEE COMPANY SHOULD OWN AT LEAST ONE QUALIFYING SHIP. IN THIS CASE, THE ASSESSEE OWNS O NLY A PART OF THE SHIP AND NOT THE ENTIRE SHIP. THE ASSESSEE COMPANY HAS ONLY 20% SHARE IN THE SHIP MV GEM OF ENNORE. IN THE CIRCUMSTANCES, THE ASSESSEE COM PANY IS NOT QUALIFIED AS PER SECTION 115VC TO BE ELIGIBLE FOR TONNAGE TAX SCHEME . 7. THE ASSESSING OFFICER WHILE COMPLETING THE ASSE SSMENT APPLYING TONNAGE TAX SCHEME HAS NOT CONSIDERED WHETHER THE CONDITIONS AS AFORESAID, APPLICATION OF SECTION 115VD AND SECTION 115VC(C) TO THE ASSESSEE S CASE. - 4 - 8. IN RESPONSE TO THE NOTICE ISSUES, THE ASSESSEE HAS CONTESTED THE ISSUE OF PROCEEDINGS U/S.263 ON VARIOUS GROUNDS AND ALSO ON MERITS. THESE ARE BRIEFLY STATED BELOW: (I) THE ADDITIONAL COMMISSIONR OF INCOME TAX, HAD PASSED ORDER U/S.115VP APPROVING THE ASSESSEES APPELICATION TO EXERCISE T HE OPTION IN FAVOUR OF THE TONNAGE TAX SCHEME. THE ASSESSING OFFICER IS PRECL UDED FROM EXAMINING THE ISSUE OF QUALIFICATION UNDER THE SCHEME AFTER THE APPROVA L GRANTED BY THE ADD;. CIT. CIT DOES NOT HAVE THE JURISDICTION TO REVISE THE AS SESSMENT ORDER DATED 07.12.2009 WITHOUT REVISING THE ORDER DATED 28.01.2 005 PASSED BY THE ADDITIONAL COMMISSIONER UNDER SECTION 115VP. (II) THE MERE FACT THAT THE ASSESSEE WAS THE CO-OWN ER OF THE SHIP DOES NOT DISENTITLE THE ASSESSEE THE BENEFIT OF CHAPTER XIIG . THE FACT THAT UNDER THE AGREEMENT THE WEST ASIA MARTIME LTD. HAD THE EXECUT IVE AUTHORITY ON CERTAIN ACTIVITIES WOULD NOT ALSO MILITATE AGAINST THE CLAI M. (III) THE TRANSPORT OF COAL THROUGH THE SEA FROM P ARADIP PORT TO NORMALLY PROVIDED ON LAND. IT WOULD BE TOTALLY OPPOSED TO F ACTS TO CONTEND THAT THAT TRANSPORT OF GOODS FROM ONE PORT TO ANOTHER THROUGH THE SEA IS AN ACTIVITY OF PROVISION OF GOODS AND SERVICES OF KIND NORMALLY PR OVIDED ON LAND. I AM UNABLE TO ACCEPT THE ASSESSEES CONTENTION O N THE ISSUE OF LEGALITY OF PROCEEDINGS U/S.263 FOR THE FOLLOWING REASONS: (I) THE APPROVAL UNDER SECTION 115VP IS FOR THE EX ERCISE OF AN OPTION. THE ORDER HAS TO BE PASSED BY THE ADDITIONAL COMMISSIONER WIT HIN 30 DAYS OF THE APPLICATION. IT WAS INTENDED TO BE A PRELIMINARY E NQUIRY. THE ADDITIONAL COMMISSIONER IN HIS ORDER DATED 28.01.2005 HAS CLEA RLY STATED AS FOLLOWS: ON THE BASIS OF DETAILS FILED AND UNDERTAKING GIVEN WI TH REGARD TO QUALIFICATIONS REQUIRED FOR TONNAGE TAX SCHEME THE ASSESSEE IS GRA NTED APPROVAL FOR TONNAGE TAX SCHEME OPTION WITH EFFECT FROM ASSESSMENT YEAR 2005-06. HOWEVER, IT MUST BE NOTED THAT THE ABOVE APPROVAL IS SUBJECT TO COMP LIANCE OF VARIOUS CONDITIONS AS PRESCRIBED IN CHAPTER XIIG OF THE INCOME TAX ACT DEALING WITH SPECIAL PROVISIONS RELATING TO INCOME OF SHIPPING COMPANIES . THE APPROVAL GIVEN BY THE ADDITIONAL COMMISSIONER IS A QUALIFIED ONE AND IT I S NOT INTENDED THAT HE SHOULD GO INTO THE DETAILS OF ELIGIBILITY AT THE INITIAL S TAGE. (II) SECONDLY THE ASSESSEE HAS STATED IN THE APPLI CATION IN FORM NO.65 UNDER RULE 11P FILED BEFORE THE ADDITIONAL CIT THAT THE COMPAN Y OWNS 1 QUALIFYING SHIP - 5 - WITHOUT STATING THAT THE ASSESSEE IS ONLY PART OWNE R OF THE SHIP AND ALSO THAT THE MANAGEMENT AND OPERATION OF THE SHIP IS DONE BY WES T ASIS MARTIME PVT. LTD., (III) SIMILAR ISSUE ON THE RESTRICTION OF THE POWER S OF THE ASSESSING OFFICER ONCE THE APPROVAL GIVEN UNDER THE STATUTE WITH REGARD TO THE ELIGIBILITY BY A HIGHER AUTHORITY WAS CONSIDERED BY THE KARNATAKA HIGH COUR T IN THE CASE OF WEIZMANN HOMES LTD., V. CIT 265 ITR 601. THE COURT, IN THE C ONTEXT OF APPROVAL GIVEN BY THE BOARD U/S.36(1)(VII) AND BINDING NATURE OF SUCH APPROVAL ON THE ASSESSING OFFICER HELD THAT GRANT OF APPROVAL BY ITSELF DOES NOT DIRECTLY PROVIDE FOR DIRECT CONCESSION TO THE PETITIONER. IT IS FURTHER SUBJEC T TO STRICT SCRUTINY AT THE TIME OF ASSESSMENT PROCEEDINGS. (IV) SUB SECTION (5) OF SECTION 115VE STATES THAT WHERE A COMPANY IS ENGAGED IN THE BUSINESS OF OPERATING QUALIFYING SHIPS IS NOT C OVERED UNDER THE TONNAGE TAX SCHEME OR HAS NOT MADE AN OPTION TO THAT EFFECT, TH E PROFITS OF SUCH COMPANY SHALL BE COMPUTED IN ACCORDANCE WITH OTHER PROVISIO NS OF THE ACT. THIS MAKES IT CLEAR THAT THE OPTION FOR THE SCHEME AND ACTUALLY B EING COVERED UNDER THE TONNAGE TAX SCHEME ARE CUMULATIVE CONDITIONS. EVEN IF THE OPTION IS EXERCISED AND APPROVED BY THE ADDITIONAL CIT, LEARNED ASSESSI NG OFFICER MAY EXAMINE WHETHER THE OTHER CONDITION OF BEING COVERED UNDER THE SCHEME HAS BEEN FULFILLED. I AM THEREFORE OF THE VIEW THAT CIT UNDER SECTION 2 63 IS NOT PRECLUDED FROM REVISING THE ASSESSMENT MADE BY THE LEARNED ASSESSI NG OFFICER APPLYING THE BENEFIT OF TONNAGE TAX SCHEME TO THE ASSESSEE MEREL Y FOR THE REASON THAT APPROVAL FOR EXERCISE OF OPTION UNDER SECTION 115VP HAS BEEN GIVEN BY THE ADDITIONAL CIT. ON THE MERITS OF THE CASE, IT IS SEEN THAT THE ASSE SSING OFFICER HAS NOT CONSIDERED THE ISSUE WHETHER A PART OWNERSHIP OF A SHIP COULD BE CONSIDERED AS OWNING AT LEAST ONE QUALIFYING SHIP (EMPHASIS SUPPLIED) UNDER CLAUSE (C) OF SECTION 115VC. SECONDLY THE LEARNED ASSESSING OFFI CER HAS NOT CONSIDERED WHETHER INCOME DERIVED FROM MERE PART OWNERSHIP WIT H SHARING OF PROFITS WITHOUT ACTUAL OPERATION OF THE SHIP BY THE ASSES SEE WOULD AMOUNT TO INCOME FROM THE BUSINESS OF OPERATING A QUALIFYING SHIP ( EMPHASIS SUPPLIED), AN ESSENTIAL REQUIREMENT UNDER SECTION 115VA, THE CHAR GING SECTION. THE ISSUE OF WHETHER TRANSPORTATION OF COAL BETWEEN TWO PORTS IN INDIA WOULD MAKE IT PROVISION OF GOODS OR A SERVICE OF A KIND NORMALLY PROVIDED ON LAND AND THEREFORE - 6 - DISENTITLE THE ASSESSEE THE BENEFIT OF TONNAGE SCH EME HAS ALSO NOT BEEN CONSIDERED BY THE LEARNED ASSESSING OFFICER EVEN TH OUGH ON THE VERY SAME ISSUE THE APPEALS ARE PENDING BEFORE THE CIT(A), IN CERTA IN OTHER CASES. THOUGH THE ISSUES ARE DEBATABLE, THE CIT IS NOT PRECLUDED FROM EXERCISING HIS POWERS UNDER SECTION 263 TO DIRECT THE LEARNED ASSESSING OFFICER TO CONSIDER THE SAME IN ACCORDANCE WITH LAW. IN THIS REGARD I RELY ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT V. SESHASHAYEE PAPER BOARD S 217 ITR 258 WHICH HAS BEEN APPROVED BY THE SUPREME COURT IN THE CASE OF CIT V. G.M.MITTAL STAINLESS STEEL P. LTD 263 ITR 255. I, THEREFORE, SET ASIDE THE ORDER OF THE ASSESSING OFFICER FOR THE IMPUGNED ASSESSMENT YEAR WITH THE DIRECTION TO HIM TO PASS A SPEAKING ORDER AFTER CONSIDERING THE ISSUES DISCUSSED ABOVE RELATING TO APPLICATION OF TONNAGE TAX SCHEME TO THE ASSESSEE IN ACCORDANCE WITH LAW. 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE SUBMITTED AS UNDER:- BRIEF FACTS THE APPELLANT IS ENGAGED IN SHIPPING BUSINESS AND IS THE CO-OWNER OF A SHIP BY NAME MV GEM OF ENNORE HAVING 20% SHARE ALONG WITH AN ENTITY BY NAME, M/S. WEST ASIA MARITIME LTD. AND TWO OTHERS. THE APPELLANT O PTED FOR THE PROVISIONS OF TONNAGE TAX SCHEME INTRODUCED IN THE INCOME TAX ACT WITH EF FECT FROM 2005 ONWARDS. AS PER THE PROVISIONS OF SEC. 115VP, AN APPLICATION WAS FI LED BY THE APPELLANT SEEKING APPROVAL FOR OPTING FOR THE TONNAGE TAX SCHEME. APPROVAL UN DER SEC. 115VP (3) WAS GRANTED BY THE AUTHORITIES AND IN TERMS OF THE PROVISIONS OF S EC. 115 VP (5) REQUIRED THE APPROVAL SHALL APPLY FROM THE ASSESSMENT YEAR RELEVANT TO THE PR EVIOUS YEAR IN WHICH THE OPTION FOR TONNAGE TAX SCHEME IS EXERCISED. THIS APPROVA L WAS GRANTED BY THE ADDITIONAL COMMISSIONER AFTER DUE APPLICATION OF MIND ON THE A PPLICATION FILED BY THE APPELLANT SEEKING TO OPT FOR TONNAGE TAX SCHEME. THE ORDER O F APPROVAL UNDER SEC. 115VP (3) IS FILED AS ANNEXURE I OF TYPED SET 1 AND IS DATED 28. 01.2005. THEREAFTER, THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY AND THE ASSESSING OFFICER UNDER SEC. 143 (3) OF THE INCOME TAX ACT EXAMINED THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE APPROVAL DATED 28.01.2005 FOR OPTING THE TONNAGE TAX SCHEME AND COMPLETED THE ASS ESSMENT PURSUANT THERETO DETERMINING THE AMOUNT REFUNDABLE UNDER THE TONNAGE TAX SCHEME AT RS.19,85,439/-. THE DEPRECIATION LOSS AMOUNTING TO A TOTAL OF APPR OXIMATELY RS.10 CRORES WAS HOWEVER NOT AVAILABLE FOR SET OFF AGAINST ANY OTHER INCOME IN VIEW OF WITH THE PROVISIONS OF SEC. 115VM (2) WHICH READS AS FOLLOWS :- EXCLUSION OF LOSS. 115VM (1) . (2) THE LOSSES REFERRED TO IN SUB-SECTION (1) SHALL NOT BE AVAILABLE FOR SET OFF AGAINST ANY INCOME OTHER THAN RELEVANT SHIPPING INC OME IN ANY PREVIOUS - 7 - YEAR BEGINNING ON OR AFTER THE COMPANY EXERCISES ITS OPTI ON UNDER SECTION 115VP. WHILE THIS IS SO, THE COMMISSIONER OF INCOME-TAX IS SUED A SHOW CAUSE NOTICE DATED 12.10.2009 SEEKING TO REVISE THE ORDER OF ASS ESSMENT DATED 07.12.2007 ON THE GROUND THAT THE APPELLANT HAD VIOLATED THE PROV ISIONS OF SEC. 115VB AND SEC. 115VC (C) AND THE AFORESAID PROVISIONS HAD NOT BEEN CONSIDERED BY THE ASSESSING AUTHORITY IN COMPLETING THE ASSESSMENT UNDER SEC. 1 43 (3), THE COMMISSIONER HAS ALLEGED THAT THE ASSESSMENT IS ERRONEOUS AND PREJUD ICIAL TO THE INTERESTS OF THE REVENUE AND LIABLE TO BE REVISED. A COPY OF THE SH OW CAUSE NOTICE IS PLACED IN TYPED SET VOL.1 AT PAGE 4. A DETAILED REPLY WAS FI LED BY THE APPELLANT, PLACED AT PAGE 6 OF THE TYPED SET VOL.1. NOTWITHSTANDING THE SAME, THE IMPUGNED ORDER UNDER SEC. 263 WAS PASSED BY THE COMMISSIONER OF INCOME-TAX, DATED 25.01.2010 . ARGUMENTS (I) THE IMPUGNED ORDER DOES NOT SATISFY THE MANDATORY R EQUIREMENTS OF SEC. 263 OF THE INCOME TAX ACT. THE REQUIREMENTS FOR THE EX ERCISE OF JURISDICTION UNDER SEC. 263 ARE THAT THE ASSESSMENT MADE ORIGINA LLY SHOULD BE CUMULATIVELY, ERRONEOUS AS WELL AS PREJUDICIAL TO T HE INTERESTS OF THE REVENUE. IT IS SUBMITTED THAT THE ASSESSMENT DATED 07.12.200 7 IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. (II) THE ASSESSING OFFICER HAS MADE THE ORDER DATED 07.1 2.2007 BASED ON THE APPROVAL BY THE ADDITIONAL COMMISSIONER AND ACCEPTI NG THE CLAIM FOR OPTING THE TONNAGE TAX SCHEME. THE FINDING OF THE COMMISS IONER OF INCOME-TAX THAT THE CONDITIONS UNDER 115VD AND 115 VC (C) ARE NOT COMPLIED WITH IS INCORRECT ON FACTS AND IN LAW AND PROCEEDS ON AN INCORRECT AP PRECIATION OF THE STATUTORY PROVISIONS - 8 - (III) SEC. 115VD PRESCRIBES THE PARAMETERS FOR DETERMININ G WHAT WOULD BE A QUALIFYING SHIP . A SHIP IS EXCLUDED FROM THE DEFINITION IF IT IS A SEA GOING SHIP OR VESSEL IF THE MAIN PURPOSE FOR WHICH IT IS USED IS THE PROVISION OF GOODS OR SERVICES OF A KIND NORMALLY PROVIDED ON LAND. T HE INTENT BEHIND THE INSERTION OF THE AFORESAID CLAUSE HAS BEEN ELABORAT ED IN THE DISCUSSION OF CORE COMMITTEE AT THE TIME OF INTRODUCTION OF CHAPTER XI IB IN THE INCOME TAX ACT. IT WAS NOTED THAT SOME COMPANIES, IN ORDER TO AVAIL THE BENEFICIAL PROVISIONS OF TONNAGE TAX SCHEME PROVIDED ON A SHIP SERVICES L IKE RESTAURANTS, HOTELS, SHOPS AND SUPER MARKETS, CASINOS, FINANCIAL SERVICE PROVIDERS ETC. WHICH ARE NORMALLY SERVICES THAT ARE PROVIDED ON LAND AND CLA IMED THE BENEFIT IN RESPECT OF INCOME ARISING THERE FROM. TO AVOID THE ABUSE O F THIS PROVISION, SEC. 115VD (I) HAS BEEN INCLUDED WHICH REQUIRES THAT PROVISION OF GOODS OR SERVICES OF A KIND NORMALLY PROVIDED ON LAND ON A VESSEL WOULD DI SENTITLE A SHIP FROM BEING A QUALIFYING SHIP ENTITLED TO THE TONNAGE TAX SCHEME. THIS PROVISI ON IS ENTIRELY INAPPLICABLE TO THE APPELLANTS CASE, IN S O FAR AS THE APPELLANT IS ENGAGED IN THE CARRIAGE OF THERMAL COAL FROM PARADI P PORT TO TUTICORIN PORT. THE VIEW TAKEN BY THE ASSESSING AUTHORITY THEREFORE THAT THE ACTIVITY CARRIED ON BY THE APPELLANT DOES NOT DISENTITLE IT TO THE T ONNAGE TAX SCHEME IS THUS CORRECT. THE VIEW OF THE ASSESSING AUTHORITY IS SU PPORTED BY THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) DATED 02.02.20 09 IN THE CASE OF WEST ASIA MARITIME LTD. (ONE OF THE CO-OWNERS ALONG WITH THE APPELLANT OF MV GEM OF ENNORE) WHERE AN IDENTICAL CONTENTION TAKEN BY THE ASSESSING OFFICER HAS BEEN REJECTED BY THE COMMISSIONER OF INCOME-TAX (AP PEALS). THIS ORDER OF THE COMMISSIONER OF INCOME-TAX DATED 21.04.2010 (AN NEXED AT PAGE 1 OF THE TYPED SET VOL. 2) WAS CARRIED ON IN APPEAL BEFORE THIS HONBLE TRIBUNAL. THE MATTER APPEARS TO HAVE BEEN POSTED BEFORE THE HONB LE BENCH IN NOVEMBER, 2010, AND ON ACCOUNT OF CLEVEGE OF OPINION BETWEEN THE HONBLE JUDICIAL AND - 9 - ACCOUNTANT MEMBERS HAS BEEN REFERRED TO THE HONBLE THIRD MEMBER FOR RESOLUTION. THIS ESTABLISHES THAT THE VIEW TAKEN B Y THE ASSESSING OFFICER IS DEFINITELY ONE POSSIBLE VIEW IN SO FAR AS IT IS SUP PORTED BY THE OPINION OF THE HONBLE ACCOUNTANT MEMBER OF THIS TRIBUNAL (COPY OF THE ORDERS OF THIS HONBLE TRIBUNAL IN THE CASE OF WEST ASIA MARITIME LTD. ALONG WITH THE REFERENCE UNDER SEC. 255 (4) FILED HEREWITH AS ANNE XURE A). THE CONDITION OF ORDER OF ASSESSMENT DATED 07.12.2007 BEING ERRONEOUS HAS THUS NOT BEEN SATISFIED IN SO FAR AS THE ASSESSING OFFICER HAS TA KEN ONE POSSIBLE VIEW. RELIANCE IS PLACED ON THE JUDGMENTS OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO.LTD. VS CIT.(243 ITR 93) A ND C.I.T. VS. MAX INDIA (295 ITR 346). (IV) NO PREJUDICE IS CAUSED TO THE REVENUE BY VIRTUE OF ORDER OF ASSESSMENT DATED 7.12.2007. IN FACT PREJUDICE IS CAUSED TO THE REVE NUE ONLY BY VIRTUE OF THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME-TAX UN DER SEC. 263 OF THE INCOME TAX ACT, DATED 25.01.2010. THE ORDER OF ASS ESSMENT PASSED UNDER SEC. 143 (3) COMPUTES THE AMOUNT REFUNDABLE AT RS.1 9,85,439/-. THE SHIPPING DEPRECIATION LOSS COMPUTED AT AN AMOUNT OF RS.10 CR ORES (APPROX.) IS NOT AVAILABLE FOR SET OFF IN TERMS OF THE PROVISIONS OF SEC. 115VM (2). THE ORDER OF THE ASSESSING AUTHORITY PASSED IN CONSEQUENCE OF TH E COMMISSIONERS ORDER UNDER SEC. 263 OF THE INCOME TAX ACT, DATED 31.12.2 010, IS PLACED HEREWITH AS ANNEXURE B. THE ASSESSING AUTHORITY REJECTING THE OPTION FOR TONNAGE TAX SCHEME HAS COMPUTED THE TAXABLE INCOME AT RS.3, 25,14,087/-, SET IT OFF AGAINST THE CARRIED FORWARD DEPRECIATION AND DETERM INED THE TAXABLE AMOUNT AT NIL. A BALANCE OF NEARLY RS.7 CRORES (APPROX) B EING THE UNABSORBED SHIPPING DEPRECIATION LOSS IS STILL AVAILABLE FOR S ET OFF AGAINST THE INCOME FOR THE LATER YEARS. THIS IS POSSIBLE ONLY SINCE THE T ONNAGE TAX SCHEME IS MADE INAPPLICABLE TO THE APPELLANT. PREJUDICE IS THUS C AUSED TO THE DEPARTMENT. - 10 - EVEN UNDER THE COMPUTATION OF INCOME UNDER SEC. 115 JB THE AMOUNT DETERMINED IS A REFUND OF RS.5,64,210/-. THUS, THE IMPUGNED ORDER UNDER SEC. 263 OF THE INCOME TAX ACT DOES NOT ESTABLISH A NY PREJUDICE CAUSED TO THE REVENUE BY THE ORDER OF ASSESSMENT DATED 7.12.2007. THE CONDITION OF PREJUDICE BEING CAUSED TO THE REVENUE BY VIRTUE OF THE ORDER OF ASSESSMENT UNDER SEC. 143 (3) IS THUS NOT SATISFIED. (V) ON THE ASPECT OF JURISDICTION, THE APPELLANT SUBMIT S THAT NEITHER OF THE CONDITIONS STIPULATED UNDER SEC. 263 HAVE BEEN SATI SFIED, EITHER INDEPENDENTLY OR CONCURRENTLY. (VI) ON MERITS, AS STATED ABOVE, THE VIEW TAKEN BY THE A SSESSING OFFICER IS ESTABLISHED TO BE ONE POSSIBLE VIEW, IN VIEW OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN THE CASE OF A CO-OWNER O F A SHIP UPHELD BY THE HONBLE ACCOUNTANT MEMBER OF THE INCOME TAX APPELLA TE TRIBUNAL. (VII) IN FACT THE COMMISSIONER OF INCOME-TAX IN THE IMPUG NED ORDER AT PAGE 4 (UNNUMBERED LAST PAGE) HIMSELF ADMITS THAT THE ISSU ES DEALT WITH BY HIM IN THE ORDER ARE DEBATABLE. RELIANCE PLACED ON THE JU DGMENT OF THE MADRAS HIGH COURT IN THE CASE OF C.I.T. VS. SESHASAYEE PAPER BO ARDS IS MISPLACED. DEPARTMENTS CONTENTION (I) THE DEPARTMENT SOUGHT TO CONTEND THAT THE ORDER UNDER SEC. 143 (3) DATED 7.12.2007 DOES NOT CONTAIN ANY DISCUSSION ON THE PO INTS RAISED BY THE COMMISSIONER OF INCOME-TAX IN THE IMPUGNED ORDER. ASSESSEES REPONSE (I) THIS IS FACTUALLY INCORRECT AS THE ISSUE WAS DI SCUSSED IN DETAIL PRIOR TO THE PASSING OF THE ORDER. IN FACT THE ORDER OF ASSESSMENT DATE D 7.12.2007 STATES CLEARLY THAT THE DETAILS WERE EXAMINED AND AFTER DISCUSSION WITH THE ASSESSEES REPRESENTATIVE THE INCOME RETURNED IS ACCEPTED AND COMPUTED . IT IS TO BE NOTED THAT IN CASES WHERE THE ASSESSING OFFICER APPLIES HIS MIND TO THE RELEVANT ISSUES THERE WOULD BE NO DISCUSSION AND - 11 - IT IS ONLY IN CASES WHERE HE SEEKS TO DIFFER WITH T HE ASSESSEE THAT THE ORDER WOULD CONTAIN A DETAILED DISCUSSION. (CIT VS. GABRIEL IND IA 203 ITR 108 BOMBAY H C) FURTHER AN ORDER OF A SUBORDINATE AUTHORITY CAN BE REVISED ONLY IF THE CONDITIONS UNDER SEC. 263 ARE SATISFIED ON FACTS. THE MERE FA CT THAT THE ASSESSMENT ORDER DOES NOT CONTAIN A DISCUSSION WOULD NOT BE SUFFICIENT TO VES T JURISDICTION U/S 263 ON THE COMMISSIONER OF INCOME TAX. RELIANCE IS PLACED IN THIS CONNECTION ON THE FOLLO WING JUDGMENTS : COMMISSIONER OF INCOME TAX VS HINDUSTAN COCO COLA B EVERAGES P.LTD. (331 ITR 192). COMMISSIONER OF INCOME TAX VS SUNBEAM AUTO LTD. (33 2 ITR 167). DEPARTMENTS CONTENTION (II) THE COMMISSIONER OF INCOME-TAX (DR) ALSO SOUGHT TO RELY ON THE COMMISSIONERS SUBMISSION THAT THE ASSESSEE OWNS ONLY PART OF A SH IP AND ACCORDINGLY THE PROVISIONS OF SEC. 115VC (C) ARE VIOLATED ASSESSEES REPONSE THE COMMISSIONER OF INCOME-TAX HAS FAULTED THE ORD ER OF ASSESSMENT DATED 7.12.2007 ON THE GROUND THAT THE SCHEME WOULD REQUI RE THAT THE QUALIFYING COMPANY SHALL OWN THE WHOLE OF THE QUALIFYING SHIP, WHILE T HE APPELLANT OWNS ONLY 20% OF MV GEM OF ENNORE AND ACCORDINGLY THIS STATUTORY PROVI SION HAS NOT BEEN COMPLIED WITH. THIS CONTENTION IS INCORRECT IN SO FAR AS CHAPTER X IIG ITSELF RECOGNIZES CO-OWNERSHIP OF THE SHIP AND STATUTORILY PROVIDES FOR SITUATIONS WH ERE THE VESSELS ARE CO-OWNED OR CO- CHARTERED UNDER SEC. 115VH AND FOR COMPUTATION IN C ASES OF JOINT OWNERSHIP, OPERATION AND JOINT USAGE. THIS ESTABLISHES CLEARLY THAT THE SCHEME WOULD BE AVAILABLE EVEN TO AN ASSESSEE OWNING A SHIP EITHER BY ITSELF OR JOINTLY WITH OTHERS. RELIANCE IS PLACED ON CIRCULAR NO.2 OF 2005 (REPORTED IN 276 ITR 147) AT PAGE 186 WHEREIN IT IS CLARIFIED THAT EVEN IN CASES OF CHARTER OF A VESSEL, TWO OR MORE P ARTIES MAY BE INVOLVED) (II) CHAPTER XIIG NOWHERE REQUIRES THAT THE BENEFIT OF TONNAGE TAX SCHEME IS AVAILABLE ONLY TO AN ENTITY THAT OWNS 100% OF A VES SEL. IN FACT SEC. 115VH ITSELF - 12 - STATUTORILY PROVIDES FOR JOINT OPERATION OR JOINT O WNERSHIP. RELIANCE IS ALSO PLACED ON CIRCULAR NO.2 OF 2005 IN THIS CONNECTION. ON THE BASIS OF THE ABOVE SUBMISSIONS, THE SUBMISS IONS MADE AT THE PERSONAL HEARING AND THE ANNEXURES FILED HEREWITH, IT IS PRA YED THAT THE APPELLANTS APPEAL BE ALLOWED AND JUSTICE RENDERED. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON T HE REASONINGS GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX FOR PASSING THE ORDER UNDER SECTION 263 OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS A CO-OWNER OF A SHIP , OWNING 20% OF THE OWNERSHIP. THE ASSESSEE OPTED FOR TONNAGE TAX SCHEME AND ACCORDING LY MADE APPLICATION BEFORE THE ADDITIONAL COMMISSIONER OF INCOME TAX HAVING JURISD ICTION OVER THE ASSESSEE COMPANY. THE ADDITIONAL COMMISSIONER OF INCOME TAX PASSED AN ORDER DATED 28.01.2005 IN WRITING APPROVING THE OPTION FOR TONNAGE SHEME AS APPLIED B Y THE ASSESSEE COMPANY. THE LEARNED ASSESSING OFFICER THEREAFTER COMPLETED THE ASSESSMENT U/S.143(3) ASSESSING THE TOTAL INCOME ON THE BASIS OF TONNAGE TAX SCHEME AS PROVIDED IN CHAPTER XIIG OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX THEREAFTER S ET ASIDE THE SAID ASSESSMENT ORDER VIDE ITS ORDER PASSED U/S.263 ON 25.01.2010 WHICH IS CHALLENGED BY THE ASSESSEE BEFORE US IN THE APPEAL. 7. THE MAIN REASON FOR CONSIDERING THE ASSESSMENT ORDE R PASSED BY THE LEARNED ASSESSING OFFICER ARE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS STATED BY THE LEARNED COMMISSIONER OF INCOME TAX IN THE IM PUGNED ORDER ARE:- I AM UNABLE TO ACCEPT THE ASSESSEES CONTENTION ON THE ISSUE OF LEGALITY OF PROCEEDINGS U/S.263 FOR THE FOLLOWING REASONS: - 13 - (I) THE APPROVAL UNDER SECTION 115VP IS FOR THE EX ERCISE OF AN OPTION. THE ORDER HAS TO BE PASSED BY THE ADDITIONAL COMMIS SIONER WITHIN 30 DAYS OF THE APPLICATION. IT WAS INTENDED TO BE A P RELIMINARY ENQUIRY. THE ADDITIONAL COMMISSIONER IN HIS ORDER DATED 28.0 1.2005 HAS CLEARLY STATED AS FOLLOWS: ON THE BASIS OF DETAILS FILED AND UNDERTAKING GIVEN WITH REGARD TO QUALIFICATIONS REQUIRED FOR TONNAGE TAX SCHEME THE ASSESSEE IS GRANTED APPROVAL FOR TONNAGE TAX SCHEME OPTION WITH EFFECT FROM ASSESSMENT YEAR 2005-06. HOWEVER, IT MUST BE NOTED THAT THE ABOVE APPROVAL IS SUBJECT TO COMPLIANCE OF VARIOUS CONDITIONS AS PRESCRIBED IN CHAPTER XIIG OF THE INCOME TAX ACT DE ALING WITH SPECIAL PROVISIONS RELATING TO INCOME OF SHIPPING COMPANIES . THE APPROVAL GIVEN BY THE ADDITIONAL COMMISSIONER IS A QUALIFIED ONE AND IT IS NOT INTENDED THAT HE SHOULD GO INTO THE DETAILS OF ELIG IBILITY AT THE INITIAL STAGE. (II) SECONDLY THE ASSESSEE HAS STATED IN THE APPLI CATION IN FORM NO.65 UNDER RULE 11P FILED BEFORE THE ADDITIONAL CIT THAT THE COMPANY OWNS 1 QUALIFYING SHIP WITHOUT STATING THAT THE ASSESSEE I S ONLY PART OWNER OF THE SHIP AND ALSO THAT THE MANAGEMENT AND OPERATION OF THE SHIP IS DONE BY WEST ASIS MARTIME PVT. LTD., (III) SIMILAR ISSUE ON THE RESTRICTION OF THE POWER S OF THE ASSESSING OFFICER ONCE THE APPROVAL GIVEN UNDER THE STATUTE WITH REGA RD TO THE ELIGIBILITY BY A HIGHER AUTHORITY WAS CONSIDERED BY THE KARNATA KA HIGH COURT IN THE CASE OF WEIZMANN HOMES LTD., V. CIT 265 ITR 601. TH E COURT, IN THE CONTEXT OF APPROVAL GIVEN BY THE BOARD U/S.36(1)(VI I) AND BINDING NATURE OF SUCH APPROVAL ON THE ASSESSING OFFICER HELD THAT GRANT OF APPROVAL BY ITSELF DOES NOT DIRECTLY PROVIDE FOR DIRECT CONCESS ION TO THE PETITIONER. IT IS FURTHER SUBJECT TO STRICT SCRUTINY AT THE TIM E OF ASSESSMENT PROCEEDINGS. (IV) SUB SECTION (5) OF SECTION 115VE STATES THAT WHERE A COMPANY IS ENGAGED IN THE BUSINESS OF OPERATING QUALIFYING SHI PS IS NOT COVERED UNDER THE TONNAGE TAX SCHEME OR HAS NOT MADE AN OPT ION TO THAT EFFECT, THE PROFITS OF SUCH COMPANY SHALL BE COMPUTED IN AC CORDANCE WITH OTHER PROVISIONS OF THE ACT. THIS MAKES IT CLEAR THAT TH E OPTION FOR THE SCHEME AND ACTUALLY BEING COVERED UNDER THE TONNAGE TAX SC HEME ARE CUMULATIVE CONDITIONS. EVEN IF THE OPTION IS EXERC ISED AND APPROVED BY - 14 - THE ADDITIONAL CIT, LEARNED ASSESSING OFFICER MAY E XAMINE WHETHER THE OTHER CONDITION OF BEING COVERED UNDER THE SCHEME H AS BEEN FULFILLED. I AM THEREFORE OF THE VIEW THAT CIT UNDER SECTION 2 63 IS NOT PRECLUDED FROM REVISING THE ASSESSMENT MADE BY THE LEARNED AS SESSING OFFICER APPLYING THE BENEFIT OF TONNAGE TAX SCHEME TO THE A SSESSEE MERELY FOR THE REASON THAT APPROVAL FOR EXERCISE OF OPTION UND ER SECTION 115VP HAS BEEN GIVEN BY THE ADDITIONAL CIT. ON THE MERITS OF THE CASE, IT IS SEEN THAT THE ASSE SSING OFFICER HAS NOT CONSIDERED THE ISSUE WHETHER A PART OWNERSHIP OF A SHIP COULD BE CONSIDERED AS OWNING AT LEAST ONE QUALIFYING SHIP (EMPHASIS SUPPLIED) UNDER CLAUSE (C) OF SECTION 115VC. SECONDLY THE LE ARNED ASSESSING OFFICER HAS NOT CONSIDERED WHETHER INCOME DERIVED F ROM MERE PART OWNERSHIP WITH SHARING OF PROFITS WITHOUT ACTUAL O PERATION OF THE SHIP BY THE ASSESSEE WOULD AMOUNT TO INCOME FROM THE BU SINESS OF OPERATING A QUALIFYING SHIP (EMPHASIS SUPPLIED), AN ESSENTIA L REQUIREMENT UNDER SECTION 115VA, THE CHARGING SECTION. THE ISSUE OF W HETHER TRANSPORTATION OF COAL BETWEEN TWO PORTS IN INDIA WOULD MAKE IT PR OVISION OF GOODS OR A SERVICE OF A KIND NORMALLY PROVIDED ON LAND AND THE REFORE DISENTITLE THE ASSESSEE THE BENEFIT OF TONNAGE SCHEME HAS ALSO NO T BEEN CONSIDERED BY THE LEARNED ASSESSING OFFICER EVEN THOUGH ON THE VE RY SAME ISSUE THE APPEALS ARE PENDING BEFORE THE CIT(A), IN CERTAIN O THER CASES. THOUGH THE ISSUES ARE DEBATABLE, THE CIT IS NOT PRECLUDED FROM EXERCISING HIS POWERS UNDER SECTION 263 TO DIRECT THE LEARNED ASSE SSING OFFICER TO CONSIDER THE SAME IN ACCORDANCE WITH LAW. IN THIS REGARD I RELY ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CI T V. SESHASHAYEE PAPER BOARDS 217 ITR 258 WHICH HAS BEEN APPROVED BY THE SUPREME - 15 - COURT IN THE CASE OF CIT V. G.M.MITTAL STAINLESS ST EEL P. LTD 263 ITR 255. 8. TO ADJUDICATE THE ISSUE UNDER CONSIDERATION IT I S CONSIDERED USEFUL TO EXTRACT SOME OF THE RELEVANT PROVISIONS OF THE ACT AS UNDER :- 115VA . COMPUTATION OF PROFITS AND GAINS FROM THE BUSINES S OF OPERATING QUALIFYING SHIPS.NOTWITHSTANDING ANYTHING TO THE CONTRARY CON TAINED IN SECTIONS 28 TO 43C, IN THE CASE OF A COMPANY, THE INCOME FROM THE BUSINESS OF OPERATING QUALIFYING SHIPS, MAY, AT ITS OPTION, BE COMPUTED IN ACCORDANCE WITH THE PROV ISIONS OF THIS CHAPTER AND SUCH INCOME SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. *115VB . OPERATING SHIPS.FOR THE PURPOSES OF THIS CHAPTER , A COMPANY SHALL BE REGARDED AS OPERATING A SHIP IF IT OPERATES ANY SHIP WHETHER OWNED OR CHARTERED BY IT AND INCLUDES A CASE WHERE EVEN A PART OF THE SHIP HAS BEEN CHART ERED IN BY IT IN AN ARRANGEMENT SUCH AS SLOT CHARTER, SPACE CHARTER OR JOINT CHARTER : PROVIDED THAT A COMPANY SHALL NOT BE REGARDED AS TH E OPERATOR OF A SHIP WHICH HAS BEEN CHARTERED OUT BY IT ON BAREBOAT CHARTER-CUM-DEMISE TERMS OR ON BAREBOAT CHARTER TERMS FOR A PERIOD EXCEEDING THREE YEARS. * 115VD . QUALIFYING SHIP.FOR THE PURPOSES OF THIS CHAPTER , A SHIP IS A QUALIFYING SHIP IF (A) IT IS A SEA GOING SHIP OR VESSEL OF FIFTEEN NET TONNAGE OR MORE ; (B) IT IS A SHIP REGISTERED UNDER THE MERCHANT SHIP PING ACT, 1958 (44 OF 1958), OR A SHIP REGISTERED OUTSIDE INDIA IN RESPECT OF WHICH A LICE NCE HAS BEEN ISSUED BY THE DIRECTOR- GENERAL OF SHIPPING UNDER SECTION 406 OR SECTION 40 7 OF THE MERCHANT SHIPPING ACT, 1958 (44 OF 1958) ; AND (C) A VALID CERTIFICATE IN RESPECT OF SUCH SHIP IND ICATING ITS NET TONNAGE IS IN FORCE, BUT DOES NOT INCLUDE (I) A SEAGOING SHIP OR VESSEL IF THE MAIN PURPOSE FOR WHICH IT IS USED IS THE PROVISION OF GOODS OR SERVICES OF A KIND NORMALLY P ROVIDED ON LAND ; (II) FISHING VESSELS ; (III) FACTORY SHIPS ; (IV) PLEASURE CRAFTS ; (V) HARBOUR AND RIVER FERRIES ; (VI) OFFSHORE INSTALLATIONS ; (VII) DREDGERS ; - 16 - (VIII) A QUALIFYING SHIP WHICH IS USED AS A FISHIN G VESSEL FOR A PERIOD OF MORE THAN THIRTY DAYS DURING A PREVIOUS YEAR. 115VP . METHOD AND TIME OF OPTING FOR TONNAGE TAX SCHEME. (1) A QUALIFYING COMPANY MAY OPT FOR THE TONNAGE TAX SCHEME BY MAKING AN APP LICATION TO THE JOINT COMMISSIONER HAVING JURISDICTION OVER THE COMPANY IN THE FORM AN D MANNER AS MAY BE PRESCRIBED, FOR SUCH SCHEME. (2) THE APPLICATION UNDER SUB-SECTION (1) MAY BE MA DE BY ANY EXISTING QUALIFYING COMPANY AT ANY TIME AFTER THE 30TH DAY OF SEPTEMBER , 2004 BUT BEFORE THE 1ST DAY OF JANUARY, 2005 (HEREAFTER REFERRED TO AS THE INITIA L PERIOD) : PROVIDED THAT (I) A COMPANY INCORPORATED AFTER THE INITIAL PERIO D ; OR (II) A QUALIFYING COMPANY INCORPORATED BEFORE THE INITIAL PERIOD BUT WHICH BECOMES A QUALIFYING COMPANY FOR THE FIRST TIME AFT ER THE INITIAL PERIOD, MAY MAKE AN APPLICATION WITHIN THREE MONTHS OF THE DATE OF ITS INCORPORATION OR THE DATE ON WHICH IT BECAME A QUALIFYING COMPANY, AS TH E CASE MAY BE. (3) ON RECEIPT OF AN APPLICATION FOR OPTION FOR TON NAGE TAX SCHEME UNDER SUB-SECTION (1), THE JOINT COMMISSIONER MAY CALL FOR SUCH INFORMATIO N OR DOCUMENTS FROM THE COMPANY AS HE THINKS NECESSARY IN ORDER TO SATISFY HIMSELF ABO UT THE ELIGIBILITY OF THE COMPANY AND AFTER SATISFYING HIMSELF ABOUT SUCH ELIGIBILITY OF THE COMPANY TO MAKE SUCH OPTION FOR TONNAGE TAX SCHEME, HE (I) SHALL PASS AN ORDER IN WRITING APPROVING THE O PTION FOR TONNAGE TAX SCHEME ; OR (II) SHALL, IF HE IS NOT SO SATISFIED, PASS AN ORD ER IN WRITING REFUSING TO APPROVE THE OPTION FOR TONNAGE TAX SCHEME, AND A COPY OF SUCH ORDER SHALL BE SENT TO THE APPLI CANT : PROVIDED THAT NO ORDER UNDER CLAUSE (II) SHALL BE P ASSED UNLESS THE APPLICANT HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. (4) EVERY ORDER GRANTING OR REFUSING THE APPROVAL O F THE OPTION FOR TONNAGE TAX SCHEME UNDER CLAUSE (I) OR CLAUSE (II), AS THE CASE MAY BE , OF SUB-SECTION (3) SHALL BE PASSED BEFORE THE EXPIRY OF ONE MONTH FROM THE END OF THE MONTH IN WHICH THE APPLICATION WAS RECEIVED UNDER SUB-SECTION (1). (5) WHERE AN ORDER GRANTING APPROVAL IS PASSED UNDE R SUB-SECTION (3), THE PROVISIONS OF THIS CHAPTER SHALL APPLY FROM THE ASSESSMENT YEAR R ELEVANT TO THE PREVIOUS YEAR IN WHICH THE OPTION FOR TONNAGE TAX SCHEME IS EXERCISED. 9. SEC.115VC ENVISAGES THAT A QUALIFYING COMPANY OW NS AT LEAST ONE QUALIFYING SHIP. THIS HAS BEEN ENACTED WITH REFERENCE TO THE FACT TH AT SUCH QUALIFYING COMPANY MAY - 17 - OPERATE OTHER QUALIFYING SHIP BY CHARTERING THE QUA LIFYING SHIPS. WE FIND THAT THE STRESS IS ON OWING OF A QUALIFYING SHIP AND HAS NOT BEEN PROVIDED THAT IT SHOULD FULLY OWN A QUALIFYING SHIP AND ON PART LY OWNING A QUALIFYING SHIP THE ASSESSEE WILL NOT B E A QUALIFYING COMPANY. 10. STILL FURTHER WE FIND THAT AS PER PROVISION O F SEC.115VA IN THE CASE OF THE COMPANY THE INCOME FROM THE BUSINESS OF OPERATING QUALIFYIN G SHIP AT THE OPTION OF SUCH COMPANY SHALL BE COMPUTED AS PER TONNAGE TAX SCHEME. NOWHER E THIS SECTION PROVIDES THAT SUCH COMPANY SHOULD BE A QUALIFYING COMPANY. 10. WE FIND THAT IT IS NOT IN DISPUTE THAT TH E ASSESSEE COMPANY OPTED FOR TONNAGE TAX SCHEME WHICH OPTION WAS DULY APPROVED BY ADDITIONAL COMMISSIONER OF INCOME TAX VIDE HIS ORDER DATED 28.01.2005 PASSED U/S.115VP(3) OF T HE ACT. FURTHER IT IS ALSO NOT IN DISPUTE THAT THE SAID ORDER OF THE ADDITIONAL COMMI SSIONER OF INCOME TAX IS STILL IN FORCE AND THE SAME HAS NOT BEEN SET ASIDE BY ANY HIGHER A UTHORITY. IN THE IMPUGNED ORDER ALSO, THE LEARNED COMMISSIONER OF INCOME TAX HAS CO NSIDERED THE SAID ORDER OF THE ADDITIONAL COMMISSIONER OF INCOME TAX AND HAS NOT S ET ASIDE THAT ORDER AND HAS OBSERVED IN REGARD TO THAT ORDER THAT:- THE ORDER HAS TO BE PASSED BY THE ADDITIONAL COMMI SSIONER WITHIN 30 DAYS OF THE APPLICATION. IT WAS INTENDED TO BE A PRELIMINARY E NQUIRY. THE APPROVAL GIVEN BY THE ADDITIONAL COMMISSIONER IS A QUALIFIED ONE AND IT IS NOT INTENDED THAT HE SHOULD GO INTO THE DETAILS OF ELIG IBILITY AT THE INITIAL STAGE. 11. HOWEVER, WE FIND THAT AS PER PROVISIONS OF SUB SECTION(3) OF SEC.115VP THE JOINT CIT (ADDITIONAL COMMISSIONER OF INCOME TAX IN THIS CASE) HAS THE POWER TO CALL FOR SUCH INFORMATION ALL DOCUMENTS FROM THE APPLICANT COMPAN Y AS HE THINKS NECESSARY IN ORDER TO SATISFY HIMSELF ABOUT THE ELIGIBILITY OF THE COMPAN Y FOR TONNAGE TAX SCHEME AND ONLY AFTER SATISFYING HIMSELF ABOUT SUCH ELIGIBILITY TO ISSUE APPROVAL OR ORDER REFUSING GRANTING OF APPROVAL. THUS, WE ARE UNABLE TO AGREE WITH THE OBSERVATION OF THE LEARNED COMMISSIONER OF INCOME TAX TO THE EXTENT TO WHICH I T HAS BEEN STATED THAT THE APPROVAL GRANTED U/S.115VP(3) IS MERELY A PRELIMINARY ORDER AND THE ADDITIONAL COMMISSIONER OF INCOME TAX CAN GRANT THE APPROVAL EVEN WITHOUT SATI SFYING HIMSELF COMPLETELY ABOUT THE ELIGIBILITY OF THE APPLICANT COMPANY FOR TONNAGE TA X SCHEME. - 18 - 12. ONCE IT HAS BEEN PROVIDED IN STATUTE BY THE PA RLIAMENT THAT THE JOINT COMMISSIONER OF INCOME TAX SHALL APPROVE THE OPTION FOR TONNAGE TAX SCHEME AFTER SATISFYING HIMSELF ABOUT THE ELIGIBILITY OF THE COM PANY FOR THE SAID SCHEME AND IN PURSUANCE TO WHICH THE COMPETENT AUTHORITY HAS GRAN TED THE APPROVAL THEN IT CANNOT BE HELD THAT SUCH APPROVAL WAS GRANTED BY MAKING ONLY A PRELIMINARY ENQUIRY WITHOUT SATISFYING AS WAS THE COMPETENT AUTHORITY DUTY BOUN D TO DO , WITHOUT ANY RELEVANT MATERIAL. AS THE SAID ORDER OF THE ADDITIONAL COMM ISSIONER OF INCOME TAX IS STILL IN FORCE, NOT SET ASIDE BY ANY HIGHER AUTHORITY IN OUR CONSIDERED OPINION IT CANNOT BE DISPUTED BY THE REVENUE THAT THE ASSESSEE COMPANY W AS NOT A QUALIFYING COMPANY OR THE COMPANY WHICH WAS NOT ELIGIBLE FOR TONNAGE TAX SCHE ME. 13. WE FIND THAT THE LEARNED COMMISSIONER OF INCOM E TAX HAS BROUGHT NO MATERIAL ON RECORD AFTER GOING THROUGH THE AGREEMENT DATED 25.0 9.2001 REFERRED IN SHOW CAUSE NOTICE THAT THE ASSESSEE COMPANY HAS CHARTERED OUT ON BARE BOAT CHARTER CUM DEMISE TERMS OR ON BARE BOAT CHARTER TERMS FOR A PERIOD EX CEEDING 3 YEARS TO ANY OTHER PERSON. THUS WE DO NOT FIND ANY MATERIAL ON THE BASIS OF WH ICH IT HAS BEEN HELD THAT THE LEARNED ASSESSING OFFICER HAS NOT EXAMINED THE FACT THAT TH E ASSESSEE COMPANY WAS ENGAGED IN OPERATION OF THE SHIP DURING THE YEAR OR NOT . IN O UR CONSIDERED OPINION, PROVISION OF SEC.263 CANNOT BE RESORTED FOR MAKING A ROVING OR F ISHING ENQUIRY WITHOUT BRINGING ON RECORD SOME MATERIAL TO SHOW THAT THE ASSESSMENT OR DER AS PASSED BY THE LEARNED ASSESSING OFFICER WAS ERRONEOUS AS WELL AS PREJUDIC IAL TO THE INTEREST OF THE REVENUE. 14. THE ONLY OTHER GROUND FOR TREATING THE ASSESSM ENT ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE BY THE L EARNED COMMISSIONER OF INCOME TAX WAS THAT IN HIS OPINION THE LEARNED ASSESSING OFFIC ER HAS NOT CONSIDERED THAT WHETHER THE TRANSPORTATION OF GOODS BETWEEN TWO PORTS SITUA TED WITHIN INDIA FALLS WITHIN CLAUSE (1) OF SECTION 115VD OR NOT. IN THIS RESPECT, THE LEARNED COMMISSIONER OF INCOME TAX HIMSELF FURTHER OBSERVED IN THE IMPUGNED ORDER THAT THE VIEW ADOPTED BY THE LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER IS A DEBA TABLE ISSUE. HOWEVER IN HIS OPINION LEARNED COMMISSIONER OF INCOME TAX IS NOT PRECLUDED FROM PASSING AN ORDER U/S.263 IN RESPECT OF DISPUTABLE ISSUE. WE FIND THAT SIMILAR ISSUE CAME BEFORE THIS TRIBUNAL IN THE CASE OF THE ADDITIONAL COMMISSIONER OF INCOME TAX C O. CIRCLE II(3),CHENNAI VS,. M/S.WEST ASIA MARTITIME LTD. IN ITA NO.1195/MDS/10 IN ASSESSMENT YEAR 2006-07 WHEREIN DUE TO DIFFERENCE IN OPINION BETWEEN THE TWO MEMBER S CONSTITUTING THE BENCH THE - 19 - MATTER HAS BEEN REFERRED TO THIRD MEMBER BENCH. TH US IT IS ADMITTED POSITION THAT THE ISSUE UNDER CONSIDERATION IS A DEBATABLE ISSUE OR A N ISSUE IN RESPECT OF WHICH MORE THAN ONE VIEW IS POSSIBLE. WE FIND THAT HONBLE SUPREME COURT IN THE CASE OF LEARNED COMMISSIONER OF INCOME TAX VS. MAX INDIA 295 ITR 34 6 HAS REITERATED THE VIEW THAT PASSING OF AN ORDER U/S.263 IS NOT ENVISAGED IN THE ACT IN RESPECT OF DEBATABLE ISSUE WHERE MORE THAN ONE VIEW IS POSSIBLE. THUS THE OPI NION OF THE LEARNED COMMISSIONER OF INCOME TAX CANNOT BE UPHELD. 15. IN VIEW OF THE ABOVE IN OUR CONSIDERED VIEW TH E LEARNED COMMISSIONER OF INCOME TAX WAS NOT JUSTIFIED IN TREATING THE ORDER OF ASSE SSMENT DATED 07.12.2007 PASSED BY THE LEARNED ASSESSING OFFICER AS ERRONEOUS AS WELL AS P REJUDICIAL TO THE INTEREST OF REVENUE IN VIEW OF THE REASONS STATED IN THE IMPUGNED ORDER . WE THEREFORE SET ASIDE THE ORDER PASSED U/S.263 BY THE LEARNED COMMISSIONER OF INCOM E TAX AND ALLOW THE APPEAL OF THE ASSESSEE. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON THIS 13 TH DAY OF MAY, 2011. SD/- SD/- (HARI OM MARATHA) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNT ANT MEMBER DATED: CHENNAI, 13 TH DAY OF MAY, 2011. COMPILED AND COMPARED BY: K S SUNDARAM COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, CHENNAI BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, CHENNAI - 20 - DATE INITIALS 1. DRAFT DICTATED ON --------------- --------- ---------- 2. DRAFT PLACED BEFORE AUTHORITY --------------- ------------------- 3. DRAFT PROPOSED & PLACED --------------- ------ ------------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED --------------- ----- -------------- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S ---------------- -- ------------------ 6. KEPT FOR PRONOUNCEMENT ON ---------------- --- ----------------- 7. FILE SENT TO THE BENCH CLERK ---------------- -------------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------