FIVE STARS BULKCARRIERS P.LTD, MUMBAI V. DCIT CIR 15(1), MUMBAI

ITA 590/MUM/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7602 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 29-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VODAL RAJ SINGH
• Keywords: Business income; Transfer pricing; Business expenditure; International transaction
• Section: 143(3); 92B

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.590/MUM/2015 / ASSESSMENT YEAR : 2010-11 B.G. SHIRKE CONSTRUCTION TECHNOLOGY PVT. LTD., (BEING THE AMALGAMATED COMPANY IN WHICH THE ERSTWHILE FIVE STARS BULKCARRIES PVT. LTD., HAS MERGED INTO W.E.F. 01.04.2015) UNIT NO.3, BRADY GLADYS PLAZA, SENAPATI BAPAT ROAD, LOWER PAREL, MUMBAI 400 013. . / APPELLANT. V/S THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 5(1), MUMBAI. . / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK. REVENUE BY : SHRI VODAL RAJ SINGH. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) 15, MUMBAI DATED 03.11.2014 FOR THE ASSESSMENT YEAR 2010-11. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUS INESS OF CHARTER AND HIRE OF SHIPS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 12.10.2010 DECLARING TOTAL INCOME AT / DATE OF HEARING : 01.08.2019 / DATE OF PRONOUNCEMENT: 16.10.2019 2 RS.52,64,808/-. THE CASE WAS SELECTED FOR SCRUTINY AND TH EREAFTER ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER D T.01.03.2013 AND THE TOTAL INCOME WAS DETERMINED AT RS.1,92,66,830/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.C IT(A), WHO VIDE ORDER DATED 31.11.2014 (IN APPEAL NO.CIT(A)-15/CURR.172/1 4-15) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RA ISED THE FOLLOWING GROUNDS : 1.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE TR ANSFER PRICING ADJUSTMENT OF RS. 1,20,23,900/- MADE BY THE LEARNED ASSESSING OFFICER IN RESPECT OF CORPORATE GUARANTEE GIVEN BY THE APPELLA NT COMPANY TO THE BANKS FOR THE PURPOSE OF LOANS GIVEN BY THEM TO THE APPELLANT COMPANY'S AE. 1.2 THE LEARNED CIT(A) ERRED IN NOT APPRECIATING T HAT GIVING OF CORPORATE GUARANTEE AS A COLLATERAL SECURITY DOES NOT FALL WI THIN THE DEFINITION OF INTERNATIONAL TRANSACTION AS DEFINED IN SECTION 92B ( 1) OF THE INCOME TAX ACT, 1961 AS THE SAID TRANSACTION HAS NO BEARING ON PROFITS, INCOME, LOSSES OR ASSETS OF THE APPELLANT COMPANY. 1.3. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING T HAT - THE CORPORATE GUARANTEE WAS A COLLATERAL SECURIT Y THE BANKS HAD SPECIFICALLY PROVIDED THAT NO GUARANT EE COMMISSION SHALL BE PAYABLE BY THE AE TO THE APPELLANT COMPANY AND HENCE, THERE WAS NO QUESTION OF CHARGING ANY COMMISSION BY THE ASSESSEE COMPANY FROM ITS AE. THE CORPORATE GUARANTEE WHICH IS A COLLATERAL SECUR ITY DOES NOT FALL WITHIN THE DEFINITION OF AN 'INTERNATIONAL TRANSACT ION' 1.4 WITHOUT PREJUDICE TO ABOVE, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT GIVING AND TAKING OF A CORPORATE GUARANTEE ARE PART OF CLOSELY LINKED TRANSACTIONS AND THE ALP OF SAID 'IN TERNATIONAL TRANSACTION' WILL HAVE TO BE COMPUTED AT RS. NIL AS THE COMPANY IS PROHIBITED FROM CHARGING ANY GUARANTEE COMMISSION TO ITS AE AS PER THE SANCTION LETTER OF THE BANKS AND THE DOCUMENTS FILED UNDER THE FEMA RE GULATIONS. 1.5. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING T HAT THE BANK OF BARODA, LONDON HAD CONFIRMED THAT THE RATE OF INTEREST CHAR GED TO THE AE WAS AS PER THE COMMERCIAL UNDERSTANDING IRRESPECTIVE OF AV AILABILITY OF CORPORATE GUARANTEE PROVIDED BY THE APPELLANT COMPANY AND HEN CE THE ADDITION OF RS. 1,20,23,900/- ON ACCOUNT OF CORPORATE GUARANTEE WAS NOT WARRANTED ON THE FACTS OF THE CASE. ' 1.6 WITHOUT PREJUDICE TO ABOVE, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE ALP OF THE ABOVE 'INTERNATION AL TRANSACTION' WORKED OUT BY THE LEARNED ASSESSING OFFICER IS VERY HIGH A ND NEEDS TO BE REDUCED SUBSTANTIALLY AS THE SAID GUARANTEE IS ONLY A COLLA TERAL SECURITY AND 3 SECONDLY, AS THE PRIMARY SECURITY PROVIDED BY THE A E ADEQUATELY COVERED THE CREDIT FACILITY PROVIDED BY THE BANKS. 2.1 THE LEARNED CIT(A) ERRED IN NOT APPRECIATING TH AT THE INTEREST ON ESCROW ACCOUNTS OF RS. 6,12,860/- WAS NOT CHARGEABLE TO TAX AS NON- TONNAGE INCOME BECAUSE THE INTEREST ON ESCROW ACCOU NTS WAS INEXTRICABLY LINKED TO THE LOANS TAKEN FROM BANKS FOR SHIPPING A CTIVITY AND HENCE WAS PART OF SHIPPING INCOME OF A TONNAGE TAX COMPANY. 2.2 WITHOUT PREJUDICE TO ABOVE, THE ABOVE INTEREST INCOME HAD TO BE NETTED OUT AGAINST INTEREST PAID ON SHIPPING LOANS. 3. GROUNDS 1 TO 1.6 ARE INTER-CONNECTED AND ARE WITH R ESPECT TO THE CORPORATE GUARANTEE COMMISSION. 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE COMPANY HAD OPTED FOR TONNAGE TAX SCHEME U/ S 115VP OF THE ACT BEING THE SPECIAL PROVISION RELATING TO INCOME OF SHIPPING COMPANIES. AO FURTHER NOTICED THAT ASSESSEE HAD GIVEN CORPORATE G UARANTEE IN RESPECT OF LOANS PROVIDED TO ITS ASSOCIATED ENTERPRISE (A.E.) M/S. GANES H SHIPPING INC. PANAMA, A FOREIGN COMPANY, SUBSIDIARY OF THE AS SESSEE. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY IN CO MPUTING ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS IN RES PECT OF CORPORATE GUARANTEE COMMISSION NECESSARY TRANSFER PRICIN G ADJUSTMENTS NOT BE MADE. IN RESPONSE TO THE QUERY O F THE AO, ASSESSEE MADE THE SUBMISSIONS WHICH WERE NOT FOUND ACCEPTABLE TO THE AO. AO NOTED THAT M/S. GANESH SHIPPING INC. PANAMA WAS 100% SU BSIDIARY OF ASSESSEE AND THE ASSESSEE COMPANY JOINTLY WITH B.G. SHR IKE CONSTRUCTION TECHNOLOGY PVT. LTD., HAD GIVEN GUARANTEE O N BEHALF OF M/S. GANESH SHIPPING INC. PANAMA TOWARDS FACILITATION OF LOANS FOR ACQUISITION OF VESSELS. AO NOTED THAT ASSESSEE HAS NOT R ECOVERED ANY AMOUNT TOWARDS GUARANTEE FEE FROM IT. AO NOTED THAT THE CORPORATE GUARANTEE AGREEMENT WAS JOINTLY SIGNED BY THE ASSESSE E AND M/S. B.G. SHIRKE CONSTRUCTION TECHNOLOGY PVT. LTD., IN FAVOUR OF BANK OF BARODA. 4 AS PER THE AGREEMENT, THE NATURE OF GUARANTEE FURNISHE D WAS IRREVOCABLE AND UNCONDITIONAL. AO WAS OF THE VIEW THAT IRREVOCABLE AN D UNCONDITIONAL GUARANTEE FURNISHED TO THE BANK CARRIES A HIGH LEVEL OF RISK AND THE TRANSACTION RELATING TO THE PROVISION OF CORP ORATE GUARANTEE FOR THE BENEFIT OF A.E. FALLS WITHIN THE MEANING OF INTERNATIONA L TRANSACTION AS PER SEC.92B(1) AND 92B(2) OF THE ACT. HE WA S FURTHER OF THE VIEW THAT FOR THE GUARANTEE IN THE FORM OF SEPARAT E AGREEMENT AS GIVEN TO SHIP OWNERS PROVIDES A BENEVOLENT ADVANTAGE TO THE A.E. IN OBTAINING CREDIT FACILITIES FROM THE BANKS. HE WAS OF THE VI EW THAT BUT FOR THE GUARANTEE OF THE ASSESSEE, NO ONE WOULD HAVE LEN T MONEY TO M/S. GANESH SHIPPING INC. PANAMA OR WOULD HAVE LENT THE AMOUN T AT A MUCH HIGHER RATE. HE WAS FURTHER OF THE VIEW THAT PROVIDING A GUARANTEE REPRESENTS A TRANSFER OF BENEFIT TO THE GUARANTEE COMPA NY FROM THE GUARANTOR OF THE COMPANY AND THEREFORE, AN ARMS LENGTH CONSIDERATION SHOULD BE RECOVERED BY THE GUARANTOR FOR PROVIDING SUCH A BENEFIT. AO THEREFORE DECIDED TO COMPUTE THE ARMS LENGTH PRICE (ALP ) AT 1.5% ON OUTSTANDING (AS ON 31.03.2010) NET VALUE OF CORPORATE GUA RANTEE GIVEN AND AVAILED BY THE ASSESSEE AND CALCULATED THE CORPORAT E GUARANTEE COMMISSION AT RS.1,20,23,900/- AND ACCORDINGLY, THE ADDITION WAS MADE IN THE HANDS OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN AP PEAL BEFORE US. 4. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE HAD GIVEN C ORPORATE GUARANTEE TO BANK OF BARODA, LONDON FOR ACQUISITION OF M/S . FIVE STARS 5 BULKCARRIERS PVT. LTD. COSTING 11.5 MLN USD APPROXIMATELY . HE SUBMITTED THAT AS PER THE TERMS AND CONDITIONS STIPULATE D BY THE BANK OF BARODA, AN IRREVOCABLE AND UNCONDITIONAL CORPORATE GUA RANTEE WAS TO BE GIVEN BY FIVE STAR BULKCARRIERS PVT. LTD (ASSESSEE) AN D B.G. SHRIKE CONSTRUCTION TECHNOLOGY PVT. LTD., IN ACCORDANCE WITH TH E LAW APPLICABLE AND AS PER THE RESERVE BANK OF INDIA (RBI) GUI DELINES. HE SUBMITTED THAT THE SANCTION LETTER ALSO STIPULATED THAT N O GUARANTEE COMMISSION SHALL BE PAYABLE BY THE COMPANY TO THE GUARAN TORS. HE POINTED TO THE COPY OF THE SANCTIONED LETTER WHICH IS PLAC ED AT PAGE 30 TO 38 OF THE PAPER BOOK. HE SUBMITTED THAT WHEN THE SANC TIONING BANK HAD STIPULATED THE CONDITION OF NO GUARANTEE COMMISSION BE ING PAYABLE TO THE GUARANTORS IN ACCORDANCE WITH THE APPLICABLE R.B.I GUIDELINES, THE PAYMENT OF COMMISSION IF MADE TO THE ASSESSEE WOULD HAVE BEEN IN VIOLATION OF THE APPLICABLE RULES AND REGULATIONS AND IN SUCH A SITUATION, THE AO WAS NOT JUSTIFIED IN MAKING ADDITION OF THE GUARANTE E COMMISSION. HE FURTHER SUBMITTED THAT B.G. SHRIKE CONSTR UCTION TECHNOLOGY PVT. LTD., HAD ALSO GIVEN THE GUARANTEE JOINTL Y TO M/S. GANESH SHIPPING INC. PANAMA BUT NO ADDITION ON ACCOUNT OF CORPORATE GUARANTEE COMMISSION WAS MADE IN THE HANDS OF ASSESSEE THOUGH THE TRANSACTION AROSE FROM THE SAME GUARANTEE GIVEN. WITHOU T PREJUDICE TO THE CONTENTION OF THE ASSESSEE THAT NO ADDITION BE MAD E, LD.A.R. SUBMITTED THAT THE RATE OF GUARANTEE COMMISSION OF 1.5 % CONSIDERED BY THE AO IS TOO HIGH. HE SUBMITTED THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. EVEREST KANTO CYLINDER LTD., VS. DC IT REPORTED IN 378 ITR 57 HAS HELD THE ADDITION ON ACCOUNT OF GUARANT EE COMMISSION BE MADE AT 0.5%. HE FURTHER SUBMITTED THAT IN THE CAS E OF EVEREST KANTO CYLINDER LTD., (SUPRA), THERE WAS NO STIPULATION OR CO NDITION BY THE BANK FOR NOT CHARGING COMMISSION. HE THEREFORE SUBMIT TED THAT NO 6 ADDITION IS CALLED FOR IN THE PRESENT CASE. LD. D.R. ON THE O THER HAND SUPPORTED THE ORDER OF AO AND LD.CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO ADDITION MADE ON ACCOUNT OF ALP TRANSACTION ON CORPORATE GUARA NTEE. IT IS AN UNDISPUTED FACT THAT FOR PURCHASE OF VESSELS BY GANESH SHIPPING INC. PANAMA, AN IRREVOCABLE AND UNCONDITIONAL CORPORATE GUARAN TEE WAS GIVEN BY THE ASSESSEE AND M/S. B.G. SHIRKE CONSTRUCTION T ECHNOLOGY PVT. LTD., PURSUANT TO THE CONDITIONS STIPULATED BY THE B ANK OF BARODA, LONDON. THE SANCTION LETTER ISSUED BY THE BANK OF BAROD A, LONDON WHICH IS ALSO PLACED ON RECORD BY THE ASSESSEE ALSO REVE ALS THAT THE CORPORATE GUARANTEE WAS TO BE GIVEN IN ACCORDANCE WITH THE APPLICABLE R.B.I. GUIDELINES AND IT FURTHER STIPULATED THAT NO GUARANTEE COMMISSION WAS PAYABLE BY GANESH SHIPPING INC. PANAMA IT TO THE GUARANTORS. IT IS THUS SEEN THAT THE GUARANTEE HAS BEEN GIVEN IN TERMS OF SANCTION LETTER ISSUED BY BANK OF BARODA AND THE NON-CHARGING OF GUARA NTEE COMMISSION IS ALSO AS PER THE CONDITIONS STIPULATED BY THE BANK. IT IS ALSO A FACT THAT THE CORPORATE GUARANTEE HAS BEEN GIVE N BY THE ASSESSEE AS WELL AS B.G. SHIRKE CONSTRUCTION TECHNOLOGY PVT. LTD., AND NO ADDITION ON ACCOUNT OF GUARANTEE COMMISSION HAS BEEN MAD E IN THE HANDS OF B.G. SHIRKE CONSTRUCTION TECHNOLOGY PVT. LTD. IT IS ONLY IN THE HANDS OF THE ASSESSEE THAT THE ADDITION HAS BEEN MADE BY THE AO. WE ARE OF THE VIEW THAT WHEN THE GUARANTEE HAS BEEN GIVEN BY TWO CONCERNS AND ON SIMILAR TERMS AND CONDITIONS ARISING OUT OF THE SAME TRANSACTIO N, TWO DIFFERENT AND CONTRADICTORY STANDS CANNOT BE TAKEN BY THE REVENUE I.E., NO ADDITION IS MADE ON ACCOUNT OF GUARANTEE COMMISSION IN THE CASE OF B.G. SHIRKE CONSTRUCTION TECHNOLOGY PVT. LTD., AND A DDITION IS 7 MADE ONLY IN THE HANDS OF THE ASSESSEE. FURTHER SINCE THE NON-CHARGING OF GUARANTEE COMMISSION IS PURSUANT TO THE CONDITIONS ST IPULATED BY THE SANCTIONING BANK, WE ARE OF THE VIEW THAT NO ADDITION ON A CCOUNT OF NON-RECEIPT OF GUARANTEE COMMISSION IS CALLED FOR IN THE PR ESENT CASE. WE THEREFORE DIRECT THE DELETION OF THE ADDITION MADE BY T HE AO IN THE HANDS OF ASSESSEE. THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 6. GROUND NOS.2.1 AND 2.2. ARE INTER-CONNECTED AND ARE C ONSIDERED TOGETHER. 6.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE HAD RECEIVED INTEREST INCOME OF RS.6,12,860/-. TH E ASSESSEE WAS SHOW CAUSED AS TO WHY THE SAME SHOULD NOT BE CO NSIDERED AS NON- TONNAGE INCOME AND NOT BROUGHT TO TAX. ASSESSEE INT ER-ALIA SUBMITTED THAT ASSESSEE HAD AVAILED LOANS FOR PURCHASE OF VESSELS AND HAD PAID INTEREST OF RS.6.42 CRORE DURING THE YEAR. AS PER THE SA NCTION CONDITION OF LOAN , ASSESSEE WAS REQUIRED TO MAINTAIN THE MINIMUM BALANCE OF 0.186 MLN USD THROUGHOUT THE TENURE OF LOAN IN DSRA ACC OUNT AND IT COULD NOT BE UTILIZED FOR RE-PAYMENT OF OUTSTANDING BALANCE S. IT WAS SUBMITTED THAT ASSESSEE HAD EARNED RS.6,12,860/- ON DS RA ACCOUNT AND ASSESSEE AS PER THE PREVAILING ACCOUNTING STANDARDS HAS SHOWN INTEREST INCOME SEPARATELY AND HAD NOT NETTED OFF INTE REST PAYMENT AGAINST THE INTEREST EXPENDITURE. IT WAS FURTHER SUBMITT ED THAT NO ADDITION OF SIMILAR INTEREST EARNED BY THE ASSESSEE WAS M ADE IN A.Y. 2008-09 AND 2009-10. THE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO. AO ALSO NOTED THAT ASSESSEE A LSO EARNED INTEREST ON INCOME TAX REFUND OF RS.4,64,641/- AO CONSIDERED THE AGGREGATE AMOUNT OF RS.10,77,501/- AS NORMAL INCOME. AGGRIEVED BY THE ORDER 8 OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO U PHELD THE ORDER OF AO BY OBSERVING AS UNDER : THE SUBMISSIONS OF-THE APPELLANT ARE SUMMARIZED AS UNDER.- I. APPELLANT SUBMITTED THAT, THE INTEREST IS EARNED ON ESCROW ACCOUNTS KEPT WITH BANKS WHO HAD LENT MONEY TO THE COMPANY FOR ACQUISITION FOR VESSELS. THUS INTER EST EARNED HAS A DIRECT NEXUS TO THE INTEREST PAID BY O UR COMPANY AND IF THE SAME ARE I NETTED OUT THEN THE NET INCOME IS RS. NIL. II. IT WAS FURTHER SUBMITTED THAT APPELLANT HAS RECEIVE D INTEREST OF RS. 6 ,12,860/- ON ESCROW A/C KEPT WITH THE BANK OF INDIA WHO HAD LENT LOAN FUNDS TO THE APPEL LANT COMPANY FOR ACQUISITION OF VESSEL MAHA PADMAJA. AS PER THE SANCTIONED LOAN TERMS A MINIMUM BALANCE OF USD 0.186 MLN IN INDIAN RUPEES IS TO BE MAINTAINED THRO UGHOUT THE TENURE OF THE LOAN WITH BANK OF INDIA, CHAKALA BRANCH IN DEBT SERVICE RESERVE ACCOUNT (DSRA]. THE DSRA AC COUNT HAS TO BE COMPULSORILY MAINTAINED AND CANNOT BE UTI LIZED FOR REPAYMENT OF OUTSTANDING LOAN BALANCE. THUS TH E ABOVE INTEREST RECEIVED IS IN THE NATURE OF BUSINESS INCO ME AND NEEDS TO BE NETTED OFF AGAINST THE INTEREST PAID TO BANK: OF INDIA FOR THE SAID LOAN. AS THE INTEREST PAID IS HI GHER THAN THE INTEREST EARNED THERE IS NO NET INCOME EARNED B Y OUR COMPANY AND HENCE THE INTEREST RECEIVED OF RS.6,12, 860/- CANNOT BE TAXED IN ISOLATION I. E. WITHOUT ALLOWING DEDUCTION OF THE INTEREST PAID. IN VIEW OF ABOVE, THE ASSESSI NG OFFICER CLEARLY ERRED IN MAKING THE ADDITION OF RS. 10,77,5 01/-. IT MAY BE NOTED THAT, COMPANY IS SUBJECT TO' TAX UNDER TONNAGE TAX SCHEME AND THE ADDITION OF RS .1 0,77,501/- IS NOT JUSTIFIED-IN LIGHT OF THE ABOVE F ACTS. III. IN VIEW OF ABOVE, IT WAS REQUESTED TO DELETE THE AD DITION OF RS.10,77,501/-. 5.4. I HAVE CONSIDERED THE FACTS OF THE CASE, OBS ERVATIONS OF THE AO IN THE ORDER U/S 143(3) OF THE 1.T. ACT. THE CON TENTIONS 1 SUBMISSIONS OF THE APPELLANT AS ABOVE ARE BEING DIS CUSSED AND DECIDED AS UNDER : I. APPELLANT SUBMITTED THAT THE INTEREST OF RS. 6,12,8 60 RECEIVED BY IT WAS ON ESCROW ACCOUNT WHICH WAS COMPULSORILY REQUIRED TO BE MAINTAINED AND HENCE IT WAS BUSINESS INCOME AND REQUIRED TO BE NETTED OFF AGAIN ST INTEREST PAID. HOWEVER I DO NOT AGREE WITH THIS CON TENTION OF THE APPELLANT SINCE IN THE CASE OF SOUTH INDIA S HIPPING CORPORATION VS CIT 240 ITR 024, IT WAS HELD BY HON' BLE MADRAS HIGH COURT THAT INTEREST INCOME EARNED FROM DEPOSITS IN BANKS IS TO BE TAXED UNDER THE HEAD 'IN COME FROM OTHER SOURCES'. SIMILAR OBSERVATIONS WERE MADE BY HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKA LI CHEMICAL AND FERTILIZER 227 ITR 172 AND PANDIAN CHEMICALS 183 CTR 99. FURTHER NO NETTING OF INTERES T CAN BE ALLOWED SINCE THE INTEREST INCOME IS TO BE TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' WHILE INTEREST PAID IS 9 ADMITTEDLY A BUSINESS EXPENDITURE. ACCORDINGLY THIS CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE. II. NO SUBMISSIONS HAVE BEEN MADE WITH REFERENCE TO THE INTEREST ON INCOME TAX REFUND OF RS.4,64,641. ACCOR DINGLY THE SAME IS HELD TO BE BUSINESS INCOME AND HAS RIGH TLY BEEN TAXED BY THE ASSESSING OFFICER AS SUCH. III. THIS GROUND OF APPEAL IS THEREFORE DISMISSED. 7. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFOR E LOWER AUTHORITIES AND WITH RESPECT TO THE INTEREST EARNED FRO M BANK, SUBMITTED THAT THE INTEREST RECEIVED WAS NOT IN THE NAT URE OF BUSINESS INCOME AND SHOULD BE NETTED OFF AGAINST THE INCOME PAID F OR THE LOAN AND SINCE THE INTEREST PAID IS HIGHER THAN THE INTEREST EARNED THEN THERE IS NO INCOME EARNED BY THE ASSESSEE AND THEREFORE THE AMOUNT CANNOT BE TAXED. HE FURTHER SUBMITTED THAT ASSESSEE HAS OPT ED FOR SPECIAL PROVISION RELATING TO INCOME OF SHIPPING COMPANIES UNDER CHA PTER XIIG OF THE INCOME TAX ACT. HE SUBMITTED THAT AS PER THE P ROVISIONS OF SEC.115VP, THE TONNAGE INCOME OF TAXING COMPANY HAS TO BE COMPUTED AS PER THE PROVISIONS STIPULATED THEREIN. HE SUBMITTED T HAT THE PROVISIONS OF SEC.115 VP ARE AKIN TO THE DEEMING PROVISION OF SEC.44AD OF THE ACT AND SINCE THE BUSINESS OF THE ASSESSEE IS ON LY OPERATING OF THE SHIPS, THE ENTIRE INCOME EARNED BY ASSESSEE IS TO B E COMPUTED UNDER THE CHAPTER XIIG. HE SUBMITTED THAT INTEREST E ARNED BY THE ASSESSEE WAS ON THE AMOUNT OF ESCROW DEPOSITS KEPT B Y THE ASSESSEE AND WHICH THE ASSESSEE WAS REQUIRED TO MAINTAIN AS PER THE CONDITIONS STIPULATED BY THE BANK. IN SUCH A SITUATION, THE INTEREST RECEIVED BY THE ASSESSEE IS TO BE CONSIDERED TO BE NORMAL BUSINESS INCO ME FROM SHIPPING BUSINESS AND CANNOT BE CONSIDERED TO BE INCOME FROM OTHER SOURCES. HE FURTHER SUBMITTED THAT IF THE INTEREST RECEIV ED IS NETTED AGAINST THE INTEREST PAYMENT, THE ASSESSEE HAS NOT E ARNED NET INTEREST AND IN SUCH A SITUATION ALSO THE AMOUNT IS TO BE CONSIDE RED AS NORMAL 10 BUSINESS INCOME FROM SHIPPING BUSINESS AND NOT BE TAXED AT NORMAL RATES. WITH RESPECT TO INTEREST EARNED ON INCOME TAX RE FUND HE FAIRLY AGREED WITH THE ACTION OF AO. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPEC T TO CONSIDERING THE AMOUNT EARNED ON INTEREST AS INCOME FROM OTHER SO URCES AND THEREFORE HELD BY THE AO TO BE AS INCOME EARNED FROM N ON-TONNAGE ACTIVITY AND ACCORDINGLY TAXABLE AT NORMAL INCOME. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT AS FAR AS INTEREST FROM INCOM E TAX REFUND OF RS.4,64,641/- IS CONCERNED, HE DOES NOT DISPUTE THE ACTIO N OF AO AND LD.CIT(A). THE ONLY DISPUTE IS WITH RESPECT TO THE INTERES T RECEIVED OF RS.6,12,860/- FROM THE BANK. IT IS ASSESSEES CONTENTION THAT ASSESSEE HAD AVAILED LOAN FROM BANK OF INDIA FOR PURCHASE OF VESSEL MAHA PADMAJA AND AS PER THE TERMS AND CONDITIONS, THE ASS ESSEE WAS REQUIRED TO MAINTAIN A MINIMUM BALANCE OF 0.186 MLN USD THR OUGHOUT THE TENURE OF THE LOAN. ON SUCH BALANCE MAINTAINED BY T HE ASSESSEE IT HAD EARNED INTEREST OF RS.6,12,860/-. IT IS ALSO A FACT THA T ASSESSEE HAD PAID INTEREST OF RS.6,42,99,091/- ON LOAN FOR PURCHASE OF VESSELS AND WHICH HAS BEEN CLAIMED AS EXPENDITURE IN THE PROFIT AND LO SS ACCOUNT. IT IS A FACT THAT IF THE INTEREST PAID AND EARNED ARE CO NSIDERED IN TOTALITY, THE ASSESSEE HAS PAID NET INTEREST. FURTHER CONSIDERIN G THE FACT THAT THE ASSESSEE WAS REQUIRED TO MAINTAIN THE DEPOSITS AS PER THE SANCTION TERMS OF THE BANK AND IN VIEW OF THE FACTS CITED HEREINABO VE, WE ARE OF THE VIEW THAT AO WAS NOT JUSTIFIED IN CONSIDERING THE INTE REST OF RS.6,12,860/- TO BE NON TONNAGE ACTIVITY. WE THEREFORE SE T ASIDE THE ORDER OF AO AND DIRECT THE AO TO CONSIDER IT AS INCOME FROM SHIPPING BUSINESS AND THUS, THE GROUNDS OF ASSESSEE ARE PARTLY ALLOWED. 11 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 16 TH DAY OF OCTOBER, 2019. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 16 TH OCTOBER, 2019. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-15, MUMBAI. PR. CIT-5, MUMBAI. '#$ %%&',) &', / DR, ITAT, B PUNE; $*+,/ GUARD FILE. / BY ORDER // TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.