ITO 5(1)(3), MUMBAI V. CGU LOGISTIC LTD, MUMBAI

ITA 6557/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3534 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 30-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANESH BAREDR
• Assessee Lawyers: KISHORE CHAUDHARI
• Keywords: Capital asset; Business income; Depreciation; Capital receipt
• Section: 56; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.6557/MUM/2014 ASSESSMENT YEAR: 2011-12 ITO - 5(1)(3), ROOM NO.569, 5 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 / VS. M/S CGU LOGISTIC LTD. 3 RD FLOOR, PROSPECT CHAMBERS, D.N. ROAD, FORT MUMBAI-400001 PAN NO. A ACCC8880B ( / REVENUE) ( / ASSESSEE) / REVENUE BY SHRI GANESH BARE-DR / ASSESSEE BY SHRI KISHORE CHAUDHARI / DATE OF HEARING : 25/05/2016 / DATE OF ORDER: 25/05/2016 ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 28/08/2014 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. THE ONLY GROUND RAISED IN THE PRESENT APPEA L IN HOLDING THAT THE PROVISIONS OF SECTION 43A IS APPLI CABLE IN THE CASE WHEN THE ASSESSEE HAS OPTED THE TONNAGE TA X SCHEME AND OFFERED ITS INCOME U/S 115VG OF THE INCO ME TAX ACT, 1961 (HEREINAFTER THE ACT) ON THE BASIS OF TONNAGE OF QUALIFYING SHIP AND FURTHER ERRED IN HOLDING THA T THE ASSESSEE HAD OFFERED FOREIGN EXCHANGE FLUCTUATION G AIN UNDER THE TT SCHEME AND IS COVERED UNDER THE PROVIS IONS OF CHAPTER XIIG OF THE ACT, WHEREAS, FOREIGN EXCHAN GE FLUCTUATION GAIN IS NOT COVERED UNDER THE PREVIEW O F TONNAGE TAX ACTIVITIES MENTIONED IN SECTION 115V-I- 1(2) AND 115V-1(5) READ WITH RULE-11 OF I.T. RULES. 2. DURING HEARING OF THIS APPEAL, THE LD. DR, SHRI GANESH BARE, DEFENDED THE CONCLUSION DRAWN IN ASSESSMENT ORDER, WHEREAS, THE LD. COUNSEL FOR THE ASSESSEE, SHRI KISHOR CHAUDHARI, DEFENDED THE IMPUG NED ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 3 ORDER BY CLAIMING THAT THE IMPUGNED ISSUE IS COVERE D BY THE DECISION OF THE TRIBUNAL IN CGU LOGISTIC LTD. VS IT O (ITA NO.1053/MUM/2014) ASSESSMENT YEAR 2010-11, ORDER DATED 16/05/2014. THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY LD. DR. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE ASSERTION, WE ARE REPRODUCING HEREUNDER THE R ELEVANT PORTION FROM THE AFORESAID ORDER OF THE TRIBUNAL, D ATED 16/05/2014 FOR READY REFERENCE:- CHALLENGING THE ORDER DATED 09.12.2013 OF THE CIT( A)-1,MUMBAI ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF AP PEAL: UNDER-MENTIONED GROUNDS OF APPEAL ARE TAKEN WITHOUT PREJUDICE TO ONE ANOTHER 1.THE AO & CIT (A) HAVE ERRED IN ADDING THE FOREX G AIN OF RS THE TOTAL INCOME OF THE ASSESSEE. 2.THE AO & CIT (A) HAVE ERRED IN CONCLUDING THAT SE CTION 43A DOES NOT APPLY TO THE ASSESSEE AND THAT THE AMOUNT OF RS 7,5 3,03,000 IS NOT A CAPITAL RECEIPT. 3.THE AO & CIT (A) HAVE ERRED IN IGNORING THE DIREC T NEXUS OF THE FOREX GAIN WITH THE BUSINESS OF THE ASSESSEE AND TAXING T HE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES. 4.THE AO & CIT (A) HAVE FAILED TO APPRECIATE THAT A CCOUNTING STANDARD AS 11 MANDATED THAT THE NOTIONAL FOREX GAIN BE ACCR UED AS INCOME FOR THE RELEVANT ASSESSMENT YEAR AND THAT THE ACCOUNTIN G TREATMENT WOULD HAVE NO IMPACT ON THE INCOME AS COMPUTED UNDER THE INCOME TAX ACT. 5.THE AO & CIT (A) HAVE FAILED TO APPRECIATE THAT T HE FOREX GAIN ON REVENUE ACCOUNT OF RS 23,11,470 IS ALREADY INCLUDED IN THE TONNAGE ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 4 INCOME OF THE ASSESSEE AND ANY ADDITION FOR THE SAM E IS NOT WARRANTED. 6.THE CIT (APPEAL) FACTUALLY ERRED IN OBSERVING THA T THE ECB LOAN HAS REMAINED UNUTILIZED AND THAT NO SHIP HAS BEEN PURCH ASED. 7. THE AO & CIT (A) HAVE ERRED IN IGNORING THE FOLL OWING CASES CITED BY THE ASSESSEE: CIT VS WOODWORD GOVERNOR INDIA P. LTD (312 ITR 254) M/S GATI LTD VS A CIT 2013 (1) TMI 621 DREDGING CORPORATION OF INDIA LTD VS A CIT 2011(7) TMI 584 DURING THE COURSE OF HEARING BEFORE US, AUTHORISED REPRESENTATIVE (AR) DID NOT PRESS GROUNDS NO. 1,3,4,6 & 6. THEREFO RE, THESE FIVE GROUNDS STAND DISMISSED AS NOT PRESSED. 2 .ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF SHIPPI NG, FILED ITS RETURN OF INCOME ON 08.10. 2010,DECLARING TOTAL INC OME AT RS 10.63 LAKHS.AO FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT ON 25.03.2013 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 7.86 CRORES. 3 .FIRST EFFECTIVE GROUND OF APPEAL(GOA-NO.2)IS ABOUT FOREIGN EXCHANGE FLUCTUATION GAIN(FEFG). GROUND NO.5 IS ALS O INTER CONNECTED WITH THE GROUND NO.2.BOTH THE ADDITIONS ARE RELATED TO GAIN ON EXCHANGE FLUCTUATION. OUT OF RS.7.76 CORES RS.7.53 CRORES AND RS.23.11 LAKHS ARE ON ACCOUNT OF CAPITAL ACCOUNT AN D REVENUE ACCOUNT RESPECTIVELY. WE WOULD DEAL BOTH THE ITEMS TOGETHER . 3.1. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICE R (AO) FOUND THAT THE ASSESSEE HAD SHOWN FOREIGN EXCHANGE GAIN O F RS.7,76,14,470/- , THAT IN COMPUTATION INCOME IT HAD SHOWN ONLY INTE REST INCOME UNDER THE HEAD INCOME FROM OTHERS SOURCES THAT IT HAD W ORKED BOOK LOSS AT RS. 59.64 LAKHS.AO WAS OF THE OPINION THAT THE FORE IGN EXCHANGE GAIN CREDITED TO THE PROFIT & LOSS A/C WAS NOTHING TO DO WITH SHIPPING BUSINESS CARRIED OUT BY THE ASSESSEE, THAT THE GAIN APPROVED TO THE ASSESSEE WAS TO BE TAXED U/S. 56(1) OF THE ACT AS INCOME FROM OTHER SOURCES. HE ISSUED A SHOW CAUSE NOTICE TO THE ASSE SSEE AND ASKED IT AS TO WHY THE FEFG AMOUNTING TO RS.7.76 CRORES SHOULD NOT BE TAXED AS INCOME FROM OTHER SOURCES SINCE THE SAID GAIN WAS NOT EARNED FROM SHIPPING BUSINESS. ASSESSEE VIDE ITS LETTER DATED 2 5.03.2013 FILED DETAILED REPLY IN THIS REGARD. AFTER CONSIDERING TH E SUBMISSION OF THE ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 5 ASSESSEE, AO HELD THAT ASSESSEE HAD OPTED IN TONNAG E TAX SCHEME, THAT THE FEFG DID NOT FORM PART OF CAPITAL ASSET, THAT I T WAS NOT IN NATURE OF CAPITAL RECEIPT, THAT THE ASSESSEE HAD CLAIMED DEPR ECIATION TO WDV METHOD, THAT PROVISIONS OF SECTION 43A WERE NOT APP LICABLE AS THE ASSESSEE HAD OPTED FOR TONNAGE TAX ,THAT FEFG WAS S IMILAR TO THE INTEREST ON DEPOSITS. FINALLY, HE MADE AN ADDITION OF RS. 7.76 CRORES TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).IT WAS S UBMITTED THAT IN THE PROFIT & LOSS A/C ASSESSEE HAD SHOWN A NOTIONAL / UNREALISED GAIN OF RS.7.76 CRORES ON FEFG, THAT THE GAIN HAD ARISIN G DUE TO REVALUATION OF ECB LOAN TAKEN BY IT FOR THE PURPOSE OF FIXED ASSETS, THAT THE FEFG CONSISTED OF CAPITAL ACCOUNT(RS. 7.53 CRORES AND ON BALANCE OF ECB LOAN TAKEN FOR FIXED ASSETS)AND ON R EVENUE ACCOUNT (RS. 23,11,470/-)ON OTHER BALANCES, THAT THE ACCOUN TING TREATMENT GIVEN BY THE ASSESSEE WAS AS PER THE ACCOUNTING STA NDARD(AS)-11,THAT AMOUNT IN DISPUTE ON ACCOUNT OF ECB LOAN WAS A CAPI TAL RECEIPT AND WAS NOT LIABLE TO TAX, THAT RS. 23.11 LAKHS WERE IN CLUDED FOR THE TONNAGE TAX INCOME THAT WAS OFFERED TO TAX AND COUL D NOT BE CONSIDERED AGAIN, THAT TOTAL AMOUNT OF RS. 7.76 CRO RES SHOULD NOT BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES, T HAT ECB LOAN WAS USED BY THE ASSESSEE FOR PURCHASE OF FIXED ASSET, T HAT AS PER THE LAW SUCH GAIN WAS NOT LIABLE TO TAX, THAT IT WAS TO BE ADJUSTED AGAINST COST OF ASSET, THAT SECTION 43A WAS AMENDED W.E.F. 01.04 .2003, THAT AS PER THE AMENDED PROVISIONS GAIN OR LOSS ON FOREIGN EXCH ANGE FLUCTUATION ON CAPITAL ACCOUNT HAD TO BE CONSIDERED ON REALISAT ION BASIS AND NOT ON ACCRUAL BASIS, THAT AMOUNT IN QUESTION COULD NOT BE TREATED AS INCOME FROM OTHER SOURCES THAT IT WAS RELATED TO BUSINESS . 5. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER,FAA HELD THAT THE ASSESSEE HAD CREDITED RS. 7 .76 CRORES TOWARDS FEFG, THAT SAME HAD NOT BEEN INCLUDED FOR THE COMPU TATION OF INCOME FOR THE YEAR UNDER CONSIDERATION, THAT THE ASSESSEE WAS MAKING REPAYMENT OF HALF YEARLY BASIS, THAT ACCRUAL WERE A RISING OF THE REGULAR BUSINESS OF SHIPPING OF THE ASSESSEE, THAT THE NATU RE OF ACCRUAL WAS ADMITTEDLY ON ACCOUNT OF FLUCTUATION IN EXCHANGE RA TE WHICH CALLED FOR COMPUTATION UNDER THE HEAD INCOME FROM OTHER SOURC ES, THAT THE DECISION DELIVERED BY THE HONBLE SUPREME COURT IN THE CASE OF ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 6 WOODWARD GOVERNOR INDIA P. LTD.(223 CTR 1) WAS NOT APPLICABLE TO THE ISSUES BEFORE HIM. REFERRING TO THE DECISION AU TOKEST LTD. 116 TAXMANN, HE HELD THAT ACCRETIONS TO THE AMOUNT OF L OAN EITHER BY WAY OF INTEREST OR DUE TO FOREIGN CURRENCY RATE OF FLUC TUATION WERE SIMILAR ON ACCOUNT OF SUCH LOAN REMAINING UNUTILISED AND EA RNING INCOME ON ITS OWN ACCOUNT,THAT SUCH GAIN WERE TAXABLE SEPARAT ELY AS REVENUE RECEIPT/INCOME FROM OTHER SOURCES U/S. 56 OF THE AC T. 6. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT PROVISIONS OF SECTION 43A OF THE ACT WERE APPLICABL E WITH REGARD TO THE AMOUNT IN QUESTION, THAT RS. 7,53,03,000/- WAS A CAPITAL RECEIPT AND NOT LIABLE TO TAX, THAT RS. 23,11,470/- WAS INC LUDED IN TONNAGE TAX INCOME SO IT COULD NOT BE CONSIDERED FOR TAXATION A GAIN, THAT FEFG PERTAINED TO REPAYMENT OF ECB LOAN USED FOR PURCHAS E OF FIXED ASSET, THAT THE ASSESSEE HAD PURCHASED A SHIP, THAT THE SH IP WAS SOLD DURING THE AY 2013-14,THAT AT TIME OF DISPOSAL OF SHIP FEF G/FOREIGN EXCHANGE FLUCTUATION LOSS WAS CONSIDERED BEFORE ARR IVING AT THE TAXABLE INCOME, THAT FAA HAD IGNORED THE PROVISIONS OF AMENDED SECTION 43A,THAT FOREIGN EXCHANGE GAIN/LOSS ARISING IN THE PREVIOUS YEARS HAD BEEN ACCEPTED BY THE DEPARTMENT AS A PART OF BUSINESS INCOME, THAT THERE WAS NO REASON TO TREAT THE SAME DIFFERENTLY IN THE YEAR UNDER CONSIDERATION. HE REFERRED TO PAGES NO.7 1, 6, 4 OF THE PAPER BOOK. HE ALSO REFERRED TO THE LETTER DATED 25.03.20 13 ADDRESSED TO THE AO. HE FILED CALCULATION OF SHORT TERM CAPITAL LOSS AND DEPRECIATION AS PER THE ACT FOR THE YEAR ENDING ON 31.03.2013.HE RE LIED UPON THE DECISIONS OF GATI LTD. (2013(1)TMI621)OF HYDERABAD BENCH OF ITAT AND DREDGING CORPORATION OF INDIA LTD. 2011(7)TMI 5 84.DR SUPPORTED THE ORDER OF THE FAA. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. THE UNDISPUTED FACTS OF THE CASE UNDER CONSIDER ATION ARE THAT THE ASSESSEE HAD TAKEN A LOAN FOR ACQUIRING A SHIP, THA T PART PAYMENT FOR PURCHASING THE SHIP WAS MADE FROM ITS OWN SOURCES, THAT THE ASSESSEE WAS REPAYING THE LOAN AS PER THE AGREEMENT, THAT TH E AO AS WELL AS THE FAA TREATED THE FEFG/LOSS DIFFERENTLY, THAT THEY WE RE OF THE OPINION THAT GAINS ON FLUCTUATION OF FOREIGN EXCHANGE WAS S IMILAR TO THE INTEREST RECEIPT. IN OUR OPINION, THERE IS BASIC DI FFERENCE BETWEEN INTEREST RECEIPTS AND FEFG. SECTION 43A OF THE ACT, SPECIFICALLY DEALS WITH THE CHANGE IN THE RATE OF EXCHANGE OF CURRENCY . ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 7 8. WE FIND THAT SECTION 43A OF THE ACT,WAS INSERTED BY THE FINANCE (NO.2)ACT, 1967,WITH EFFECT FROM 01.4.1967.THE SECT ION MANDATES THAT IF AT ANY TIME THERE IS A CHANGE IN THE RATE OF EXC HANGE, IT MAY BE GIVEN EFFECT BY WAY OF ADJUSTMENT OF THE CARRYING COST OF THE FIXED ASSETS ACQUIRED IN FOREIGN CURRENCY. THE SECTION WAS AMEND ED W.E.F. 01.04.2003.ACCORDING TO THE AMENDED SECTION, ANY AD DITION TO AND DEDUCTION FROM THE ACTUAL COST OF A CAPITAL ASSET R ESULTING FROM EXCHANGE FLUCTUATION SHALL BE ONLY AT THE TIME OF A CTUAL DISCHARGE OF THE LIABILITY AND NOT TO BE ADJUSTED WITH REFERENCE TO THE AMOUNT PAYABLE AND OUTSTANDING AT THE END OF THE EACH YEAR ON THE BASIS OF THE MERCANTILE SYSTEM OF ACCOUNTING. IT HAS FURTHER BEE N PROVIDED THAT THE METHOD OF ACCOUNTANCY BEING FOLLOWED BY THE ASSESSE E WOULD NOT BE RELEVANT. ANY ADJUSTMENT WHICH HAS ALREADY BEEN ALL OWED AS A DEDUCTION PRIOR TO APRIL 1, 2003, SHALL NOT BE ALLO WED AGAIN ON ACCOUNT OF EXCHANGE FLUCTUATION AT THE TIME OF ACTUAL PAYME NT. HONBLE SUPREME COURT IN WOODWARD GOVERNOR INDIA P. LTD.(SU PRA)HAS HELD THAT THE AMENDMENT TO SEC.43A OF THE ACT, WERE APPL ICABLE PROSPECTIVELY. HERE, WE WOULD LIKE TO REPRODUCE THE AMENDED PROVISIONS AND SAME READ AS UNDER: 43A.SPECIAL PROVISIONS CONSEQUENTIAL TO CHANGES IN RATE OF EXCHANGE OF CURRENCY.NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT,WHERE AN ASSESSEE HAS ACQUIRE D ANY ASSET IN ANY PREVIOUS YEAR FROM A COUNTRY OUTSIDE INDIA FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION AND, IN CONSEQUENCE OF A CHA NGE IN THE RATE OF EXCHANGE DURING ANY PREVIOUS YEAR AFTER THE ACQUISI TION OF SUCH ASSET, THERE IS AN INCREASE OR REDUCTION IN THE LIABILITY OF THE ASSESSEE AS EXPRESSED IN INDIAN CURRENCY (AS COMPARED TO THE LI ABILITY EXISTING AT THE TIME OF ACQUISITION OF THE ASSET)AT THE TIME OF MAKING PAYMENT (A)TOWARDS THE WHOLE OR A PART OF THE COST OF THE A SSET ; OR (B)TOWARDS REPAYMENT OF THE WHOLE OR A PART OF THE MONEYS BORROWED BY HIM FROM ANY PERSON, DIRECTLY OR INDIRECTLY, IN ANY FOREIGN CURRENCY SPECIFICALLY FOR THE PURPOSE OF ACQUIRING THE ASSET ALONG WITH INTEREST, IF ANY, THE AMOUNT BY WHICH THE LIABILITY AS AFORESAID IS S O INCREASED OR REDUCED DURING SUCH PREVIOUS YEAR AND WHICH IS TAKE N INTO ACCOUNT AT THE TIME OF MAKING THE PAYMENT, IRRESPECTIVE OF THE METHOD OF ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 8 ACCOUNTING ADOPTED BY THE ASSESSEE, SHALL BE ADDED TO, OR, AS THE CASE MAY BE, DEDUCTED FROM X X X X X AND THE AMOUNT ARRIVED AT AFTER SUCH ADDITION OR DE DUCTION SHALL BE TAKEN TO BE THE ACTUAL COST OF THE ASSET OR THE AMO UNT OF EXPENDITURE OF A CAPITAL NATURE OR, AS THE CASE MAY BE, THE COST O F ACQUISITION OF THE CAPITAL ASSET AS AFORESAID .. 9 .FROM THE AVAILABLE FACTS IT IS CLEAR THE MATTER IS COVERED BY CLAUSE (B) OF THE SECTION WHICH DEALS WITH THE REPAYMENT OF TH E WHOLE OR A PART OF THE MONEYS BORROWED. AS STATED EARLIER, A SHIP WAS PURCHASED BY THE ASSESSEE RAISING LOAN IN FOREIGN EXCHANGE AND IT WA S REPAYING LOAN EVERY YEAR. IT WAS A CHANCE THAT IN YEAR UNDER APPE AL THERE WAS GAIN ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE. IN OUR OPINION THE AMENDED PROVISION TAKE CARE OF SUCH FEFG/LOSS. AS P ER THE PROVISIONS OF THE SAID SECTION AT THE TIME OF DISPOSAL OF THE ASSET LOSS/GAIN ON FLUCTUATION OF FOREIGN EXCHANGE HAS TO BE CONSIDERE D AND NOT OTHERWISE. IN THE CASE UNDER CONSIDERATION IN THE T WO EARLIER YEARS WHEN THE ASSESSEE HAD SUFFERED THE LOSS ON ACCOUNT OF FLUCTUATION, AO HAD NOT ALLOWED SUCH LOSSES. BUT, IN THE YEAR UNDER APPEAL WHEN THERE WAS A GAIN BECAUSE OF THE FLUCTUATION, AO DECIDED T O TAX IT. HE HAS NOT GIVEN ANY REASON FOR DEVIATING FROM THE PATH TAKEN BY HIM IN THE EARLIER YEARS. WHEN THE FACTS AND CIRCUMSTANCES OF THE AMOUNTS PERTAINING TO FECG/LOSS FOR THE EARLIER YEARS AND T HE YEAR AND CONSIDERATION WERE SAME THERE WAS NO JUSTIFICATION IN TREATING THEM DIFFERENTLY. IF THE LOSS SUFFERED BY THE ASSESSEE O N FLUCTUATION WAS NOT CONSIDERED BY THE AO FOR ARRIVING AT THE TAXABLE IN COME IN THOSE YEARS,THEN HE SHOULD HAVE NOT TAXED THE GAIN ON FLU CTUATION. AO.S, AS REPRESENTATIVES OF STATE, ARE EXPECTED TO COLLECT D UE TAXES ONLY. THEREFORE TREATING POSITIVE AND NEGATIVE INCOMES OF SIMILAR KIND OF TRANSACTION OF AN ASSESSEE AT DIFFERENT YARD STICKS WOULD GO AGAINST THE BASIC PRINCIPLE OF RECOVERY OF DUE TAXES.IN THESE CIRCUMS -TANCES,WE ARE UNABLE TO ENDORSE THE VIEW OF THE FAA THAT RS.7 .53 CRORES,ARISING OUT OF THE FLUCTUATION OF EXCHANGE, SHOULD BE TAXED UNDER THE HEAD BUSINESS INCOME. AS FAR AS ADDITION OF RS.23.11 LA KHS IS CONCERNED, WE WOULD DISCUSS IT IN THE NEXT PARAGRAPH.BASIC PRI NCIPLES OF TAX JURISPRUDENCE PROHIBIT DOUBLE TAXATION OF ANY INCOM E ONE HAND AND ON THE OTHER DOES NOT ALLOW DOUBLE DEDUCTION. SO, CONS IDERING THE FACTS AND CIRCUMSTANCES OF THE MATTER WE ARE OF THE OPINI ON THAT AS PER THE PROVISIONS OF AMENDED SECTION 43A OF THE ACT, INCOM E ON FEFG ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 9 (RS.7.53 CRORES) WAS NOT TAXABLE IN THE YEAR UNDER CONSIDERATION. THEREFORE, REVERSING THE ORDER OF THE FAA, WE DECID E GROUND NO.2 IN FAVOUR OF THE ASSESSEE. 10. NOW,WE WOULD TAKE UP THE ISSUE RELATED WITH THE BAL ANCE AMOUNT I.E.RS.23.11 LAKHS. IT IS NOT DISPUTED BY THE AO OR THE FAA THAT THE AMOUNT IN DISPUTE HAD NOT ARISEN TO REVENUE ACCOUNT . FROM THE RECORDS, IT IS CLEAR THAT OTHER DUES IN FOREIGN EXC HANGE RESULTED IN ACCRUAL OF THE SAID AMOUNT. WE ARE OF THE OPINION T HAT SAME CANNOT BE TAXED AS FEFG, BECAUSE THE ASSESSEE HAD OFFERED IT UNDER THE TTS. 10.A. WE FIND THAT SECTION 115VP DEALS METHOD AND TIME OF OPTING FOR TTS,SECTION 115VQ IS ABOUT PERIOD FOR WHICH TONNAG E TAX OPTION REMAINS IN FORCE. RENEWAL OF TTS IS SUBJECT MATTER OF SECTION 115VR.CIRCUMSTANES AND CONDITIONS WHERE IN TONNAGE TAX SCHEME CANNOT BE OPTED ARE THE SUBJECT MATTER OF SECTION 1 15VS.AS PER THE PROVISIONS OF SECTION 115VT EVERY ASSESSEE HAS TO TRANSFER PROFITS TO TONNAGE TAX RESERVE ACCOUNT AT A FIX RATE AND HAS T O UTILISE IT FOR SPECIFIC PURPOSE, ONCE HE OPTS OF TTS. COMPANIES OP TING FOR TTS HAVE TO COMPLY WITH MINIMUM TRAINING REQUIREMENT AS REQUIRED BY SECTION 115VU.LIMIT FOR CHARTER IN OF TONNAGE HAS B EEN DETERMINED BY SECTION 115VV.MAINTENANCE AND AUDIT OF ACCOUNTS OF THE TTS COMPANIES IS GOVERNED BY THE PROVISIONS OF SECTION 115VW OF THE ACT, WHEREAS SECTION115VX DETERMINES TONNAGE. AMALG ATION IS SUBJECT MATTER OF SECTION 115VY.NEXT SECTION I.E. S ECTION 15VZB TAKES CARE OF THE TONNAGE TAX COMPANIES WHICH ARE F OUND TO BE A PARTY TO ANY TRANSACTION OR ARRANGEMENT THAT AMOUNTS TO A N ABUSE OF THE SCHEME. LAST SECTION,SECTION115VZC,DEALS WITH EXCLU SION FROM TTS. FROM THE ABOVE IT IS CLEAR THAT CHAPTER XII-G IS A COMPLETE CODE IN ITSELF AND IT PROVIDES FOR NON APPLICABILITY OF SE CTION 28 TO 43C OF THE ACT I.E. CHAPTER IV OF THE ACT,WHEN INCOME IS TO BE COMPUTED AS PER THE PROVISIONS OF THE SAID SECTION. CHAPTER-XII-G, WAS INTRODUCED BY THE FINANCE (NO.2)ACT,2004,WITH EFFECT FROM APRIL 1 ,2005,AND IT PROVIDES FOR TTS, WHICH IS OPTIONAL. THE NOTES ON C LAUSES APPENDED TO THE FINANCE (NO.2) BILL,2004,REFERRING TO CLAUSE 28 AS REGARDS THE INTRODUCTION OF SECTION 115VA SPECIFICALLY STATES THAT THE PROVISION RELATES TO THE COMPUTATION OF PROFITS AND GAINS OF THE SHIPPING BUSINESS. TONNAGE TAX WAS INTENDED TO MAKE THE INDU STRY ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 10 INTERNATIONALLY COMPETITIVE AND ALSO TO INDUCE MORE SHIPS TO FLY THE INDIAN FLAG. AS THE WHOLE OF FEFG IS COVERED BY THE PROVISIONS O F CHAPTER XII-G OF THE ACT,THERE IS NO JUSTIFICATION IN COMPUTING I T UNDER A DIFFERENT CHAPTER OR SECTION.WE FIND THAT SIMILAR QUESTION HA S BEEN DEALT WITH BY THE HYDERABAD BENCH OF ITAT IN THE CASE OF GATI LTD .(SUPRA) AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS OPTED FOR COMPUTATION OF HIS INCOME FROM SHIPPING BUSINESS UN DER THE TONNAGE TAX SCHEME UNDER CHAPTER XIIG OF THE ACT. THE ISSUE BEFORE US IS WHETHER THE AMOUNT OF RS.15,46,428 RECEIVED ON ACCO UNT OF FOREIGN EXCHANGE FLUCTUATION IS TO BE CONSIDERED AS PART OF THE SHIPPING BUSINESS AND TO BE TAXED UNDER CHAPTER XIIB OF THE ACT AS CLAIMED BY THE ASSESSEE OR IT SHOULD BE TREATED AS INCOME FROM OTHER SOURCES HAVING NO NEXUS WITH THE SHIPPING OPERATION AS HELD BY THE COMMISSIONER OF INCOME-TAX.IT IS THE CONTENTION OF THE ASSESSEE THAT THE INCOME OF RS.15,46,428 AROSE DUE TO THE DIFFERE NCE IN THE EXCHANGE RATE ON ACCOUNT OF PAYMENT OF FREIGHT ARISING OUT O F OPERATION OF QUALIFYING SHIPS AND THEREFORE, IT IS PART OF THE P ROFIT RELATING TO THE ACTIVITY OF OPERATING QUALIFYING SHIPS COMING WITHI N THE TONNAGE TAX SCHEME PROVIDED UNDER CHAPTER XIIG OF THE ACT. S.I1 5VA.CHAPTER XIIG OF THE ACT GIVES AN OPTION TO THE ASSESSEE TO COMPUTE THE PROFITS FROM THE BUSINESS OF OPERATING QUALIFYING SHIPS IN, ACCORDANCE WITH THE PROVISIONS CONTAINED UNDER THE SAID CHAPTER. FROM THE DETAILS OF GAIN/LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION RELATING TO THE ACTIVITIES OF OPERATING THE QUALIFYING SHIPS FOR THE YEAR UNDER APPEAL, WHICH ARE AT PAGES 94 TO 111 OF THE PAPER- BOOK, IT IS EVIDENT THAT THERE IS A NET CREDIT SURP LUS OF RS.15,46,428. THE SAID LIST COMPRISES OF DIFFERENT ITEMS LIKE EXC ESS AMOUNT PAID DUE TO EXCHANGE FLUCTUATIONS FOR SERVICES TAKEN FROM TH E SERVICE PROVIDER IN RELATION TO THE OPERATION OF QUALIFYING SHIPS, E XCESS AMOUNT PAYABLE DUE TO EXCHANGE FLUCTUATIONS ON THE OUTSTANDING AMO UNT PAYABLE TO SERVICE PROVIDER, SAVING IN PAYMENT DUE TO EXCHANGE FLUCTUATIONS IN RESPECT OF AMOUNTS PAID TO SERVICE PROVIDER, SAVING DUE TO EXCHANGE FLUCTUATIONS IN RESPECT OF AMOUNTS PAYABLE TO SERVI CE PROVIDER REMAINING OUTSTANDING, FREIGHT AMOUNTS RECEIVED OR RECEIVABLE IN EXCESS FROM THE CUSTOMERS DUE TO EXCHANGE FLUCTUATI ON IN THE COURSE OF ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 11 OPERATING QUALIFYING SHIPS, FREIGHT AMOUNTS SHORT R ECEIVED OR RECEIVABLE FROM THE CUSTOMERS DUE TO EXCHANGE FLUCT UATION IN THE COURSE OF PLYING OF QUALIFYING SHIPS. KEEPING IN VI EW THE AFORESAID ITEMS, THE OBSERVATION OF THE COMMISSIONER OF INCOM E-TAX THAT THE GAIN ARISING FROM FOREIGN EXCHANGE FLUCTUATIONS DO NOT REPRESENT RECEIPT TRANSACTIONS IS NOT CORRECT. IN OUR VIEW, T HE GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS IS IN THE COURSE OF O PERATING QUALIFYING SHIPS AND THEREFORE, PART OF THE PROFIT DERIVED FRO M SUCH BUSINESS. THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF DREDGING CORPORATION OF INDIA LTD. (SUPRA), WHILE DEALING WI TH IDENTICAL ISSUE OF GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS, H ELD, VIDE ORDER DATED 25.7.2011, AS FOLLOWS- 9.3 THE GAINS REALIZED ON THE FOREIGN EXCHANGE FLU CTUATION NORMALLY TAKE THE COLOUR OF THE PRIMARY TRANSACTIONS. IT HAS BEEN STATED THAT THE ASSESSEE HAS ENTERED INTO CERTAIN TRANSACTIONS IN F OREIGN CURRENCY IN CONNECTION WITH ITS CORE ACTIVITY OF DREDGING. ACCO RDINGLY THE EXCHANGE DIFFERENCE ARISING OUT OF SUCH ACTIVITIES SHOULD BE TREATED AS RELATED TO THE CORE ACTIVITY OF DREDGING. SIMILAR V IEW HAS BEEN TAKEN BY THE BANGALORE BENCH OF THE ITAT IN THE CASE OF I TC HOTELS V/S. DY. COMMISSIONER OF INCOME-TAX (2007) (107 TTJ(BANG) 955).ACCORDINGLY, IN OUR VIEW, THE LEARNED CIT(A) I S RIGHT IN HOLDING THAT THE SAME ARE RELATED TO THE ACTIVITY OF OPERAT ING QUALIFYING SHIPS. WE FIND THE AFORESAID ORDER OF THE TRIBUNAL TO BE D IRECTLY COVERING THE ISSUE AS IN DISPUTE IN THE PRESENT APPEAL.THEREFORE , FOLLOWING THE SAID DECISION, WE HOLD THAT THE AMOUNT OF RS.15, 46,428, BEING THE GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IS RELATED TO THE ACTIVITY OF OPERATING QUALIFYING SHIPS AND THEREFORE, HAS TO BE TAXED UNDER THE TONNAGE TAX SCHEME AS PROVIDED UNDER CHAPTER XIIG O F THE ACT. IN THIS VIEW OF THE MATTER, WE ARE NO INCLINED TO SUST AIN THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME-TAX PASSED UNDE R S.263 OF THE ACT, INSOFAR AS IT RELATES TO THE GAIN OF RS.15,46, 428 ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS IS CONCERNED. RESPECTFULLY, FOLLOWING THE SAME WE DECIDE GROUND N O.5 IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 12 2.2. WE FIND THAT THE TRIBUNAL IN THE AFORESAID OR DER DATED 16/05/2015 AS MADE AN ELABORATE DISCUSSION WI TH RESPECT TO METHOD AND TIME OF OPTING FOR TTS AND SE CTION 115VQ IS WITH RESPECT TO PERIOD FOR WHICH TONNAGE T AX OPTION REMAIN ENFORCE. WHILE COMING TO THE CONCLUS ION, THE BENCH HAS ALREADY RELIED UPON THE DECISION FROM HYD ERABAD BENCH OF THE TRIBUNAL IN THE CASE OF GATI LTD. IT I S ALSO NOTED THAT SECTION 43A OF THE ACT, WAS INSERTED BY THE FINANCE (NO.2)ACT, 1967,WITH EFFECT FROM 01.4.1967. THE SECTION MANDATES THAT IF AT ANY TIME THERE IS A CHA NGE IN THE RATE OF EXCHANGE, IT MAY BE GIVEN EFFECT BY WAY OF ADJUSTMENT OF THE CARRYING COST OF THE FIXED ASSETS ACQUIRED IN FOREIGN CURRENCY. THE SECTION WAS AMENDED W.E.F. 01/04/2003. ACCORDING TO THE AMENDED SECTION, ANY ADDITION TO AND DEDUCTION FROM THE ACTUAL COST OF A CAPITAL ASSET RESULTING FROM EXCHANGE FLUCTUATION SHALL BE ONLY AT THE TIME OF ACTUAL DISCHARGE OF THE LIABILITY AND N OT TO BE ADJUSTED WITH REFERENCE TO THE AMOUNT PAYABLE AND OUTSTANDING AT THE END OF THE EACH YEAR ON THE BASI S OF THE MERCANTILE SYSTEM OF ACCOUNTING. IT HAS FURTHER BEE N ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 13 PROVIDED THAT THE METHOD OF ACCOUNTANCY BEING FOLLO WED BY THE ASSESSEE WOULD NOT BE RELEVANT. ANY ADJUSTMENT WHICH HAS ALREADY BEEN ALLOWED AS A DEDUCTION PRIOR TO AP RIL 1, 2003, SHALL NOT BE ALLOWED AGAIN ON ACCOUNT OF EXCH ANGE FLUCTUATION AT THE TIME OF ACTUAL PAYMENT. HONBLE SUPREME COURT IN WOODWARD GOVERNOR INDIA P. LTD.(SUPRA)HAS HELD THAT THE AMENDMENT TO SECTION 43A OF THE ACT, WERE APPLICABLE PROSPECTIVELY. 3. SO FAR AS, THE ADDITION OF FOREIGN EXCHANGE FLUCTUATION GAIN AMOUNTING TO RS.45,21,546/- TAXED AS INCOME FROM OTHER SOURCES BY THE ASSESSING OFFICER IS CONCERNED, WE ARE OF THE VIEW THAT THE IMPUGNED AMO UNT IS NOT TAXABLE BECAUSE APPLICABILITY OF THE PROVISIONS OF SECTION 43A IS CONCERNED, CONSIDERING THE FACTUAL M ATRIX THAT THE ASSESSEE IS TAXABLE ON TONNAGE TAX BASIS A ND FOR ASSESSMENT YEAR 2010-11, THE ISSUE WAS CONSIDERED A ND THE TRIBUNAL VIDE ORDER DATED 16/05/2014 DECIDED IN FAVOUR OF THE ASSESSEE. SINCE, THE FACTS ARE IDENTI CAL, THEREFORE, IN THE APPEAL OF THE REVENUE, WE FIND NO MERIT, ITA NO.6557/MUM/2014 M/S CGU LOGISTIC LTD. 14 CONSEQUENTLY, WE AFFIRM THE STAND OF THE LD. COMMIS SIONER OF INCOME TAX (APPEAL). FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN IN THE P RESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCL USION OF THE HEARING ON 25/05/2016. SD/- SD/- (RAJENDRA) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER MUMBAI; # DATED : 25/05/2016 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. %& '( / THE APPELLANT (RESPECTIVE ASSESSEE) 2. )*'( / THE RESPONDENT. 3. + + , ( %& ) / THE CIT, MUMBAI. 4. + + , / CIT(A)- , MUMBAI, 5. /01 )2 , + %& %23 , / DR, ITAT, MUMBAI 6. 14 5 / GUARD FILE. / BY ORDER, */& ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI