VAN OORD INDIA P.LTD, MUMBAI V. DCIT RG 5(3), MUMBAI

ITA 720/MUM/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 8685 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 02-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV HARIT
• Assessee Lawyers: BHAKTI MARU A RS
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Double taxation relief; International transaction; Permanent establishment; Avoidance of tax
• Section: 92C; 143(3); 92B; 92F; 92E; 234B; 201; 28; 144; 90; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI. A. D. JAIN, VICE PRESIDENT AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER IT (TP) A NO. 720/MUM/2015 ASSESSMENT YEAR: 2010 - 11 VAN OORD INDIA PRIVATE LIMITED 201, 2 ND FLOOR, CENTRAL PLAZA 166, C.S.T. ROAD MUMBAI V. D Y . CIT RANGE 5(3) MUMBAI TAN/PAN: AAACH5430J (APPELLANT) (RESPONDENT) ASSESSEE BY: S/SHRI NISHANT THAKKAR, RISHI KAPADIA, HITEN CHANDE, JAIRAJESH NADAR AND BHAKTI MARU, A.RS REVENUE BY: SHRI RAJEEV HARIT, D.R. DA TE OF HEARING: 26 09 201 9 DATE OF PRONOUNCEMENT: 11 1 1 201 9 O R D E R PER A. D. JAIN, V.P.: THIS IS ASSESSEES APPEAL AGAINST THE ASSESSMENT O RDER, DATED 29/12/2014, PASSED UNDER SECTION 143(3) R.W.S . 144C(13) OF THE INCOME TAX ACT, 1961, FOR ASSESSMENT YEAR 20 10-11, IN PURSUANCE TO THE DIRECTIONS BY THE DRP VIDE ITS ORD ER DATED 5/12/2014. THE FOLLOWING GROUNDS HAVE BEEN RAISED: ON BEING AGGRIEVED BY THE FINAL ORDER DATED 29 DECE MBER 2014 PASSED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME -TAX RANGE-5(3)(2), MUMBAI ('AO') PASSED UNDER SECTION 1 43(3) READ WITH SECTION 144C(13) OF THE INCOME-TAX ACT, 1961 ( 'THE ACT') IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE DRP, THE PRESENT APPEAL IS BEING PREFERRED ON THE FOLLOWING GROUNDS AMONGST OTHERS WHICH, IT IS PRAYED, MAY BE CONSIDERED WITHOUT PREJ UDICE TO ONE ANOTHER: IT(TP)A NO.720/MUM/2015 PAGE 2 OF 29 GENERAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO, BASED ON DIRECTIONS OF DRP ERR ED IN MAKING ADDITION OF RS.17,24,50,468 IN THE APPELLANT'S CASE . APPLICABILITY OF TRANSFER PRICING PROVISIONS TO COM PANIES COVERED UNDER THE TONNAGE TAX SCHEME 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO/ DRP FAILED TO APPRECIATE THAT THE T RANSFER PRICING REGULATIONS DO NOT APPLY TO THE APPELLANT TO THE EX TENT OF OPERATIONS CARRIED OUT THROUGH OPERATING QUALIFYING SHIPS, SINCE THE APPELLANT IS A COMPANY REGISTERED UNDER THE TON NAGE TAX SCHEME ('TTS') PROVIDED UNDER THE ACT. 3. THE LEARNED AO/DRP FAILED TO APPRECIATE THAT SIN CE THE TRANSFER PRICING REGULATIONS DO NOT APPLY TO THE APPELLANT, NO REFERENCE SHOULD HAVE BEEN MADE TO THE TRANSFER PRICING OFFIC ER ('TPO') UNDER SECTION 92CA OF THE ACT WITH REGARDS TO THE I NCOME DERIVED FROM OPERATING QUALIFYING SHIPS BY THE APPELLANT. 4. THE LEARNED AO/ DRP ERRED IN NOT APPRECIATING TH E FACT THAT SECTION 92 OF THE ACT IS NOT A CHARGING SECTION BUT MERELY A COMPUTATION MECHANISM FOR DETERMINATION OF ARM'S LE NGTH PRICE AND THAT IF THE INCOME IS NOT CHARGEABLE TO TAX, TH E APPLICATION OF THE COMPUTATION MECHANISM HAS NO RELEVANCE. 5. THE LEARNED AO/ DRP FAILED TO APPRECIATE THE FAC T THAT PROVISO TO SECTION 92C(4) DOES NOT COVER THE SECTIONS 115V TO SECTION 115VZC OR CHAPTER XII - G PERTAINING TO TAXABILITY OF COMPANIES COVERED UNDER THE TTS AND THUS THE ADJUSTMENT MADE BY THE LEARNED AO/TPO/DRP WOULD HAVE NO IMPACT ON THE INCO ME PERTAINING TO THE TONNAGE TAX ACTIVITIES OF THE APP ELLANT. 6. THE LEARNED AO/ DRP ERRED IN NOT APPRECIATING TH E FACT THAT THE TTS OF THE ACT IS A SELF-CONTAINED CODE AND THE INC OME CAN ONLY BE COMPUTED AS PER THE PROVISIONS MENTIONED UNDER C HAPTER XII - G OF THE ACT (I.E. SECTION 115VA TO SECTION 115VZC) . 7. THE LEARNED ASSESSING OFFICER/DRP ERRED IN NOT A PPRECIATING THE FACT THAT SECTION 115VA OF THE ACT STARTS WITH A NO N-OBSTANTE CLAUSE AND THUS OVERRIDES THE PROVISIONS CONTAINED IN SECTION 28 TO SECTION 43C OF THE ACT. IT(TP)A NO.720/MUM/2015 PAGE 3 OF 29 8. THE LEARNED AO/TPO/DRP ERRED IN HOLDING THAT EVE N IF THE APPELLANT'S CASE IS COVERED UNDER THE TTS, TRANSFER PRICING PROVISIONS UNDER SECTION 92(1) OF THE ACT ARE APPLI CABLE TO THE APPELLANT. 9. THE LEARNED AO/ DRP ERRED IN NOT APPRECIATING TH E FACT THAT THE APPELLANT HAS FILED THE ACCOUNTANTS REPORT IN FORM 3CEB UNDER SECTION 92E OF THE ACT OUT OF ABUNDANT CAUTION IN R ESPECT OF THE TONNAGE TAX INCOME. 10. THE LEARNED AO/ TPO/DRP HAS FAILED TO APPRECIAT E THE FACT THAT THE TTS AND NON TTS INCOME OF THE APPELLANT CA N BE SEGREGATED AND THE SAME WAS SUBMITTED BEFORE THE LE ARNED ASSESSING OFFICER/DRP. 11. THE LEARNED AO/ TPO/DRP FAILED TO APPRECIATE TH E FACT THAT THE ADJUSTMENT PROPOSED BY THE LEARNED TPO OF RS.17 ,24,50,468 (HEAD OFFICE EXPENSES ALLOCATION PERTAINING TO INCO ME COVERED UNDER TTS) HAS NO RELEVANCE IN COMPUTING THE INCOME FROM OPERATING QUALIFYING SHIPS, WHICH IS DETERMINED ON A PRESUMPTIVE BASIS AS PROVIDED UNDER THE TTS OF THE ACT, HENCE, THE ALLEGED EXCESS PAYMENT CANNOT HAVE ANY IMPACT ON THE TAXABL E INCOME OF THE APPELLANT AND OUGHT TO BE DELETED. ADDITION ON ACCOUNT OF ALLOCATION OF HEAD OFFICE EX PENSES 12. THE LEARNED AO/TPO/DRP ERRED IN LAW IN MAKING A N ADJUSTMENT OF RS.17,24,50,468 IN RESPECT OF ALLOCAT ION OF HEAD OFFICE EXPENSES PERTAINING TO INCOME COVERED UNDER TTS, FOR WHICH NO DEDUCTION WAS CLAIMED BY THE APPELLANT, SI NCE ITS TTS INCOME IS TAXABLE ON DEEMED BASIS AND HENCE OUGHT T O BE DELETED. 13. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE DRP ERRED IN OBSERVING THAT THE APPELLA NT IS HAVING INCOME UNDER THE NORMAL PROVISIONS AS WELL AS UNDER TTS PROVISIONS AND STATING THAT SEGREGATION OF ALLOCATI ON OF HEAD OFFICE EXPENSES INTO TTS AND NON-TTS ACTIVITY WOULD LEAD T O ABSURD RESULTS, AS THE APPELLANT HAS ONLY TTS INCOME IN TH E RELEVANT YEAR. 14. WITHOUT PREJUDICE TO ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A O/ TPO/ DRP ERRED IN NOT ACCEPTING ECONOMIC ANALYSIS UNDERTAKEN BY THE IT(TP)A NO.720/MUM/2015 PAGE 4 OF 29 APPELLANT AND CARRYING OUT A TRANSFER PRICING ADJUS TMENT OF RS.17,24,50,468/- TO THE TOTAL INCOME OF THE APPEL LANT ON ACCOUNT OF ALLOCATION OF HEAD OFFICE EXPENSES FROM ITS ASSO CIATED ENTERPRISES. 15. WITHOUT PREJUDICE TO ABOVE, THE LEARNED AO/ TPO / DRP ERRED IN MAKING AN ADHOC ADJUSTMENT OF RS.17,24,50,468/- ON ACCOUNT OF ALLOCATION OF HEAD OFFICE EXPENSES WITHOUT APPRE CIATING THE FACT THAT THE APPELLANT HAD SUBMITTED DOCUMENTARY EVIDEN CE FOR THE SAME AND DEMONSTRATED THAT THE ASSOCIATED ENTERPRIS E HAD RENDERED SUCH SERVICES AND THAT THE. APPELLANT HAD BENEFITTED FROM SUCH SERVICES. 16. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE DRP ERRED IN MAKING AN OBSERVATION THAT THE APPELLANT TRIED TO TAKE REFUGE UNDER THE CLAIM THAT ITS SERVE HAD A BREAKDOWN AND THE APPELLANT IS SEEKING TO SHIFT ONU S OF FURNISHING THE DETAILS UNDER THE EXCUSE OF SERVER'S BREAKDOWN. 17. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE FINDING OF THE LEARNED TPO THAT THE DETAILS OF SERVICES AVAILED BY THE APPELLANT WERE NOT SUBMITTED AND THE APPELLA NT DID NOT SUBMIT EVIDENCE IN RESPECT OF SERVICES AVAILED IS P ERVERSE AND CONTRARY TO THE RECORDS. 18. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO/ DRP ERRED IN UPHOLDING THE ADHOC DI SALLOWANCES MADE BY THE LEARNED TPO OF 50%, BEING CONTRARY TO T HE PRINCIPLES OF TRANSFER PRICING, CONTRARY TO THE RECORDS, MADE IN THE ABSENCE OF SHOWING ANY COMPARABLE AND COMPLIANCE WITH THE T RANSFER PRICING PROVISIONS AND THE SAME THEREFORE OUGHT TO BE DELETED. INTEREST UNDER SECTION 234B 19. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECT ION 234B AMOUNTING TO RS.3,48,71,080/- INTEREST UNDER SECTION 234C 20. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECT ION 234C AMOUNTING TO RS.1,27,057/-. IT(TP)A NO.720/MUM/2015 PAGE 5 OF 29 21. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. AO/TPO ERRED IN LAW BY INITIATING PENALTY P ROCEEDINGS UNDER SECTION 271(1)C) WHEN THE APPELLANT HAD MADE FULL AND TRUE DISCLOSURES BOTH, IN THE RETURN OF INCOME AND DURIN G ASSESSMENT PROCEEDINGS. 2. THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDITION AL GROUND: 'THE APPELLANT PRAYS THAT THE DIVIDEND DISTRIBUTION TAX (DDT) PAID UNDER SECTION 115-0 OF THE INCOME-TAX ACT, 196 1 ('THE ACT) ON DIVIDENDS DECLARED AND PAID BY THE APPELLANT TO ITS PARENT FOREIGN SHAREHOLDER VAN OORD DREDGING & MARINE CONT RACTORS BV, WHO IS A TAX RESIDENT OF NETHERLANDS, IS IN EXCESS OF THE RATE PROVIDED UNDER ARTICLE 10 READ WITH THE MOST FAVOUR ED NATION CLAUSE UNDER ARTICLE IV OF THE PROTOCOL TO THE DOUB LE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND NETHERLANDS. 3. THE MATTER CONCERNING THE ADDITIONAL GROUND SHALL B E TAKEN UP POST DEALING WITH THE ORIGINAL GROUNDS. 4. THE EFFECTIVE CHALLENGE, BY WAY OF ALL THE 21 GROUN DS ORIGINALLY TAKEN, IS TO THE ACTION OF THE ASSESSING OFFICER IN APPLYING THE TRANSFER PRICING PROVISIONS, AS CONTAI NED IN CHAPTER X OF THE INCOME TAX ACT, TO THE CASE OF THE ASSESSE E COMPANY, VAN OORD INDIA PRIVATE LIMITED, WHICH IS A COMPANY COVERED AS A TONNAGE COMPANY UNDER THE TONNAGE TAX SCHEME (TTS , FOR SHORT), AS CONTAINED IN CHAPTER XII-G OF THE INCOME TAX ACT, I.E., SECTIONS 115V TO 115VZC OF THE INCOME TAX ACT. IT HAS BEEN SUBMITTED ON BEHALF OF THE ASSESSEE, THAT GROUND NO .2 PINPOINTS THIS GRIEVANCE. 5. FACTS FIRST. THE ASSESSEE IS AN INDIAN COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS, DURING THE YEAR, AS IN THE EARLIER YEARS, INTER -ALIA, ENGAGED IN IT(TP)A NO.720/MUM/2015 PAGE 6 OF 29 THE BUSINESS OF EXECUTING DREDGING CONTRACTS IN IND IA, INVOLVING CAPITAL & MAINTENANCE DREDGING & OTHER SURVEY AND D REDGING RELATED ACTIVITIES. IT IS A WHOLLY OWNED SUBSIDIAR Y OF VAN OORD DREDGING AND MARINE CONTRACTORS BV, WHICH IS INCORP ORATED IN THE NETHERLANDS. FOR ITS DREDGING AND DREDGING-RELA TED ACTIVITIES IN INDIA, THE ASSESSEE HAS SET UP A PROJECT OFFICE IN INDIA. FOR CARRYING OUT THE DREDGING WORK, THE ASSESSEE CHARTE R HIRES DREDGERS FROM ITS OVERSEAS ASSOCIATED ENTERPRISE (A E) ON PAYMENT OF CHARTER HIRE/ LEASE CHARGES. THE ASSESSEE IS REG ISTERED AS A TONNAGE TAX COMPANY UNDER THE TONNAGE TAX SCHEME (T TS) AS PROVIDED UNDER CHAPTER XII-G OF THE ACT. AS PER TH E PROVISIONS OF TTS, THE INCOME DERIVED FROM OPERATING QUALIFYING S HIPS WOULD BE TREATED AS SHIPPING INCOME AND WOULD BE TAXABLE AS PER THE COMPUTATION MECHANISM PROVIDED THEREIN. THE ASSESS EE OFFERED INCOME UNDER THE HEAD 'PROFITS AND GAINS FROM BUSIN ESS AND PROFESSION', OF RS.6,43,439/-, AS COMPUTED UNDER CH APTER XIIG OF THE INCOME TAX ACT, 1961 (I.E. TONNAGE TAX SCHEME). AN ADJUSTMENT WAS PROPOSED BY THE TRANSFER PRICING OFF ICER (TPO') AND CONFIRMED BY THE DISPUTE RESOLUTION PANEL ('DRP ') WITH RESPECT TO RS.34,49,00,936/-, BEING REIMBURSEMENT O F HEAD OFFICE ('HO') EXPENSES MADE BY THE ASSESSEE TO VAN OORD DREDGING AND MARINE CONTRACTORS BV [ASSESSEE'S HOLD ING COMPANY AND AS SUCH, ITS ASSOCIATED ENTERPRISE ('AE ')]. THE TPO AND DRP HAVE HELD THAT SINCE THE ASSESSEE HAS NOT S UBMITTED SUFFICIENT EVIDENCE TO DEMONSTRATE BENEFIT, 50% OF THE ABOVE MENTIONED EXPENSES ARE REGARDED EXCESSIVE. THEREFOR E, AN UPWARD ADJUSTMENT OF RS.17,24,50,468/- WAS MADE TO THE RETURNED BUSINESS INCOME OF RS.6,43,439/- AND, AS A CONSEQUENCE, RS.17,30,93,907/- WAS BROUGHT TO TAX A S BUSINESS INCOME. IT(TP)A NO.720/MUM/2015 PAGE 7 OF 29 6. ON PERUSAL OF THE RECORDS, IT WAS SEEN BY THE ASSES SING OFFICER THAT THE ASSESSEE COMPANY HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE(S) (AE) , AMOUNTING TO MORE THAN RS.15 CRORES. HENCE, THE MATTER WAS REFER RED TO THE TRANSFER PPRICING OFFICER (TPO) FOR DETERMINATION O F ARM'S LENGTH PRICE (ALP) IN RELATION TO THE INTERNATIONAL TRANSA CTIONS. THE TPO-II(6), MUMBAI, BY HIS ORDER DATED 13/01/14, MAD E ADJUSTMENT OF RS.17,24,50,468/- TOWARDS ALP OF HEAD OFFICE EXPENSES. THE ASSESSEE COMPANY WAS TO SHOW CAUSE AS TO WHY AN ADJUSTMENT SHOULD NOT BE MADE TO THE ARM'S LENGT H OF HEAD OFFICE EXPENSES, AMOUNTING TO RS.17,24,50,468/- AS PER THE ORDER OF TPO-II(6), MUMBAI, BY HIS ORDER DATED 13/01/14. THE MAIN CONTENTION OF THE ASSESSEE COMPANY WAS THAT THE PRO VISIONS OF TRANSFER PRICING REGULATIONS DO NOT APPLY TO THE CO MPANIES, WHOSE INCOME IS TAXABLE UNDER THE TONNAGE TAX SCHEME, AND HENCE, THE ADJUSTMENT/ENHANCEMENT OF INCOME MADE IN THE TR ANSFER PRICING ORDER WOULD NOT HAVE ANY EFFECT ON THE TAXA BLE INCOME OF THE ASSESSEE. 7. THE ASSESSING OFFICER HELD THE TRANSFER PRICING PROVISIONS OF THE ACT TO BE APPLICABLE TO THE CASE OF THE ASSESSEE, ON THE FOLLOWING OBSERVATIONS: I. THE TRANSFER PRICING OFFICER IS A SPECIALIZED P ERSON FOR DETERMINING ARMS LENGTH PRICE WITH REGARD TO INTER NATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES. HIS ORDE R IS ALMOST BINDING ON THE ASSESSING OFFICER, IN VIEW OF THE WO RD SHALL USED IN SECTION 92CA(4), WHICH IS REPRODUCED BELOW: 'ON RECEIPT OF THE ORDER UNDER SUB-SECTION (3), THE ASSESSING OFFICER SHALL PROCEED TO COMPUTE THE TOTAL INCOME O F THE ASSESSEE UNDER SUBSECTION (4) OF SECTION 92C IN CONFORMITY W ITH THE ARM'S LENGTH PRICE AS SO DETERMINED BY THE TRANSFER PRICI NG OFFICER.' IT(TP)A NO.720/MUM/2015 PAGE 8 OF 29 THE TRANSFER PRICING OFFICER VIDE ORDER U/S. 92CA( 3) OF THE INCOME-TAX ACT, 1961, DATED 13/01/14 HAS HELD THAT ADJUSTMENTS AGGREGATING TO RS.17,24,50,468/- IS MADE AFTER CONS IDERING ALL THE SUBMISSIONS OF THE ASSESSEE. THE CLAIM OF THE ASSESSEE IS THAT SINCE IT IS COVE RED BY PROVISIONS OF TONNAGE TAX SCHEME UNDER CHAPTER XLI-G OF THE IN COME-TAX ACT, 1961, NO ADJUSTMENT CAN BE MADE TO ITS INCOME. IT IS CLAIMED THAT PROVISIONS OF SECTIONS 28 TO 43C ARE NOT APPLI CABLE. THESE SUBMISSIONS HAVE BEEN CONSIDERED. THE INDIAN TRANSF ER PRICING REGULATIONS HAVE BEEN BROUGHT INTO THE STATUTE, TO PREVENT THE EROSION OF THE TAX BASE OF THE COUNTRY. BUT IN IMPL EMENTING THE PROVISIONS, IT IS NOT THE ENCUMBRANCE OF THE TPO/AO TO PROVE THE SAME. FURTHER, IT IS NOT THE CASE OF THE ASSESSEE T HAT IT HAS NOT UNDERTAKEN ANY INTERNATIONAL TRANSACTIONS WHICH FAL L WITHIN THE MEANING OF SECTION 92B OF THE ACT OR IT IS NOT THE CASE THAT THE TP REGULATIONS OF INDIA ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE, AS ASSESSEE ITSELF HAS FILED THE AUDIT REPORT IN FO RM 3CEB AND FURTHER HAS ALSO UNDERTAKEN BENCHMARKING PROCESS AN D HAVING REGARD TO THE DETAILS MENTIONED IN ITS TP REPORT, H AS ARRIVED AT THE CONCLUSION THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARM'S LENGTH IF IT WAS THE CONTENTION OF THE ASSESSEE THAT THE PROV ISIONS OF THE TP DO NOT APPLY IN THE CASE OF THE ASSESSEE, THEN IT S HOULD NOT HAVE ITSELF FILED THE AUDIT REPORT IN FORM 3CEB OR SHOUL D NOT HAVE UNDERTAKEN TP STUDY TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS. WHEN THE FACTS OF THE CASE ARE SUCH THAT THE PROVIS IONS OF THE TP REGULATIONS OF INDIA ARE APPLICABLE TO THE CASE OF THE ASSESSEE, AND THE NORMAL LITERAL INTERPRETATION OF THE REGULA TION ARE UNAMBIGUOUS AND CLEAR, THEN THERE IS NO NEED TO GO INTO THE INTENTION OF THE REGULATIONS OR PROVING THE INTENT OF THE ASSESSEE, BEHIND ITS TRANSFER PRICES OF SERVICES. THE ASSESSEE HAS RAISED THE CONTENTION THAT IT IS COVERED UNDER THE TONNAGE TAX SCHEME VIDE CHAPTER XLL-G AND THAT THE SECTION II5VA SPECIFICALLY PROVIDES THAT NOTWITHSTANDING AN YTHING TO THE CONTRARY CONTAINED IN THE SECTION 28 TO 43C AND ACC ORDINGLY THE ADJUSTMENT OF RS.17,24,50,468/- TO ITS TAXABLE INCO ME SHOULD NOT BE MADE UNDER THE PROVISIONS OF TRANSFER PRICING. I N THIS REGARD, IT IS PERTINENT TO MENTION HERE THAT THIS SECTION 115V A BEGIN WITH A NON-OBSTANTE CLAUSE WHICH SAYS NOTWITHSTANDING ANYT HING TO THE IT(TP)A NO.720/MUM/2015 PAGE 9 OF 29 CONTRARY CONTAINED IN SECTION 28 TO 43C.....'. THIS MEANS THAT PROVISIONS BEGINNING FROM 28 AND ENDING AT 43C ARE NOT APPLICABLE SO FAR IT APPLIES TO SHIPPING INDUSTRY WHICH IS TO BE GOVERNED, BY TONNAGE TAX SCHEME. WHEREAS, THE TRANSFER PRICING P ROVISIONS BEGIN FROM SECTION 92 AND END WITH 92F. THEY ARE CO NTAINED IN CHAPTER X IN THE SPECIAL PROVISIONS RELATING TO AVO IDANCE OF TAX. AS SUCH, IT IS NOT CORRECT TO INTERPRET THAT THE SCHEM E OF TONNAGE TAX WILL OVERRIDE THE PROVISIONS OF SECTION 92 TO 90 2F THE FACT THAT THEY ARE SPECIAL PROVISIONS (TRANSFER PRICING) PUTS THEM ON AN ELEVATED POSITION THAN OTHER GENERAL PROVISIONS. 8. THE ASSESSING OFFICER, THUS, PROPOSED TO ADD BACK T HE AMOUNT OF RS.17,24,50,468/- TO THE TOTAL INCOME OF THE ASSESSEE, AS ALP OF THE INTERNATIONAL TRANSACTIONS. 9. THE ASSESSEE FILED AN OBJECTION AGAINST THE TRANSFE R PRICING ADJUSTMENT OF RS.17,24,50,468/- BEFORE THE DISPUTE RESOLUTION PANEL (DRP)-II, MUMBAI. THE DISPUTE RES OLUTION PANEL-II, VIDE ITS ORDER DATED 8/12/2014, DISMISSED THE OBJECTION OF THE ASSESSEE AGAINST THE TRANSFER PRICING ADJUST MENT OF RS.17,24,50,468/-. THE DRP-II OBSERVED AS FOLLOWS: 6.2 DISCUSSION AND DIRECTIONS OF DRP:- 6.2.1 THE CONTENTIONS RAISED BY THE ASSESSEE HAVE BEEN CONSIDERED. AT THE OUTSET, WE WOULD LIKE TO POINT O UT THERE IS NO EXCLUSION PROVIDED IN TRANSFER PRICING PROVISIONS T O THE EFFECT THAT THE TRANSFER PRICING PROVISIONS WOULD NOT APPLY TO COMPANIES WHOSE INCOME IS COMPUTED UNDER TONNAGE TAX SCHEME. HAVING SAID THAT, WE NOW DEAL, WITH THE CONTENTIONS RAISED BY THE ASSESSEE THAT TRANSFER PRICING PROVISIONS WOULD NOT APPLY TO THE ASSESSEE TO THE EXTENT OF THE OPERATIONS CARRIED TH ROUGH OPERATING QUALIFYING SHIPS AS HEREUNDER: WITH REGARD TO ASSESSEES CONTENTION THAT SINCE TH E PROVISIONS OF TTS OVERRIDE THE PROVISIONS OF SECTION 28 TO SECTIO N 43C, THE TRANSFER PRICING PROVISIONS WOULD NOT GET ATTRACTED , IT IS NOTED THAT, TP PROVISIONS ARE APPLICABLE TO COMPUTATION O F INCOME UNDER IT(TP)A NO.720/MUM/2015 PAGE 10 OF 29 SECTION 28 TO 43C, WHAT COMES IN PLACE OF SECTION 2 8 TO 43C IS SECTION 115VA, HENCE TRANSFER PRICING WOULD BE EQUA LLY APPLICABLE WHERE INCOME IS COMPUTED IN ACCORDANCE WITH PROVISI ONS OF SECTION 115VA. TO PUT IT IN OTHER WORDS, TRANSFER P RICING ADJUSTMENTS ARE OVER AND ABOVE THE ADDITIONS MADE U NDER SECTION 28 TO 43C. IN THE SAME WAY, TRANSFER PRICING ADJUS TMENTS WOULD BE OVER AND ABOVE THE INCOME COMPUTED UNDER THE TTS .' 6.2.2. WITH RESPECT TO ASSESSEE'S CONTENTION, THAT SINCE THE INCOME OF TONNAGE TAX COMPANY IS TAXED ON THE BASIS OF TONNAGE CAPACITY AND THE NUMBER OF DAYS OF OPERATION, THE A CTUAL INCOME EARNED WOULD NOT BE CHARGEABLE TO TAX, IT IS STATED THAT TTS DOES NOT TAKE INTO CONSIDERATION THE EFFECTS OF INTERNAT IONAL TRANSACTIONS BETWEEN THE ASSESSEE AND ITS AES ON ITS INCOME. TO MITIGATE THIS PROVISIONS OF COMPUTING INCOME FROM INTERNATIONAL T RANSACTIONS HAVE BEEN PROVIDED IN THE ACT. IN FACT, THE HEADING OF SECTION 92(1) READS AS- COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTI ON HAVING REGARD TO ARM'S LENGTH PRICE' THIS BRINGS TO THE FORE THAT THESE PROVISIONS ARE D ISTINCT, SEPARATE AND OVER AND ABOVE THE PROVISIONS OF COMPU TATION OF INCOME UNDER SECTION 28 TO 43C OR EVEN TTS. 6.2.3 NOW WITH REGARD TO ASSESSEES ARGUMENT THAT SINCE THE INCOME ARISING TO THE ASSESSEE IS NOT AS A RESULT O F INTERNATIONAL TRANSACTION BUT AS A RESULT OF COMPUTATION PROVIDED UNDER TTS, THE PROVISIONS OF SECTION 92(1) WOULD NOT APPLY TO THE APPLICANT, IT IS TO BE STATED THAT IT IS NOT ONLY WHEN THERE ARIS ES INCOME FROM INTERNATIONAL TRANSACTION THAT TRANSFER PRICING PRO VISIONS GET APPLIED, EVEN IN CASES OF EXPENSES, BENEFIT, SERVIC E, FACILITY OR EVEN BORROWING AND LENDING, ETC., THE TRANSFER PRIC ING PROVISIONS GET ATTRACTED, WHETHER THERE ARISES INCOME FROM IT WHICH, REQUIRES TO BE ADJUSTED DEPENDS ON FACTS OF EACH CASE. THUS EVEN IN CASES WHERE APPARENTLY THERE ARISES NO INCOME, THE APPLIC ABILITY OF TRANSFER PRICING PROVISIONS MAY BE CALLED FOR TTS P ROVISIONS ARE NARROW AND LIMITED TO FEW FACTORS WHEREAS TRANSFER PRICING PROVISIONS TAKES INTO CONSIDERATION WIDER AND BROAD ER ASPECTS. VERIFICATION OF INTERNATIONAL TRANSACTIONS BETWEEN ASSESSEE AND ITS ASSOCIATED ENTERPRISE MAY LEAD TO FINDING OF INCOME FROM FACTORS IT(TP)A NO.720/MUM/2015 PAGE 11 OF 29 WHICH WERE NOT TAKEN INTO CONSIDERATION WHILE ARRIV ING AT INCOME UNDER TTS. 10. THE ASSESSING OFFICER PASSED A FINAL ASSESSMENT ORD ER, DATED 29/12/2014, I.E., THE ORDER UNDER APPEAL. IN PARA 3.3.5, AT PAGE 5 THEREOF, OBSERVING THAT THE DIRECTIONS OF TH E DRP ARE BINDING ON THE ASSESSING OFFICER, THE TP ADJUSTMENT OF RS.17,24,50,468/-, AS PROPOSED IN THE DRAFT ASSESSM ENT ORDER (SUPRA) DATED 5/3/2014, WAS MADE TO THE RETURNED IN COME OF THE ASSESSEE. 11. CHALLENGING THE IMPUGNED ORDER, THE LD. A.R. OF THE ASSESSEE HAS, AT THE OUTSET, SUBMITTED THAT IF THE TRANSFER PRICING PROVISIONS DO NOT APPLY TO THE INCOME COMPUTED UNDE R THE TONNAGE TAX SCHEME (CHAPTER XIIG), THE ADJUSTMENT M ADE BY THE TPO AND DRP IS RENDERED UNLAWFUL; THAT THIS ISSUE C AME UP FOR CONSIDERATION THE FIRST TIME BEFORE THE ITAT IN ASS ESSMENT YEAR 2007-08 AND THE MUMBAI J BENCH OF THE ITAT, VIDE ORDER DATED 22/5/2019 IN ITA NO.7228/MUM/2012 (COPY PLACED ON R ECORD), HELD THAT THE TRANSFER PRICING PROVISIONS WILL NOT BE APPLICABLE TO THE INCOME FROM OPERATION OF QUALIFYING SHIPS; THAT THE SAME ISSUE ONCE AGAIN CAME UP FOR CONSIDERATION BEFORE T HE MUMBAI BENCHES OF THE TRIBUNAL, FOR ASSESSMENT YEAR 2011-1 2, WHEREIN ALSO, THE TPO SOUGHT TO MAKE TRANSFER PRICING ('TP' ) ADJUSTMENT TO THE HEAD OFFICE EXPENSES, HOWEVER, THE ITAT, VID E ORDER (COPY FILED) DATED 21/6/2019 IN ITA NO.10/MUM/2018, FOLLO WING ITS SAID EARLIER ORDER FOR A.Y. 2007-08, DELETED THE AD JUSTMENT, REITERATING THAT TP PROVISIONS DO NOT APPLY; THAT, THEREFORE, FOLLOWING THE VIEW TAKEN BY THE ITAT IN THE ABOVE C ASES, GROUND NO. 2 BE DECIDED IN FAVOUR OF THE ASSESSEE AND CONS EQUENTLY THE IT(TP)A NO.720/MUM/2015 PAGE 12 OF 29 TP ADDITION OF RS.17,24,50,468/- FOR THE YEAR UNDER CONSIDERATION, BE DELETED. 12. THE LD. D.R., ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE ASSESSMENT ORDER. IT HAS BEEN CONT ENDED THAT AS RIGHTLY HELD BY THE ASSESSING OFFICER, THE TPO IS A SPECIALIZED PERSON FOR DETERMINING THE ARMS LENGTH PRICE WITH REGARD TO THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRI SES AND HIS ORDER IS ALMOST BINDING ON THE ASSESSING OFFICER; T HAT THE TPO, IN HIS ORDER DATED 13/1/2014, HAS HELD THAT IN ITS TP STUDY REPORT, IT WAS STATED THAT SINCE THE ASSESSEE IS A RESIDENT , AND IT WOULD BE ENTERING INTO INTERNATIONAL TRANSACTIONS WITH IT S AES, EACH OF WHICH IS A NON-RESIDENT FOR INDIAN TAX PURPOSES, TH E INDIAN TRANSFER PRICING REGULATIONS WOULD BE APPLICABLE TO THE TRANSACTIONS TO BE UNDERTAKEN BETWEEN THE ASSESSEE AND ITS AES; THAT ADMITTEDLY, THE ASSESSEE HAS ENTERED INTO INTE RNATIONAL TRANSACTIONS AS DEFINED IN SECTION 92B OF THE INCOM E TAX ACT AND HENCE THE TRANSFER PRICING PROVISIONS WOULD BE APPL ICABLE AND THE ALP OF THE INTERNATIONAL TRANSACTIONS HAS TO BE DET ERMINED; THAT THE INDIAN TRANSFER PRICING REGULATIONS HAVE BEEN B ROUGHT INTO THE STATUTE TO PREVENT THE EROSION OF THE TAX BASE OF THE COUNTRY, BUT IN IMPLEMENTING THE PROVISIONS, IT IS NOT THE E NCUMBRANCE OF THE TPO/AO TO PROVE THE SAME; THAT FURTHER, IT IS N OT THE CASE OF THE ASSESSEE THAT IT HAS NOT UNDERTAKEN ANY INTERNA TIONAL TRANSACTIONS, WHICH FALL WITHIN THE MEANING OF SECT ION 92B OF THE ACT OR IT IS NOT THE CASE THAT THE TP REGULATIONS O F INDIA ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE, AS THE ASSE SSEE ITSELF HAS FILED THE AUDIT REPORT IN FORM 3CEB AND FURTHER HAS ALSO UNDERTAKEN BENCHMARKING PROCESS AND HAVING REGARD T O THE DETAILS MENTIONED IN ITS TP REPORT, HAS ARRIVED AT THE CONCLUSION THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARM'S LE NGTH; THAT IF IT IT(TP)A NO.720/MUM/2015 PAGE 13 OF 29 WAS THE CONTENTION OF THE ASSESSEE THAT THE PROVISI ONS OF THE T.P. DO NOT APPLY IN THE CASE OF THE ASSESSEE, THEN IT S HOULD NOT HAVE ITSELF FILED THE AUDIT REPORT IN FORM 3CEB OR SHOUL D NOT HAVE UNDERTAKEN T.P. STUDY TO BENCHMARK ITS INTERNATIONA L TRANSACTIONS; THAT WHEN THE FACTS OF THE CASE ARE S UCH THAT THE PROVISIONS OF THE T.P. REGULATIONS OF INDIA ARE APP LICABLE TO THE CASE OF THE ASSESSEE, AND THE NORMAL LITERAL INTERP RETATION OF THE REGULATION ARE UNAMBIGUOUS AND CLEAR, THEN THERE IS NO NEED TO GO INTO THE INTENTION OF THE REGULATIONS OR PROVING THE INTENT OF THE ASSESSEE, BEHIND ITS TRANSFER PRICES OF SERVICE S; THAT THE ASSESSEE HAS RAISED THE CONTENTION THAT IT IS COVER ED UNDER THE TONNAGE TAX SCHEME VIDE CHAPTER XII-G, AND THAT SEC TION 115VA SPECIFICALLY PROVIDES THAT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE SECTION 28 TO 43C, AND AC CORDINGLY THE ADJUSTMENT OF RS.17,24,50,468/- TO ITS TAXABLE INCO ME SHOULD NOT BE MADE UNDER THE PROVISIONS OF TRANSFER PRICIN G; THAT SECTION 115VA OF THE ACT BEGINS WITH A NON-OBSTANTE CLAUSE, WHICH SAYS 'NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 28 TO 43C..'; THAT THIS MEANS THAT THE PROVISIONS BEGINNING FROM 28 AND ENDING AT 43C ARE NOT APPLICABLE SO FAR IT APPLIES TO SHIPPING INDUSTRY WHICH IS TO BE GOVERNED BY THE TO NNAGE TAX SCHEME, WHEREAS, THE TRANSFER PRICING PROVISIONS BE GIN FROM SECTION 92 AND END WITH 92F; THAT THEY ARE CONTAINE D IN CHAPTER X OF THE ACT IN THE SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX; AND THAT AS SUCH, IT IS NOT CORRECT TO INTERPRET TH AT THE SCHEME OF TONNAGE TAX WILL OVERRIDE THE PROVISIONS OF SECTION 92 TO 92F. 13. APROPOS THE TRIBUNAL ORDERS (SUPRA) IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEARS 2007-08 AND 2011-12, IT HAS NOT BEEN DISPUTED THAT THESE ORDERS WERE PASSED IN FACT S AND CIRCUMSTANCES SIMILAR TO THOSE PRESENTLY BEFORE US. THESE ORDERS IT(TP)A NO.720/MUM/2015 PAGE 14 OF 29 HAVE NOT BEEN SHOWN TO HAVE BEEN UPSET ON APPEAL OR OTHERWISE, OR EVEN STAYED PENDENTE LITE. 14. HEARD. THE ASSESSING OFFICER HAS OBSERVED THAT THE ORDER OF THE TPO IS ALMOST BINDING ON THE ASSESSI NG OFFICER, AS IT HAS BEEN MANDATED IN SECTION 92C(4) OF THE ACT THAT THE ASSESSING OFFICER SHALL COMPUTE THE TOTAL INCOME OF THE ASSESSEE IN CONFORMITY WITH THE ALP DETERMINED BY THE TPO. THE ASSESSEE, PER CONTRA, HAS MAINTAINED ALL THROUGH, T HAT VOIPL, THE ASSESSEE, IS A COMPANY REGISTERED UNDER THE TTS OF THE ACT; THAT IT IS A PRESUMPTIVE BASIS OF TAXATION AND THE INCOM E OF THE COMPANY ARISING FROM THE OPERATIONS OF QUALIFYING S HIPS (WHICH, INTER ALIA, INCLUDES DREDGERS) IS TO BE COMPUTED ON A DEEMED TONNAGE BASIS; THAT THE ENTIRE COMPUTATION OF THE T ONNAGE INCOME DEPENDS ON THE TONNAGE CAPACITY OF QUALIFYING SHIPS AND NUMBER OF DAYS THEY HAVE BEEN OPERATED; THAT ACCORDINGLY, THE INCOME OF A TONNAGE TAX COMPANY DEPENDS ON THE TONNAGE CAPACI TY OF THE QUALIFYING SHIPS AND THE NUMBER OF DAYS FOR WHICH T HEY HAVE BEEN OPERATED, RATHER THAN THE INCOME GENERATED BY THE QUALIFYING SHIPS; THAT AS PER THE PROVISIONS OF THE TTS, ONCE THE TONNAGE INCOME OF THE COMPANY IS COMPUTED, THE SAME WOULD BE PRESUMED TO BE THE PROFITS AND GAINS OF BUSINESS; T HAT ACTUAL RECEIPT/ REVENUE EARNED AND EXPENSES INCURRED ARE N OT TAKEN INTO CONSIDERATION FOR THE PURPOSE OF DETERMINING T HE INCOME OF THE COMPANY.; THAT THE TTS PROVIDES THAT IN CASE TH E QUALIFYING COMPANY IS GENERATING LOSSES BY OPERATING QUALIFYIN G SHIPS, THEN SUCH LOSSES HAVE TO BE IGNORED FOR THE PURPOSE OF C OMPUTATION OF TONNAGE INCOME; THAT ALL THE EXPENSES, DEDUCTION, A LLOWANCES OR TAX INCENTIVES ARE DEEMED TO BE ALLOWED WHILE COMPU TING THE TONNAGE INCOME OF A QUALIFYING COMPANY BY OPERATING QUALIFYING SHIPS; THAT SINCE THE TAX IS CHARGED ON DEEMED INCO ME ON A IT(TP)A NO.720/MUM/2015 PAGE 15 OF 29 PRESUMPTIVE BASIS, THE INCOME GENERATED BY OPERATIN G QUALIFYING SHIPS SHOULD NOT BE CHARGEABLE TO TAX; THAT SECTION 115VA OF THE ACT, STARTS WITH 'NOTWITHSTANDING ANYTHING TO THE C ONTRARY CONTAINED IN SECTION 28 TO SECTION 43C.; THAT TTS , THUS, PROVIDES FOR COMPUTATION OF INCOME TO THE EXCLUSION OF SECTIONS 28 TO 43C OF THE ACT; THAT IN CASE OF COMPANIES WHI CH ARE INTO INTERNATIONAL TRANSACTIONS, THE AMOUNT OF ALLOWABLE EXPENSES IS REQUIRED TO BE DETERMINED UNDER THE ARM'S LENGTH PR INCIPLE UNDER THE MACHINERY PROVISIONS OF CHAPTER X (SECTIONS 92 TO 92F); THAT THE AMOUNT OF ALLOWABLE EXPENSES DETERMINED UNDER T HE ARM'S LENGTH PRINCIPLE UNDER SECTION 92 OF THE ACT WOULD, THUS, BE RELEVANT TO COMPUTE BUSINESS PROFITS AS PROVIDED FO R IN SECTIONS 28 TO 43C; THAT AS THE ASSESSEE HAS OPTED TO BE GOV ERNED BY TTS, THE PROVISIONS OF SECTION 115VA SHALL OVERRIDE SECT IONS 28 TO 43C, AND HENCE, THE INCOME HAS TO BE CALCULATED WITH REF ERENCE TO THE REGISTERED TONNAGE OF THE SHIPS AND NOT ON THE BASI S OF NET PROFITS; THAT CONSEQUENTLY, THE RELATED PARTY TRANS ACTIONS ARE NOT CONSIDERED FOR COMPUTING THE INCOME CHARGEABLE TO T AX AND, THEREFORE, THE ARM'S LENGTH PRICE DETERMINED UNDER THE TRANSFER PRICING PROVISIONS WOULD BE OF NO RELEVANCE; AND TH AT THEREFORE, THE DETERMINATION OF INCOME/ EXPENSE HAVING REGARD TO ARM'S LENGTH PRICE WOULD BE OF NO CONSEQUENCE, AS IT WOUL D NOT AFFECT THE COMPUTATION OF INCOME AND THE TAXABILITY OF TON NAGE INCOME OF THE ASSESSEE. IT WAS SUBMITTED THAT EVEN IF THE TRANSFER PRICING PROVISIONS WERE TO APPLY, THE PROVISIONS OF TTS DO NOT ALLOW THE ADJUSTMENT MADE BY THE TPO TO AFFECT THE COMPUTATIO N OF INCOME UNDER TTS; THAT FURTHER, ALL THE EXPENSES, DEDUCTIO N, ALLOWANCES (INCLUDING DEPRECIATION) OR TAX INCENTIVES ARE DEEM ED TO BE ALLOWED WHILE COMPUTING THE TONNAGE INCOME OF A COM PANY; THAT THE INCOME THUS COMPUTED SHALL BE DEEMED TO BE THE INCOME IT(TP)A NO.720/MUM/2015 PAGE 16 OF 29 CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION; AND THAT HENCE, IT CAN BE SAID THAT ALLOWANCE/DISALLOWANCE OF ANY EXPENDITURE DOES NOT HAVE ANY BEARING ON THE TAXABLE INCOME OF THE ASSESSEE, A TO NNAGE COMPANY UNDER TTS. 15. THE ASSESSING OFFICER HAS OBSERVED THAT SECTION 115 VA OF THE ACT BEGINS WITH A NON-OBSTANTE CLAUSE, WHICH SAYS 'NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 28 TO 43C..'; THAT THIS MEANS THAT THE PROVISIONS BEGINNING FROM SECTION 28 AND ENDING AT SECTION 43C ARE NOT A PPLICABLE SO FAR IT APPLIES TO THE SHIPPING INDUSTRY, WHICH IS T O BE GOVERNED BY THE TONNAGE TAX SCHEME, WHEREAS, THE TRANSFER PRICI NG PROVISIONS BEGIN FROM SECTION 92 AND END AT SECTION 92F; THAT THEY ARE CONTAINED IN CHAPTER X OF THE INCOME TAX A CT, IN THE SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX; AN D THAT AS SUCH, IT IS NOT CORRECT TO INTERPRET THAT THE SCHEME OF T ONNAGE TAX WILL OVERRIDE THE PROVISIONS OF SECTIONS 92 TO 92F OF TH E ACT. 16. THIS SEEMING IMBROGLIO STANDS ALREADY RESOLVED BY T HE TRIBUNAL IN ITS ORDER DATED 22/5/2019 PASSED IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08. IN PARAGRAPH S 7 & 8 THEREOF, IT HAS BEEN OBSERVED AS FOLLOWS: 7. SECTION 115VA OF THE ACT STARTS WITH 'NOTWITHST ANDING ANY TO THE CONTRARY CONTAINED IN SECTION 28 TO SECTION 43. ...'. TTS THUS, PROVIDES FOR COMPUTATION OF INCOME TO THE EXCLUSION OF SECTION 28 OF THE ACT. IN CASE OF AN ASSESSEE ENTERING INTO IN TERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISE, THE AMOUNT OF ALLOWABLE EXPENSES IS REQUIRED TO BE DETERMINED AS PER THE AR M'S LENGTH PRINCIPLE AS PER THE MACHINERY PROVISIONS OF CHAPTE R X (SECTION 92 TO SECTION 92F). THE AMOUNT OF ALLOWABLE EXPENSES D ETERMINED AS PER THE ARM'S LENGTH PRINCIPLE UNDER SECTION 92(1) OF THE ACT WOULD THUS BE RELEVANT TO COMPUTE BUSINESS PROFITS AS PROVIDED FOR IN SECTIONS 28 TO 43C OF THE ACT. THE ASSESSEE HAS OPTED TO BE IT(TP)A NO.720/MUM/2015 PAGE 17 OF 29 GOVERNED BY TTS, THUS THE PROVISIONS OF SECTION 115 VA WOULD OVERRIDE SECTION 28 TO SECTION 43C AND HENCE INCOME HAS TO BE CALCULATED WITH REFERENCE TO THE REGISTERED TONNAGE OF THE SHIPS AND NOT ON BASIS OF NET PROFITS DEPICTED IN THE FIN ANCIAL STATEMENTS OR AS PER THE PROFITS ADJUSTED IN TERMS OF CHAPTER- X. IN FACT, THE RELATED PARTY TRANSACTIONS ARE NOT RELEVANT FOR COM PUTING INCOME CHARGEABLE TO TAX AS PER CHAPTER-XII G OF THE ACT A ND THEREFORE, THE ARM'S LENGTH PRICE DETERMINED UNDER TRANSFER PR ICING PROVISIONS WOULD BE OF NO RELEVANCE. IN OTHER WORDS , DETERMINATION OF INCOME/ EXPENSE HAVING REGARD TO A RM'S LENGTH PRICE WOULD NOT ALTER THE COMPUTATION OF INCOME AND THE TAXABILITY OF TONNAGE INCOME OF AN ASSESSEE COVERED BY TTS. 8. FURTHER, TONNAGE INCOME IS BASED ON THE WEIGHT OF THE VESSEL AND NOT ON 'ARM'S LENGTH PRICE'. SECTION 92C PRESCR IBES METHODS FOR COMPUTATION OF ARM'S LENGTH PRICE. NONE OF THE METHODS PRESCRIBED CAN HAVE ANY APPLICATION TO COMPUTATION OF THE TONNAGE INCOME. IN THESE CIRCUMSTANCES, THE COMPUTA TION PROVISIONS OF CHAPTER X OF THE ACT WOULD FAIL AND T HEREFORE, APPLICATION OF CHAPTER X OF THE ACT IN SUCH CIRCUMS TANCES HAS TO FAIL. TONNAGE TAX PROVISIONS DETERMINE THE ENTIRE C HARGEABLE INCOME EARNED BY THE TONNAGE TAX VESSEL INCLUDING I NCOME FROM AN INTERNATIONAL TRANSACTION WITH ASSOCIATED ENTERP RISE. IN CONTRAST, TRANSFER PRICING PROVISIONS APPLY ONLY TO INTERNATIONAL TRANSACTIONS ENTERED WITH ASSOCIATED ENTERPRISES. I T IS NOT POSSIBLE TO SEGREGATE WHAT PORTION OF THE FINAL TAXABLE TONN AGE INCOME IS RELATABLE TO INTERNATIONAL TRANSACTIONS WITH ASSOCI ATED ENTERPRISES AND THEN APPLY TRANSFER PRICING PROVISIONS TO SUCH TRANSACTIONS, BECAUSE THE STATUTORILY PRESCRIBED FORMULA TO COMPU TE INCOME UNDER CHAPTER XII-G IS BASED ON THE WEIGHT OF THE Q UALIFYING SHIP AND NUMBER OF DAYS IT HAS BEEN HELD, IRRESPECTIVE O F WHETHER THE SHIP HAS BEEN USED FOR A RELATED PARTY OR AN UNRELA TED PARTY. ONCE AGAIN, THEREFORE, THE COMPUTATION PROVISIONS OF CHA PTER X OF THE ACT FAIL AND IN SUCH CIRCUMSTANCES, THE APPLICATION OF CHAPTER X OF THE ACT FAILS. 17. WHILE PASSING THAT ORDER, THE TRIBUNAL CONSIDERED, IN FAVOUR OF THE ASSESSEE, THE FOLLOWING DECISIONS: IT(TP)A NO.720/MUM/2015 PAGE 18 OF 29 I. SHREYAS SHIPPING LOGISTICS LTD. (MUMBAI ITAT-ITA 7406/MUM/2014). II. TAG OFFSHORE LTD. (MUMBAI ITAT-ITA NO. 710/MUM/2014 ). III. CGU LOGISTICS LTD. (MUMBAI ITAT-ITA NO. 1053/MUM/20 14). IV. TRANS ASIAN SHIPPING SERVICES PVT. LTD. (SUPREME CO URT - (CIVIL APPEAL NO. 5869 AND 5870 OF 2016). V. DRP ORDER DATED 8/12/2014, PASSED UNDER SECTION 144 C (5) OF THE ACT. 18. THE TRIBUNAL CONCLUDED BY OBSERVING, THUS: 14. TO SUM UP, TONNAGE TAX SCHEME, AS PER CHAPTER XIT-G OF THE ACT, IS A SEPARATE CODE BY ITSELF IN AS MUCH AS IT PROVIDES A SELF- CONTAINED CHANGING PROVISION AS WELL AS METHOD OF C OMPUTATION OF INCOME IN THE CHAPTER, AND, THE METHOD OF COMPUTATI ON OF INCOME UNDER TTS IS NOT DEPENDENT ON RECEIPT OR EXPENDITUR E OF THE ASSESSEE. UNDER TONNAGE TAX SCHEME, THE INCOME HAS TO BE COMP UTED AS PER THE METHOD PRESCRIBED IN SECTION 115VG. THE INCOME AS PER TONNAGE TAX SCHEME IS COMPUTED ON THE BASIS OF THE WEIGHT O F THE VESSEL AND NUMBER OF DAYS IT IS HELD, IRRESPECTIVE OF ITS REVE NUE REALIZATIONS AND THE EXPENDITURE INCURRED FOR THE PURPOSE OF THE BUS INESS. HENCE, NEITHER THE BUSINESS RECEIPTS NOR THE BUSINESS EXPE NDITURE OF THE ASSESSEE HAS ANY BEARING ON THE METHOD PRESCRIBED F OR COMPUTATION OF INCOME UNDER TTS AS PER SECTION 115VG. THE TONNAGE TAX SCHEME, IN THAT SENSE, IS A PRESUMPTIVE METHOD OF COMPUTATION OF TAXABLE INCOME WHICH IS NOT DEPENDENT ON ACTUAL RECEIPTS AND EXPEN DITURE OF THE ASSESSEE. 15. IN FACT, THE FALLACY IN THE APPROACH OF THE AS SESSING OFFICER CAN BE GAUGED FROM A PERUSAL OF THE COMPUTATION OF TAXABLE INCOME MADE IN PARA 11 OF THE ASSESSMENT ORDER. THE ASSESSING OFFI CER HAS SOUGHT TO ADD RS.5,40,887/- AS A SEPARATE LINE ITEM CAPTIONED AS 'PROPOSED ADJUSTMENT/ADDITION IN VIEW OF THE ABOVE DISCUSSION . THUS, AS PER THE PERCEPTION OF ASSESSING OFFICER, CHAPTER X OF THE A CT CREATES AN INDEPENDENT OR A SEPARATE CHARGE OF INCOME, AN ASPE CT WHICH IS CONTRARY TO THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE SERVICES PVT. LTD. VS. UOI ( 2015) 53 T AXMAN.COM 286 (BOM), WHEREIN AFTER REFERRING TO AN EARLIER JUDGME NT DATED 10TH OCTOBER, 2014 IN THE CASE OF THE SAME ASSESSEE, REP ORTED IN 50 IT(TP)A NO.720/MUM/2015 PAGE 19 OF 29 TAXMANN.COM 300 (BOM) INTER ALIA, HELD THAT CHAPTER X DOES NOT CONTAIN ANY CHARGING PROVISION BUT IS A MACHINERY PROVISION TO ARRIVE AT AN ARMS LENGTH PRICE OF A TRANSACTION BETWEEN ASSOCIA TED ENTERPRISES. 16. IN THE FINAL ANALYSIS, IT IS SEEN THAT IN THE INSTANT CASE, THE PROVISIONS OF CHAPTER X HAVE BEEN INVOKED TO ALTER AN EXPENDITURE, NAMELY THE MOBILIZATION AND DEMOBILIZATION CHARGES PAID FOR A QUALIFYING SHIP, AN ITEM WHICH HAS NO BEARING ON TH E INCOME AS COMPUTED UNDER CHAPTER XII- G AND ACCORDINGLY THE P ROVISIONS OF CHAPTER X HAVE NO APPLICATION IN COMPUTING THE INCO ME OF THE ASSESSEE CHARGEABLE TO TAX AS PER CHAPTER XII-G OF THE ACT. 17. IN VIEW OF THE AFORESAID DISCUSSION, IN OUR CO NSIDERED VIEW, THE TRANSFER PRICING REGULATIONS DO NOT APPLY TO THE AS SESSEE TO THE EXTENT OF OPERATIONS CARRIED OUT THROUGH OPERATING QUALIFY ING SHIPS WHERE THE INCOME IS TAXED UNDER TTS. 19. IN ITS ORDER DATED 21/6/2019, PASSED IN THE ASSESS EES CASE FOR ASSESSMENT YEAR 2011-12, THE TRIBUNAL HAS OBSERVED AS FOLLOWS: 4. .. UNDISPUTEDLY, THE ASSESSEE HAS OPTED FOR COMPUTATION OF ITS PROFIT DERIVED FROM THE SHIPPING BUSINESS UNDER TTS AS PROVIDED UNDER CHAPTER XII-G OF THE ACT. AS PER SECTION 115V E OF THE ACT TTS WILL APPLY ONLY IF AN OPTION TO THAT EFFECT IS MADE IN T ERMS OF SECTION 115VP OF THE ACT. IN THE FACTS OF THE PRESENT APPEAL, THE RE IS NO DISPUTE THAT ASSESSEE HAS EXERCISED ITS OPTION FOR COMPUTATION O F INCOME UNDER TTS IN TERMS OF SECTION 115VP OF THE ACT AND THE DEPART MENT HAS ALSO APPROVED IT. SECTION 115VF OF THE ACT PROVIDES THAT TONNAGE INCOME SHALL BE COMPUTED IN THE MANNER PROVIDED UNDER SECT ION 115VG OF THE ACT. SECTION 115VG LAYS DOWN THE MODE AND MANNER OF COMPUTING TONNAGE INCOME. A CAREFUL READING OF SECTION 115VG OF THE ACT WOULD MAKE IT CLEAR THAT THE MODE AND MANNER OF COMPUTING TONNAGE INCOME DOES NOT DEPEND UPON THE INCOME AND EXPENDITURE STA TED IN THE PROFIT AND LOSS ACCOUNT BUT IS ON THE BASIS OF NET TONNAGE OF THE QUALIFYING SHIP MULTIPLIED BY THE NUMBER OF DAYS SUCH SHIP WAS OPERATED DURING THE PREVIOUS YEAR. IT(TP)A NO.720/MUM/2015 PAGE 20 OF 29 20. IT THUS EMERGES, AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE, THAT SINCE THE ASSESSEE HAS OPTED TO BE G OVERNED BY TTS, THE PROVISIONS OF SECTION 115VA SHALL OVERRIDE SECTIONS 28 TO 43C AND HENCE, THE INCOME HAS TO BE CALCULATED WITH REFERENCE TO THE REGISTERED TONNAGE OF THE SHIPS AND NOT ON THE BASIS OF NET PROFITS; THAT CONSEQUENTLY, THE RELATED PARTY TRANS ACTIONS ARE NOT CONSIDERED FOR COMPUTING THE INCOME CHARGEABLE TO T AX, AND, THEREFORE, THE ARM'S LENGTH PRICE DETERMINED UNDER THE TRANSFER PRICING PROVISIONS WOULD BE OF NO RELEVANCE; THAT T HEREFORE, THE DETERMINATION OF INCOME/EXPENSE HAVING REGARD TO AR M'S LENGTH PRICE WOULD BE OF NO RELEVANCE, AS IT WOULD NOT AFF ECT THE COMPUTATION OF INCOME AND THE TAXABILITY OF TONNAGE INCOME OF THE ASSESSEE; AND THAT EVEN IF THE TRANSFER PRICING PROVISIONS WERE TO APPLY, THE PROVISIONS OF TTS DO NOT ALLOW THE AD JUSTMENT MADE BY THE TPO TO AFFECT THE COMPUTATION OF INCOME UNDE R TTS. THAT BEING SO, THE ADJUSTMENT MADE BY THE TPO WOULD NOT AFFECT THE INCOME OF THE ASSESSEE. THIS, MORE SO, BECAUSE THE FIRST PROVISO TO SECTION 92C(4) DOES NOT COVER THE PROVIS IONS OF CHAPTER XII-G OF THE ACT. 21. THE ASSESSING OFFICER HAS, THUS, GONE WRONG IN OBSERVING THAT HE WAS ALMOST BOUND BY THE TPOS D IRECTIONS, AND THAT THE TTS DOES NOT OVER RIGHT THE PROVISIONS OF CHAPTER X OF THE INCOME TAX ACT. HIS SELF-DOUBT RATHER SHOWS IN THE USAGE OF THE HIGHLIGHTED EXPRESSION EMPLOYED. 22. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT THE IN DIAN TRANSFER PRICING REGULATIONS HAVE BEEN BROUGHT INTO THE STATUTE TO PREVENT THE EROSION OF THE TAX BASE OF THE COUNT RY, BUT IN IMPLEMENTING THE PROVISIONS, IT IS NOT THE ENCUMBRA NCE OF THE TPO/AO TO PROVE THE SAME; THAT IT IS NOT THE CASE O F THE ASSESSEE THAT IT HAS NOT UNDERTAKEN ANY INTERNATIONAL TRANSA CTIONS WHICH IT(TP)A NO.720/MUM/2015 PAGE 21 OF 29 FALL WITHIN THE MEANING OF SECTION 92B OF THE ACT O R IT IS NOT THE CASE THAT THE T.P. REGULATIONS OF INDIA ARE NOT APP LICABLE IN THE CASE OF THE ASSESSEE, AS THE ASSESSEE ITSELF HAS FI LED THE AUDIT REPORT IN FORM 3CEB AND, FURTHER, HAS ALSO UNDERTAK EN THE BENCHMARKING PROCESS AND HAVING REGARD TO THE DETAI LS MENTIONED IN ITS TP REPORT, HAS ARRIVED AT THE CONC LUSION THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARM'S LENGTH; THA T IF IT WAS THE CONTENTION OF THE ASSESSEE THAT THE PROVISIONS OF T .P. DO NOT APPLY IN THE CASE OF THE ASSESSEE, THEN IT SHOULD NOT HAV E ITSELF FILED THE AUDIT REPORT IN FORM 3CEB, OR SHOULD NOT HAVE UNDER TAKEN THE T.P. STUDY TO BENCHMARK ITS INTERNATIONAL TRANSACTI ONS; AND THAT WHEN THE FACTS OF THE CASE ARE SUCH THAT THE PROVIS IONS OF THE T.P. REGULATIONS OF INDIA ARE APPLICABLE TO THE CASE OF THE ASSESSEE, AND THE NORMAL LITERAL INTERPRETATION OF THE REGULA TION ARE UNAMBIGUOUS AND CLEAR, THEN THERE IS NO NEED TO GO INTO THE INTENTION OF THE REGULATIONS OR PROVING THE INTENT OF THE ASSESSEE BEHIND ITS TRANSFER PRICES OF SERVICES. 23. NOW, ONCE CHAPTER X OF THE ACT IS, AS HELD HEREINAB OVE, OF NO RELEVANCE TO THE ASSESSEES CASE AND THE TP P ROVISIONS DO NOT APPLY, IT DOES NOT MAKE ANY DIFFERENCE, IF THE ASSESSEE ITSELF HAS FILED THE AUDIT REPORT IN FORM 3CEB AND FURTHER , HAS ALSO UNDERTAKEN THE BENCHMARKING PROCESS AND, HAVING REG ARD TO THE DETAILS MENTIONED IN ITS TP REPORT, HAS ARRIVED AT THE CONCLUSION THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARMS LE NGTH. THE ASSESSEE CANNOT, IN THE ABSENCE OF ANYTHING TO THE CONTRARY BROUGHT ON RECORD BY THE REVENUE, BE SAID TO BE INC ORRECT IN CONTENDING THAT THE AO/ DRP ERRED IN NOT APPRECIATI NG THE FACT THAT THE ASSESSEE HAS FILED THE ACCOUNTANTS REPORT IN FORM 3CEB UNDER SECTION 92E OF THE ACT OUT OF ABUNDANT CAUTIO N IN RESPECT OF THE TONNAGE TAX INCOME. THEREFORE, THE ASSESSIN G OFFICER HAS IT(TP)A NO.720/MUM/2015 PAGE 22 OF 29 ERRED IN MAKING THESE OBSERVATIONS ALSO AND THE ASS ESSMENT ORDER FAILS ON THIS COUNT TOO. IN FACT, NO REFEREN CE TO THE TPO OUGHT TO HAVE, AT ALL, BEEN MADE, IN THE FIRST INST ANCE ITSELF. 24. IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSEE IS CO RRECT IN CONTENDING THAT THE AO/DRP FAILED TO APPRECIATE THAT THE TRANSFER PRICING REGULATIONS DO NOT APPLY TO THE AS SESSEE, TO THE EXTENT OF OPERATIONS CARRIED OUT THROUGH OPERATING QUALIFYING SHIPS, SINCE THE ASSESSEE IS A COMPANY REGISTERED U NDER THE TONNAGE TAX SCHEME ('TTS') PROVIDED UNDER THE ACT. THE FACTS IN THE YEAR UNDER CONSIDERATION ARE NOT DIFFERENT FROM THOSE IN ASSESSMENT YEARS 2007-08 AND 2011-12, WHERE THE VER Y SAME ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. SO, WE SEE NO REASON AS TO WHY THE DECISION THIS YE AR BE NOT CONSISTENT THEREWITH. TOO, EVEN THE DRP, VIDE ITS ORDER DATED 8/12/2014, HAS HELD IN FAVOUR OF THE ASSESSEE QUA T HIS ISSUE, WHICH FACT WAS ALSO TAKEN COGNIZANCE OF BY THE TRIB UNAL. 25. OUR FINDINGS ON THIS ISSUE ARE SUMMED UP A SAVOIR: (A) SECTION 115VA OF THE INCOME TAX ACT, FORMING PART O F THE TTS (FOR WHICH, THE ASSESSEE HAS MADE OPTION) CONTAINED IN CHAPTER XII-G OF THE ACT, EXCLUDES THE OPERATION OF SECTIONS 28 TO 43C OF THE ACT PERTAINI NG TO THE COMPUTATION OF TOTAL INCOME UNDER CHAPTER IV OF THE ACT. (B) FOR COMPUTING TAXABLE INCOME UNDER CHAPTER XII-G OF THE ACT, RELATED PARTY TRANSACTIONS HAVE NO RELEVAN CE, WEIGHT AND LENGTH OF USER OF QUALIFYING SHIPS, RATH ER THAN THE NATURE OF PARTY FOR WHICH THE USER IS, OR ALP, OR INCOME, OR EXPENSES, BEING THE FORMULA PRESCRIBE D FOR COMPUTATION OF INCOME UNDER CHAPTER XII-G. IT(TP)A NO.720/MUM/2015 PAGE 23 OF 29 (C) CONSIDERATION OF THE TP PROVISIONS, ENCLOSING WITHI N THEM, THE ARMS LENGTH PRINCIPLE, UNDER CHAPTER X (SECTIONS 92 TO 92F) OF THE ACT ARE, A FORTIORI, NO T APPLICABLE TO THE TTS AND ALP DOES NOT AFFECT THE COMPUTATION AND TAXABILITY OF THE TONNAGE INCOME OF THE ASSESSEE. (D) COMPUTATION OF INCOME UNDER THE TTS IS, THUS, NOT IMPINGED UPON BY THE ADJUSTMENT MADE BY THE TPO. (E) INCOME COMPUTED UNDER THE TTS IS, BY VIRTUE OF SECTION 115VF, DEEMED TO BE THE PROFITS TAXABLE AS PROFITS & GAINS OF BUSINESS OR PROFESSION. (F) THE AMOUNT OF RS.17,24,50,468/-, WHICH REPRESENTS REIMBURSEMENT OF HEAD OFFICE EXPENSES BY THE ASSESSEE TO ITS HOLDING COMPANY AND AE, HAS WRONGLY BEEN ADDED, BY ALTERING THE EXPENDITURE, UNDER CHAPTER X, DESPITE THE INAPPLICABILITY OF THE CHAPT ER AND INSPITE OF THE FACT THAT CHAPTER X CONTAINS ONL Y MACHINERY PROVISIONS AND NO CHARGING PROVISIONS, SANS WHICH, IT IS TRITE, NO TAX CAN BE LEVIED. (G) NON-APPLICABILITY OF CHAPTER X DOES NOT GET ALTERED BY THE FACTUM OF THE ASSESSEE HAVING EITHER FILED AUDI T REPORT IN FORM 3CEB, OR UNDERTAKEN THE BENCHMARKING PROCESS AND CONCLUDING ITS INTERNATIONAL TRANSACTIONS TO BE AT ARMS LENGTH. (H) THE ISSUE STANDS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE ITS ORDERS IN THE ASSESSEES CASE FOR ASSESSMENT YEARS 2007-08 AND 2011-12. (I) THE DRP HAS ITSELF ACCEDED TO THIS LEGAL CLAIM OF T HE ASSESSEE. IT(TP)A NO.720/MUM/2015 PAGE 24 OF 29 26. THE ASSESSEES GRIEVANCE BY WAY OF GROUND NO.2 IS, THUS, ACCEPTED AND THE TP ADDITION OF RS.17,24,50,468/- I S DELETED. AS A CONSEQUENCE, GROUND NOS.3 TO 21 STAND RENDERED ME RELY ACADEMIC, REQUIRING NO ADJUDICATION. GROUND NO.1 I S GENERAL. 27. NOW, TURNING TO THE ADDITIONAL GROUND, FOR ADMISSIO N THEREOF, IT HAS BEEN CONTENDED BY THE LD. COUNSEL F OR THE ASSESSEE THAT THE ADDITIONAL GROUND COULD NOT BE RAISED EITH ER AT THE TIME OF FILING OF THE RETURN OF INCOME ON 15 TH OCTOBER, 2010, OR DURING PROCEEDINGS BEFORE THE LOWER AUTHORITIES (WHICH CUL MINATED IN PASSING OF THE FINAL ASSESSMENT ORDER ON 29 TH DECEMBER, 2014), BECAUSE DURING THAT PERIOD, THE LAW THAT TAX UNDER SECTION 115-O WAS A TAX ON THE DISTRIBUTED PROFITS OF THE COMPANY AND NOT ON DIVIDEND, AS LAID DOWN BY THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT, 328 ITR 281 (BOM.), VIDE JUDGMENT DATED 12 TH AUGUST, 2010; THAT IT WAS ONLY WHEN THE SUPREME COURT, ON 20 TH SEPTEMBER, 2017 IN THE CASE OF UNION OF INDIA VS. TATA TEA CO. LTD., 85 TAXMANN. COM 346 (SC), DECIDED THAT THE TAX UNDER SECTION 115-O IS A TAX O N DIVIDEND, THAT THE OCCASION TO RAISE THE ADDITIONAL GROUND AR OSE; THAT THE HON'BLE SUPREME COURT, IN THE AFORESAID CASE, WAS H EARING APPEALS CHALLENGING THE CONSTITUTIONAL VALIDITY OF SECTION 115-O; THAT THE CHALLENGE WAS THAT BY TAXING, UNDER SECTIO N 115-O, THE DISTRIBUTED PROFITS OF A COMPANY ENGAGED IN AGRICUL TURAL ACTIVITIES, THE CENTRAL GOVERNMENT SOUGHT TO LEVY T AX ON THE AGRICULTURAL INCOME EARNED BY THE COMPANY; THAT SIN CE THE TAXABILITY OF AGRICULTURAL INCOME FELL WITHIN THE S TATE LIST, THE CENTRAL GOVERNMENT DID NOT HAVE THE POWER TO TAX TH E SAME; THAT THE HON'BLE SUPREME COURT REJECTED THIS ARGUMENT BY HOLDING THAT THE TAX WAS NOT ON THE PROFITS/INCOME OF THE C OMPANIES, BUT ON THE DIVIDEND INCOME AND TAXING OF DIVIDEND INCOM E WAS WITHIN IT(TP)A NO.720/MUM/2015 PAGE 25 OF 29 THE PURVIEW OF ENTRY 82 OF THE LIST I, I.E., THE LI ST OF SUBJECTS FOR WHICH THE CENTRAL GOVERNMENT HAD THE POWER TO ENACT LAWS; THAT THE SAME VIEW, AS IN THE CASE OF UNION OF INDIA VS . TATA TEA CO. LTD. (SUPRA), WAS ALSO TAKEN BY THE HON'BLE SUPREM E COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT, 81 TAXMANN.COM 111; THAT THE ASSESSEE WAS UNDER A BONA FIDE BELIE F THAT IT WAS PREVENTED FROM RAISING THE AFORESAID ISSUE OWING TO THE LAW LAID DOWN AS PER THE JURISDICTIONAL HIGH COURT IN THE CA SE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (SUPRA); THAT THE REA SONABLENESS OF THE REASONS EXPLAINING ITS BELIEF OF INABILITY, IS TO BE LOOKED AT LIBERALLY, AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PRUTHVI BROKERS & SHAREHOLDERS, 23 TAX MANN.COM 23 (BOM.); AND THAT THEREFORE, THE ADDITIONAL GROUND M AY BE ADMITTED. 28. OPPOSING THE ADMISSION OF THE ADDITIONAL GROUND, TH E LD. D.R. HAS CONTENDED THAT SINCE THE ADDITIONAL GROUND RAISED DOES NOT ARISE FROM THE ORDERS OF THE LOWER AUTHORITIES, THE SAME SHOULD NOT BE ADMITTED; THAT ARTICLE 10(6) OF THE DTAA PROVIDES THAT IF THE NON-RESIDENT HAS A PERMANENT ESTABLISHM ENT IN INDIA AND IF THE DIVIDEND INCOME IS EFFECTIVELY CONNECTED WITH THE PE IN INDIA, THEN THE BENEFIT OF ARTICLE 10(2) IS NOT AVA ILABLE AND SINCE IN THE PRESENT CASE, THE FACT REGARDING THE EXISTEN CE OR NON- EXISTENCE OF THE PE IS NOT ON RECORD, THE ADDITIONA L GROUND IS NOT MAINTAINABLE; AND THAT THE PROCEDURE FOR MAKING A C LAIM, AS PROVIDED IN ARTICLE 10(3) OF INDO-NETHERLAND TREATY , IS ALSO NOT ON RECORD HEREIN. 29. INSOFAR AS REGARDS THE ARGUMENT OF THE LD. DR THAT SINCE THE ADDITIONAL GROUND RAISED DOES NOT ARISE FROM TH E ORDERS OF THE LOWER AUTHORITIES, THE SAME CANNOT BE ADMITTED, THI S ARGUMENT DESERVES TO BE REJECTED IN VIEW OF THE DECISIONS OF THE HON'BLE IT(TP)A NO.720/MUM/2015 PAGE 26 OF 29 SUPREME COURT IN THE CASES OF NATIONAL THERMAL POW ER CO. LTD. V. CIT, 229 ITR 383 (SC) AND JUTE CORPORATION OF INDIA LTD. VS. CIT, 187 ITR 688 (SC), AND THE FULL BENCH DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF AHMEDABAD ELECTRICITY CO. LTD. VS. CIT, 199 ITR 351 (BOM.). IN FACT, AS RIGHTLY SUBMITTED ON BEHALF OF THE ASSESSEE, THIS IS THE SE TTLED POSITION OF LAW, AS HAS BEEN HELD BY THE HON'BLE BOMBAY HIGH CO URT IN THE CASE OF ULTRATECH CEMENT LTD. VS. ACIT, 81 TAXMAN N.COM 74. IT REMAINS UNDISPUTED THAT THIS ISSUE COULD NOT BE RAI SED EITHER AT THE TIME OF FILING OF THE RETURN OF INCOME ON 15 TH OCTOBER, 2010, OR DURING PROCEEDINGS BEFORE THE LOWER AUTHORITIES (WHICH CULMINATED IN PASSING OF THE FINAL ASSESSMENT ORDER ON 29 TH DECEMBER, 2014), BECAUSE DURING THAT PERIOD, THE LA W AS LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MFG. CO. LTD. VS DCIT (SUPRA), HELD THE FILE D. IT IS ONLY BY VIRTUE OF THE SUPREME COURT ORDER DATED 20 TH SEPTEMBER, 2017 PASSED IN THE CASE OF UNION OF INDIA VS. TATA TEA CO. LTD. (SUPRA), THAT THE LAW NOW IS THAT THE TAX UNDER SEC TION 115-O IS A TAX ON DIVIDEND. THE IMPUGNED ORDER WAS PASSED BY THE ASSESSING OFFICER ON 29/12/2014, WHEN GODREJ & BOY CE MFG. CO. LTD. VS DCIT (SUPRA) WAS THE GOVERNING LAW. IT CA NNOT BE GAINSAID THAT IT IS A LEGAL ADAGE THAT THE HON'BLE SUPREME COURT DECLARES THE LAW AS IT ALWAYS WAS. THEREFORE, THE POSITION SETTLED BY THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. TATA TEA CO. LTD. (SUPRA), IS APPLICABLE, WITH FUL L FORCE, AS ON THE DATE OF PASSING OF THE JUDGMENT IN THAT CASE, I.E., ON 20/9/2017, AND IS DEEMED TO BE THE LAW AS IT WAS AS ON THE DAT E OF PASSING OF THE IMPUGNED ORDER, I.E., ON 5/12/2014. HENCE, IT IS THE SUPERVENING SUPREME COURT DECISION WHICH HAS PROMPT ED THE ASSESSEE TO RAISE THE ADDITIONAL GROUND. IT HAS NO T BEEN DISPUTED IT(TP)A NO.720/MUM/2015 PAGE 27 OF 29 THAT THE SUPREME COURT DECISION, ON FACTS, TO BE DE TERMINED, PERMITTING, ENTITLES THE ASSESSEE TO STAKE THE CLAI M MADE IN THE ADDITIONAL GROUND. SO, THE MERE FACT THAT THE ADDI TIONAL GROUND DOES NOT ARISE OUT OF THE IMPUGNED ORDER, IS IN NO WAY DETRIMENTAL TO THE REQUEST FOR ADMISSION OF THE ADD ITIONAL GROUND. 30. THE LD. D.R.S NEXT OBJECTION IS THAT IN THE PRESEN T CASE, THE FACTUM OF EXPENSES, OR OTHERWISE, OF PE IS NOT ON RECORD. WOULD THAT IT WERE SO! THE CONTENTION ON BEHALF OF THE ASSESSEE, THAT THE ASSESSEES HOLDING COMPANY HAS A PE IN THE FORM OF A PROJECT OFFICE IN INDIA IS ON THE RECORDS OF THE LO WER AUTHORITIES, REMAINS UNDISPUTED BEFORE US. THEREFORE, THE ARGUM ENT OF THE DR, THAT THE FACT REGARDING EXISTENCE OF THE PE OF VODMC BV IS NOT ON RECORD, IS FACTUALLY INCORRECT. FURTHER, IT ALSO REMAINS UNCHALLENGED THAT THE FACT THAT THE SHARES ARE NOT EFFECTIVELY CONNECTED TO THE PE, I.E., THE PROJECT OFFICE OF VO DMC BV, IS ALSO ON RECORD. BE THAT AS IT MAY, WHETHER THE PE EXIST S IN INDIA OR NOT, RIGHTLY, IS NOT RELEVANT TO DECIDE THE ADMISSI BILITY OF THE ADDITIONAL GROUND, AS THESE FACTS ARE REQUIRED FOR THE ADJUDICATION OF THE MERITS OF THE CLAIM MADE BY THE ASSESSEE, AND ARE NOT NECESSARY TO DECIDE THE ADMISSIBILITY OF TH E SAME. FURTHER, PROVING THE COMPLIANCE OF THE PROVISIONS O F ARTICLE 10(6) OF THE TREATY, BY WHICH ARTICLE, THE CLAIM OF THE A SSESSEE UNDER ARTICLE 10(2) CAN BE DENIED BY THE REVENUE, IS NOT NECESSARY TO DECIDE THE ADMISSIBILITY OF THE ADDITIONAL GROUND R AISED BY THE ASSESSEE. 31. WITH RESPECT TO THE SUBMISSION OF THE LD. DR THAT T HE PROCEDURE FOR MAKING A CLAIM, AS PRESCRIBED IN ARTI CLE 10(3) OF THE DTAA, IS NOT ON RECORD AND HENCE, IT REQUIRES FACTU AL INVESTIGATION, WE ARE OF THE VIEW THAT THE SAME DOE S NOT, IN ANY MANNER, RELATE TO THE ASSESSEE, OR VODMC BV, OR THE PROJECT IT(TP)A NO.720/MUM/2015 PAGE 28 OF 29 OFFICE, AND HENCE, IT CANNOT BE REGARDED AS A FACT THAT NEEDS TO BE EXAMINED FOR THE PURPOSES OF ADMISSION AND/OR ADJUD ICATION OF THE ASSESSEE'S CLAIM. IN ANY CASE, AS DWELT UPON H EREINABOVE, THE ASSESSEE WAS PREVENTED FROM RAISING THE ADDITIO NAL GROUND BEFORE THE LOWER AUTHORITIES, DUE TO A REASON BEYON D THE CONTROL OF THE ASSESSEE, AS CONSIDERED ABOVE. THIS FACT, B Y ITSELF, IS, IN OUR OPINION, SUFFICIENT TO ALLOW IT TO BE RAISED AT THIS STAGE. SO, EVEN IF, ARGUENDO, THE OBJECTIONS OF THE DEPARTMENT WERE TO BE ACCEDED TO, THE ASSESSEES REQUEST FOR ADMISSION OF THE ADDITIONAL GROUND MERITS ACCEPTANCE. 32. IN VIEW OF THE ABOVE, THE ADDITIONAL GROUND IS ADMI TTED. 33. ON THE MERITS OF THE ADDITIONAL GROUND RAISED BY TH E ASSESSEE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE DIVIDEND DISTRIBUTION TAX (DDT) UNDER SECTION 115-O OF THE INCOME TAX ACT, ON THE DIVIDENDS DECLARED AND PAID BY THE ASSESSEE, TO ITS FOREIGN SHAREHOLDER, VAN OORD DRED GING & MARINE CONTRACTORS BV., WHO IS A TAX RESIDENT OF THE NETHE RLANDS, IS IN EXCESS OF THE RATE PROVIDED UNDER ARTICLE 10 READ W ITH THE MOST FAVOURED NATION CLAUSE UNDER ARTICLE IV OF THE PROT OCOL TO THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA A ND THE NETHERLANDS. IN THIS REGARD, HE RELIED ON THE DECI SIONS OF THE HON'BLE SUPREME COURT IN THE CASES OF UNION OF IND IA VS. TATA TEA CO. LTD. (SC) (SUPRA) AND GODREJ & BOYCE MANUF ACTURING COMPANY LTD. VS. DCIT, (SC) (SUPRA), WHEREIN THE H ON'BLE APEX COURT HAS HELD THAT THE DIVIDEND DISTRIBUTION TAX U NDER SECTION 115-O OF THE ACT IS A TAX ON DIVIDEND INCOME PAID BY THE COMPANY. 34. THE LD. D.R., ON THE OTHER HAND, HAS SUBMITTED THAT ARTICLE 10(6) OF THE DTAA PROVIDES THAT IF THE NON- RESIDENT HAS A PERMANENT ESTABLISHMENT IN INDIA AND IF THE DIVIDEN D INCOME IS IT(TP)A NO.720/MUM/2015 PAGE 29 OF 29 EFFECTIVELY CONNECTED WITH THE PE IN INDIA, THEN TH E BENEFIT OF ARTICLE 10(2) IS NOT AVAILABLE; AND THAT AS PROVIDE D IN ARTICLE 10(3) OF THE DTAA, THE PROCEDURE FOR MAKING A CLAIM REQUI RES FACTUAL INVESTIGATION. 35. CONSIDERING THE ARGUMENTS OF THE PARTIES, WE SET AS IDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE SAME IN THE LIGHT OF THE JUDGMENTS OF THE HONBLE SUPREM E COURT IN THE CASES OF UNION OF INDIA VS. TATA TEA CO. LTD. (SU PRA) AND GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT (SUPRA ), AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSE E. THE ASSESSEE, NO DOUBT, SHALL COOPERATE IN THE FRESH PR OCEEDINGS BEFORE THE ASSESSING OFFICER. ALL PLEAS AVAILABLE U NDER THE LAW SHALL REMAIN SO AVAILABLE TO THE ASSESSEE. ORDERED ACCORDINGLY. 36. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11/11/2019. SD/ - SD - [ RAJESH KUMAR ] [ A. D. JAIN ] ACCOUNTANT MEMBER VICE PRESIDENT DATED: 11/11/2019 JJ:2310 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSISTANT REGISTRAR