VAN OORD INDIA P.LTD, MUMBAI V. ASST CIT CIR 5(3), MUMBAI

ITA 7228/MUM/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4883 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 07-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 05-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Business expenditure; International transaction; Revised return; Set aside
• Section: 92C; 143(3); 92E; 14A; 115JB; 250; 28; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 7228/MUM/2012 ASSESSMENT YEAR : 2007-08 VAN OORD INDIA PRIVATE LIMITED, 201, 2 ND FLOOR, CENTRAL PLAZA, 166, C.S.T. ROAD, MUMBAI [PAN : AAACH5430J] VS. ASSISTANT COMMISSIONER OF INCOME TAX - 5(3), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SOLI DASTUR SHRI. NISHANT THAKKAR MS. JASMIN AMALSADVALA RESPONDENT BY : SHRI. V. JUSTIN SMT. MALATHI SRIDHARAN SHRI. MANISH KUMAR SINGH DATE OF HEARING : 13-05-2019 DATE OF PRONOUNCEMEN T : 22-05-2019 O R D E R PER G.S. PANNU, VICE PRESIDENT: 1. THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)-15, MUMBAI DATED 08.10.2012, PERTAINING TO T HE ASSESSMENT YEAR 2007-08, WHICH IN TURN HAS ARISEN FROM THE ORD ER DATED 2 ITA NO. 7228/MUM/2012 03.11.2010 PASSED BY THE ASSESSING OFFICER, MUMBAI UNDER SECTION 143(3) R.W.S 144C(3) OF THE INCOME-TAX ACT, 1961 (I N SHORT 'THE ACT'). 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, VAN OORD INDIA PRIVATE LIMITED ('APPELLANT') CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) 1 5 ('CIT(A)') UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961 (THE 'ACT') ON 8 OC TOBER 2012 (RECEIVED ON 3 NOVEMBER 2012) IN RESPECT OF THE ORDER PASSED BY THE AS SISTANT COMMISSIONER OF INCOME-TAX - CIRCLE 5(3), MUMBAI ('AO') UNDER SECT ION 143(3) OF THE ACT, ON THE FOLLOWING GROUNDS WHICH ARE INDEPENDENT AND WITHO UT PREJUDICE TO EACH OTHER. GENERAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ADDITION OF RS 5,40 ,887 IN THE APPELLANT'S CASE. APPLICABILITY OF TRANSFER PRICING PROVISIONS TO COMPANI ES COVERED UNDER THE TONNAGE TAX SCHEME 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE TRANSFER PRICING REGULATIONS DOES NOT APPLY TO THE EXTENT OF OPERATIONS CARRIED OUT THROUGH OPERATIN G QUALIFYING SHIPS, BEING COMPANY REGISTERED UNDER THE TONNAGE TAX SCHEME PROVIDE D UNDER THE ACT. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT SI NCE THE TRANSFER PRICING REGULATIONS DOES NOT APPLY TO THE APPELLANT, NO REFERE NCE SHOULD HAVE BEEN MADE TO THE TRANSFER PRICING OFFICER (TPO') UNDER SECTIO N 92CA OF THE ACT WITH REGARDS TO THE INCOME DERIVED FROM OPERATING QUALIFYING SHIPS BY THE APPELLANT. 4. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT SECTION 92 OF THE ACT IS NOT A CHARGING SECTION BUT MERELY A COMPUTATIO N MECHANISM FOR DETERMINATION OF ARM'S LENGTH PRICE AND THAT IF THE IN COME IS NOT CHARGEABLE TO TAX, THE APPLICATION OF THE COMPUTATION MECHANISM H AS NO RELEVANCE. 3 ITA NO. 7228/MUM/2012 5. THE LEARNED CIT(A) 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 TH E TONNAGE TAX SCHEME AND THUS THE ADJUSTMENT MADE BY THE LEARNED AO/ TPO WOULD HAVE NO IMPACT ON THE INCOME PERTAINING TO THE TONNAGE TAX ACTIVITI ES OF THE APPELLANT, AND HENCE, OUGHT TO BE DELETED. 6. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE TONNAGE TAX SCHEME OF THE ACT IS A SELF CONTAINED CODE AND THE INCOME CAN ONLY BE COMPUTED AS PER THE PROVISIONS MENTIONED UNDER CHAPTER XII - G OF THE ACT (IE SECTION 115VA TO SECTION 115VZC). 7. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT SECTION 115VA OF THE ACT STARTS WITH A NON-OBSTANTE CLAUSE AND THUS O VERRIDES THE PROVISIONS CONTAINED IN SECTION 28 TO SECTION 43C OF THE ACT. 8. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLANT HAS FILED THE ACCOUNTANTS REPORT IN FORM 3CEB UNDER SECTIO N 92E OF THE ACT OUT OF ABUNDANT CAUTION IN RESPECT OF THE TONNAGE TAX INCOM E. 9. THE LEARNED CIT(A) ERRED IN HOLDING THAT INCOME FROM INTERNATIONAL TRANSACTION BE TREATED AS AN ADDITIONAL AND SEPARATE S OURCE OF INCOME, THUS BEING CONTRARY TO LAW AND FACTS OF THE CASE AND OUGHT TO BE DELETED. 10. THE LEARNED CIT(A) ERRED IN HOLDING THAT PROVISIONS OF TRANSFER PRICING ARE DISTINCT FROM THE PROVISIONS OF COMPUTATION OF INCOME UNDER THE TONNAGE TAX SCHEME. 11. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE OUT OF ALL THE ADJUSTMENT PROPOSED BY THE LEARNED TPO, AN AMOUNT OF RS 5,40,887 (MOBILIZATION AND DEMOBILIZATION CHARGES OF RS 5,40, 887) 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 A CT, AND HENCE THE ALLEGED EXCESS PAYMENT CANNOT HAVE ANY IMPACT ON THE TAXABL E INCOME OF THE APPELLANT, THUS OUGHT TO BE DELETED. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO THE OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, OMIT OR SUB STITUTE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT THE TIME OF THE APPEAL. 4 ITA NO. 7228/MUM/2012 ALTHOUGH THE ASSESSEE HAS RAISED MULTIPLE GROUNDS O F APPEAL, BUT THE ENTIRE DISPUTE EMANATES FROM THE STAND OF THE ASSES SING OFFICER THAT THE TRANSFER PRICING PROVISIONS CONTAINED IN CHAPTER-X OF THE ACT ALSO APPLY TO AN INCOME DETERMINED IN TERMS OF THE CHAPTER XII-G OF THE ACT I.E. TONNAGE TAX SCHEME. 3. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE APP ELLANT ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956 AND IS, INTER-ALIA ENGAGED IN THE BUSINESS OF EXECUTING DREDGING CONTR ACTS AND IS A SUBSIDIARY OF VAN OORD DREDGING AND MARINE CONTRACTORS BV WHICH IS INCORPORATED IN NETHERLANDS. THE ASSESSEE IS REGISTERED AS A TONNAGE TAX COMPANY UNDER THE TONNAGE TAX SCHEME (T TS) AS PROVIDED UNDER CHAPTER XII-G OF THE ACT. AS PER THE PROVISIO NS OF TTS, INCOME DERIVED FROM OPERATING QUALIFYING SHIPS WOULD BE TR EATED AS SHIPPING INCOME AND WOULD BE TAXABLE AS PER THE COMPUTATION MECHANISM PROVIDED THEREIN. THE APPELLANT HAD FILED ITS RETUR N OF INCOME ON 31 ST OCTOBER, 2007 DECLARING INCOME OF RS 3,50,365/- FRO M OPERATING QUALIFYING SHIPS AND DECLARING LOSS OF RS 2,747,814 /- ON ACCOUNT OF NON- TONNAGE OPERATIONS. SUBSEQUENTLY, PURSUANT TO THE R ETROSPECTIVE AMENDMENT INTRODUCED TO THE SECTION 115JB (I.E. MIN IMUM ALTERNATE TAX 5 ITA NO. 7228/MUM/2012 PROVISIONS) BY THE FINANCE ACT, 2008, THE APPELLANT FILED A REVISED RETURN ON 19 TH NOVEMBER, 2008 DECLARING INCOME OF RS 3,149,813 UN DER SECTION 115JB OF THE ACT. DURING THE COURSE OF SCRUTINY ASS ESSMENT PROCEEDINGS INITIATED BY THE ASSESSING OFFICER, A REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) FOR THE COMPUTATION OF THE ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE. THE TPO SUGGESTED AN ADJ USTMENT OF RS 540,887 TO THE VALUE OF INTERNATIONAL TRANSACTIONS ON ACCOU NT OF THE CHARTER HIRE RENTALS PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTE RPRISE FOR LEASE OF DREDGER HAM 312 (QUALIFYING SHIP). IN THE ASSESSM ENT ORDER, WHILE COMPUTING THE FINAL INCOME MADE AN ADDITION TO THE INCOME OF THE APPELLANT OF RS 5,40,887, BASED ON THE FINDINGS OF THE LEARNED TPO. THE TPO SUGGESTED AN ADJUSTMENT OF ` 5,40,887/- TO THE VALUE OF INTERNATIONAL TRANSACTION ON ACCOUNT OF CHARTER HIRE/LEASE CHAR GES PAID TO ITS ASSOCIATED ENTERPRISE, NAMELY, SLEEPHPPERZUIGUR 1 B V. FOR LEASING OF THE QUALIFYING SHIP , IE. DREDGER HAM 312 . PERTINENTL Y, THE ADJUSTMENT WAS SUGGESTED FOR THE HIRE/LEASE CHARGES PAID FOR THE M OBILISATION AND DEMOBILISATION PERIOD, AND NOT FOR OPERATIONAL PERI OD. THE HIRE /LEASE CHARGES PAID BY THE ASSESSEE WAS UNIFORM DURING THE MOBILISATION, OPERATIONAL AND DE-MOBILISATION PERIODS. WHEN THE MATTER WAS CARRIED IN 6 ITA NO. 7228/MUM/2012 APPEAL BEFORE THE CIT(A), ASSESSEE ASSAILED THE STA ND OF THE ASSESSING OFFICER IN LAW INTER-ALIA, ASSERTING THAT THE TRANSFER PRICING PROVISIONS ARE NOT ATTRACTED IN THE PRESENT CASE, AS THE INCOME IS DETERMINED ON A PRESUMPTIVE BASIS IN TERMS OF CHAPTER XII-G OF THE ACT. HOWEVER, THE CIT(A) HAS UPHELD THE STAND OF THE ASSESSING OFFICE R. NOT BEING SATISFIED WITH THE ORDER OF THE CIT(A), ASSESSEE IS IN FURTHE R APPEAL BEFORE US. 4. BEFORE US, LD. SENIOR COUNSEL FOR THE ASSESSEE H AS EXPLAINED THAT HAM 312 IS A QUALIFYING DREDGER UNDER TTS, AND HENC E THE INCOME THEREOF IS TO BE DETERMINED AND TAXED IN ACCORDANCE WITH TH E PROVISIONS OF CHAPTER XII G (I.E. SECTION 115V TO 115VZC) WHICH I S A SELF-CONTAINED CODE. THE PROVISIONS OF TRANSFER PRICING REGULATIONS DOES NOT APPLY TO THE COMPANIES WHOSE INCOME IS TAXABLE UNDER TTS, AND HE NCE, THE ENHANCEMENT OF INCOME BASED ON THE ORDER OF TPO ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT WOULD NOT HAVE ANY EFFECT ON THE TAXABLE INCOME OF THE ASSESSEE. THE LD. SENIOR COUNSEL ALSO SUBMITTED THAT SECTION 115VA STARTS WITH A NON-OBSTANTE CLAUSE STATING THAT SECT IONS 28 TO 43C ARE NOT APPLICABLE TO THE TONNAGE TAX COMPANY AND THE INCOM E HAS TO BE COMPUTED AS PER THE COMPUTATION MECHANISM PROVIDED UNDER THE TTS. FOR THE PRESENT PURPOSE, THE EXPLANATION TO SECTION 92(1) WAS REFERRED TO 7 ITA NO. 7228/MUM/2012 POINT OUT THAT IT DEALS WITH ALLOWANCE FOR ANY EXPE NSE; AND IN THE PRESENT CASE, THE ASSESSEE DOES NOT CLAIM ANY ALLOWANCE FOR ANY EXPENSE, THUS THE PROVISIONS OF SECTION 92(1) OR THE EXPLANATION THER ETO, AND INCLUDING THE PROVISIONS OF SECTION 92CA, HAVE NO APPLICATION IN THE INSTANT CASE. IN SUPPORT OF ITS CONTENTION, THE ASSESSEE HAS RELI ED ON FOLLOWING DECISIONS: I. CGU LOGISTICS LTD (MUMBAI ITAT ITA NO. 1053/MUM/2 014) II. TAG OFFSHORE LIMITED (MUMBAI ITAT ITA NO. 710/MUM /2014) III. SHREYAS SHIPPING LOGISTICS LTD (MUMBAI ITAT ITA 7406/MUM/2014) IV. TRANS ASIAN SHIPPING SERVICES PVT LTD (SUPREME COUR T (CIVIL APPEAL NO. 5869 AND 5870 OF 2016) 5. IN THIS BACKGROUND, THE LD. DEPARTMENTAL REPRES ENTATIVE FOR THE REVENUE HAS MERELY REITERATED THE STAND OF THE LOWE R AUTHORITIES WHICH IS TO THE EFFECT THAT ANY PERSON WHO HAS UNDERTAKEN IN TERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISE HAS TO B E TAXED AS PER THE NORMAL /APPLICABLE PROVISIONS OF THE ACT AND IN ADD ITION, HE HAS TO BE GOVERNED AND CONSEQUENTLY TAXED, IF THERE IS AN ADD ITIONAL INCOME THAT IS 8 ITA NO. 7228/MUM/2012 ARRIVED AT, OUT OF THE INTERNATIONAL TRANSACTIONS O N ACCOUNT OF TRANSFER PRICING ADJUSTMENT. IT ONLY LEADS TO THE CONCLUSION THAT IN THE SCHEME OF THE THINGS UNDER THE ACT, THE INCOME FROM THE INTER NATIONAL TRANSACTIONS IS TO BE TREATED AS ADDITIONAL INCOME AND SEPARATE SOURCE OF THE INCOME AND THAT SUCH INCOME FROM THE INTERNATIONAL TRANSAC TION IS TO BE DETERMINED HAVING REGARD TO THE ARMS LENGTH PRINCI PLE AND TAXED ACCORDINGLY. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, PERUSED THE RELEVANT MATERIAL, INCLUDING THE ORDERS OF THE LOWE R AUTHORITIES AS WELL AS THE CASE LAWS REFERRED AT THE TIME OF HEARING. NOTA BLY, THE CONTROVERSY BEFORE US PRIMARILY REVOLVES AROUND THE APPLICABILI TY OF TRANSFER PRICING PROVISIONS TO THE INCOME THAT IS COVERED BY CHAPTER XII-G OF THE ACT I.E. TONNAGE TAX SCHEME. THE TTS WAS INTRODUCED IN THE F INANCE (NO. 2) ACT, 2004, WITH THE INTENTION OF INCREASING FOREIGN DIRE CT INVESTMENT IN THE INDIAN SHIPPING INDUSTRY AND MAKING IT GLOBALLY COM PETITIVE. THE INCOME OF A TONNAGE TAX COMPANY DEPENDS ON THE TONNAGE CAP ACITY OF THE QUALIFYING SHIPS AND THE NUMBER OF DAYS FOR WHICH I T HAS BEEN HELD. A READING OF THE PROVISIONS OF TTS IN CHAPTER XII-G S UGGEST THAT THE TTS IS A CHARGING SECTION FOR THE INCOME GENERATED BY CARRYI NG OUT BUSINESS OF 9 ITA NO. 7228/MUM/2012 OPERATING SHIPS. FURTHER, IT ALSO PRESCRIBES THE ME CHANISM FOR COMPUTATION OF INCOME WHICH IS TO BE BROUGHT TO TAX . THUS, TTS IS A PRESUMPTIVE BASIS OF TAXATION, WHEREBY THE TAXABILI TY OF INCOME FROM QUALIFYING SHIPS IS RESTRICTED TO THE FRAMEWORK PR OVIDED IN THE TTS. FURTHER, THE TONNAGE TAX COMPANY IS LIABLE TO PAY T AXES EVEN IN A CASE WHERE THE FINANCIAL STATEMENTS REVEAL A LOSS ON ACT UAL OPERATIONS. FURTHER, ALL EXPENSES, DEDUCTION, ALLOWANCES OR TAX INCENTIVES ARE DEEMED TO BE ALLOWED WHILE COMPUTING THE TOTAL INCOME OF A COMPANY AS PER TTS. THE INCOME THUS COMPUTED SHALL BE DEEMED TO BE THE INCOME CHARGEABLE TO TAX UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION'. HENCE, IT IS CLEAR FROM THE ABOVE THAT ACTUAL RECEIPTS/REV ENUES EARNED AND EXPENSES INCURRED ARE NOT TAKEN INTO CONSIDERATION FOR THE PURPOSE OF DETERMINING THE TONNAGE INCOME OF THE COMPANY. THE ENTIRE COMPUTATION OF THE TONNAGE INCOME DEPENDS ON THE TONNAGE CAPACI TY OF QUALIFYING SHIPS AND NUMBER OF DAYS IT HAS BEEN HELD. AT THIS STAGE, WE MAY CONTRAST THE SPHERE IN WHICH THE TRANSFER PRICING PROVISIONS OF CHAPTER-X OPERATE. THE TRANSFER PRICING PROVISIONS ENVISAGE COMPUTATIO N OF INCOME FROM SPECIFIED INTERNATIONAL TRANSACTIONS OF RECEIPT OR EXPENDITURE, OF-COURSE WITH REFERENCE TO THE STATED PRICE OF SUCH TRANSACT IONS. THIS IS COMPLETELY IN CONTRAST TO CHAPTER-XII G, WHERE THE STATED PRIC E OF THE TRANSACTION HAS 10 ITA NO. 7228/MUM/2012 NO RELEVANCE TO THE COMPUTATION OF INCOME OF QUALIF YING SHIPS, WHICH IS BASED ON THE WEIGHT OF THE SHIP AND THE NUMBER OF D AYS IT HAS BEEN HELD. IN OTHER WORDS, THE DETERMINATION OF INCOME/ EXPEN SE HAVING REGARD TO ARM'S LENGTH PRICE AS ENVISAGED IN CHAPTER-X HAS NO RELEVANCE, AS IT WOULD NOT AFFECT THE COMPUTATION OF INCOME LIABLE FOR TAX ATION IN CHAPTER-XII G. 7. SECTION 115VA OF THE ACT STARTS WITH NOTWITHSTANDING ANY TO THE CONTRARY CONTAINED IN SECTION 28 TO SECTION 43.' . TTS THUS, PROVIDES FOR COMPUTATION OF INCOME TO THE EXCLUSION OF SECTION 2 8 OF THE ACT. IN CASE OF AN ASSESSEE ENTERING INTO INTERNATIONAL TRANSACT IONS WITH ASSOCIATED ENTERPRISE, THE AMOUNT OF ALLOWABLE EXPENSES IS REQ UIRED TO BE DETERMINED AS PER THE ARM'S LENGTH PRINCIPLE AS PER THE MACHINERY PROVISIONS OF CHAPTER X (SECTION 92 TO SECTION 92F) . THE AMOUNT OF ALLOWABLE EXPENSES DETERMINED AS PER THE ARM'S LENG TH 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 TH E ACT. THE ASSESSEE HAS OPTED TO BE GOVERNED BY TTS, THUS THE PROVISIONS OF SECTION 115VA WOULD OVERRIDE SECTION 28 TO SECTION 43C AND HENCE INCOME HAS TO BE CALCULATED WITH REFERENCE TO THE REGISTERED TONNAGE OF THE SHI PS AND NOT ON BASIS OF NET PROFITS DEPICTED IN THE FINANCIAL STATEMENTS OR AS PER THE PROFITS 11 ITA NO. 7228/MUM/2012 ADJUSTED IN TERMS OF CHAPTER-X. IN FACT, THE RELATE D PARTY TRANSACTIONS ARE NOT RELEVANT FOR COMPUTING INCOME CHARGEABLE TO TAX AS PER CHAPTER-XII G OF THE ACT AND THEREFORE, THE ARM'S LENGTH PRICE D ETERMINED UNDER TRANSFER PRICING PROVISIONS WOULD BE OF NO RELEVANC E. IN OTHER WORDS, DETERMINATION OF INCOME/ EXPENSE HAVING REGARD TO A RM'S LENGTH PRICE WOULD NOT ALTER THE COMPUTATION OF INCOME AND THE T AXABILITY 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 PRESCRIBES METHODS FOR COMPUTATION OF ARM'S LENGTH PRICE. NONE OF THE METH ODS PRESCRIBED CAN HAVE ANY APPLICATION TO COMPUTATION OF THE TONNAGE INCOME. IN THESE CIRCUMSTANCES, THE COMPUTATION PROVISIONS OF CHAPTE R X OF THE ACT WOULD FAIL AND THEREFORE, APPLICATION OF CHAPTER X OF THE ACT IN SUCH CIRCUMSTANCES HAS TO FAIL. TONNAGE TAX PROVISIONS D ETERMINE THE ENTIRE CHARGEABLE INCOME EARNED BY THE TONNAGE TAX VESSEL INCLUDING INCOME FROM AN INTERNATIONAL TRANSACTION WITH ASSOCIATED E NTERPRISE. IN CONTRAST, TRANSFER PRICING PROVISIONS APPLY ONLY TO INTERNATI ONAL TRANSACTIONS ENTERED WITH ASSOCIATED ENTERPRISES. IT IS NOT POSS IBLE TO SEGREGATE WHAT PORTION OF THE FINAL TAXABLE TONNAGE INCOME IS RELA TABLE TO INTERNATIONAL 12 ITA NO. 7228/MUM/2012 TRANSACTIONS WITH ASSOCIATED ENTERPRISES AND THEN A PPLY TRANSFER PRICING PROVISIONS TO SUCH TRANSACTIONS, BECAUSE THE STATUT ORILY PRESCRIBED FORMULA TO COMPUTE INCOME UNDER CHAPTER XII-G IS BA SED ON THE WEIGHT OF THE QUALIFYING SHIP AND NUMBER OF DAYS IT HAS BEEN HELD, IRRESPECTIVE OF WHETHER THE SHIP HAS BEEN USED FOR A RELATED PARTY OR AN UNRELATED PARTY. ONCE AGAIN, THEREFORE, THE COMPUTATION PROVISIONS O F CHAPTER X OF THE ACT FAIL AND IN SUCH CIRCUMSTANCES, THE APPLICATION OF CHAPTER X OF THE ACT FAILS. 9. IN THIS CONTEXT, THE LEARNED COUNSEL POINTED OU T THAT A SIMILAR SITUATION HAS BEEN CONSIDERED BY THE CO-ORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF SHREYAS SHIPPING LOGISTICS LTD (SUPRA) WHICH HAS HELD AS FOLLOWS: 5. NOW WE WOULD LIKE TO DISCUSS THE TTS. SECTION 115VA OF THE ACT IS UNIQUE IN THE SENSE THAT IT DEALS WITH THE COMPU TATION OF INCOME FROM THE BUSINESS OF OPERATING QUALIFYING SH IPS WHICH OPT FOR TONNAGE TAX SCHEME(TTS).THE METHOD OF COMPU TATION OF INCOME UNDER THE SCHEME, AS PROVIDED BY THE SECT ION, STIPULATES THAT INCOME HAS TO BE ASSESSED IN A PART ICULAR MANNER. IN OTHER WORDS, NO EXPENDITURE CAN BE ALLOW ED OR DISALLOWANCE CAN BE MADE, WHILE COMPUTING THE INCOM E UNDER TTS. THE INCOME OF THE ASSESSEE IS COMPUTED AT AFFI XED RATE 13 ITA NO. 7228/MUM/2012 AND ALL OTHER PROVISIONS OF THE ACT ARE NOT TO BE A PPLIED, ONCE AN ASSESSEE OPTS FOR THE SCHEME. IN SHORT, IF THE A SSESSEE CANNOT CLAIM ANY EXPENDITURE AFTER OPTING OUT OF TH E SCHEME, THEN THE AO IS ALSO BARRED BY MAKING ANY DISALLOWAN CE FOR INCURRING OF EXPENDITURE. LEGISLATURE, IN ITS WISDO M, HAS ALLOWED THE ASSESSEES FOR OPTING FOR THE SAID SCHEME AND WI TH A SPECIFIC PURPOSE. THEREFORE, WHILE COMPUTING THE INCOME OF T HE ASSESSEE U/S. 115VP, THE AO HAS TO PUT ON BLINKERS AND ASSESS THE INCOME AS SUGGESTED BY THE PARLIAMENT. THERE IS NO SCOPE FOR TINKERING WITH THE PROVISIONS OF SECTION 115 VP OF THE ACT. HE HAS TO FOLLOW THE SIMPLE RULE THAT NO DEDUCTION IS TO BE ALLOWED OR NO DISALLOWANCE IS TO BE MADE UNDER ANY OF THE NORMAL PROVISIONS OF THE ACT, ONCE IT IS FOUND THAT AN ASSESSEE IS TO BE ASSESSED AS PER THE PROVISIONS OF CHAPTER XIIG OF THE ACT. SECTION 14A IS NOT AN EXCEPTION TO THE TTS. RA THER THE SCHEME IS AN EXCEPTION TO THE NORMAL COMPUTATION PR OVISIONS, INCLUDING THE SECTION 14A. THEREFORE,IT CANNOT BE SAID THAT WHEN THE INCOME OF THE ASSESSEE FROM THE BUSINESS OF OPE RATING SHIPS WAS COMPUTED UNDER THE SPECIAL PROVISIONS OF CHAPTE R XII-G, EXPENDITURE OTHER THAN THE EXPENDITURE INCURRED FOR THE PURPOSE OF THE BUSINESS HAD BEEN ALLOWED. CONSIDERI NG THE TWIN FACTORS I.E. NOT CLAIMING ANY EXPENDITURE AGAINST T HE NON- SHIPPING BUSINESS INCOME BY THE ASSESSEE AND OPTING FOR TTS FOR SHIPPING BUSINESS, WE ARE OF THE OPINION THAT T HE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL I NFIRMITY. THEREFORE, CONFIRMING HIS ORDER, WE DECIDE THE EFFE CTIVE GROUND OF APPEAL AGAINST THE AO. (UNDERLINED FOR EMPHASIS BY US) 10. ON YET ANOTHER OCCASION, OUR CO-ORDINATE BENCH IN THE CASE OF TAG OFF SHORE(SUPRA) WAS CONCERNED WITH A SITUATION WHERE THE REVENUE SOUGHT TO MAKE AN ADDITION BY INVOKING THE PROVISIO NS OF SECTION 14A OF 14 ITA NO. 7228/MUM/2012 THE ACT IN CASE OF A TONNAGE TAX COMPANY, WHOSE INC OME WAS COMPUTED UNDER THE SPECIAL PROVISIONS OF CHAPTER XII-G. THE TRIBUNAL SET ASIDE THE ADDITION OBSERVING THUS ' NO DISALLOWANCE UNDER SECTION 14A IS WARRANTED IN THIS CASE WHEN THE ASSESSEE HAS ADMITTEDLY NOT C LAIMED ANY EXPENDITURE, TOWARDS TAXABLE INCOME I.E, IT HAS NOT CLAIMED ANY DEDUCTION OF EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT WHILE COMPUTING THE TOTAL INCOME. 11. FURTHER, THE CO-ORDINATE BENCH OF THIS TRIBUNA L IN THE CASE OF CGU LOGISTICS LTD(SUPRA) WHILE DEALING ON THE ISSUE UNDER TTS HAS HELD AS UNDER: 10.A.WE FIND THAT SECTION 115VP DEALS METHOD AND T IME OF OPTING FOR TTS, SECTION 115VQ IS ABOUT PERIOD FOR W HICH TONNAGE TAX OPTION REMAINS IN FORCE. RENEWAL OF TTS IS SUBJECT MATTER OF SECTION115VR.CIRCUMSTANES AND CONDITIONS WHERE IN TONNAGE TAX SCHEME CANNOT BE OPTED ARE THE SUBJECT MATTER OF SECTION 115VS.AS PER THE PROVISIONS OF SECTION 1 15VT EVERY ASSESSEE HAS TO TRANSFER PROFITS TO TONNAGE TAX RES ERVE ACCOUNT AT A FIX RATE AND HAS TO UTILISE IT FOR SPE CIFIC PURPOSE, ONCE HE OPTS OF TTS. COMPANIES OPTING FOR TTS HAVE TO COMPLY WITH MINIMUM TRAINING REQUIREMENT AS REQUIRED BY SE CTION 115VU.LIMIT FOR CHARTER IN OF TONNAGE HAS BEEN DETE RMINED 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. AMALGATION IS SUBJECT MATTER OF SECTION 115VY.NEXT SECTION I.E. SECTION 15VZBTAKES CARE OF THE TONNAGE TAX COM PANIES WHICH ARE FOUND TO BE A PARTY TO ANY TRANSACTION OR 15 ITA NO. 7228/MUM/2012 ARRANGEMENT THAT AMOUNTS TO AN ABUSE OF THE SCHEME. LAST SECTION,SECTION115VZC,DEALS WITH EXCLUSION FROM TTS . FROM THE ABOVE IT IS CLEAR THAT CHAPTER XII-G IS A COMPLETE CODE IN ITSELF AND IT PROVIDES FOR NON APPLICABILIT Y OF SECTION 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 SECTI ON. 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 CLAUSES AP PENDED TO THE FINANCE (NO.2) BILL,2004,REFERRING TO CLAUSE 28 AS REGARDS THE INTRODUCTION OF SECTION 115VA SPECIFICALLY STAT ES THAT THE PROVISION RELATES TO THE COMPUTATION OF PROFITS AND GAINS OF THE SHIPPING BUSINESS. TONNAGE TAX WAS INTENDED TO MAKE THE INDUSTRY INTERNATIONALLY COMPETITIVE AND ALSO TO IN DUCE 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 COMP UTING IT UNDER A DIFFERENT CHAPTER OR SECTION. (UNDERLINED FOR EMPHASIS BY US) 12. BEFORE PARTING, WE ALSO THINK IT APPOSITE TO R EFER TO THE JUDGMENT RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE O F TRANS ASIAN SHIPPING SERVICES PVT LTD (SUPRA). IN THE SAID CASE , THE SUPREME COURT OBSERVED THAT .IT MAY BE STATED IN BRIEF THAT IN VIEW OF THE S TIFF COMPETITION FACED BY THE INDIAN SHIPPING COMPANIES VIS-A-VIS FOREIGN SHIPPING LINES, AND IN ORDER TO ENSURE AN EASILY AC CESSIBLE, FIXED RATE, LOW TAX REGIME FOR SHIPPING COMPANIES, THE RAKESH MOHAN COMMITTEE IN ITS REPORT (OF JANUARY, 2002) RECOMMENDED THE INTRODUCT ION OF THE TTS IN 16 ITA NO. 7228/MUM/2012 INDIA, WHICH WAS SIMILAR TO, AND ADOPTED SOME OF TH E BEST GLOBAL PRACTICES PREVALENT. THE WHOLE PURPOSE OF INTRODUCTION OF TH E SCHEME WAS TO MAKE THE INDIAN SHIPPING INDUSTRY MORE COMPETITIVE IN TH E GLOBAL SPACE BY RATIONALISING ITS TAX COST... THE HONBLE SUPREME COURT FURTHER OBSERVED THAT, WE WOULD ALSO LIKE TO REFER TO CIRCULAR NO. 05/2005 DATED 15.07.2005 EXPL AINING THE NEED AND ESSENCE OF THE INTRODUCTION OF THESE PROVISIONS WHI CH WAS ISSUED CONTEMPORANEOUSLY BY THE CENTRAL BOARD OF DIRECT TA XES (CBDT). THE CIRCULAR CLARIFIES THAT THE SCHEME IS A 'PREFERENTI AL REGIME OF TAXATION'. IT ALSO CLARIFIES THAT 'CHARGING PROVISION IS UNDER SE CTION 115VA READ WITH SECTION 115VF AND SECTION 115VG..' 13. IT HAS ALSO BEEN BROUGHT TO OUR NOTICE THAT AN IDENTICAL SITUATION AROSE IN ASSESSEES OWN CASE FOR AY 2013-14 WHERE T HE DISPUTE RESOLUTION PANEL(DRP) VIDE ITS ORDER DATED 18.09. 2017 HELD THAT TRANSFER PRICING REGULATIONS DO NOT APPLY TO THE ASSESSEE TO THE EXTENT OF OPERATIONS CARRIED OUT THROUGH OPERATING QUALIFYING SHIPS WHERE THE INCOME IS TAXED UNDER TTS. 17 ITA NO. 7228/MUM/2012 14. TO SUM UP, TONNAGE TAX SCHEME, AS PER CHAPTER X IT-G OF THE ACT, IS A SEPARATE CODE BY ITSELF IN AS MUCH AS IT PROVI DES A SELF-CONTAINED CHANGING PROVISION AS WELL AS 'METHOD OF COMPUTATIO N OF INCOME IN THE CHAPTER, AND, THE METHOD OF COMPUTATION OF INCOME U NDER TTS IS NOT DEPENDENT ON RECEIPT OR EXPENDITURE OF THE ASSESSEE . UNDER TONNAGE TAX SCHEME, THE INCOME HAS TO BE COMPUTED AS PER THE ME THOD PRESCRIBED IN SECTION 115VG. THE INCOME AS PER TONNAGE TAX SCHEME IS COMPUTED ON THE BASIS OF THE WEIGHT OF THE VESSEL AND NUMBER OF DAYS IT IS HELD, IRRESPECTIVE OF ITS REVENUE REALISATIONS AND THE EX PENDITURE INCURRED FOR THE PURPOSE OF THE BUSINESS. HENCE, NEITHER THE BUS INESS RECEIPTS NOR THE BUSINESS EXPENDITURE OF THE ASSESSEE HAS ANY BEARIN G ON THE METHOD PRESCRIBED FOR COMPUTATION OF INCOME UNDER TTS AS P ER SECTION 115VG. THE TONNAGE TAX SCHEME, IN THAT SENSE, IS A PRESUMP TIVE METHOD OF COMPUTATION OF TAXABLE INCOME WHICH IS NOT DEPENDEN T ON ACTUAL RECEIPTS AND EXPENDITURE OF THE ASSESSEE. 15. IN FACT, THE FALLACY IN THE APPROACH OF THE ASSESS ING 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 ` 5,40,887/- AS A SEPARATE LINE ITEM CAPTIONED AS P ROPOSED ADJUSTMENT/ADDITION IN VIEW OF THE ABOVE DISCUSSION . THUS, AS PER THE 18 ITA NO. 7228/MUM/2012 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 I N THE CASE OF VODAFONE SERVICES PVT.LTD. VS. UOI ( 2015) 53 TAXMA N.COM 286 (BOM), WHEREIN AFTER REFERRING TO AN EARLIER JUDGMENT DATE D 10 TH OCTOBER, 2014 IN THE CASE OF SAME ASSESSEE REPORTED IN 50 TAXMANN.CO M 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 PRI CE OF A TRANSACTION BETWEEN ASSOCIATED ENTERPRISES. 16. IN THE FINAL ANALYSIS, IT IS SEEN THAT IN THE INSTA NT CASE, THE PROVISIONS OF CHAPTER X HAVE BEEN INVOKED TO ALTER AN EXPENDIT URE, NAMELY THE MOBILISATION AND DEMOBILISATION CHARGES PAID FOR A QUALIFYING SHIP, AN ITEM WHICH HAS NO BEARING ON THE INCOME AS COMPUTED UNDER CHAPTER XII- G AND ACCORDINGLY THE PROVISIONS OF CHAPTER X HAVE NO APPLICATION IN COMPUTING THE INCOME 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 19 ITA NO. 7228/MUM/2012 OPERATIONS CARRIED OUT THROUGH OPERATING QUALIFYING SHIPS WHERE THE INCOME IS TAXED UNDER TTS. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND MAY, 2019. SD/- SD/- (SAKTIJIT DEY) JUDICIAL MEMBER (G.S. PANNU) VICE PRESIDENT MUMBAI, DATE : 22 ND MAY, 2019 *SSL* 19. 20. 21. 22. 23. 24. 25. COPY TO : 26. 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, J BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI 27.