AI Insights
The case involves appeals by the Revenue against the decisions of the NFAC, which had granted relief to M/s. B.G. Shirke Construction Technology Pvt. Ltd., a shipping company, for the assessment years 2013-14 and 2014-15. The core issue was whether the interest income earned on deposits of business receipts should be considered part of the shipping business income under the tonnage tax scheme, as opposed to being taxed separately as 'Income from other sources'. The Tribunal examined precedents and the specific provisions of the Income Tax Act, particularly Chapter XII-G, which pertains to the taxation of shipping companies based on the tonnage of their vessels.
Appeal details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 137218 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-02-2023
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
01-02-2023
Assessment Year
misc
Appeal Filed On
03-11-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA Nos.795 & 796/PUN/2022 िनधाᭅरण वषᭅ / Assessment Years : 2013-14 & 2014-15 DCIT, Circle-1(1), Pune. Vs. M/s. B.G. Shirke Construction Technology Pvt. Ltd., Unit No.3, 1/447, Brady Gladys Plaza, Senapati Bapat Marg, Lower Parel, Mumbai- 400013. PAN : AAACF7393J Appellant Respondent आदेश / ORDER PER INTURI RAMA RAO, AM: These are the appeals filed by the Revenue directed against the separate orders of the National Faceless Appeal Centre, Delhi [‘NFAC’] dated 01.09.2022 and 26.08.2022 for the assessment years 2013-14 and 2014-15 respectively. Revenue by : Shri Ramnath P. Murkunde Assessee by : Shri Nikhil S. Pathak Date of hearing : 02.02.2023 Date of pronouncement : 13.02.2023 ITA Nos.795 & 796/PUN/2022 2 2. Since the identical facts and common issues are involved in both the above appeals, we proceed to dispose of the same by this common order. 3. For the sake of convenience and clarity, the facts relevant to the appeal in ITA No.795/PUN/2022 for A.Y. 2013-14 are stated herein. ITA No.795/PUN/2022, A.Y. 2013-14 : 4. Briefly, the facts of the case are that the respondent-assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of shipping. The Return of Income for the assessment year 2013-14 was filed on 27.09.2013 declaring total income of Rs.2,04,78,080/- and the same was revised on 24.11.2014 at total income of Rs.2,06,56,080/-. The return of income was filed after opting the tonnage income scheme under Chapter XII-G relating to the special provisions of Income Tax Act for shipping companies. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income Tax-5(1)(2), Mumbai (‘the Assessing Officer’) vide order dated 26.02.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.5,09,81,574/- after making addition on ITA Nos.795 & 796/PUN/2022 3 account of interest earned from the Union Bank of India of Rs.3,03,25,494/-. The factual background leading to the above addition is as under :- The respondent-assessee company availed External Commercial Borrowing (ECB) loans from the Union Bank of India, Hong Kong Branch for acquisition of its vessel “Maha Jacqueline”. In terms of the agreement entered into by the respondent-assessee with the bankers, the respondent-assessee is under obligation to deposit all business receipts of charter hire pertaining to the vessel with the assigned charter account with the Union Bank of India. The deposit so made would be applied/appropriated towards monthly loan instalment. The banker also withheld a specific amount every month from these receipts before releasing the balance of deposit money for operational expenses to the respondent-assessee company. The lien on the deposit had been created in favour of the bank. In terms of the loan agreement entered into by the respondent-assessee with banker, the cumulative amount shall be appropriated against the outstanding loan at the time of maturity of loan. During the previous year relevant to the assessment year under consideration, the respondent-assessee company earned interest income of Rs.3,03,25,494/- on such ITA Nos.795 & 796/PUN/2022 4 deposits. The respondent-assessee claimed that the interest income is part and parcel of tonnage income, cannot be brought to tax separately. However, the Assessing Officer was of the opinion that such interest income is assessable under the head “Income from other sources”. Accordingly, he brought to tax the same. 5. Being aggrieved, an appeal was filed before the NFAC, who vide impugned order granted relief the respondent-assessee following the order of the Co-ordinate Bench of the Tribunal in assessee’s own case for assessment years 2010-11 and 2011-12. 6. Being aggrieved, the Revenue is in appeal before us in the present appeal. 7. The ld. Sr. DR submits that the NFAC ought not to have held that the interest income earned by the respondent-assessee forms part and parcel of the core shipping business. 8. On the other hand, ld. AR submits that the interest income earned on ship hire charges/receipts of company partake character of business income, on analogy of interest earned on the deposits made for giving of security for procurement of obtaining letter of credit, bank guarantee placing reliance on the decision of the Hon’ble Bombay High Court in the case of CIT vs. V.S. Dempo & Co. Ltd., 53 taxmann.com 41 (Bombay) and the decision of the ITA Nos.795 & 796/PUN/2022 5 Hon’ble Delhi High Court in the case of CIT vs. Shahi Export House, 195 Taxman 163 (Delhi). Thus, he submits that the interest earned is integral part of the shipping business, no separate addition should be made. 9. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to whether the interest income earned on the business receipts, deposited in the bank shall form part of the business income, qualifying for tonnage tax of scheme. There is no dispute that the respondent-assessee is eligible to avail tonnage tax of scheme for shipping company under Chapter XII-G of the Act, which is a special chapter relating to the income of shipping company. The Chapter XII-G provides that the income of shipping company shall be determined under deemed business basis i.e. on the basis of tonnage of the vessel. The core issue in the present appeal that is requires to be determined is that whether the interest income earned on the deposits made out of the business receipts of shipping business is taxable as a part of shipping business as defined u/s 115-VI(1) and (2) of the Act and qualifies for tonnage tax of scheme. The Hon’ble Full Bench of Karnataka High Court in the case of CIT vs. Hewlett Packard Global Soft Ltd., 402 ITR 453 (Kar.)(FB) held that the interest ITA Nos.795 & 796/PUN/2022 6 earned on temporarily parked funds in Banks or even interest on staff loans would constitute part of profits and gains of such special undertaking qualifying for deduction u/s 10A of the Act. Similarly, the Hon’ble Bombay High Court in the case of PCIT vs. M. Pallonji Shipping (P.) Ltd., 104 taxmann.com 101 (Bombay) in the context of the shipping income, in the case of assessee engaged in the business of shipping opted tonnage scheme under Chapter XII-G referring to the decision of the Hon’ble Supreme Court in the case of CIT vs. Bokaro Steel Ltd., 236 ITR 315 (SC) held that the gains on account of restatement of foreign loan liabilities on purchase of ships would be considered to be a part of the core activities of the shipping company entitled to benefit of Chapter XII-G of the Act. The relevant paragraphs of the decision of the Hon’ble Bombay High Court in the case of M. Pallonji Shipping (P.) Ltd. (supra) are as under :- “14. Chapter XII-G of the Act contains special provisions relating to income of shipping companies. As per Section 115VA, the income of a company from the business of operating qualifying ships, at its option, be computed in accordance with the provisions of the said chapter. The term 'Qualifying Company' is defined in Section 115VC and term "Qualifying ship" is defined in Section 115VD of the Act. For being categorized as 'Qualifying Company', one of the requirements is that the company owns at least one qualifying ship. Section 115VB of the Act pertains to operating of ships and provides that a company shall be regarded as operating a ship if it operates any ship whether owned or chartered by it. Section 115VE of the Act contains provisions for manner of computation of income under tonnage tax scheme. Section ITA Nos.795 & 796/PUN/2022 7 115VG makes provision for computation of tonnage income. Section 115VI pertains to relevant shipping income. As per sub-clause (i) of sub-section (1), the relevant shipping income of a tonnage tax company would mean its profits from core activities referred to in sub-section (2). Sub-section (2) of Section 115VI lists the core activities of the tonnage tax company which includes its activities from operating qualifying ships. 15. From such provisions, it can be seen that a qualifying company can take advantage of the provisions contained in the said chapter for computing its income arising from the business of operating qualifying ships. Though the term 'Operating Ships' takes within its fold a case of company which operates a ship whether owned or even chartered by it, for a company to be categorized as qualifying company, one of the requirements is that it owns at least one qualifying ship. Owing a ship for the purpose of operating is thus an integral part of qualifying company to be engaged in the business of operating the qualifying ships. 16. In case of CIT v. Bokaro Steel Ltd. [1999] 36 ITR 315 (SC) the Supreme Court examined a case where the company was in the process of constructing and erecting its plant. While this process was going on, the company had earned from different activities the income including rent from quarters let out to employees of the contractors. In such background, it was held that the amount was directly connected and incidental to the construction of plant by the assessee and therefore, a capital receipt. Similarly in the present case, we find that the assessee's act of acquiring the ships was closely connected, interlinked and integral to its core activities of operating qualifying ships. 17. We see no reason to interfere with the impugned order of the Tribunal, as the Revenue itself contends that its appeal is restricted only to Serial No. 1 referred to herein above i.e on account of restatement of foreign exchange liabilities on purchase of ships and it makes no grievance on realized gains on foreign exchange on account of purchase of ships referred to at serial No. 2 above. This distinction itself is without any basis. If realizing gain on account of foreign exchange fluctuations on account of purchase of ships at Sr No. 2 is to be treated as shipping income, there is no reason as to why notional gain on account of foreign exchange liabilities on account of purchase of ships at Serial No. 1 should also not been given the same treatment. Besides on account of consistency of the treatment of the variation on account of foreign exchange gain / loss arising on loan taken for acquisition of ships would be considered core activity arising out of operating ships. That is so far as gain / loss arising on variation of foreign exchange on purchase of ships is concerned. There is no reason given as to why the gain made as restatement of foreign exchange liability is not a part of shipping business under Section 115VI of the Act. Further the variation in exchange rates on account of loan taken ITA Nos.795 & 796/PUN/2022 8 on purchase of ships and which gives rise to profit / loss on account of foreign exchange variation of loan taken would in our view be considered to be a part of core activity of the shipping company entitled the benefit of Chapter XII-G of the Act.” 10. We are of the considered opinion that the ratio of the Hon’ble Bombay High Court in the case of M. Pallonji Shipping (P.) Ltd. (supra) is squarely applicable to the facts of the present case, inasmuch as, in the present case also the loan was taken for the purpose of acquisition of ships, integral part of the business of shipping. The receipts from the shipping business were deposited as a part of obligations of availing loan. Therefore, the income earned on such deposits is integral part of shipping business u/s 115V(I) of the Act. Since the decision of the NFAC is in consonance with the law laid down by the Hon’ble Jurisdictional High Court referred to supra, we do not see any reason to interfere with the order of the NFAC. Accordingly, the grounds of appeal filed by the Revenue stand dismissed. 11. In the result, the appeal filed by the Revenue in ITA No.795/PUN/2022 for A.Y. 2013-14 stands dismissed. ITA No.796/PUN/2022, A.Y. 2014-15 : 12. Since the facts and issues involved in both the above captioned appeals of the Revenue are identical, therefore, our ITA Nos.795 & 796/PUN/2022 9 decision in ITA No.795/PUN/2022 for A.Y. 2013-14 shall apply mutatis mutandis to the appeal of the Revenue in ITA No.796/PUN/2022 for A.Y. 2014-15. Accordingly, the appeal of the Revenue in ITA No.796/PUN/2022 for A.Y. 2014-15 stands dismissed. 13. To sum up, both the above appeals of the Revenue stands dismissed. Order pronounced on this 13 th day of February, 2023. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 13 th February, 2023. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “A” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 4. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.
