Not specified V. Not specified

ITTA/111/2002

AI Insights

The case involves an appeal by a transport company against the decision of the Income Tax Appellate Tribunal, which denied the company's claim for a deduction under Section 33AC of the Income Tax Act, 1961. The appellant argued that their activities included shipping, which should qualify them for the deduction. However, the Tribunal and the lower authorities found that the main activity of the appellant was surface transport, and not shipping, thus not meeting the criteria set out in Section 33AC, which specifically benefits companies whose main object is the operation of ships.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 796108 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 12-08-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: Y
• Keywords: Income Tax; Shipping Deduction; Operation of Ships; Main Object of Business
• Section: 33AC

Judgement Text

"THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE T.SUNIL CHOWDARY I..T.T.A.No.111 of 2002 JUDGMENT: (Per LNR,J) The appellant is a Company involved in the activity of transport. The transport activity in turn is undertaken not only on the surface, but also in the water and in air, through the respective modes of transport. Being an assessee under the Income Tax Act, 1961 (for short ‘the Act’), the appellant has been submitting the returns year after year. The Parliament introduced Section 33AC of the Act in the year 1989 providing for deduction of the total income derived by the Government or public companies registered in India with the main object of carrying on business of operation of ships. For the assessment year 1993-94, the appellant has shown the turn over of Rs.4.82 crores from the activity of shipping and claimed deduction of Rs.1,97,94,400/- under Section 33AC of the Act. The Assessing Officer disallowed the claim, observing that the operation of ships is not the main activity of the appellant. The view taken by the Assessing Officer was upheld in the appeal preferred before the Commissioner of Appeals as well as in I.T.A.No.684/HYD/97 by the Hyderabad Bench of the Income Tax Appellate Tribunal. Hence, this appeal under Section 260A of the Act. Sri Y.Ratnakar, learned counsel for the appellant submits that the necessity for a company incorporated under the Indian Companies Act to indicate the main objects, incidental objects and other objects has arisen only when Section 13 of the Companies Act was amended in the year 1964 and since the appellant was incorporated earlier to that, no such indication of main objects was made. He submits that once it is evident from the Memorandum of Association that the appellant undertakes the activity of transport of different modes, on the surface, water and air, it qualifies to claim deduction under Section 33AC of the Act. Learned counsel for the respondent, on the other hand, submits that the appellant is an ordinary transport company carrying on business activity through the transport on road and the mere fact that part of the activity was carried out through shipping does not bring it within the purview of Section 33AC of the Act. He submits that the Parliament was clear in its mind while enacting Section 33AC and it was specifically mentioned that it is only the companies which have the main object of carrying on business of operation of ships that are extended the benefit. The only question that arises for consideration is as to whether the appellant is entitled to the benefit under Section 33AC of the Act. The provision as it stood then reads: “Reserves for shipping business. 33AC. (1) In the case of an assesee, being a Government company or a public company formed and registered in India with the main object of carrying on the business of operation of ships, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount, not exceeding the total income (computed before making any deduction under this section and Chapter VI-A), as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised in the manner laid down in sub- section (2): Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital (excluding the amounts capitalised from reserves) of the assessee, no allowance under this sub-section shall be made in respect of such excess.” From a perusal of it, it is evident that the deduction of profit from the activity of operation of ships is permitted, if only the public company has “the main object of carrying on the business of operation of ships”. It is not in dispute that the appellant does not have, as the main object, of operation of ships. Whether one goes by the Memorandum of Association or by the volume of business through shipping, it clearly emerges that the main activity was the surface transport. A small fraction of the turnover of the appellant is through shipping. The Tribunal has taken the correct view of the matter. We do not find any basis to interfere with the same. The ITTA is accordingly dismissed. The miscellaneous petitions pending in this appeal shall also stand disposed of. There shall be no order as to costs. _____________________ L. NARASIMHA REDDY, J _____________________ T. SUNIL CHOWDARY, J 12-08-2014 JSU/ks "