THE SHIPPING CORPORATION OF INDIA LTD, MUMBAI v. ADDL CIT LTU, MUMBAI

ITA 145/MUM/2011 | 2007-2008
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 14519914 RSA 2011
Assessee PAN AAACT1524F
Bench Mumbai
Appeal Number ITA 145/MUM/2011
Duration Of Justice 6 month(s) 22 day(s)
Appellant THE SHIPPING CORPORATION OF INDIA LTD, MUMBAI
Respondent ADDL CIT LTU, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 29-07-2011
Date Of Final Hearing 19-04-2012
Next Hearing Date 19-04-2012
Assessment Year 2007-2008
Appeal Filed On 07-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER A ND SMT. ASHA VIJAYRAGHAVAN JUDICIAL MEMBER ITA NO. 145/MUM./2011 (ASSESSMENT YEAR : 2007-08 ) DATE OF HEARING 5.7.2011 THE SHIPPING CORP. OF INDIA LIMITED SHIPPING HOUSE 10 TH FLOOR 245 MADAM CAMA ROAD NARIMAN POINT MUMBAI 400 020 PAN AAACT1524F .. APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX (LTU) 29 TH FLOOR CENTRE NO.1 WORLD TRADE CENTRE CUFFE PARADE MUMBAI 400 006 .... RESPONDENT ASSESSEE BY : MR. S.E. DASTUR REVENUE BY : MR. JAYA KUMAR O R D E R PER J. SUDHAKAR REDDY A.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 30 TH NOVEMBER 2010 PASSED BY THE COMMISSIONER (APPEALS)-LTU MUMBAI FOR ASSESSMENT YEAR 2007-08. 2. THE ASSESSING OFFICER HAS BROUGHT OUT THE FACTS OF THIS CASE VIDE PARAS- 2 3 AND 4 OF THE ASSESSMENT ORDER WHICH ARE EXTRA CTED BELOW FOR READY REFERENCE. THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 2 2. THE ASSESSEE WAS ENGAGED IN BUSINESS OF MERCHANT SHIPPING DURING THE YEAR. FROM A.Y. 2005-06 THE ASSESSEE HA S OPTED FOR TONNAGE TAX SCHEME I.E. A PRESUMPTIVE TAXATION SCH EME MENTIONED IN CHAPTER XII-G OF THE ACT WHICH WAS APPROVED BY THE COMPETENT AUTHORITY UNDER SECTION 115VP OF THE ACT. UNDER THE SCHEME THE INCOME FROM BUSINESS OF OPERATION OF QUALIFIED SHIP S RELATED TO CORE ACTIVITIES IS TAXED ON PRESUMPTIVE BASIS INSTEAD OF ACCORDING TO THE PROVISIONS OF SECTION 28 TO 43C OF THE ACT. IN SECT ION 115VI OF THE ACT INCOME CORRESPONDING TO THE OPERATION OF QUALIFIED SHIPS HAS BEEN DEFINED AS RELEVANT SHIPPING INCOME. IT CONSISTS OF PROFITS FROM CORE ACTIVITIES AND PROFITS FROM INCIDENTAL ACTIVITIES. THE INCOME FROM INCIDENTAL ACTIVITIES IN EXCESS OF 0.25% OF TURNOVE R FROM CORE ACTIVITIES HAS FURTHER BEEN EXCLUDED FROM RELEVANT SHIPPING IN COME AND HAS BEEN MADE TAXABLE UNDER OTHER PROVISIONS OF THE ACT. IF ASSESSEE IS HAVING ANY OTHER INCOME EITHER FROM NON-QUALIFIED SHIPS OR OTHER BUSINESS THEN SAME HAS TO BE COMPUTED IN ACCORDANCE WITH OTH ER PROVISIONS OF THE ACT. 3. FOR THE CURRENT ASSESSMENT YEAR THE ASSESSEE HA S COMPUTED THE TONNAGE INCOME AND FURNISHED NECESSARY REPORT F ROM THE CHARTERED ACCOUNTANT IN FORM NO.66 ALONG WITH A CE RTIFICATE FROM DIRECTOR GENERAL OF SHIPPING IN RESPECT OF THE MINI MUM TRAINING REQUIREMENT FOR TONNAGE TAX COMPANY UNDER SECTION 1 15VU(2) OF THE ACT. HOWEVER THE ASSESSEE HAS NOT MAINTAINED THE B OOKS OF ACCOUNT EXCLUSIVELY FOR RELEVANT SHIPPING INCOME AS REQUIR ED UNDER THE PROVISIONS. THE ASSESSEE IS CONTESTING THAT IT HAS ONLY INCOME FROM TONNAGE TAX AND THEREFORE BOOKS OF ACCOUNT HAVE BEE N MAINTAINED PROPERLY BUT THE VERSION OF THE ASSESSEE IS NOT TRU E AS WILL BE SEEN FROM THE DISCUSSION MADE IN FORTHCOMING PARAS. 4. IN THE PROFIT & LOSS ACCOUNT THE ASSESSEE HAS S HOWN FREIGHT INCOME CARTER HIRE INCOME DEMURRAGE ETC. FROM IT S OWN SHIPS AS WELL AS CHARTERED-IN SHIPS AND ALSO FROM SPACE BOOK ED IN SHIPS I.E. SLOT CHARTER. THE ASSESSEE ALSO HAVE INCOME FROM PR OFIT ON SALE OF SHIPS SALE OF OTHER ASSETS INCOME FROM PRIOR PERI OD ADJUSTMENTS INCOME FROM SUNDRY CREDIT WRITTEN BACK SUNDRY RECE IPTS ETC. THE ASSESSEE DISTRIBUTED ITS PROFIT BEFORE TAX OF ` 110003 LAKHS REPORTED IN PROFIT & LOSS ACCOUNT (ANNUAL REPORT) IN THREE CATE GORIES NAMELY RELEVANT SHIPPING INCOME ( ` 8776100000) INCOME FROM INCIDENTAL ACTIVITIES IN EXCESS OF 25% OF THE TURNOVER FROM CO RE ACTIVITIES ( ` 112400000) AND INCOME FROM OTHER SOURCES ( ` 2211760000). FOR ARRIVING AT ABOVE INCOMES THE ASSESSEE HAS ALLOCAT ED ADMINISTRATIVE EXPENSES OF ` 7300000 AGAINST INCOME FROM INCIDENTAL ACTIVITIES AND ` 78390000 AGAINST INCOME FROM OTHER SOURCES OUT OF T OTAL ADMINISTRATIVE EXPENSES OF ` 1378550000 IN THE RATIO OF TURNOVER UNDER THESE CATEGORIES. 3. THE ASSESSING OFFICER IN HIS ORDER UNDER SECTION 1 43(3) OF INCOME TAX ACT 1961 (FOR SHORT THE ACT) PASSED ON 21 ST DECEMBER 2009 MADE CERTAIN ADDITIONS AND ARRIVED AT A TOTAL INCOME OF ` 389 18 95 750. AGGRIEVED THE THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 3 ASSESSEE CARRIED THE MATTER IN APPEAL AND THE FIRST APPELLATE AUTHORITY GRANTED PART RELIEF. FURTHER AGGRIEVED THE ASSESSE E IS IN APPEAL BEFORE THE TRIBUNAL. 4. GROUND NO.1 RAISED BY THE ASSESSEE READS AS FOLLOW S:- 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE AM OUNT OF ` 85 73 41 219 ( ` 595600000 BEING SUNDRY CREDIT BALANCE WRITTEN BACK IN THE POST TONNAGE REGIME + ` 5741219 BEING PRIOR PERIOD EXPENSES WRITTEN BACK + ` 256000000 BEING PROVISIONS FOR EXPENSES WRITTEN BACK) AROSE FROM THE BUSINESS OF OPERATION OF QUALI FYING SHIPS FULFILLING THE CONDITIONS OF SECTION 115VI OF THE ACT AND THER EFORE CANNOT BE SEPARATELY TAX UNDER SECTION 41(1). 1.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E A.O. HAVING ACCEPTED THAT THE WRITE BACK OF SUNDRY CREDITORS / PRIOR PERIOD EXPENSES WRITTEN BACK / EXCESS PROVISION RELATING T O POST TONNAGE TAX PERIOD CANNOT BE BROUGHT TO TAX BY APPLYING SECTION 41(1) THE SAME PRINCIPLE OUGHT TO BE APPLIED TO SUCH WRITE BACK OF SUNDRY CREDITORS / PRIOR PERIOD EXPENSES WRITTEN BACK / EXCESS PROVISI ON RELATING TO PRE- TONNAGE TAX PERIOD. 5. BEFORE US LEARNED SR. COUNSEL MR. S.E. DASTUR AP PEARING ON BEHALF OF THE ASSESSEE SUBMITS THAT THE ENTIRE APPEAL IS ON THE INTERPRETATION OF CHAPTER-XII-G I.E. SECTION 115V TO 115VX OF THE AC T. HE SUBMITS THAT THIS CHAPTER DEALS WITH SPECIAL PROVISIONS RELATING TO I NCOME OF SHIPPING COMPANY. HE SUBMITS THAT THE UNDISPUTED FACTS OF THE CASE AR E THAT ALL THE SHIPS OF THE ASSESSEE ARE QUALIFYING SHIPS REFERRED TO IN SECTIO N 115VD. IT IS NOT DISPUTED THAT THE ASSESSEE DOES NOT HAVE ANY OTHER BUSINESS AND THE COMPANY HAD OPTED FOR COMPUTATION OF PROFITS AND GAINS OF BUSIN ESS UNDER CHAPTER-XII-G. 6. LEARNED SR. COUNSEL SUBMITS THAT THERE ARE THREE TY PES OF INCOME I.E. (I) INCOME FROM SHIPPING BUSINESS; (II) INCOME FROM OTHER THAN SHIPPING BUSINESS; AND (III) OTHER INCOME. HE FURTHER EXPLAI NED THAT THE INCOME FROM SHIPPING BUSINESS CAN BE OF TWO CATEGORIES I.E. (I ) INCOME SUBJECTED TO TONNAGE TAX AND (II) NON-TONNAGE TAX INCOME. HE REL IED ON SECTION 115VA AND SUBMITS THAT THIS IS THE CHARGING SECTION AND I T MANDATES THAT NOTHING CONTAINED IN SECTIONS 28 TO 43C OF THE ACT WOULD AP PLY WHEN INCOME IS THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 4 COMPUTED UNDER CHAPTER-XII-G AND THAT THE INCOME S O COMPUTED SHALL BE THE PROFITS AND GAINS OF SUCH BUSINESS CHARGEABLE T O TAX. HE TOOK THE BENCH THROUGH SECTIONS 115VI AND 115VG 115VF. 7. NOW COMING TO GROUND NO.1 THE LEARNED COUNSEL SUB MITS THAT THE ASSESSING OFFICER MADE ADDITIONS OF WRITE BACK OF E XCESS PROVISIONS SUNDRY CREDITORS PRIOR PERIOD ADJUSTMENTS ETC. HE TOOK T HE BENCH THROUGH THE FACTS AS BROUGHT OUT BY THE ASSESSING OFFICER AND SUBMITS THAT THE ASSESSING OFFICER HAS WRONGLY MADE AN ADDITION UNDER SECTION 41(1) ON THE GROUND THAT THESE DO NOT RELATE TO CORE SHIPPING ACTIVITY. HE V EHEMENTLY CONTENDED THAT WHEN SECTION 115VA SPECIFICALLY MANDATES THAT NOTHI NG CONTAINED IN SECTIONS 28 TO 43C SHALL APPLY WHEN THE ASSESSEE OPTS TO CO MPUTE PROFITS AND GAINS OF BUSINESS UNDER THIS CHAPTER THE QUESTION OF INV OKING THE PROVISIONS OF SECTION 41(1) DOES NOT ARISE. HE REFERRED TO THE TE RM CORE ACTIVITY AS DEFINED IN SECTION 115VI SUB-SECTION 2 AND SUBMITS THAT THE COMMISSIONER (APPEALS) HAS NOT DEALT WITH THIS ASPECT AND HAS NO T ATTEMPTED TO DETERMINE WHETHER THE INCOME WRITTEN BACK IN THE YEAR RELATES TO THE CORE ACTIVITY. LEARNED SR. COUNSEL SUBMITS THAT SECTION 41(1) IS A N ARTIFICIAL PROVISION BROUGHT INTO STATUTE AND UNDER THE GENERAL LAW WRIT E BACK OF PROVISIONS OR SUNDRY CREDIT BALANCES. FOR THIS PROPOSITION HE RE LIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN COMMISSIONER OF AGRICULTUR AL INCOME TAX V/S KERALA ESTATE MOORIAD CHALAPURAM (1986) 161 ITR 15 5 (SC). HE EELIED THE JUDGMENT OF HON'BLE SUPREME COURT IN ESCORTS LTD & ORS V/S UNION OF INDIA 199 ITR 43 (SC) AND SUBMITS THAT THE COMMISSIONER (APPEALS) HAS WRONGLY PLACED RELIANCE ON THE SAME. HE CONTENDS THAT CHAPT ER-XII-G DID NOT HAVE PROVISIONS SIMILAR TO THAT OF SECTION 41(1) AND ON THE CONTRARY IT HAS SPECIFICALLY EXCLUDED SECTION 41(1) AND UNDER THESE CIRCUMSTANCES NO SEPARATE ADDITION IS CALLED FOR. IN SUPPORT OF THIS ARGUMENT HE RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN RAJPUTANA TRAD ING CO. LTD. V/S CIT (1968) 72 ITR 286 (SC). LEARNED COUNSEL SUBMITS THA T WHEN THE EXPENDITURE WAS ALLOWED IT WAS ALLOWED AS A CORE A CTIVITY EXPENDITURE AND WHEN IT IS WRITTEN BACK IT WOULD RETAIN THE SAME C HARACTER. LEARNED COUNSEL THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 5 REFERRING TO THE RELIANCE PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN LIBERTY INDIA V/S CIT (2009) 317 ITR 218 (SC) BY THE REVENUE AUTHORITIES SUBMITS THAT THE WORDING OF SECTION 115VA IS INCOME FROM BUSINESS OF OPERATING QUALIFYING SHIPS AND NOT INCOME DERIVED FROM OPERATING OF QUALIFYING SHIPS . SIMILAR ARGUMENTS WERE ADVANCED ON WRITE BACK OF PRIOR PERIOD EXPENSES AND WRITE BACK OF EXCESS PROVISIONS FOR EXPENSES. HE FURTHER ADDED THAT THE ONLY GROUND ON WHICH THE COMMISSIONE R (APPEALS) UPHELD THE ADDITION WAS THAT THESE EXPENDITURES PERTAINED TO P ERIOD WHEN THE ASSESSEE HAS DECLARED INCOME UNDER THE NORMAL PROVISIONS WH EN TONNAGE TAX SCHEME WAS NOT IN VOGUE. HE SUBMITS THAT THE ARGUMENT OF T HE REVENUE THAT THE EXPENDITURE WHICH WERE ALLOWED WHEN INCOME IS COMPU TED IN A PERIOD PRIOR TO PRE-TONNAGE SCHEME RESULTING IN REDUCTION IN TAX ABLE INCOME THEN THE WRITE BACK THOSE EXPENSES IN THE CURRENT YEAR WHEN TONNAGE TAX SCHEME APPLIES RESULTS IN A MISS-MATCH IS DEVOID OF MERIT FOR THE REASON THAT THERE ARE OTHER PROVISIONS IN THE ACT SUCH AS SECTION 43B WHICH ALLOW CERTAIN DEDUCTION ONLY ON ACTUAL PAYMENT AND WOULD LEAD TO A SITUATION WHERE EXPENDITURE WHICH PERTAINS TO THE PERIOD OF PRE-TON NAGE SCHEME BEING CLAIMED DURING THE PERIOD OF TONNAGE SCHEME. 8. COMING TO GROUND NO.2 WHICH RELATES TO MISCELLANEO US RECEIPTS THE LEARNED SR. COUNSEL TOOK THIS BENCH TO THE ORDER OF THE COMMISSIONER (APPEALS) AND STRONGLY DISPUTED THE FINDINGS THEREI N. ON A QUERY FROM THE BENCH THE LEARNED SR. COUNSEL SUBMITS THAT THE ASS ESSING OFFICER HAS ALLOWED THE EXPENDITURE AS CLAIMED AND THERE IS NO TAX IMPACT TO THE ASSESSEE IN THIS YEAR THOUGH ON PRINCIPLE THE ASS ESSEE DISPUTES THE FINDINGS OF THE REVENUE AUTHORITIES. 9. SIMILARLY ON GROUND NO.3 WHICH IS ON THE ISSUE OF INSURANCE RECEIPTS AND GROUND NO.4 WHICH IS ON THE ISSUE OF RE-FUND O F SERVICE TAX LEARNED SR. COUNSEL SUBMITS THAT THE ASSESSEE STRONGLY DISPUTES THE FINDINGS OF THE REVENUE AUTHORITIES. HE SUBMITS THAT THOUGH ON PRI NCIPLE THEY DO NOT AGREE WITH THE FINDINGS OF THE REVENUE AUTHORITIES IN VI EW OF THE FACT THAT THERE IS THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 6 NO TAX IMPACT IN THIS YEAR AND HENCE THESE GROUND S BECOME ACADEMIC IN NATURE. 10. ON GROUND NO.5 LEARNED COUNSEL SUBMITS THAT PROVIS IONS OF TONNAGE TAX APPLY TO MISCELLANEOUS RECEIPTS BEING INTEREST ON LOAN GIVEN TO EMPLOYEES FOR VEHICLE AND COMPUTERS. HE CONTENDED T HAT THE PROVISIONS OF LOANS FOR VEHICLE AND COMPUTER TO EMPLOYEES ARE REL ATED TO BUSINESS OF THE ASSESSEE AND THE INCOME HAS TO BE HELD AS INCOME FROM CORE ACTIVITIES AND IT CANNOT BE HELD AS INCOME FROM OTHER SOURCES . 11. ON GROUND NO.6 WHICH RELATES TO INCOME FROM CONTAI NERS RELATED COST AND DETENTION CHARGES THE LEARNED SR. COUNSEL SUBM ITS THAT THE REVENUE AUTHORITIES ERRED IN HOLDING THAT THE INCOME IS FRO M INCIDENTAL ACTIVITY AND NOT FROM CORE ACTIVITY. HE SUBMITS THAT THE COMMISS IONER (APPEALS) IN HIS ORDER VIDE PARA-10.2 AGREES THAT THE ENTIRE RECEIP T IS NOTHING BUT REIMBURSEMENT OF EXPENDITURE AND WHILE HOLDING SO WRONGLY REJECTED THE ARGUMENT OF THE ASSESSEE . LEARNED SR. COUNSEL RELI ED ON RULE-11R(II) OF THE I.T. RULES 1962 AND SUBMITS THAT WHAT IS REFERRED IN THE RULE IS INCOME FROM LOADING OR UNLOADING OF CARGO AS AN INDEPENDE NT ACTIVITY AND NOT AS AN INTEGRATED ACTIVITY OF SHIPPING GOODS OR CONTAINERS . HIS CASE IS THAT WHEN THE ASSESSEE USES HIS SURPLUS EQUIPMENT / MACHINERY AND LABOUR FOR LOADING OR UNLOADING SHIPS OF OTHER COMPANIES THEN SUCH INCOM E WOULD BE INCOME FROM INCIDENTAL ACTIVITIES . HE EMPHASIZED THAT NO CARGO CAN BE SHIFTED WITHOUT LOADING OR UNLOADING THE SAME. HE POINTS OU T THAT THE ENTIRE CHARGES WERE PAID TO THE PORT TRUST AND REIMBURSEMENT WAS C LAIMED FROM THE CUSTOMERS. UNDER SUCH CIRCUMSTANCES HE SUBMITS THA T THERE IS NO SEPARATE INCOME EARNED BY THE ASSESSEE MUCH LESS INCOME FROM INCIDENTAL ACTIVITIES. 12. ON GROUND NO.7 THE LEARNED COUNSEL SUBMITS THAT TH E ISSUE IN QUESTION IS COMPUTATION OF INTEREST INCOME. HE SUBMITS THAT THE ASSESSEE HAS ALLOCATED COMMON EXPENDITURES BASED ON THE PROVISIO NS OF SECTION 115VJ OF THE ACT. HE DISPUTED THE FINDINGS OF THE ASSESSING OFFICER THAT THIS EXPENDITURE DOES NOT FALL WITHIN THE KEN OF SECTION 57(III). LEARNED SR. THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 7 COUNSEL THUS CONTENDED THAT ALLOCATION HAS TO BE MADE ON THE GUIDELINES PROVIDED UNDER RULE-8 R/W 14A OF THE ACT AND WHEN T HE SAME IS TAKEN THE ALLOCATION MADE BY THE ASSESSEE WOULD BE FOUND REAS ONABLE. HE RELIED ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CH INAI AND CO. PVT. LTD. V/S CIT (1990) 206 ITR 616 (BOM.) AND SUBMITS THAT AT PAGE-624 THE COURT HAS LAID DOWN A NORM OF 20%. HE SUBMITS THAT THE SA ME PERCENTAGE SHOULD BE TAKEN AS A GUIDELINE AND THE CLAIM OF THE ASSESS EE BE ALLOWED. 13. ON GROUNDS NO.8 AND 9 LEARNED COUNSEL SUBMITS THAT HE DID NOT WISH TO PRESS THESE GROUNDS. 14. ON GROUND NO.10 WHICH RELATES TO DETERMINATION OF TOTAL TURNOVER FROM CORE ACTIVITIES THE LEARNED COUNSEL SUBMITS THAT I NCOME FROM SALE OF SHIPS SHOULD BE CONSIDERED AS INCOME FROM CORE ACTIVITIES FOR THE REASON THAT DEPRECIATION ON THE SHIPS HAVE BEEN ALLOWED AND CLA IMED AS EXPENDITURE IN EARLIER YEARS. HE REITERATED HIS CONTENTIONS THAT A LL THE SHIPS OF THE ASSESSEE ARE QUALIFYING SHIPS AND THE ENTIRE INCOME FROM BUS INESS OF OPERATING OF SHIPS QUALIFIES FOR TONNAGE TAX SCHEME AND THERE IS NO WARRANT IN EXCLUDING THESE INCOMES FROM THE TOTAL TURNOVER. SIMILARLY H E SUBMITS THAT SUNDRY RECEIPTS ALSO FORM PART OF TOTAL TURNOVER FROM CORE SHIPPING ACTIVITIES. 15. LEARNED COUNSEL WOUND UP HIS ARGUMENT BY REFERRING TO THE BUDGET SPEECH OF THE HONBLE FINANCE MINISTER DELIVERED ON 8 TH JULY 2004 WHILE PRESENTING THE BUDGET FOR THE ASSESSMENT YEAR 2004- 05 AS WELL AS CIRCULAR NO.5 OF 2005 DATED 15 TH JULY 2005 REPORTED IN 276 ITR (STATUTE) 151 AT PAGE-190 AND SUBMITS THAT THESE PROVISIONS ARE BEN EFICIAL PROVISIONS AND HENCE THERE SHOULD BE LIBERALLY CONSTRUED. HE POIN TS OUT THAT THE CIRCULAR QUALIFIES THAT IT HAS BEEN PROVIDED THAT SECTIONS 3 0 TO 43B AND SECTION 57 SHALL APPLY AS IF EVERY LOSS ALLOWANCE OR DEDUCTIO N REFERRED TO THEREIN AND RELATING TO OR ALLOWABLE FOR ANY OF THE RELEVANT PR EVIOUS YEAR HAD BEEN GIVEN FULL EFFECT TO FOR THE PREVIOUS YEAR ITSELF. ACCORD INGLY HE PRAYED FOR RELIEF. THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 8 16. LEARNED DEPARTMENTAL REPRESENTATIVE MR. JAYA KUMAR ON THE OTHER HAND SUBMITS THAT THE ASSESSEE ITSELF HAS WHILE F ILING ITS RETURN OF INCOME CLASSIFIED ITS INCOME AS FOLLOWS:- S.NO. PARTICULARS AMOUNT ( ` ) 1. CORE SHIPPING ACTIVITIES 37 77 11 48 213 2. INCIDENTAL ACTIVITIES 21 41 70 310 3. INTEREST 2 19 68 70 462 4. DIVIDEND 9 32 67 915 TOTAL 40 27 54 56 900 17. HE SUBMITS THAT UNDER THE SCHEME OF THE ACT INCOME FROM CORE SHIPPING ACTIVITIES AND INCIDENTAL ACTIVITIES ARE R ELEVANT SHIPPING INCOME AND WOULD BE TAXED UNDER CHAPTER-XII-G AND WHEREAS INCO ME OTHER THAN RELEVANT SHIPPING INCOME AND INCOME FROM OTHER SOURCES WILL BE TAXED UNDER REGULAR PROVISIONS OF THE ACT. HE FURTHER POINTS OUT THAT U NDER THE SCHEME OF THE ACT IF INCIDENTAL INCOME EXCEEDS 0.25% OF THE TURNOVER OF CORE SHIPPING ACTIVITIES SUCH EXCESS INCOME WILL BE BROUGHT TO T AX UNDER THE REGULAR PROVISIONS OF THE ACT. HE REFERRED TO ANNEXURE A OF THE ASSESSMENT ORDER AND SUBMITS THAT THIS GIVES A BIRDS EYE VIEW OF TH E VARIOUS CLASSIFICATION DONE BY THE ASSESSEE. HE POINTS OUT THAT THE TOTAL INCOME UNDER COL. (C) HAS BEEN DIVIDED INTO OTHER TAXABLE INCOME IN COL. (D) EXCESS INCOME FROM INCIDENTAL ACTIVITIES IN COL. (E) AND RELEVANT SHIP PING INCOME IN COL. (F). HE SUBMITS THAT INCOME WHICH DOES NOT FALL WITHIN THE CLASSIFICATION OF RELEVANT SHIPPING INCOME HAS TO BE TAXED UNDER THE NORMAL PR OVISIONS. 18. WITH THE AFORESAID BACKGROUND THE LEARNED DEPARTME NTAL REPRESENTA- TIVE ADDRESSED GROUND NO.1 AND SUBMITS THAT THE ASS ESSEE HAD CLAIMED CERTAIN EXPENDITURE FROM INCOME UNDER THE NORMAL PR OVISIONS IN THE EARLIER ASSESSMENT YEARS WHEN THE TAXATION UNDER TONNAGE TA X SCHEME WAS NOT IN THE STATUTE AND THAT SOME OF THESE EXPENDITURES HAV E BEEN WRITTEN BACK DURING THE YEAR AND THAT THIS RESULTED IN DOUBLE BE NEFIT TO THE ASSESSEE. HE THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 9 RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SU BMITS THAT THE AMOUNTS WRITTEN BACK UNDER SECTION 41(1) DO NOT FALL UNDER THE CATEGORY OF RELEVANT SHIPPING INCOME AND HENCE HAVE TO BE BROUGHT TO T AX UNDER A REGULAR PROVISION. HE TOOK THIS BENCH TO THE FINDINGS OF TH E ASSESSING OFFICER AT PAGES-17 AND 18 OF THE ASSESSMENT ORDER AND RELIED ON THE SAME. SIMILAR ARGUMENTS WERE ADVANCED IN THE CASE OF WRITE BACK O F SUNDRY CREDIT BALANCES AND PRIOR PERIOD INCOME. HE REFERRED TO THE ASSESSM ENT ORDER PAGE-15 / PARA-6.16 AND SUBMITS THAT THE ASSESSEE HAS REPORTE D MORE THAN ` 800 CRORES AS INCOME IN THE BOOKS OF ACCOUNT WHEREAS HE IS OFFERING A SUM OF ONLY `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` 46 FOR EACH 100 TONS EXCEEDING 1 000 BUT NOT MORE THAN 10 000 ` 460 PLUS ` 35 FOR EACH 100 TONS EXCEED- ING 1 000 TONS EXCEEDING 10 000 BUT NOT MORE THAN 25 000 ` 3 610 PLUS ` 28 FOR EACH 100 TONS EXCEED- ING 10 000 TONS EXCEEDING 25 000 ` 7 810 PLUS ` 19 FOR EACH 100 TONS EXCEED- ING 25 000 TONS. (4) FOR THE PURPOSES OF THIS CHAPTER THE TONNAGE S HALL MEAN THE TONNAGE OF A SHIP INDICATED IN THE CERTIFICATE REFE RRED TO IN SECTION 115VX AND INCLUDES THE DEEMED TONNAGE COMPUTED IN T HE PRESCRIBED MANNER. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION DEEMED TONNAGE SHALL BE THE TONNAGE IN RESPECT OF AN ARRANGEMENT O F PURCHASE OF SLOTS SLOT CHARTER AND AN ARRANGEMENT OF SHARING OF BREAK -BULK VESSEL. (5) THE TONNAGE SHALL BE ROUNDED OFF TO THE NEAREST MULTIPLE OF HUNDRED TONS AND FOR THIS PURPOSE ANY TONNAGE CONSI STING OF KILOGRAMS SHALL BE IGNORED AND THEREAFTER IF SUCH TONNAGE IS NOT A MULTIPLE OF THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 14 HUNDRED THEN IF THE LAST FIGURE IN THAT AMOUNT IS FIFTY TONS OR MORE THE TONNAGE SHALL BE INCREASED TO THE NEXT HIGHER T ONNAGE WHICH IS A MULTIPLE OF HUNDRED AND IF THE LAST FIGURE IS LESS THAN FIFTY TONS THE TONNAGE SHALL BE REDUCED TO THE NEXT LOWER TONNAGE WHICH IS A MULTIPLE OF HUNDRED; AND THE TONNAGE SO ROUNDED OFF SHALL BE THE TONNAGE OF THE SHIP FOR THE PURPOSES OF THIS SECTION. (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT NO DEDUCTION OR SET OFF SHALL BE ALLOWED IN CO MPUTING THE TONNAGE INCOME UNDER THIS CHAPTER. RELEVANT SHIPPING INCOME . 115V-I . (1) FOR THE PURPOSES OF THIS CHAPTER THE RELEVAN T SHIPPING INCOME OF A TONNAGE TAX COMPANY MEANS (I) ITS PROFITS FROM CORE ACTIVITIES REFERRED TO I N SUB-SECTION (2); (II) ITS PROFITS FROM INCIDENTAL ACTIVITIES REFERR ED IN SUB-SECTION (5): PROVIDED THAT WHERE THE AGGREGATE OF ALL SUCH INCOM ES SPECIFIED IN CLAUSE (II) EXCEEDS ONE-FOURTH PER CENT OF THE TURN OVER FROM CORE ACTIVITIES REFERRED TO IN SUB-SECTION (2) SUCH EXC ESS SHALL NOT FORM PART OF THE RELEVANT SHIPPING INCOME FOR THE PURPOSES OF THIS CHAPTER AND SHALL BE TAXABLE UNDER THE OTHER PROVISIONS OF THIS ACT. (2) THE CORE ACTIVITIES OF A TONNAGE TAX COMPANY SH ALL BE (I) ITS ACTIVITIES FROM OPERATING QUALIFYING SHIPS ; AND (II) OTHER SHIP-RELATED ACTIVITIES MENTIONED AS UN DER : (A) SHIPPING CONTRACTS IN RESPECT OF (I) EARNING FROM POOLING ARRANGEMENTS; (II) CONTRACTS OF AFFREIGHTMENT. EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE (A)POOLING ARRANGEMENT MEANS AN AGREEMENT BETWEE N TWO OR MORE PERSONS FOR PROVIDING SERVICES THROUGH A POOL OR OP ERATING ONE OR MORE SHIPS AND SHARING EARNINGS OR OPERATING PROFITS ON THE BASIS OF MUTUALLY AGREED TERMS; (B)CONTRACT OF AFFREIGHTMENT MEANS A SERVICE CON TRACT UNDER WHICH A TONNAGE TAX COMPANY AGREES TO TRANSPORT A SPECIFIED QUANTITY OF SPECIFIED PRODUCTS AT A SPECIFIED RATE BETWEEN DES IGNATED LOADING AND DISCHARGING PORTS OVER A SPECIFIED PERIOD; THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 15 (B)SPECIFIC SHIPPING TRADES BEING (I)ON-BOARD OR ON-SHORE ACTIVITIES OF PASSENGER SH IPS COMPRISING OF FARES AND FOOD AND BEVERAGES CONSUMED ON BOARD; (II)SLOT CHARTERS SPACE CHARTERS JOINT CHARTERS FEEDER SERVICES CONTAINER BOX LEASING OF CONTAINER SHIPPING. (3) THE CENTRAL GOVERNMENT IF IT CONSIDERS NECESSA RY OR EXPEDIENT SO TO DO MAY BY NOTIFICATION IN THE OFFICIAL GAZETTE EXCLUDE ANY ACTIVITY REFERRED TO IN CLAUSE (II) OF SUB-SECTION (2) OR PR ESCRIBE THE LIMIT UP TO WHICH SUCH ACTIVITIES SHALL BE INCLUDED IN THE CORE ACTIVITIES FOR THE PURPOSES OF THIS SECTION. (4) EVERY NOTIFICATION ISSUED UNDER THIS CHAPTER SH ALL BE LAID AS SOON AS MAY BE AFTER IT IS ISSUED BEFORE EACH HOUSE OF PARLIAMENT WHILE IT IS IN SESSION FOR A TOTAL PERIOD OF THIRTY DAYS WHI CH MAY BE COMPRISED IN ONE SESSION OR IN TWO OR MORE SUCCESSIVE SESSION S AND IF BEFORE THE EXPIRY OF THE SESSION IMMEDIATELY FOLLOWING THE SES SION OR THE SUCCESSIVE SESSIONS AFORESAID BOTH HOUSES AGREE IN MAKING ANY MODIFICATION IN THE NOTIFICATION OR BOTH HOUSES AG REE THAT THE NOTIFICATION SHOULD NOT BE ISSUED THE NOTIFICATION SHALL THEREAFTER HAVE EFFECT ONLY IN SUCH MODIFIED FORM OR BE OF NO EFFEC T AS THE CASE MAY BE; SO HOWEVER THAT ANY SUCH MODIFICATION OR ANNU LMENT SHALL BE WITHOUT PREJUDICE TO THE VALIDITY OF ANYTHING PREVI OUSLY DONE UNDER THAT NOTIFICATION. (5) THE INCIDENTAL ACTIVITIES SHALL BE THE ACTIVITI ES WHICH ARE INCIDENTAL TO THE CORE ACTIVITIES AND WHICH MAY BE PRESCRIBED FOR THE PURPOSE. (6) WHERE A TONNAGE TAX COMPANY OPERATES ANY SHIP WHICH IS NOT A QUALIFYING SHIP THE INCOME ATTRIBUTABLE TO OPERATI NG SUCH NON- QUALIFYING SHIP SHALL BE COMPUTED IN ACCORDANCE WIT H THE OTHER PROVISIONS OF THIS ACT. (7) WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOS ES OF TONNAGE TAX BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARR IED ON BY A TONNAGE TAX COMPANY OR WHERE ANY GOODS OR SERVICES HELD FO R THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY SUCH TONNAGE TAX C OMPANY ARE TRANSFERRED TO THE TONNAGE TAX BUSINESS AND IN EIT HER CASE THE CONSIDERATION IF ANY FOR SUCH TRANSFER AS RECORDE D IN THE ACCOUNTS OF THE TONNAGE TAX BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF THE TRANSF ER THEN THE RELEVANT SHIPPING INCOME UNDER THIS SECTION SHALL B E COMPUTED AS IF THE TRANSFER IN EITHER CASE HAD BEEN MADE AT THE MARK ET VALUE OF SUCH GOODS OR SERVICES AS ON THAT DATE: THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 16 PROVIDED THAT WHERE IN THE OPINION OF THE ASSESSIN G OFFICER THE COMPUTATION OF THE RELEVANT SHIPPING INCOME IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICU LTIES THE ASSESSING OFFICER MAY COMPUTE SUCH INCOME ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION MARKET VALUE IN RELATION TO ANY GOODS OR SERVICES MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH ON SALE IN THE OPEN MARKET. (8) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT OWING TO THE CLOSE CONNECTION BETWEEN THE TONNAGE TAX COMPANY AND ANY OTHER PERSON OR FOR ANY OTHER REASON THE COURSE OF BUSINESS BET WEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE TONNAGE TAX COMPANY MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN THE TONNAGE TAX BUSINESS THE ASSESSING OFFICER SHALL IN COMPUTING THE RELEVANT SHIPPING INCOME OF THE TONNAGE TAX COMPANY FOR THE PURPOSES OF THIS CHAPTER TAKE THE AMOUNT OF INCOME AS MAY REASONABLY BE DEEMED TO HAVE BEEN DERIVED TH EREFROM. EXPLANATION.FOR THE PURPOSES OF THIS CHAPTER IN C ASE THE RELEVANT SHIPPING INCOME OF A TONNAGE TAX COMPANY IS A LOSS THEN SUCH LOSS SHALL BE IGNORED FOR THE PURPOSES OF COMPUTING TONN AGE INCOME. 29. PROVISIONS OF SECTION 115VA PROVIDES THAT THE INCOM E FROM BUSINESS OF OPERATING QUALIFYING SHIPS MAY BE COMPUTED IN ACCOR DANCE WITH THE PROVISIONS OF CHAPTER XII-G AND THAT THE INCOME SO COMPUTED SHALL BE DEEMED TO BE THE PROFITS AND INCOME FROM QUALIFYING SHIPS ARE DEFINED IN SECTION 115VC AND THERE IS NO DISPUTE ON THIS ASPE CT. SECTION 115VE MANDATES THAT PROFITS FROM BUSINESS OF A COMPANY EN GAGED IN THE BUSINESS OF OPERATING QUALIFYING SHIPS SHALL BE COMPUTED UND ER THE TONNAGE TAX SCHEME. IT ALSO SPECIFIES THAT SUCH BUSINESS OF OPE RATING QUALIFYING SHIPS SHALL BE CONSIDERED AS A SEPARATE BUSINESS DISTINCT FROM ALL OTHER ACTIVITIES OR BUSINESS CARRIED ON BY THE COMPANY. THE MODE OF COM PUTATION OF TONNAGE INCOME IS GIVEN UNDER SECTION 115VG. THE TERM RELEVANT SHIPPING INCOME HAS BEEN DEFINED IN SECTION 115VI. IT IS BASICALLY CLASSIFIED INTO TWO CATEGORIES I.E. PROFITS FROM CORE ACTIVITIES REFER RED TO IN SUB-SECTION 2 AND PROFITS FROM INCIDENTAL ACTIVITY REFERRED TO IN SUB -SECTION 5. THE ISSUE IS WHETHER THE INCOME BY WAY OF RIGHT BACK OF PROVISIO NS OF SUNDRY CREDIT BALANCES AND PRIOR PERIOD EXPENSES CAN BE CONSIDERE D AS INCOME FROM CORE THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 17 ACTIVITIES OF A TONNAGE TAX COMPANY. IN OUR OPINION WRITE BACK OF THESE ITEMS IS TO BE CONSIDERED AS INCOME FROM CORE ACTIV ITY. IN A GOING CONCERN SUCH WRITE BACKS AND MAKING OF SUPPLEMENTARY PROVIS IONS TAKES PLACE. THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER (APPE ALS) HAVE TREATED THE VERY SAME INCOME WHICH IS TAXABLE UNDER SECTION 41( 1) DIFFERENTLY. THE FIRST BEING EXPENDITURE CLAIMED IN PRE-TONNAGE TAX SCHEME ASSESSMENT YEARS AND THE SECOND BEING EXPENDITURE CLAIMED IN POST TONNAG E TAX SCHEME ASSESSMENT YEARS. SUCH A SEGREGATION IS NOT PERMISS IBLE UNDER THE ACT. BOTH THE INCOMES ARE INCOMES FROM CORE ACTIVITY AND JUST BECAUSE TAX RATES DIFFERENT THEY CANNOT BE TREATED AS NON-BUSINESS I NCOME. THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER (APPEALS) SEEM TO HAVE BEEN INFLUENCED BY THE FACT THAT THE ASSESSEE HAS AN INCOME OF ` 800 CRORES IN ITS PROFIT & LOSS ACCOUNT AND WHEREAS HE HAS OFFERED ONLY ` 18 CRORES TO TAX UNDER THE TONNAGE TAX SCHEME. THE DECISION WHETHER A PARTICUL AR INCOME HAS TO BE BROUGHT TO TAX OR NOT CANNOT BE BASED ON SUCH A VI EW OF THE MATTER. THE LEGISLATURE IN ITS WISDOM PROVIDED THE MANNER OF CO MPUTATION OF INCOME UNDER THE TONNAGE TAX SCHEME. IN SECTION 115VA IT IS CLEARLY PROVIDED THAT SECTIONS 28 TO 43C WOULD NOT OVER RIDE THE COMPUTAT ION OF PROFITS AND GAINS UNDER SECTION 115VA. AS SECTION 41(1) FALLS WITHIN SECTIONS 28 TO 43C NO SEPARATE ADDITION UNDER THAT SECTION CAN BE MADE. A S SECTION 41(1) SEEKS TO BRING TO TAX CERTAIN SPECIFIED ITEMS OF RECEIPTS UN DER THE HEAD PROFITS AND GAINS OF BUSINESS THE SCHEME SHOUL DNOT BE INVOKED WHILE COMPUTING P ROFITS AND GAINS OF BUSINESS UNDER CHAPTER-XII-G. HENCE W E ARE OF THE OPINION THAT THE ARGUMENT OF THE ASSESSEE SHOULD SUCCEED. 30. WITH THE INTRODUCTION OF CHAPTER-XII-G THE ENTIRE METHODOLOGY OF TAXING INCOME FROM THE BUSINESS OF OPERATING QUALIF YING SHIPS HAS CHANGED AND RECOURSE TO THE NORMAL PROVISIONS OF THE ACT IN A PEACE-MEAL MANNER IS NOT AUTHORISED BY LAW. THOUGH THE ASSESSEE HAS COMP UTED OTHER INCOME WHILE FILING ITS RETURN OF INCOME IN OUR OPINION THE INCOME ARISING FROM SECTION 41(1) CANNOT BE CLASSIFIED AS EITHER INCO ME FROM OTHER SOURCES OR INCOME FROM INCIDENTAL ACTIVITIES. WHEN ALL THE SHI PS OF THE ASSESSEE ARE THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 18 QUALIFYING SHIPS AND WHEN THERE IS NO OTHER ACTIVIT Y OTHER THAN CORE ACTIVITIES AND INCIDENTAL ACTIVITIES IN OUR OPINION A THIRD CATEGORY OF OTHER BUSINESS INCOME CANNOT BE CREATED. AS POINTED OUT BY THE LEA RNED SR. COUNSEL IF SUCH INTRODUCTION IS ALLOWED THEN A CLAIM OF THE ASSESS EE OF DEDUCTION UNDER SECTION 43B I.E. DEDUCTION ONLY ON ACTUAL PAYMENT WOULD BE REQUIRED THRUOGH THE EXPENDITURE ACTUALL YBELONGS TO PRE-TON NAGE PERIOD. TO BE ALLOWED. THE ASSESSING OFFICER CANNOT TAKE RECOURSE TO SECTIONS 28 TO 43C WHEN THERE IS NO OTHER ACTIVITY OR BUSINESS CARRIED ON BY THE COMPANY OTHER THAN BUSINESS OF OPERATING QUALIFYING SHIPS. IN VIE W OF THE ABOVE DISCUSSION WE ALLOW GROUND NO.1 OF THE ASSESSEE. 31. ON GROUNDS NO.2 3 AND 4 BOTH THE PARTIES REITERAT ED THEIR STAND AND AGREE BEFORE US THAT ULTIMATELY THE ADDITIONS HAD N O TAX IMPACT WE DO NOT REQUIRE TO ADJUDICATE THESE GROUNDS SEPARATELY AS IT WOULD BE AN ACADEMIC EXERCISE. THUS THESE THREE GROUNDS ARE DISPOSED OF F AS SUCH. 32. COMING TO GROUND NO.5 THE ASSESSEE EARNED CERTAIN INTEREST INCOME ON LOANS / ADVANCE TO EMPLOYEES FOR VEHICLE AND COM PUTER. SUCH ADVANCING OF LOANS IS NOT PARKING OF SURPLUS FUNDS BUT REQUIR EMENTS OF BUSINESS. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S LOK HO LDINGS (2009) 308 ITR 356 (BOM.) HELD AS FOLLOWS:- THE ASSESSEE A FIRM WAS ENGAGED IN CONSTRUCTION B USINESS AND RECEIVED MONIES FROM THE PURCHASERS OF FLATS WHICH IT DEPOSITED WITH THE BANK. THE ASSESSING OFFICER ASSESSED THE INTERE ST INCOME EARNED ON MONEY DEPOSITED WITH THE BANK AS INCOME FROM OTH ER SOURCES AND THUS MADE AN ADDITION UNDER THE HEAD INCOME FROM O THER SOURCES FOR THE ASSESSMENT YEAR 1992-93. THE COMMISSIONER ( APPEALS) DELETED THE ADDITION. THE TRIBUNAL ON FINDING THAT THE ENTIRE INTEREST SPRANG FROM THE BUSINESS ACTIVITY OF THE ASSESSEE A ND NOT OUT OF ANY INDEPENDENT ACTIVITY HELD THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE WAS BUSINESS INCOME. ON FURTHER APPEAL: HELD DISMISSING THE APPEAL THE TRIBUNAL WAS JUST IFIED IN HOLDING THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE WAS AS SESSABLE AS BUSINESS INCOME. THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 19 33. APPLYING THE PROPOSITION LAID DOWN IN THE AFORESAID CASE LAW TO THE FACTS OF THE PRESENT CASE WE UPHOLD THE CONTENTION S OF THE LEARNED SR. COUNSEL THAT THE INTEREST IN QUESTION CANNOT BE COM PARED WITH THE INTEREST ON SURPLUS FUNDS PARKED IN A BANK. LOANS WERE ADVAN CED TO THE EMPLOYEES INVOLVED IN THE CORE ACTIVITY OF AN ORGANISATION AN D WHEN CERTAIN INCOME IS DERIVED FORM SUCH ACTIVITY IN OUR OPINION THE SAM E IS TAXABLE UNDER THE HEAD INCOME FROM BUSINESS AS IT IS EXPECTED THAT THE ASSESSEE DOES NOT HAVE ANY OTHER BUSINESS OTHER THAN BUSINESS OF OPER ATING QUALIFYING SHIPS AND AS IT HAS NO OTHER ACTIVITY AS CONTEMPLATED UND ER CHAPTER-XII-G WE UPHOLD THE CONTENTION OF THE ASSESSEE THAT THIS INC OME CANNOT BE BROUGHT TO TAX SEPARATELY AND IT IS BUSINESS INCOME FROM CORE ACTIVITY. HENCE THIS GROUND IS ALLOWED. 34. COMING TO GROUND NO.6 WE FIND THAT THE ASSESSEE HA S RECOVERED CERTAIN COSTS INCURRED BY IT ON CONTAINER BUSINESS. . AT PARA-10.2 / PAGE-45 OF THE COMMISSIONER (APPEALS)S ORDER A CLEAR FINDING IS GIVEN THAT THE RECEIPT IS IN QUESTION RELATES TO RECOVERY OF CONTAINER REL ATED COSTS AND RECOVERY CHARGES. REFERENCE HAS BEEN MADE TO RULE-11R WHICH IS EXTRACTED BELOW:- INCIDENTAL ACTIVITIES FOR PURPOSES OF RELEVANT SHI PPING INCOME. 11R. THE INCIDENTAL ACTIVITIES (DETAILS GIVEN IN NO TE 5 APPEARING AFTER THE CORRESPONDING FORM NO. 66) REFERRED TO IN SUB-S ECTION (5) OF SECTION 115VI SHALL BE THE FOLLOWING NAMELY : (I) MARITIME CONSULTANCY CHARGES; (II) INCOME FROM LOADING OR UNLOADING OF CARGO; (III) SHIP MANAGEMENT FEES OR REMUNERATION RECEIVE D FOR MANAGED VESSELS; AND (IV) MARITIME EDUCATION OR RECRUITMENT FEES. 35. READING OF THIS RULE DOES NOT PERMIT TREATING RECOV ERY OF CONTAINER RELATED COSTS AND DETENTION CHARGES AS INCOME FROM INCIDENTAL ACTIVITIES FOR THE PURPOSE OF RELEVANT SHIPPING INCOME. IN ANY EVE NT WHEN IT IS ACCEPTED THAT THIS RECEIPT IS NOTHING BUT RECOVERY OF COST IT WOULD NOT BE OPEN FOR THE ASSESSING OFFICER TO BRING TO TAX THE GROSS RECEIPT WITHOUT ELIMINATING THE THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 20 EXPENDITURE INCURRED FOR EARNING THIS INCOME. IF TH IS RECEIPT IS TO BE TREATED AS INCOME FROM INCIDENTAL ACTIVITIES THEN THE RELA TABLE COST IS ALSO TO BE EXCLUDED AND ONLY NET INCOME CONSIDERED. AS IT IS A MERE REIMBURSEMENT THERE IS NO INCOME ELEMENT. IN VIEW OF THE ABOVE DI SCUSSION WE UPHOLD THE CONTENTIONS OF THE ASSESSEE AND ALLOW GROUND NO.6. 36. GROUND NO.7 IS ON ALLOCATION OF ADMINISTRATIVE EXP ENDITURE TO INCOME WHICH IS ADMITTEDLY ASSESSABLE UNDER THE HEAD OTHER SOURCES . THE ASSESSEE RELIES ON THE PROVISIONS OF SECTION 115VJ. IN OUR CONSIDERED OPINION THIS SECTION DOES NOT APPLY TO THE FACTUAL SITUATIO N. THE ASSESSEE HAS CONTENDED THAT IT DOES NOT CARRY ON ANY OTHER BUSIN ESS AND THE ENTIRE INCOME RELATES TO INCOME FROM BUSINESS OF OPERATING QUALIF YING SHIPS. WE HAVE ALSO HELD THAT THE ASSESSEE DOES NOT HAVE ANY SEPARATE A CTIVITY WHICH COULD RESULT IN INCOME. THERE IS NO DISPUTE THAT THE INCOME IS A SSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES . INTEREST IS EARNED ON PARKING OF SURPLUS FUNDS. ALLOCATION OF EXPENDITURE AS THAT WHICH IS N ECESSARY TO EARN THE INTEREST INCOME TO THE TUNE OF ` 7 83 88 809 IS IN OUR OPINION IS HIGHLY EXCESSIVE AND INCORRECT. RELIANCE ON RULE-8D IS ALS O MISPLACED. THE ISSUE IS WHETHER OR NOT THE CLAIM FALLS UNDER THE KEN OF SEC TION 57(III) WHICH READS AS FOLLOWS:- 57(III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. 37. AS THE EXPENDITURE BEING CLAIM BY THE ASSESSEE CANN OT BE SAID TO HAVE BEEN LAID DOWN OR EXPENDED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF MAKING OR EARNING SUCH INCOME WE UPHOLD THE FINDIN G OF THE REVENUE AUTHORITIES IN THIS REGARD. IN OUR OPINION THE ASS ESSING OFFICER HAS RIGHTLY HELD THAT THE ASSESSEE WOULD NOT HAVE INCURRED THE EXPENDITURE CLAIMED FOR EARNING INCOME. THE ESTIMATION OF ` 1 00 000 BY THE ASSESSING OFFICER IN OUR OPINION IS REASONABLE. COMING TO RELIANCE PLACED B Y THE LEARNED SR. COUNSEL ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COUR T CHINAI AND CO. PVT. LTD. THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 21 (SUPRA) WE ARE OF THE OPINION THAT THESE ARE FACTU AL MATTERS AND THE SAME CANNOT BE TAKEN AS A BINDING PRECEDENT. IN VIEW OF THE ABOVE DISCUSSION WE UPHOLD THE FINDING OF THE COMMISSIONER (APPEALS) AN D DISMISS GROUND NO.7 RAIDED BY THE ASSESSEE. 38. GROUNDS NO.8 AND 9 ARE DISMISSED AS NOT PRESSED. 39. COMING TO GROUND NO.10 AS ALREADY STATED THE ASSE SSEE HAS NO OTHER ACTIVITY WHICH WOULD RESULT IN INCOME. IT ALSO DOES NOT HAVE ANY OTHER BUSINESS. THUS THE INCOME IS FROM CORE ACTIVITY ON LY. NEVERTHELESS THE INCOME IN QUESTION IS TAXABLE UNDER THE HEAD CAPITAL GAINS AND DOES NOT FALL WITHIN THE AMBIT OF SECTIONS 28 TO 43C. THUS THE RECEIPT CANNOT BE CONSIDERED AS TURNOVER IN VIEW OF THE PROVISIONS OF SECTION 115VA AND CONSEQUENTLY OUT OF THE PERVIEW OF CHAPTER-XII-G. I N VIEW OF THE ABOVE DISCUSSION WE UPHOLD THE FINDING OF THE ASSESSING OFFICER IN THIS REGARD. 40. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY 2011 SD/- ASHA VIJAYRAGHAVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI DATED: 29.7.2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A) MUMBAI CONCERNED; (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR E BENCH ITAT MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT MUMBAI BENCHES MUMBAI THE SHIPPING CORP. OF (I) LTD. ITA NO.145/M./2011 22 DATE INITIAL 1. DRAFT DICTATED ON 18-20.7.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 25.7.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 29.7.2011 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 29.7.2011 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 29.7.2011 SR.PS 6. DATE OF PRONOUNCEMENT 29.7.2011 SR.PS 7. FILE SENT TO THE BENCH CLERK 29.7.2011 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER