ADIT (IT) 2(1), MUMBAI v. SUPER STAR LIBRA LTD, MUMBAI

ITA 3944/MUM/2010 | 2006-2007
Pronouncement Date: 22-07-2011 | Result: Dismissed

Appeal Details

RSA Number 394419914 RSA 2010
Assessee PAN AAJCS1630G
Bench Mumbai
Appeal Number ITA 3944/MUM/2010
Duration Of Justice 1 year(s) 2 month(s) 8 day(s)
Appellant ADIT (IT) 2(1), MUMBAI
Respondent SUPER STAR LIBRA LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 22-07-2011
Assessment Year 2006-2007
Appeal Filed On 14-05-2010
Judgment Text
I TA NO. 3944 /MUM/2010 ASSESSMENT YEAR: 2006-07 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI [CORAM: PRAMOD KUMAR AM AND VIJAY PAL RAO JM] ITA NO. 3944/MUM/2010 ASSESSMENT YEAR: 2006-07 ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) CIRCLE 2(1) MUMBAI . APPELLANT VS. SUPERSTAR LIBRA LIMITED BERMUDA RESPON DENT MSM ASSOCIATES G 15 EVEREST TARDEO ROAD MUMBAI 400 034 [PAN : AAJCS1630G] APPEARANCES: C G K NAIR FOR THE APPELLANT DR K SHIVRAM FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR : 1. BY WAY OF THIS APPEAL THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF CIT(A)S ORDER DATED 24 TH FEBRUARY 2010 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 F OR THE ASSESSMENT YEAR 2006-07. 2. GRIEVANCE OF THE ASSESSING OFFICER IS AGAINST CI T(A)S CHARACTERIZING THE INCOME OF THE ASSESSEE FROM OPERATING SHIP CRUISE INDIA AS SHIPPING BUSINESS INCOME FOR THE PURPOSES OF SECTION 44B O F THE ACT AND SIGNIFICANCE OF THE INCOME CHARACTERIZATION LIES IN THE FACT THA T THE SHIPPING BUSINESS INCOME OF A NON-RESIDENT ASSESSEE IN INDIA AS IS T HE CASE BEFORE US IS TAXABLE ON PRESUMPTIVE BASIS AT THE RATE OF 7.5% ON GROSS B ASIS AS AGAINST TAXATION OF BUSINESS INCOME ON NET BASIS AT THE NORMAL TAX RA TES. I TA NO. 3944 /MUM/2010 ASSESSMENT YEAR: 2006-07 PAGE 2 OF 6 3. BRIEFLY STATED RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS A BERMUDA BASED COMPANY AND IS ENGAGED THE BUSINESS O F INTER ALIA OPERATING SHIP CRUISE IN INDIA. THERE IS NO DISPUTE ABOUT TAX ABILITY OF ITS INCOME FROM THESE CRUISE OPERATIONS IN INDIA. THE CRUISE SHIPS HAVE OPERATED IN INDIAN WATERS AND THE RELATED BUSINESS IS CONDUCTED IN IND IA. THE CRUISE IN RESPECT OF WHICH THIS DISPUTE ARISES ARE (A) SINGLE POINT C RUISE TO THE MUMBAI HIGH SEA AND BACK (DURATION : TWO DAYS AND ONE NIGHT); ( B) MULTI DAY CRUISE MUMBAI- GOA- MUMBAI (DURATION: THREE DAYS AND TWO N IGHTS); AND (C) MULTI DAY CRUISE MUMBAILAKSHADEEP-MUMBAI (DURATION FIV E DAYS AND FOUR NIGHTS). ON THESE FACTS THE ASSESSING OFFICER RE LYING UPON OBSERVATIONS MADE BY THE ASSESSING OFFICER IN PROCEEDINGS REGARDING A SCERTAINMENT OF TAX WITHHOLDING LIABILITY BY INDIA BASED SALES AGENT OF THE ASSESSEE HELD THAT THE PROVISIONS OF SECTION 44B OF THE ACT DONOT APPLY TO THE ASSESSEE AND TAX IN TO BE LEVIED ON NORMAL RATES ON NET BASIS. THE ASSES SING OFFICER WAS OF THE VIEW THAT THESE CRUISE SHIPS DONOT TRANSPORT PEOPLE FROM ONE PLACE TO ANOTHER AS THE CRUISE IS FOR THE PURPOSE OF ENTERTAINMENT RATH ER THAN FOR THE PURPOSE OF JOURNEY AND THE PLACE OF DISEMBARKATION IS THE SAM E AS THE PLACE OF EMBARKATION. IT WAS ALSO NOTED THAT EVEN IN THE CASE OF CRUISES TOUCHING GOA OR LAKSHDEEP THE FARE CHARGED IS FOR TAKING TH E PASSENGERS FROM AND TO MUMBAI PORT EVEN IF A PERSON DISEMBARKED IN BETWEE N AND ACCORDINGLY IT CANNOT BE ARGUED THAT THE SHIP TRANSPORT PEOPLE FRO M ONE PLACE TO ANOTHER. THE ASSESSING OFFICER WAS THUS OF THE VIEW THAT THE CRUISE IS ONLY FOR THE PURPOSE OF ONBOARD ENTERTAINMENT. HE WAS ALSO OF T HE VIEW THAT SECTION 44B OF THE ACT PROVIDING FOR TAXATION ON GROSS BASIS @ 7.5% OF RECEIPTS COMES INTO PLAY ONLY WHEN SHIPS ARE USED FOR CARRYING PAS SENGERS LIVESTOCK MAIL OR GOODS FROM ONE PORT TO ANOTHER. HE THUS DECLINED T HE APPLICATION OF SECTION 44B OF THE ACT TO THE INCOME FROM INLAND CRUISE OPE RATIONS AND IN THE ABSENCE OF DETAILS OF EXPENSES HAVING BEEN FURNISHE D TO THE ASSESSING OFFICER CONCLUDED THAT PROFITS OF THE ASSESSEE IN RESPECT OF INDIAN CRUISE OPERATIONS CAN BE ESTIMATED @ 25% OF GROSS RECEIPTS ON WHICH 4 1.82% TAX WAS APPLIED. AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE CIT(A) WHO HELD I TA NO. 3944 /MUM/2010 ASSESSMENT YEAR: 2006-07 PAGE 3 OF 6 THAT THE PROVISIONS OF SECTION 44 B ARE APPLICABLE ON THE FACTS OF THIS CASE AND ACCORDINGLY TAX @ 41.82 IS TO BE LEVIED ON 7. 5% OF THE AMOUNT RECEIVED OR RECEIVABLE FOR SUCH CRUISE OPERATIONS. THE ASSES SING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE CIT(A) AND IS IN APPEA L BEFORE US. AS EVIDENT FROM THESE FACTS THE SHORT POINT OF DISPUTE IS THE MANN ER IN WHICH THE INCOME FROM THESE OPERATIONS IS TO BE TAXED ON GROSS BAS IS UNDER THE PROVISIONS OF SECTION 44B OF THE ACT WHICH PROVIDES THAT 7.5% OF PASSAGE COSTS ARE TO BE TREATED AS INCOME OR ON NET BASIS AS PER THE PROVI SIONS OF THE INDIAN INCOME TAX ACT. 4. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS A LSO THE APPLICABLE LEGAL POSITION. 5. THE ISSUE IN APPEAL IS NO LONGER RES INTEGRA . WE FIND THAT THE ASSESSING OFFICERS GRIEVANCES AGAINST THE FINDINGS OF THE CI T(A) IN THE COURSE OF ASCERTAINMENT OF TAX WITHHOLDING LIABILITY FROM REM ITTANCE OF CRUISE PACKAGE BY ASSESSEES INDIA BASED AGENT TO THE ASSESSEE HA VE BEEN REJECTED BY A COORDINATE BENCH OF THIS TRIBUNAL. WHILE DOING SO THE COORDINATE BENCH VIDE ORDER DATED 1 ST JULY 2009 HAS HELD AS FOLLOWS: 5. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND ON PERUSAL OF RECORDS WE HOLD AS FOLLOWS: 5.1 THE FIRST APPELLATE AUTHORITY AFTER CONSIDERING THE DETAILED ARGUMENTS OF THE ASSESSEE HAS AT PARAGRAPH 2.8 ON PAGE 7 OBSERVED AS FOLLOWS: 2.8 PRE-REQUISITE CONDITIONS FOR APPLICATION OF SE CTION 44B ARE THAT THE ASSESSEE SHOULD BE A NON-RESIDENT AND SHOU LD BE ENGAGED IN THE OPERATION OF SHIPS. THE AR HAS MENTIONED TH AT THE SUPERSTAR LIBRA SHIP IS OWNED BY SSRL AND IS BEIN G OPERATED BY THEM. ACCORDINGLY THE FIRST TWO CONDITIONS AS MENT IONED IN SE.44B(1) ARE SATISFIED BY SSRL WHICH ARE THAT A N ON-RESIDENT COMPANY ENGAGED IN THE BUSINESS OF OPERATION OF SHI PS. THE AO HAS NOT DISPUTED THIS FACT. REGARDING THE ISSUE OF CARRIAGE OF PASSENGERS I HAVE EXAMINED THE ARGUMENT OF THE AO. IT IS I TA NO. 3944 /MUM/2010 ASSESSMENT YEAR: 2006-07 PAGE 4 OF 6 INCORRECT TO HOLD THAT IN CASE OF ROUND TRIP EITHER BY TRAIN SHIP OR AIRLINE WHERE THE PASSENGERS BOARD THE TRAIN SHIP OR AIRCRAFT AT ONCE PLACE AND AFTER THE JOURNEY DISEMBARK AT THE S AME PLACE THERE IS NO TRANSPORTATION INVOLVED. IT IS THEREFO RE INCORRECT TO SAY THAT WHEN SSRL CARRIES PASSENGERS FROM MUMBAI T O LAKSHADWEEP OR AGAIN BRING THEM BACK TO MUMBAI IT IS NOT CARRYING PASSENGERS. ON THE CONTRARY THE SHIP IS CARRYING PASSENGERS TO AND FROM MUMBAI TO LAKSHDWEEP AND RET URN TO MUMBAI. THE AR HAS EXPLAINED THAT BESIDES OFFERING RETURN TRIP CRUISES SSRL IS ALSO OFFERING ONE WAY CRUISE FROM MUMBAI TO GOA ON VARIOUS DATES IN THE MONTH OF DECEMBER 2006 TO MAY 2007. FURTHER IF AT ALL ROUND TRIP SHIP CRUISE IS TAKEN BY A PASSENGER SUCH PASSENGER IS ENTITLED TO DISEMBARK F ROM THE SHIP AT INTERVENING PORTS. THERE IS NO RESTRICTION THAT SU CH PASSENGER OF ROUND TRIP SHIP CRUISE WILL DISEMBARK AT MUMBAI ONL Y. AO IS THEREFORE NOT RIGHT IN HOLDING THAT THERE IS NO CAR RIAGE OF PASSENGERS MERELY BECAUSE AS PER SOME OF THE CRUIS E PROGRAMMES PASSENGERS ARE PICKED UP FROM MUMBAI AN D AFTER THE CRUISE DISEMBARK AT MUMBAI. I AGREE WITH THE A RGUMENTS OF THE AR THAT IN SUCH CASES OF TO AND FRO JOURNEY TW O CARRIAGES ARE INVOLVED OF CARRYING PASSENGERS FROM STATION A TO B AND FROM B TO A. IT IS THEREFORE HELD THAT THE SSRL IS ENGAGED I N THE CARRIAGE OF PASSENGERS. FINDINGS OF THE AO IN THIS REGARD ARE INCORRECT. 5.2 LATER AT PARAGRAPH 2.10 THE FIRST APPELLATE AUTHO RITY HAS OBSERVED AS FOLLOWS:- 2.10 I HAVE EXAMINED THE PAPERS FILED BY AR. VARI OUS INTERNATIONAL AIRLINES ARE ALSO OFFERING ONBOARD EN TERTAINMENT AND OTHER FACILITIES FOR THE COMFORT OF THE PASSENG ERS. SIMILARLY SSRL HAS OFFERED VARIOUS TYPES OF ENTERTAINMENTS M EALS AND OTHER FACILITIES FOR THE USE OF ITS PASSENGERS TO P ROVIDE THEM COMFORTABLE JOURNEY. IN MY VIEW IN THE ABSENCE OF ANY SEPARATE CHARGE FOR THESE SERVICES IT IS TO BE HELD THAT TH E PROVISION OF MEAL AND OTHER ENTERTAINMENT WHILE ON CRUSE IS ON LY INCIDENTAL TO THE MAIN BUSINESS ACTIVITY OF THE CRUISE. 5.3 FURTHER AT PARAGRAPH 2.14 HE OBSERVED AS FOLLOWS: 2.14 AR HAS ESTABLISHED BY THE BOOKING SLIPS THAT SSRL IS CHARGING THE PASSENGERS FOR THE CRUISE PAYMENT IN T HE FORM OF CABIN CHARGES AND FARE CHARGES WHICH ARE ALL RELATE D WITH THE TRANSPORTATION. THERE IS NO SEPARATE CHARGE FOR TH E MEAL OR ENTERTAINMENT. IT IS TRUE THAT SOME OF THE ENTERTA INMENT PROGRAMMES ON THE BOARD MAY HAVE TO BE PAID BY THE PASSENGERS. NEVERTHELESS THE FACT REMAINS THAT SUCH ACTIVITIES ON BOARD ARE INCIDENTAL TO THE BUSINESS OF OPERATION OF SHIPS. ACCORDINGLY IT IS HELD THAT THE SSRL A COMPANY ORGANIZED IN BERMU DA ENGAGED I TA NO. 3944 /MUM/2010 ASSESSMENT YEAR: 2006-07 PAGE 5 OF 6 IN THE BUSINESS OF OPERATION OF SHIPS IS ENTITLED T O BE ASSESSED AS PER SECTION 44B. DIRECTION OF THE AO TO ESTIMATE T HE INCOME AT 25% IS DELETED. THE AO IS DIRECTED TO ESTIMATE THE INCOME AT 7.5% OF THE GROSS CRUISE FARE RECEIPT AND DEDUCT TAX U/S .195 AT THE APPROPRIATE TAX RATE ON SUCH INCOME. APPEAL ON GROU ND NO.1 TO 8 IS ALLOWED. 5.4 WE FULLY AGREE WITH THESE FINDINGS. THE INTERPRETA TION SOUGHT TO BE PLACED BY THE LEARNED AO IN HIS ORDER U/S.195 ON THE TERM CARRIAGE IS IMPROPER AND IS AGAINST THE SPIRIT OF THE SECTIO N. TO STATE THAT THE TERM IS NOT DEFINED BY THE ACT AND THAT CARRYING M EANS TAKING OR TRANSPORTING FROM ONE PLACE TO ANOTHER FROM ONE PO RT TO ANOTHER IS A VERY NARROW INTERPRETATION. THE FINDINGS OF THE CI T(A) IS IN LINE WITH THE CIRCULAR OF THE CBDT NO.763 DATED 18.2.1996 WHE REAS PARAGRAPH 26.1 SECTION 44B IS DISCUSSED. IT HAS CLARIFIED TH AT THE AMOUNT PAID OR PAYABLE ETC ON ACCOUNT OF CARRIAGE SHALL INCLUDE A NY CHARGES BY WAY OF DEMURRAGES OR HANDLING ETC OR BY WHATEVER NAME CA LLED AND ANY OTHER CHARGES OF SIMILAR NATURE AND THAT SECTION 44B APPL IES TO THE SAME. SIMILARLY IN CIRCULAR NO.169 DT.23.6.1975 AT PARAGR APHS 37 AND 38 IT IS PROVIDED THAT NEW SECTION 44B OVERRIDES PROVISIONS OF SECTION 28 TO 43B AND IT EXPLAINS THAT UNDER THE EXISTING LAW TAXABL E PROFITS ON FOREIGN BUSINESS ENTERPRISES ARE DETERMINED BY SUITABLY APP ORTIONING THEIR GLOBAL PROFITS BETWEEN THEIR INDIAN BUSINESS AND FOREIGN B USINESS OR ON THE BASIS OF VOYAGE ACCOUNTS. AS THERE ARE CERTAIN DIF FICULTIES AND COMPLICATIONS IN THIS ISSUE WITH A VIEW OF SIMPLIF YING AND RATIONALIZING IN SUCH CASES THE FINANCE ACT HAS MADE A SPECIAL P ROVISION IN THE FORM OF SECTION 44B OF THE ACT FOR COMPUTING PROFITS AND GAINS FROM SHIPPING BUSINESS IN THE CASE OF NON-RESIDENCE. SUITABLE AME NDMENTS WERE ALSO MADE IN SECTION 172 OF THE ACT. A PLAIN READING OF SECTION 44B SHOWS THAT FOR THE SECTION TO BE ATTRACTED THE ASSESSEE SHOULD BE A NON-RESIDENT AND SHOULD BE IN THE BUSINESS OF OPERATING OF SHIPS . AS THESE ESSENTIAL CONDITIONS HAVE TO BE FULFILLED IN THIS CASE WE AR E OF THE HUMBLE OPINION THAT THE ORDER OF THE FIRST APPELLATE AUTHORITY HAS TO BE UPHELD. 6. THE VIEW SO TAKEN BY THE COORDINATE BENCH HAS NO W BEEN CONFIRMED BY HONBLE BOMBAY HIGH COURT AS WELL. REJECTING THE AP PEAL FILED BY THE COMMISSIONER AGAINST THE ORDER OF THE TRIBUNAL TH EIR LORDSHIPS HAVE VIDE JUDGMENT DATED 1 ST JULY 2011 INTER ALIA OBSERVED AS FOLLOWS: PERUSAL OF THE ORDER PASSED BY THE TRIBUNAL SHOWS T HAT IN THE PRESENT CASE THE CRUISE CONDUCTED BY THE ASSESSEE CONSISTS OF TAKING THE PASSENGERS FROM MUMBAI TO VARIOUS PLACES AND BACK. THE TRIBUNAL HAS RECORDED A FINDING OF FACT THAT THE ASSESSEE IS ALS O OFFERING ONE WAY CRUISE. THERE WAS NO RESTRICTION THAT A PASSENGER TAKING ROUND TRIP SHIP I TA NO. 3944 /MUM/2010 ASSESSMENT YEAR: 2006-07 PAGE 6 OF 6 CRUISE SHOULD DISEMBARK AT MUMBAI ONLY. THE TRIBUN AL HAS HELD THAT MERELY BECAUSE SOME ENTERTAINMENT PROGRAMMES WERE M ADE AVAILABLE ON THE BOARD THE CRUISE AND THE PASSENGERS WERE REQUIR ED TO PAY ADDITIONAL AMOUNT IN RESPECT THEREOF IT CANNOT BE SAID THAT T HE ASSESSEE WAS NOT ENGAGED IN THE SHIPPING BUSINESS INVOLVING CARRIAGE OF PASSENGERS FROM MUMBAI AND BACK. THE TRIBUNAL HAS HELD THAT THE BU SINESS CARRIED ON BY THE ASSESSEE AS AGENT OF THE NON-RESIDENT CONSTI TUTES SHIPPING BUSINESS AS CONTEMPLATED UNDER SECTION 44B OF THE A CT. 7. WE ARE IN RESPECTFUL AGREEMENT WITH THE CONCLUSI ONS SO ARRIVED AT THE COORDINATE BENCH WHICH NOW STAND APPROVED BY HONB LE JURISDICTIONAL HIGH COURT. ONCE TAX WITHHOLDING LIABILITY IN RESPECT OF THE RELATED REMITTANCES TO THE ASSESSEE STANDS QUASHED ON THE GROUND THAT SUCH A VICARIOUS LIABILITY DOES NOT SURVIVE BECAUSE THE ASSESSEE DID NOT HAVE PRINCIPAL LIABILITY TO TAX IN INDIA THIS ROUND OF PROCEEDINGS IN ASSESSEES OWN CASE IS ONLY A PARALLEL AND SOMEWHAT SUPERFLUOUS EXERCISE WHICH MUST MEET THE SAME FATE. WE THEREFORE HOLD THAT THE ASSESSEE DID NOT HAVE ANY TAX LIABILITY IN INDIA. 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSING OFFICER IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON_22 ND DAY OF JULY 2011. SD/- SD/- (VIJAY PAL RAO ) (PRAMOD KU MAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 22 ND _ DAY OF JULY 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) MUMBAI 4. COMMISSIONER (APPEALS) II MUMBAI 5. DEPARTMENTAL REPRESENTATIVE E BENCH MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI