M/S SARAT CHATTERJEE & CO. vs. P PVT. LTD.,KOLKATAVS.ACIT, CENTRAL CIR. 1(1), KOLKATA

क$ �त&थ Date of Pronouncement/ 29.03.2023 आदेश उ)घोषणा क$ �त&थ For the Appellant/ Arati Agarwal, A.R Rosy Banjerjee, A.R �नधा�/रती क$ ओर से For the Respondent/ Shri G.Hukugha Sema, CIT राज�व क$ ओर से ORDER / आदेश Per Rajesh Kumar, AM: This is the appeal preferred by the assessee against the order of the Ld. Assistant Commissioner of Income Tax, Central Circle-1(1), Kolkata (hereinafter referred to as the Ld. AO”] dated 25.01.2022 for the AY 2017-18.

Assessment Year: 2017-18 M/s Sarat Chatterjee & Co. VSP Pvt. Ltd.

3.1 In DRP proceedings, the assessee stated that TP provisions are inapplicable to the transaction under reference i.e. receipt of hire income from its AE which stood covered under Tonnage Tax Scheme as provided under Chapter Xll-G of the Act. The assessee submitted that Finance Act (No.2), 2004 introduced Tonnage Tax Scheme for taxation of income derived from shipping activities by an Indian Company vide Chapter Xll-G to provide for special provisions relating to taxation of shipping companies with effect from the AY 2005-06. The assessee stated that income from the business of operating qualifying ships, may, at the option of the shipping company, be computed in accordance with the provisions of Chapter Xll-G, wherein notional income arising from the operation of ships is determined on the basis of tonnage of ships. 3.2 During AY 2017-18, the assessee opted for Tonnage Tax Scheme and determined the taxable income as per the computation mechanism provided in Chapter XII-G of the Act. Accordingly, as the vessel owned by it fell under “qualifying ship", the assessee determined tonnage income of INR 1,668,278 as taxable income derived from the business of chartering of vessel named MV Jal Vaibhav and paid income tax thereon The assessee stated that under the Scheme, the income tax payable by the taxpayer has to be computed on the basis of tonnage capacity of the qualifying ship and the number of days for which it was held, irrespective of the revenue realization and the expenditure incurred for the purpose of the business. The assessee stated that as the Scheme provides for a presumptive basis of taxation, the determination of income / expense having regard to arm’s length price under Chapter-X has no relevance for computing income chargeable to tax as per Chapter XII-G of the Act. Reliance was placed upon the decisions in Van Oord India Private Limited [TS-440-ITAT- 2019(Mum)-TP] - 22 May 2019; Essar Ports Ltd [TS-666-ITAT-2019(Mum)-TP] - 26 June 2019, wherein it was held that TP-provisions [Chapter X] do not apply to income taxed under TTS as detailed under Chapter XII-G of the Act:

Assessment Year: 2017-18 M/s Sarat Chatterjee & Co. VSP Pvt. Ltd.

3.3 The submissions have been perused along with the materials available on record. On the above issue, in the TP order, the TPO stated that his role in this context was limited to determine the arm’s length price (‘ALP’) of an international transaction. At the outset, it is seen that the assessee has itself reported the said international transaction of receipt of hire income from its AE in the auditor certified Form 3CEB, which the assessee stated was done out of abundant caution. There is no dispute regarding the fact that the transaction of receipt of charter hire income amounting to INR 7,01,49,539 is an international transaction within the meaning of section 92B of the Act. Under the scheme of the Act, any income arising from an international transaction shall be computed having regard to the arm's length price under section 92 of the Act. Transfer pricing provisions contained in sections 92 to 92F fall within the ambit of Chapter X of the Act which contains special provisions relating to avoidance of tax. The Memorandum explaining the provisions of the Finance Bill, 2001 explains the intention underlying the provision is to prevent avoidance of tax by shifting taxable income to a jurisdiction outside India through abuse of transfer pricing. Thus, Chapter X of the Act governs the determination of arm's length price of every / any international transaction with a view to prevent profit shifting to a foreign jurisdiction 3.4 Chapter Xll-G of the Act provides relates to special provisions relating- to income of shipping companies in terms of computation of profits and gains from the business of operating qualifying ships. However, as the income from such business constitutesbusiness income, section 115VA provides for a non- obstante clause whereby notwithstanding anything contrary contained in business provision sections 28 to 43C of the Act, the computation of such income shall be computed as under that Chapter at the option of the assessee. However, Chapter XII-G does not in any manner preclude the operation of Chapter X which is a specific anti-abuse provision in respect of any international transaction. This is similar to the case of an assessee whose income is computed in accordance with section 28 to 43C with the computation of such business income not precluding the operation of Chapter X. The assessee’s contention that TP provisions do not apply once it opts for the tonnage tax regime is not borne out of any specific provision in the Act. The Chapter does not provide for any such prohibition. In fact, sub-section (8) of section 115VI expressly provides for inclusion of income arising from related party transactions as under- (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 between 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 therefrom. 3.5 The above provision is pari materia to the transfer pricing provisions contained in Chapter -X of the Act. Accordingly, the TPO/AO is not precluded from taking the amount of transfer pricing adjustment into consideration while computing the relevant shipping income of the tonnage tax company, which is the assessee in this case. As regards the decisions upon by the assessee, it has not been confirmed whether the said decisions have seen accepted by Revenue and have attained finality. The assessee has not furnished any such ruling from the jurisdictional Court / Tribunal or by the Hon’ble Supreme Court. Under such circumstances, as DRP is an extension of assessment proceedings and is not an appellate forum and in the light of the above discussion, the Panel upholds the action of the TPO in making an adjustment under the TP provisions and that of the AO in taking the same into account in the computation of the final assessed income. The objection is dismissed.”

Assessment Year: 2017-18 M/s Sarat Chatterjee & Co. VSP Pvt. Ltd.

Assessment Year: 2017-18 M/s Sarat Chatterjee & Co. VSP Pvt. Ltd.

Kolkata vide letter dated 29.03.2017 for a period of 10 years. We have also perused the presumptive scheme as envisaged by the provisions of Section 115BB of the Act and also the decision cited by the assessee in the case of Van Oord India Pvt. Ltd. (supra). Considering the facts in the light of above decisions of the coordinate bench we are of the considred view that where the assessee has opted for tonnage tax scheme and has offered the income on presumptive basis, no TP adjustments are required to be made. The operative part of the decision is reproduced as under:

“25. Our findings on this issue are summed up a savoir: (a) Section 115VA of the Income Tax Act, forming part of the TTS (for which, the assessee has made option) contained in Chapter XII-G of the Act, excludes the operation of sections 28 to 43C of the Act pertaining to the computation of total income under Chapter IV of the Act. (b) For computing taxable income under Chapter XII-G of the Act, related party transactions have no relevance, weight and length of user of qualifying ships, rather than the nature of party for which the user is, or ALP, or income, or expenses, being the formula prescribed for computation of income under Chapter XII-G. (c) Consideration of the TP provisions, enclosing within them, the arm’s length principle, under Chapter X (sections 92 to 92F) of the Act are, a fortiori, not applicable to the TTS and ALP does not affect the computation and taxability of the tonnage income of the assessee. (d) Computation of income under the TTS is, thus, not impinged upon by the adjustment made by the TPO. (e) Income computed under the TTS is, by virtue of section 115VF, deemed to be the profits taxable as profits & gains of business or profession. (f) The amount of Rs. 17,24,50,468/-, which represents reimbursement of Head Office Expenses by the assessee to its holding company and AE, has wrongly been added, by altering the expenditure, under Chapter X, despite the inapplicability of the Chapter and inspite of the fact that Chapter X contains only machinery provisions and no charging provisions, sans which, it is trite, no tax can be levied. (g) Non-applicability of Chapter X does not get altered by the factum of the assessee having either filed audit report in Form 3CEB, or undertaken the benchmarking process and concluding its international transactions to be at arm’s length. (h) The issue stands decided by the tribunal in favour of the assessee vide its orders in the assessee’s case for assessment years 2007-08 and 2011-12. (i) The DRP has itself acceded to this legal claim of the assessee.” Accordingly ground nos. 1 to 5 are allowed.

Assessment Year: 2017-18 M/s Sarat Chatterjee & Co. VSP Pvt. Ltd.

Order is pronounced in the open court on 29th March, 2023