THE SHIPPING CORPORATION OF INDIA LTD.,MUMBAI vs. ADDL. CIT (LTU), MUMBAI

Core Shipping activity - ₹ 17,76,61,058/-

Incidental Activity - ₹10,65,83,501/- 3.2 The Ld. AO noted that the assessee offered ₹10,65,83,501/- under the head, incidental activity in the computation sheet. As regards the core shipping activities, details of sundry receipts to the extent of ₹7,76,61,058/- were called for by the Ld. AO. The assessee in respect of the same submitted as under: Particulars Core Shipping Commission on disbursements [receipts] 1,03,153 Insurance + P & I claims 8,37,37,661 House Rent ownerships flat 1,26,74,819 Rent on furniture 56,604 Co's bus services 130 Liquated Damages (Dry docks) 4,55,27,987 Profit on Bar + Shop sales 91,105 Refund of Director's fees 21,83,638 Application Money-Right to info Act 2984 Total Sundries 17,76,61,058 3.3 Ld. AO called upon assessee to show cause as to why the sundry receipts may not be taxed under the normal provisions of the Act. The assessee submitted a response vide submission dated 08/11/2012 wherein the assessee relied on the coordinate of this Tribunal in assessee’s own case for assessment a 2007-08. However, the Ld.AO relied on the reasoning in scrutiny order for assessment 2007-08 and 2009-10 to reject submissions of the assessee.

A.Y. 2010-11 The Shipping Corporation of India Limited 3.4 The Ld.AO observed that the tonnage tax scheme is applicable for the income earned from the operation of qualified ships, and that too from the activities which have been listed as CORE ACTIVITY of the operation of ships. The Ld. AO was of the view that the receipts (supra) are earned from sources unrelated to qualified ships and therefore these are taxable under normal provisions of the Act. 3.5 The Ld.AO himself did not make any adjustment in respect of Insurance & PI claims as well as house rent received from ownership fact amounting to Rs.9,64,12,610. In respect of the balance Rs.8,12,48,448/-, allowed 20% reduction and computed that disallowance at Rs.6,49,98,758/-.

Aggrieved by the order of the Ld.AO assessee had filed appeal before the Ld.CIT(A).

4. The Ld.CIT(A) noted that in respect of insurance and P& I claim, house rent received, the Ld.AO granted deduction for expenses against these receipts and since no positive amount was left, the Ld.AO did not tax it under the normal provisions of the act. The Ld.CIT(A) however noted that the core issue of whether all the receipts forms part of the core business activity would have to be still established by the assessee. 4.1 The Ld.CIT(A) thus called upon the assessee once again to establish as to whether the receipts reproduced above form part of its turnover from core shipping business or not. 4.2 The assessee filed its submission dated 20/12/2012 that was also placed before the assessing officer. It also filed submission dated 18/12/2013 before the Ld.CIT(A) containing A.Y. 2010-11 The Shipping Corporation of India Limited various details in respect of the receipts and expenses in connection with the same. The assessee also furnished breakup of sundry receipts placed at page 145 of the paper book.

Sr. Particulars Decision No. 1 Commission on The assessee claims that this income which disbursements is in the nature of commission on disbursements of funds to the crew/Captain of the chartered ships and that it is an integral part of the chartering activity and hence should be treated as income from core activities. The submissions of the assessee have force and the AO is directed to treat it as part of turnover from core activities.

3. House rent The submissions of the assessee have been considered and it is held that there is no merit in them. The receipts from the employees towards 'House rent' is not part of turnover from core shipping activities and it has to be taken out.

A.Y. 2010-11 The Shipping Corporation of India Limited 6 Liquidated damages The assessee claims that these receipts are (Dry Docks) received as compensation from the shipyard or maintenance agency for any delay or for not carrying out repairs within the agreed stipulated time etc. It is also held that the damages are received by the assessee as part of 'Law of Tort' and not as part of the return of service charges. Therefore, there is no infirmity in the order of the AO in this regard treating it as outside the turnover from core activities.

9. Refund of Director's fees It is seen that even in the order of ITAT in the case of the assessee for AY 2009-0 10 it had been held that the Refund of Directors Fee is related to the incidental activity of the operation of the qualified ships. However, in the appellate proceedings before the undersigned, different facts have been mentioned. It is claimed that the assessee has a Joint Venture ('JV') with SAIL Ltd. and Forbes Ltd. Some of the Directors of the Company are also on the board of the JVs. These directors receive sitting fees and other emoluments from the JVs. As per terms of employment between the directors and Company. the directors sitting fees and other payments are recovered back by the Company. These recoveries were thus made from Chairman & Managing Director and Director (Finance). From these facts, it is clear that the Refund of Directors Fee has no relation to the A.Y. 2010-11 The Shipping Corporation of India Limited shipping activity of the assessee. Therefore, the ground of appeal

taken by the assessee is rejected on this account. This turnover is required to be taken out of the turnover of core activities also. 10 Contribution to The assessee submits that at the time of Employees New PRMS retirement, if its employees, who are member of old Post-Retirement Medical Scheme' (PRMS), wish to become members of new PRMS, a one-time contribution is taken from employee. It is clear from the above that this receipt has nothing to do with the core shipping activity of the assessee. Therefore, the ground of appeal of the assessee to this extent is rejected.

11. Application money-RTI The Assessee has claimed that it receives Act various queries under the RTI Act and the application fee is received from the general public for the same. This receipt has nothing to do with the shipping activity and therefore, this part of the ground of appeal is dismissed. It is noted that in AY 2009-10, the honourable ITAT had also rejected a similar claim of the assessee. This sum has to be reduced from the turnover of core activities.

12. Recovery of water These recoveries are made from the vessel charge owner toward supply of fresh water for use by the crew staff. This recovery is part of the shipping activity and similar in nature to the 'commission on disbursements. The AO is directed to include this amount in the turnover of core activities.

6. The Ld.CIT(A) accepted commission on disbursement, sundries core shipping, recovery of water charge to be forming part of the turnover from core activities. In respect of the remaining items being, Insurance & P&I claims, Rent on furniture, House Rent, Company Bus Service, Liquidated Damages (dry dock), Profit on bar and shops sales, Refund of Directors Fee, Application money-right to information Act and Contribution to employees (new PRMS), the Ld.CIT(A) was of the A.Y. 2010-11 The Shipping Corporation of India Limited opinion that these must be taxed under normal profits as they do not form part of the core activity. Aggrieved by the order of the Ld.CIT(A), assessee preferred appeal before this Tribunal.

7. The Ld.AR submitted that, the assessee has been managing vessels belonging to the Government of India to ply between the Indian mainland and the Andaman and Nicobar Islands. It is submitted that for managing these vessels, the assessee received income by way of remuneration of Rs.33,66,30,508/- and reimbursement of overheads for managed vessels at Rs.38,17,66,143/-. The assessee submitted that, as per rule 11R(iii) of the rules, the remuneration received for managed vessels is treated as income from incidental activities, and reimbursement of overheads for managed vessels was treated as part of profits from core activities and accepted by the Ld.AO without any adjustment. 7.1 The Ld.AR submitted that, the Ld.AO once accepted reimbursement of overheads for managed vessels was treated as part of profits from core activities, the view of Ld.CIT(A), to tax it separately is not correct. 7.2 Be that as it may, the Ld.AR at the outset submitted that coordinate bench of this Tribunal in preceding assessment years, had an opportunity to consider the above receipts except receipt from held all other receipts to be incidental activities related to the core business of shipping, except receipt arising out of Profit on bar and shops sales and Application money-right to information Act.

A.Y. 2010-11 The Shipping Corporation of India Limited 7.3 He placed reliance on the original order dated 28/02/2024 passed by coordinate bench of this Tribunal in assessee’s own case for the year under consideration as well as for assessment year 2008-09 in & 2130/Mum/2012 vide order dated 14/ 03/2023, wherein receipts arising out of Insurance and P& I claims & House rent and Company Bus services, stands covered. 7.4 The Ld.AR concedes that receipt arising out of Profit on bar and shops sales has been held to be not from the core activity by coordinate bench of this Tribunal in assessee’s own case for assessment year 2008-09 in & 2130/Mum/2012 vide order dated 14/ 03/2023. And receipt arising out of Application money-right to information Act has been held to be not from the core activity by coordinate bench of this Tribunal in assessee’s own case for the year under consideration.

A.Y. 2010-11 The Shipping Corporation of India Limited 9.2 The same view is adopted mutatis mutandis for deciding the receipts pertaining to Rent on furniture, Liquidated Damages(dry dock),Refund of Directors Fee, and Contribution to employees(new PRMS) in Ground no.3.