TCI INDUSTRIES LTD. vs. THE ASST.COMMI.OF INCOME TAX HYD.
What did the High Court hold?
The Tribunal held that the appellant is not entitled to the deduction under Section 33AC of the Income Tax Act, 1961. The reasoning is based on a strict interpretation of the provision, which requires the company to have 'the main object of carrying on the business of operation of ships'. It was undisputed that ship operation was not the appellant's main object. Whether examined through the Memorandum of Association or the volume of business, the primary activity of the appellant was surface transport, with shipping constituting only a small part of its turnover. The Tribunal found that the Assessing Officer and the lower appellate authorities had taken the correct view of the matter and saw no basis to interfere. The appeal was accordingly dismissed.
What were the facts?
The appellant, a transport company, claimed a deduction of Rs. 1,97,94,400/- under Section 33AC of the Income Tax Act, 1961, for the assessment year 1993-94, based on a turnover of Rs. 4.82 crores from shipping activities. The Assessing Officer disallowed the claim, stating that ship operation was not the appellant's main activity. This decision was upheld by the Commissioner of Appeals and the Income Tax Appellate Tribunal (ITAT) in ITA No. 684/HYD/97. The appellant, incorporated before the 1964 amendment to the Companies Act, argued that its Memorandum of Association indicated transport activities across various modes, including water, qualifying it for the deduction. The revenue contended that the appellant was an ordinary transport company, and shipping was not its main business, thus not falling under the specific intent of Section 33AC.
What were the issues?
1. Whether the appellant, a transport company with diverse modes of transport including shipping, is entitled to a deduction under Section 33AC of the Income Tax Act, 1961, for its shipping business turnover, when ship operation is not its main object? Assessee's contentions: - The appellant argues that since it was incorporated before the 1964 amendment to the Companies Act, its Memorandum of Association did not explicitly detail main objects separately. However, the Memorandum clearly shows the company undertakes transport activities through various modes, including water (shipping), which should qualify for the deduction. Revenue's contentions: - The revenue argues that Section 33AC was specifically enacted for companies whose *main object* is carrying on the business of operation of ships. The appellant is an ordinary transport company, and shipping constitutes only a small fraction of its business, not its primary activity. Therefore, it does not meet the criteria for the deduction.
Which sections of the Income-tax Act were involved?
Section 33AC,Section 260A
AI-generated summary — verify with the full judgment below
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
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