ITO 5(1)(1), MUMBAI vs. ARYA SHIP CHARTERS P.LTD, MUMBAI

This appeal has been filed by the revenue against the order dated 28.11.2016 passed by the Commissioner of Income Tax (Appeals)-10 (for short ‘the CIT(A), Mumbai, for the assessment year 2016-17, whereby the Ld. CIT(A) has allowed the appeal filed by the assessee against the order passed u/s 115VP(3) of the Income Tax Act, 1961 (for short the ‘Act’).

Brief facts of the case are that the assessee engaged in the business of shipping, ship owning, ship chartering, crew management, trading of vessels, ship breaking etc., purchased two ships and filed two applications before the ACIT- Range-5 (1) Mumbai in Form No. 65 for availing Tonnage Tax Scheme u/s 115VP of the Act in respect of two ships namely, DISTYA AKULA and NU- SHI NALINI. The ACIT rejected the request on the ground that the form was submitted beyond due date. In the first appeal the Ld. CIT(A) condoned the Assessment Year: 2016-17 delay and allowed the appeal of the assessee. The revenue is in appeal before the Tribunal against the said findings of the Ld. CIT(A). 3. The revenue has challenged the impugned order passed by the Ld. CIT (A), by raising the following effective grounds:- 1. “On the facts & circumstances of the case and in law, the Ld. CIT (A) failed to record the circumstances under which the assessee was prevented to furnish the opinion of chartered accountant dated 30.09.2015 before the Addl. CIT. 2. On the facts & circumstances of the case and in law, the Ld. CIT (A) has erred by not recording the reasons for admission of fresh evidence/documents submitted during the appellate proceedings for the first time. 3. On the facts & circumstances of the case and in law, the Ld. CIT (A) has erred in accepting the additional evidence without affording opportunity to the department under rule 46A of the Income-Tax Act. 4. On the facts & circumstances of the case and in law, the Ld. CIT (A) has erred in relying on the decision of the Hon’ble Gujarat High Court in the case of Blue Ocean Sea Transport Ltd., as there was delay for four days only and in the assessee case the delay was more than three months.”

Before us, the Ld. departmental representative submitted that as per proviso to sub-section 2 of section115VP, a company incorporated after 30th day of September, 2004 but before the first day of January 2005 may make an application within three months from the date of its incorporation or the date on which it becomes a qualifying company. As per the documents, placed on record the applicant became a qualifying company on 23rd April, 2015 i.e. on the date of filing of application for registration of first ship under Merchant Shipping Act, 1958 and the application for exercising option for tonnage tax scheme was required to be filed on or before 31st July 2015. Since, the appellant failed to comply with the expressed provision of law, the Ld. ACIT has rightly rejected the applications filed by the applicant for tonnage tax scheme. The Ld. DR further submitted that since the Ld. CIT (A) has allowed the Assessment Year: 2016-17 appeal of the assessee ignoring the aforesaid material facts, the same is liable to be set aside.

On the other hand, the Ld. counsel for the assessee submitted that the assessee purchased the ship NU-SHI NALINI on 20.04 2015 with tonnage capacity of 5,043 tons during the financial year 2015-16. The application for registration was filed on 23.04.2015 and got provisional certificate on 04.05 2015 and received the final registration certificate on 27.10.2015. The second ship DISTY AKULA was purchased on 19.08.2015 with net tonnage capacity of 45,245/- tons and filed application on 28.08.2015 and got provisional certificate of registration on 10.09.2015 and did not receive the final certificate. The Ld. counsel further submitted that during the course of appellate proceedings, the Ld. CIT (A) directed the assessee to remove some defects in the applications. Accordingly, the defects were removed. The Ld. counsel further submitted that since the assessee became owner of a qualifying ship on 27.10.2015 after receiving registration certificate, there is no delay in filing the applications in question. Therefore, the Ld. CIT (A) has rightly allowed the appeal of the assessee.

We have heard the rival submissions of the parties and also gone through the entire material on record in the light of the rival contentions of the parties. The Ld. CIT (A) has allowed the benefit of tonnage tax under tonnage tax scheme after hearing the applicant in the light of the evidence on record and the provisions of law. The operative part of the order passed by the Ld.CIT (A) reads as under:- “5.1.2. After careful examination of the above facts and submissions made by the ld. AR, I am of the considered opinion that the benefit of tonnage tax under Tonnage Tax Scheme cannot be denied for the following reasons- Firstly, the tonnage tax scheme is a beneficial provision which requires to be interpreted liberally and the procedural lapses like late filing of application in form No. 65 by a few days should not be strictly interpreted and benefit denied. Secondly, as decided by the Gujarat High Court in the case of Blue Ocean Sea Transport Ltd. in ITA N. 714, 715, 716 of 2012 Assessment Year: 2016-17 dated 1/3/2013 the provision 115VP (2) of the Act with regard to time stipulation for exercising the option of tonnage tax scheme should be taken as directory and not mandatory. Thirdly, as per section 40 of Merchant Shipping Act 1958 there is a requirement of the issue of provisional certificate in the case of ships becoming Indian ships abroad which is relevant in appellant’s case. In the case of appellant since the vessels were acquired outside India further requirement of obtaining provisional certificate and international tonnage certificate (permanent) was additional and mandatory and the appellant was initially advised to file application upon receipt of final registration and not on the basis of provisional certificate of registration. However, the appellant was subsequently advised (as per opinion obtained from a qualified chartered account dated 30/09/2015) to file application under tonnage tax scheme immediately to avoid any controversy regarding the date of owning qualifying ship based on date of provisional certificate or final certificate and thus immediately it made an application on 6/10/2015. I’m convinced that this position has led to confusion in filing Form No. 65 before the Additional CIT. The appellant deserves the condonation of delay. Fourthly, as contested by the ld. AR that the order passed by the Additional CIT by rejecting the request of the appellant was beyond stipulated time of one month is also to be taken seriously. It is true that the appellant has filed its application in prescribed form in Form No. 65 on 6/10/2015. The Additional CIT should have passed his orders either by accepting or rejecting the request of the appellant on or before 30/11/2015 whereas he has passed his orders by rejecting the request of the appellant on 2/2/2016 which is clearly beyond one month in violation of the provisions of s. 115VP (4) of the Act. 6 In view of the above discussion I consider it appropriate to condone the delay and allow the appellant to avail benefit under Tonnage Tax Scheme with regard to application filed in Form No. 65 on 6.10.2015. I direct the Additional CIT, Range- 5(1), Mumbai accordingly. The ground is allowed..”

The Ld. CIT (A) has allowed the appeal of the appellant mainly on the ground that the tonnage tax scheme is a beneficial provision which requires to Assessment Year: 2016-17 be interpreted liberally. Secondly, the Ld.CIT (A) has relied on the decision of the Hon’ble Gujarat High Court in the case of Blue Ocean Sea Transport Ltd. in 715, 716 of 2012 dated 01.03.2013 in which the Hon’ble High Court has held that the provision u/s 115VP (2) of the Act for exercising the option of tonnage tax scheme should be taken as directory and not mandatory. The Ld. CIT (A) has further discussed the circumstances under which the applicant could not made the application within the stipulated period, the Ld. counsel has further pointed out that the ACIT has passed the order rejecting the request of the applicant beyond one month in violation of the provisions of section 115VP (4) of the Act. Hence, in our considered opinion, the order passed by the Ld. CIT (A) is well reasoned and in accordance with the principles of law. So far as the contention of the revenue regarding admission of additional evidence is concerned, we do not find any merit in the said ground as the Ld.CIT (A) has not based his findings on any new evidence produced by the applicant during the appellate proceedings. Hence, we do not find any reason to interfere with the order passed by the Ld.CIT (A). We accordingly uphold the order passed by the Ld. CIT (A) and dismiss the appeal filed by the revenue. In the result, appeal filed by the revenue for assessment year 2016-2017 is dismissed. Order pronounced in the open court on 30th September, 2019. (G. MANJUNATHA) JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 30/09/2019 Alindra, PS आदेश प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. Assessment Year: 2016-17