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PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee under Section 253 of Income-tax Act (the Act) is directed against the order of ld. CIT(A)-2, Mumbai dated 29.11.2017 for Assessment Year 2017-18, which in turn arises from the order passed by ACIT Range-1 (1) under section 115VP of the Act.
Brief facts of the case are that the assessee is a Private Limited company registered with Registrar of Companies, State of Maharashtra. The assessee was incorporated on 01.05.2016. The assessee company acquired ship MOGRA and got provisional certificate of registration under the provisions of Merchant Shipping Act, 1958 on 09.08.2016. The assessee made an application under Form No.65 for exercising option for tonnage Mum 2018-M/s LMCS maritime Pvt. Ltd. scheme under section 115VP(1), before prescribed authority on 01.09.2016. The application of the assessee was rejected by ACIT vide its order dated 30.09.2016. The ACIT rejected the application of assessee on his observation that the assessee was required to make application within three months from the date of incorporation. The date of incorporation is assessee’s case is 01.05.2016 and the assessee filed application on tonnage tax scheme on 01.09.2016. Thus, the assessee was not complied with the condition mentioned under sub-section (2) to section 115VP, the application should have been made on or before 31.07.2016. The other objection of ACIT was that while making application, the assessee left column no.6 in Form no. 65 regarding the date on which assessee become a qualified company. On appeal before the ld. CIT(A), the action of ACIT was upheld. Therefore, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us. Though the assessee has raised as many as five grounds of appeal
, however, in our considered view the only substantial ground of appeal is “whether the assessee is entitled for tonnage scheme under section 115VP of Income tax Act”.
3. We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. AR of the assessee submits that the definition of qualifying company for computation of profit and gain from the business of operating Ship is provided under section 115VC of the Act. 2 ITA No. 741 Mum 2018-M/s LMCS maritime Pvt. Ltd. Under the definition of qualifying company the requisite condition are that assessee must be an Indian company, the place of effective management of company must be in India, it owns at least one qualifying Ship and the main object of the company is to carry on business of operating Ships. The ld. AR of the assessee further submits that the assessee was incorporated on 01.05.2016. The copy of incorporation certificate is placed on record.
The assessee is an Indian Company and owned a Ship ‘MOGRA’. The assessee was granted provisional certificate of registration of Ship under Merchant Shipping Act 1958 on 09.08.2016. The assessee filed an application before prescribed authority on 19.08.2016. Therefore, the application was filed within three month from the date of becoming the qualified company. The conclusion arrived by lower authorities are erroneous, the provisions of ‘Chapter XIIG’ is a procedural provision and must be interpreted liberally. The ld. AR of the assessee further submits that there is no dispute about the status of assessee, place of effective management, ownership of Ship and object of the assessee for carrying the business of operating ship. In support of his submission, the ld. AR of the assessee relied upon the decision of CIT vs. Nagpur Hotel Owners’ Association (247 ITR 201), decision in CIT vs. Ajanta Electricals [(1995)
215 ITR 114 (SC)] and decision of Hon’ble Gujarat High Court in CIT vs. Blue Ocean Sea Transport Ltd. (Tax Appeal No. 714 to 716 of 2012 dated 01.03.2013). 3 Mum 2018-M/s LMCS maritime Pvt. Ltd.
On the other hand, the ld. DR for the Revenue supported the order of lower authorities. The ld. DR further submits that during the proceeding before the ACIT, the assessee was provided opportunity to prove the ownership. Before the Assessing Officer/ACIT, the assessee failed to provide the provisional certificate of ownership of the Ship. The copy of document furnished by assessee required proper verification at the end of ACIT/prescribed authority concerned. Section 115V is a specific section and the relevant Rule must be strictly followed by the assessee. The assessee was not the owner of the Ship on the date of application. The ld. DR for the Revenue submits that for verification of facts, the matter may be restored to the file of ACIT/prescribed authority concerned. In support of his submission, the ld. DR for the Revenue relied upon the decision of Hon’ble Supreme Court in Mysore Minerals Ltd. vs. CIT (239 ITR 775).
We have considered the rival submission of the parties and have gone through the orders of authorities below. We have also deliberated on the various case law relied by representatives of the parties. The provisions of section 115VA are as under:—
"Section 115VA: Computation of profits and gains from the business of operating qualifying ships: Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of a company, income from the business of operating qualifying ships, may, at its option, be computed in accordance with the provisions of this Chapter and such income shall be deemed to be the profits and gains of such business chargeable to tax under the head 'Profits and gains of business or profession.'"
Mum 2018-M/s LMCS maritime Pvt. Ltd. The above provision is like a charging provision in relation to the computation of income of shipping companies. This provision starts with non obstante clause ruling out application of sections 28 to 43C, and this Chapter provides for its own rules of computation.
The term 'qualifying ship' is defined under section 115VD, which is as under:— "Section 115VD: Qualifying Ship - For the purposes of this Chapter, a ship is a qualifying ship if- (a) it is a sea going ship or vessel of fifteen net tonnage or more; (b) it is a ship registered under the Merchant Shipping Act, 1958 (44 of 1958), or a ship registered outside India in respect of which a licence has been issued by the Director General of Shipping under section 406 or section 407 of the Merchant Shipping Act, 1958 (44 of 1958) ; and (c) valid certificate in respect of such ship indicating its net tonnage is in force." The term 'qualifying company' is defined under section 115VC in the following manner:— "115VC. Qualifying Company.—For the purposes of this Chapter, a company is a qualifying company if— (a) it is an Indian company; (b) the place of effective management of the company is in India; (c) it owns at least one qualifying ship; and (d) the main object of the company is to carry on the business of operating ships." The provisions of section 115VP, which reads as under:— "115VP. Method and time of opting for tonnage tax scheme.— (1) A qualifying company may opt for the tonnage tax scheme by making an application to the Joint Commissioner having jurisdiction over the company in the form and manner as may be prescribed for such scheme. (2) The application under sub-section (1) may be made by any existing qualifying company at any time after the 30th day of September, 2004 but before the 1st day of January, 2005 (hereinafter referred to as 'initial period') Provided that – (i) A company incorporated after the initial period; or Mum 2018-M/s LMCS maritime Pvt. Ltd.
(ii) A qualifying company incorporated before the initial period but which becomes a qualifying company for the first time after the initial period, may make an application within three months of the date of its incorporation or the date on which it became a qualifying company, as the case may be. (3) On receipt of an application for option for tonnage tax scheme under sub- section (1) the Joint Commissioner may call for such information or documents from the company as he thinks necessary in order to satisfy himself about the eligibility of the company and after satisfying himself about such eligibility of the company to make such option for tonnage tax scheme, he — (i) shall pass an order in writing approving the option for tonnage tax scheme; or (ii) shall, if he is not so satisfied, pass an order in writing refusing to approve the option for tonnage tax scheme, and a copy of such order shall be sent to the applicant. Provided that no order under clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. (4) Every order granting or refusing the approval of the option for tonnage tax scheme under clause (i) or clause (ii), as the case may be, of sub-section (3) shall be passed before the expiry of one month, from the end of the month in which the application was received under sub-section (1). (5) Where an order granting approval is passed under sub-section (3) the provisions of this Chapter shall apply from the assessment year relevant to the previous year in which the option for tonnage tax scheme is exercised."
A perusal of the above provisions makes it clear that first of all, for making an application under section 115VP, the assessee has to be a qualifying company and only qualifying company may opt for tonnage tax scheme. In our mind, having regard to the facts of this case, the assessee is clearly a qualifying company and it is an Indian company and the place of effective management is in India and the main object of the assessee- company is carrying on the business of operating ships. All of which according to records, there can be no dispute. A qualifying ship, as extracted above, means a vessel of net 15 tone or more and it is also Mum 2018-M/s LMCS maritime Pvt. Ltd. required to be registered under Merchant Shipping Act and a valid certificate indicating the net tonnage in force should be there.
We have noted that there is no dispute about the status of assessee, place of effective management, ownership of Ship and object of the assessee for carrying the business of operating ship. The only objection of Add CIT/ prescribed authority is that the assessee was incorporated on 01.05.2016 and it should have filed an application on or before 31.07.2016, hence, failed to satisfy the condition (i) to section 115VP(2) of the Act. In our view, a careful reading of the provision of section 115VP, it follows that for making an application under section 115VP, the assessee has to be a qualifying company and only qualifying company may opt for tonnage tax scheme. In the present case, the assessee-company was clearly a qualifying company inasmuch as it was an Indian company. The place of effective management was in India and its main object was to carry on the business of operating ships is not disputed by the lower authority. The only doubt in the mind of the Assessing Officer was application was not moved with three month of date of incorporation of assessee. The objection raised by ld DR about the ownership was not questioned by lower authorities.
The Hon’ble Gujarat High Court in CIT Vs Blue Ocean Sea Transport Ltd (supra) held that the period prescribed under sub-section (2) of section 115VP is primary a directory provision and not mandatory. We are in 7 ITA No. 741 Mum 2018-M/s LMCS maritime Pvt. Ltd. agreement with the contention of the ld AR for the assessee that that there is no dispute about the status of assessee, place of effective management, ownership of Ship and object of the assessee for carrying the business of operating ship.
Considering the fact of the case and the decision of Hon’ble Gujarat High Court in CIT vs. Blue Ocean Sea Transport Ltd. (supra), the appeal of the assessee is allowed. The prescribed authority/ACIT concerned is directed to allow the application of the assessee filed under section 115VP of the Act dated 16.08.2016 for exercising option of tonnage scheme.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 12/09/2018.