ACIT, CHENNAI vs. EAST COAST TERMINAL OPERATIONS AND PORT SERVICES LIMITED, CHENNAI

आयकर अपील"य अ"धकरण, ’सी’ "यायपीठ, चे"नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI "ी जॉज" माथन, "या"यक सद य एवं "ी एस जयरामन, लेखा सद य के सम% BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER

आयकर अपील सं./ITA No.1552/Chny/2016 "नधा"रण वष" /Assessment Year: 2010-11

Vs. The Asst. Commissioner of Income- M/S.East Coast Terminal Tax, Operations and Port Corporate Circle-2(1), Services Ltd., Chennai-600 034. No.4, Sixth Floor, Buhari Towers, Moores Road, Chennai-600 006. [PAN: AAACE 4812 D] (अपीलाथ'/Appellant) (()यथ'/Respondent)

: Department by Mr.S.Nataraja, JCIT : Assessee by Mr.G.Baskar, Adv. : सुनवाई क+ तार"ख/Date of Hearing 12.02.2018 घोषणा क+ तार"ख / : 12.02.2018 Date of Pronouncement आदेश / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER:

ITA No.1552/Chny/2016 is an appeal filed by the Revenue against

the Order of Commissioner of Income Tax (Appeals)-6, Chennai, in ITA

No.58/CIT(A)-6/2012-13 dated 17.03.2016 for the AY 2010-11. 2. Shri S.Nataraja, JCIT., represented on behalf of the Revenue and Shri G.Baskar, Adv., represented on behalf of the assessee. :- 3 -:

M.V.Gem of Ennore was not a qualifying ship for the applicability of the Tonnage Tax Scheme u/s.115VG on the ground that the provisions of Sec.115VC of the Act was applicable and two Dubai based companies viz.,

M/s.Trans Arab Maritime (L.L.C) and M/s.EmiratesTrading Agency (L.L.C.),

held nearly 99.99% of the ship M.V. Gem of Ennore and 70 shares were held by individuals in India. It was a submission that u/s.115VC of the Act

to qualify for Tonnage Tax Scheme, a company is qualifying company, if it is an Indian Company and the place of effective control and management

of the company is in India. It was a submission that though the company

is an Indian company registered in India its effective control and management was outside India being influenced by the major

shareholders at Dubai. It was a submission that consequent to the non-

applicability of the Tonnage Tax Scheme u/s.115VG, the AO had made

disallowance u/s.14A r.w.r.8D and had also added the forex gain on the re-statement of the foreign currency liability. It was a submission that on appeal the Ld.CIT(A) had deleted the addition made and had followed the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own

case in ITA No.562/Mds/2013 dated 26.09.2013 wherein it was held that the Tonnage Tax Scheme applied in the case of the ship M.V. Gem of Ennore. It was a further submission that as the provisions of Tonnage Tax

Scheme had been held applicable, the Ld.CIT(A) had followed the decision

of the Co-ordinate Bench of this Tribunal, Mumbai Benches, in the case of M/s.Varun Shipping Co. Ltd., held that the provisions of Sec.14A did not apply and so also the addition representing forex gain on re-statement. :- 5 -:

14A of the Act. The Assessing Officer while completing the assessment made disallowance under section 14A of the Act. On appeal, the Commissioner of Income Tax (Appeals) deleted the disallowance made under section 14A of the Act holding that once assessee’s income is computed as per tonnage tax scheme then further disallowance under section 14A cannot be made following the decision of the Mumbai Bench of the Tribunal in the case of Varun Shipping Co. Ltd. Vs. Addl.CIT (134 ITD 339). The Revenue is in appeal before us.

“7. We have considered the rival submissions and also perused the relevant material on record. It is observed that the assessee is mainly engaged in the business of operation of ships and its income from the said business was declared and assessed as per the special provisions contained in Chapter XIIG which lay down tonnage tax scheme. As per the provisions of section 115VA contained in Chapter XIIG, the income from the business of operating qualifying ships can be computed at the option of the assessee in accordance with the provisions of Chapter XIIG and once this option is exercised by the assessee, the income so computed 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” notwithstanding anything to the contrary contained in section 28 to 43C. It, therefore, follows that when the income of the assessee from the business of operating ships is computed as per special provisions contained in Chapter XIIG, only the expenses incurred by the assessee for earning income of the said business are deemed to be allowed and nothing else. It, therefore, cannot be said that when the income of the assessee from the business of operating ships is computed as per the special provisions of Chapter XIIG, any expenditure other than the expenditure incurred for the purpose of the said business has been allowed and consequently no addition to income so computed can be made by way of disallowance u/s.14A on account of expenditure incurred by the assessee in relation to earning of exempt dividend income. We, therefore, find merit in the contention of the learned counsel for the assessee that the income of the assessee from the business of operating ships having been computed in accordance with the provisions of Chapter XIIG, only the expenses incurred for the said business are deemed to have been allowed and no addition to such income can be made by way of disallowance u/s 14A on account of any expenditure incurred in relation to earning of exempt dividend income. In our opinion, if at all the assessee has claimed any such expenditure in computation of profit of business of shipping, the same are to be taken as disallowed when the income of the said business is finally computed in accordance with the provisions of Chapter XIIG and no separate disallowance on account of such expenditure u/s.14A can be made. :- 7 -:

Consequently, Ground Nos.3 & 4 of the Revenue’s appeal stands dismissed.

Order pronounced in the Open Court on February 12, 2018, at Chennai. (एस जयरामन) (जॉज" माथन) (S. JAYARAMAN) (GEORGE MATHAN) लेखा सद य/ACCOUNTANT MEMBER "या"यक सद य/JUDICIAL MEMBER

चे"नई/Chennai, 0दनांक/Dated: February 12, 2018. TLN

आदेश क+ ("त1ल2प अ3े2षत/Copy to: 1. अपीलाथ'/Appellant 4. आयकर आयु4त/CIT 2. ()यथ'/Respondent 5. 2वभागीय ("त"न"ध/DR 3. आयकर आयु4त (अपील)/CIT(A) 6. गाड" फाईल/GF