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Income Tax Appellate Tribunal, “F” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ravish Sood(JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the Revenue is directed against the order dated 21.12.2015 passed by the learned CIT(A)-10, Mumbai and it relates to A.Y. 2011-12.
Revenue is aggrieved by the decision of the learned CIT(A) in holding that provisions of section 14A of the Act shall not be applicable to the assessee, as its income was computed under Tonnage Tax Scheme.
We heard the parties and perused the record. The assessee is engaged in the business of hire, charter, lease of all kinds of ships, boats etc. Its income from business was computed under Tonnage Tax Scheme, i.e., under special provisions of the Act. The Assessing Officer noticed that the assessee has received dividend income of ` 9,18,929/- and did not make any disallowance u/s. 14A of the Act. When questioned, the assessee placed reliance on the decision rendered by Mumbai Bench of the ITAT in the case of Varun Shipping Co. Ltd. (ITA No. 5576/Mum/2011), wherein it was held that 2 M/s. M. Pallonji Shipping Pvt. Ltd.
disallowance made u/s. 14A of the Act is not required to be made when income from shipping activities was computed under Tonnage Tax Scheme. The Assessing Officer did not accept the contentions of the assessee on the reasoning that the Revenue has challenged the decision rendered by the Tribunal by filing appeal before Hon'ble High Court of Bombay. Accordingly he computed the disallowance u/s. 14A of the Act at ` 57.49 lakhs and added the same to the total income of the assessee. The learned CIT(A), however, deleted the addition by following his decision rendered on identical issue in A.Y. 2010- 11. The Revenue is aggrieved by the decision rendered by the learned CIT(A).
At the time of hearing, learned AR placed reliance on the following decisions rendered by the Coordinate Benches on identical issue, wherein it has been held that disallowance u/s. 14A is not required to be made when income is computed under Tonnage Tax Scheme.
Varun Shipping Co. Ltd. Vs. Addl. CIT (17 taxamnn.com 112) TAG Offshore Ltd. Vs. ACIT (49 taxamnn.com 209) Raj Shipping Agencies Ltd. Vs. Addl. CIT (38 taxamnn.com 345)
On the contrary, learned Departmental Representative placed reliance on the order passed by the Assessing Officer.
Having heard the rival submissions, we are of the view that the decision rendered by the learned CIT(A) does not call for any interference as his decision is in accordance with the decision rendered by the Coordinate Benches in other cases referred above. In the case of Varun Shippping Co. Ltd (supra), the co-ordinate bench has held as under:- “7……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 the 3 M/s. M. Pallonji Shipping Pvt. Ltd.
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. We, therefore, delete the disallowance made by the AO u/s 14A and confirmed by the learned CIT(Appeals) and allow ground No.1 of the assessee’s appeal.”
In the instant case, the Ld CIT(A) has deleted the disallowance by following the decision rendered by the Tribunal in the cases cited earlier and also his own decision rendered in AY 2010-11. Accordingly, we uphold his order passed on this issue.
In the result, appeal filed by the Revenue is dismissed.
Order has been pronounced in the Court on 24.10.2017.