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Before: Shri Sanjay Arora & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
Both the appeals filed by the Revenue pertaining to same assessee are directed against separate orders of the ld. Commissioner of Income Tax (Appeals) 1, Chennai both dated 01.09.2016 relevant to the assessment years 2012-13 and 2016-17.
2. The only effective ground raised by the Revenue in its appeal for the assessment year 2012-13 is that the ld. CIT(A) has erred in holding that the assessee company is eligible for tonnage tax claim.
Brief facts of the case are that the assessee is engaged in shipping business and financing and filed its return of income for the assessment year 2012-13 on 29.09.2012 admitting a total income of ₹.98,49,253/-. The return filed by the assessee was selected for scrutiny and notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] was issued on 07.08.2013 and served. Notice under section 142(1) of the Act was also issued. After considering the details filed by the assessee and also considering the submissions of the assessee, the Assessing Officer has completed the assessment under section 143(3) of the Act on 25.3.2015 determining the total income of the assessee at ₹.7,83,25,328/- under normal provisions and ₹.2,66,27,220/- under section 115JB of the Act by making various disallowances.
The assessee carried the matter in appeal before the ld. CIT(A) challenging the disqualification of Tonnage Tax Scheme under section 115VP(3) of the Act. After considering the submissions of the assessee, as well as, by following the decision of the Tribunal in assessee’s own case for earlier assessment years, the ld. CIT(A) allowed the appeal of the assessee.
Aggrieved, the Revenue is in appeal before the Tribunal and challenged that the assessee is not eligible for tonnage tax claim.
At the time of hearing, the ld. Counsel for the assessee has submitted that the issue raised by the Revenue is squarely covered against the Revenue by the decision of the Coordinate Bench of the Tribunal in assessee’s own case for earlier assessment years and pleaded that the appeal filed by the Revenue should be dismissed.
We have heard both sides, perused the materials on record and gone through the orders of authorities below. The only ground raised
by the Revenue is whether the assessee is eligible for tonnage tax scheme as the assessee is only a fractional owner of the ship and thus satisfy the provisions of section 115VC(c) of the Act. In this case, the Assessing Officer has observed that the assessee has admitted shipping income of ₹.9,28,94,473/- and claimed shipping expenses of ₹.4,70,05,424/- and paid tonnage tax of ₹.1,94,730 under section 115VG of the Act. After examining the claim of the assessee, the Assessing Officer held that the assessee does not qualify for Tonnage Tax Scheme under section 115VP(3) of the Act. On appeal, by following the decision of the Coordinate Bench of the Tribunal in assessee’s own case for earlier assessment years, the ld. CIT(A) directed the Assessing Officer to allow the benefit of tonnage tax scheme under section 115VG of the Act. We have also gone through the orders of the Tribunal for earlier assessment years 2006-07 to 2008-09 and 2010-11 in to 2148/Mds/2013, wherein the Tribunal has held as under: “9. After giving our thoughtful consideration to the grounds raised in the appeal, findings of the CIT(A) and arguments of both parties, we find that in assessment year 2009-10, the 'tribunal' (supra) has decided the very issue in favour of the assessee. The Revenue submits as per ground No. 2. 6 that since the ship was not operated by the assessee itself but by West Asia Maritime Limited, so it cannot be taken as entitled for the aforesaid benefit of tonnage tax. This argument in our view, does not merit acceptance. After going through the relevant provision, it nowhere comes out that in case of jointed owned ship by two or more companies, the same has to be operated specifically by each of the co-owners/assessees. Therefore, this ground also fails. Needless to say, in assessment year 2009-10 the issue has been decided in assessee's favour. For the impugned assessment year as well, no justifiable ground is there to adopt a different view. Accordingly, the CIT(A)’s findings are affirmed and the appeal I.T.A. No. 2145/Mds/2013 is dismissed.”
7. Respectfully following the above decision of the Coordinate Bench of the Tribunal, while upholding the findings of the ld. CIT(A), we dismiss the appeal filed by the Revenue. I.T.A. No. 3196/Mds/2016
8. The only effective ground raised in the appeal of the Revenue is that the ld. CIT(A) has erred in directing the Assessing Officer to grant renewal of tonnage tax under section 115VR of the Act.
8.1 The assessee has filed an application dated 15.12.2014 for renewal of tonnage tax in Form No. 65 under section 115VR(1) of the Act. The details of the activities undertaken by the ship for which the application for renewal made was called on and by considering the submissions of the assessee, the Assessing Officer observed from the application of the assessee that the assessee was only 20% of owner of the ship called “MV Gem of Ennore” as per column 7 of the Annexure to the application. Accordingly, the assessee was required to clarify as to how the assessee company satisfies the conditions laid down under section 115VC of the Act. After considering the submissions of the assessee, the Assessing Officer observed that the assessee had entered into an agreement with the co-owners of the ship on 25.09.2001 and that the same holds good till date. As stated by the assessee and noticed from the “Co-ownership Agreement”, the Assessing Officer was of the opinion that the assessee is not the sole owner of the ship, in fact, the assessee is only 20% owner of the ship. As per provisions of section 115VC(c) of the Act, a ‘qualifying company’ should own atleast one qualifying ship. After considering various provisions, the Assessing Officer held that the assessee is not eligible for opting for Tonnage tax scheme as per the provisions of section 115VC and 115VD of the Act and accordingly, the petition for renewal under Tonnage Tax Scheme under section 115VR of the Act was rejected.
8.2 On appeal, by following the decision of the Tribunal I assessee’s own case for the assessment year 2005-06 dated 13.05.2011, the ld. CIT(A) directed the Assessing Officer to grant renewal of tonnage tax scheme applied for by the assessee.
8.3 Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR has submitted that the decision of the Tribunal in assessee’s own case for the assessment 2005-06 in dated 13.05.2011 has not been accepted by the Department and the appeal filed before the Hon’ble Madras High Court is pending for adjudication.
8.4 On the other hand, the ld. Counsel for the assessee has submitted the issue is squarely covered in favour of the assessee by the order of the Tribunal and prayed that the order of the ld. CIT(A) should be sustained.
8.5 We have heard both sides, perused the materials available on record and gone through the orders of authorities below. With regard to renewal of tonnage tax scheme, it was the submission of the assessee that the agreement entered into by the assessee on 25.09.2001 with co-owners to entrust the job to M/s. West Asia Maritime Ltd. to operate the ship still was in force and that the ship was on lease with M/s. Poompuhar Shipping Corporation to operate the same. It was also the submission of the assessee that as per page 18 para No. 9 of the order of the Tribunal dated 13.05.2011, the stress was on owning a “qualifying ship” and that it does not envisage to be a owner of fully owning a qualifying ship. By referring para 10 of the above order, the ld. Counsel for the assessee has further pointed out that it satisfies the conditions required as per section 115VA of the Act in order to come within the ambit of tonnage tax scheme. We have perused the order of the Tribunal dated 13.05.2011 in the assessee’s own case for the assessment year 2005-06, wherein the Tribunal has observed and held as under: “6. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In the instant case the undisputed facts are that the assessee is a co-owner of a ship, owning 20% of the ownership. The assessee opted for tonnage tax scheme and accordingly made application before the Additional Commissioner of Income Tax having jurisdiction over the assessee company. The Additional Commissioner of Income Tax passed an order dated 28.01.2005 in writing approving the option for tonnage scheme as applied by the assessee company. The Learned Assessing Officer thereafter completed the assessment u/s.143(3) assessing the total income on the basis of tonnage tax scheme as provided in Chapter -XIIG of the Act. The Learned Commissioner of Income Tax thereafter set aside the said assessment order vide its order passed u/s.263 on 25.01.2010 which is challenged by the assessee before us in the appeal.
The main reason for considering the assessment order passed by the Learned Assessing Officer are erroneous and prejudicial to the interest of the Revenue as stated by the Learned Commissioner of Income Tax in the impugned order are:- "I am unable to accept the assessee's contention on the issue of legality of proceedings u/s.263 for the following reasons: (i) The approval under section 115VP is for the exercise of an option. The order has to be passed by the Additional Commissioner within 30 days of the application. It was intended to be a preliminary enquiry. The Additional Commissioner in his order dated 28.01.2005 has clearly stated as follows: "On the basis of details filed and undertaking given with regard to qualifications required for tonnage tax scheme the assessee is granted approval for tonnage tax scheme option with effect from assessment year 2005-06. However, it must be noted that the above approval is subject to compliance of various conditions as prescribed in Chapter XIIG of the Income Tax Act dealing with special provisions relating to Income of shipping companies". The approval given by the Additional Commissioner is a qualified one and it is not intended that he should go into the details of eligibility at the initial stage. (ii) Secondly the assessee has stated in the application in Form No.65 under rule 11P filed before the Additional CIT that the company owns 1 qualifying ship without stating that the assessee is only part owner of the ship and also that the management and operation of the ship is done by West Asis Martime Pvt. Ltd., (iii) Similar issue on the restriction of the powers of the assessing officer once the approval given under the statute with regard to the eligibility by a higher authority was considered by the Karnataka High Court in the case of Weizmann Homes Ltd., v. CIT 265 ITR 601. The Court, in the context of approval given by the Board u/s.36(1)(vii) and binding nature of such approval on the assessing officer held that 'grant of approval by itself does not directly provide for direct concession to the petitioner. It is further subject to strict scrutiny at the time of assessment proceedings." (iv) Sub section (5) of section 115VE states that where a company is engaged in the business of operating qualifying ships is not covered under the tonnage tax scheme or has not made an option to that effect, the profits of such company shall be computed in accordance with other provisions of the Act. This makes it clear that the option for the scheme and actually being covered under the tonnage tax scheme are cumulative conditions. Even if the option is exercised and approved by the Additional CIT, Learned Assessing Officer may examine whether the other condition of being covered under the scheme has been fulfilled. I am therefore of the view that CIT under section 263 is not precluded from revising the assessment made by the Learned Assessing Officer applying the benefit of tonnage tax scheme to the assessee merely for the reason that approval for exercise of option under section 115VP has been given by the Additional CIT. On the merits of the case, it is seen that the assessing officer has not considered the issue whether a part ownership of a ship could be considered as 'owning at least one qualifying ship' (emphasis supplied) under clause (c) of section 115VC. Secondly the Learned Assessing Officer has not considered whether income derived from mere part ownership with sharing of profits without actual 'operation' of the ship by the assessee would amount to 'income from the business of operating a qualifying ship' (emphasis supplied), an essential requirement under section 115VA, the charging section. The issue of whether transportation of coal between two ports in India would make it provision of goods or a service of a kind normally provided on land and therefore disentitle the assessee the benefit of tonnage scheme has also not been considered by the Learned Assessing Officer even though on the very same issue the appeals are pending before the CIT(A), in certain other cases. Though the issues are debatable, the CIT is not precluded from exercising his powers under section 263 to direct the Learned Assessing Officer to consider the same in accordance with law. In this regard I rely on the decision of the Madras High Court in the case of CIT v. Seshashayee paper Boards 217 ITR 258 which has been approved by the Supreme - 15 - Court in the case of CIT v. G.M.Mittal Stainless Steel P. Ltd 263 ITR 255."
To adjudicate the issue under consideration it is considered useful to extract some of the relevant provisions of the Act as under:- 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, the 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". *115VB. Operating ships.--For the purposes of this Chapter, a company shall be regarded as operating a ship if it operates any ship whether owned or chartered by it and includes a case where even a part of the ship has been chartered in by it in an arrangement such as slot charter, space charter or joint charter : Provided that a company shall not be regarded as the operator of a ship which has been chartered out by it on bareboat charter-cum-demise terms or on bareboat charter terms for a period exceeding three years. *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) a valid certificate in respect of such ship indicating its net tonnage is in force, but does not include— (i) a seagoing ship or vessel if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land ; (ii) fishing vessels ; (iii) factory ships ; (iv) pleasure crafts ; (v) harbour and river ferries ;
(vi) offshore installations ; (vii) dredgers ; (viii) a qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year. 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 (hereafter referred to as the "initial period"): Provided that— (i) a company incorporated after the initial period ; or (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.
9. Sec.115VC envisages that a qualifying company owns at least one qualifying ship. This has been enacted with reference to the fact that such qualifying company may operate other qualifying ship by chartering the qualifying ships. We find that the stress is on owing of a qualifying ship and has not been provided that it should fully own a qualifying ship and on partly owning a qualifying ship the assessee will not be a qualifying company.
10. Still further we find that as per provision of Sec.115VA in the case of the company the income from the business of operating qualifying ship at the option of such company shall be computed as per tonnage tax scheme. Nowhere this section provides that such company should be a qualifying company.
We find that it is not in dispute that the assessee company opted for tonnage tax scheme which option was duly approved by Additional Commissioner of Income Tax vide his order dated 28.01.2005 passed u/s.115VP(3) of the Act. Further it is also not in dispute that the said order of the Additional Commissioner of Income Tax is still in force and the same has not been set aside by any higher authority. In the impugned order also, the Learned Commissioner of Income Tax has considered the said order of the Additional Commissioner of Income Tax and has not set aside that order and has observed in regard to that order that:- "The order has to be passed by the Additional Commissioner within 30 days of the application. It was intended to be a preliminary enquiry." "The approval given by the Additional Commissioner is a qualified one and it is not intended that he should go into the details of eligibility at the initial stage."
However, we find that as per provisions of sub section(3) of sec.115VP the Joint CIT (Additional Commissioner of Income Tax in this case) has the power to call for such information all documents from the applicant company as he thinks necessary in order to satisfy himself about the eligibility of the company for tonnage Tax Scheme and only after satisfying himself about such eligibility to issue approval or order refusing granting of approval. Thus, we are unable to agree with the observation of the Learned Commissioner of Income Tax to the extent to which it has been stated that the approval granted u/s.115VP(3) is merely a preliminary order and the Additional Commissioner of Income Tax can grant the approval even without satisfying himself completely about the eligibility of the applicant company for tonnage tax scheme.
Once it has been provided in statute by the Parliament that the Joint Commissioner of Income Tax shall approve the option for Tonnage Tax Scheme after satisfying himself about the eligibility of the company for the said scheme and in pursuance to which the competent authority has granted the approval then it cannot be held that such approval was granted by making only a preliminary enquiry without satisfying as was the competent authority duty bound to do , without any relevant material. As the said order of the Additional Commissioner of Income Tax is still in force, not set aside by any higher authority in our considered opinion it cannot be disputed by the Revenue that the assessee company was not a qualifying company or the company which was not eligible for tonnage tax scheme.
We find that the Learned Commissioner of Income Tax has brought no material on record after going through the agreement dated 25.09.2001 referred in show cause notice that the assessee company has chartered out on bare boat charter cum demise terms or on bare boat charter terms for a period exceeding 3 years to any other person. Thus we do not find any material on the basis of which it has been held that the Learned Assessing Officer has not examined the fact that the assessee company was engaged in operation of the ship during the year or not . In our considered opinion, provision of Sec.263 cannot be resorted for making a roving or fishing enquiry without bringing on record some material to show that the assessment order as passed by the Learned Assessing Officer was erroneous as well as prejudicial to the interest of the Revenue.
The only other ground for treating the assessment order as erroneous and prejudicial to the interest of the Revenue by the Learned Commissioner of Income Tax was that in his opinion the Learned Assessing Officer has not considered that whether the transportation of goods between two ports situated within India falls within clause (1) of Section 115VD or not. In this respect, the Learned Commissioner of Income Tax himself further observed in the impugned order that the view adopted by the Learned Assessing Officer in the assessment order is a debatable issue. However in his opinion Learned Commissioner of Income Tax is not precluded from passing an order u/s.263 in respect of disputable issue. We find that similar issue came before this Tribunal in the case of The Additional Commissioner of Income Tax Co. Circle II(3),Chennai Vs. M/s.West Asia Martitime Ltd. in in assessment year 2006-07 wherein due to difference in opinion between the two members constituting the Bench the matter has been referred to Third Member Bench. Thus it is admitted position that the issue under consideration is a debatable issue or an issue in respect of which more than one view is possible. We find that Hon'ble Supreme Court in the case of Learned Commissioner of Income Tax Vs. Max India 295 ITR 346 has reiterated the view that passing of an order u/s.263 is not envisaged in the Act in respect of debatable issue where more than one view is possible. Thus the opinion of the Learned Commissioner of Income Tax cannot be upheld.
In view of the above in our considered view the Learned Commissioner of Income Tax was not justified in treating the order of assessment dated 07.12.2007 passed by the Learned Assessing Officer as erroneous as well as prejudicial to the interest of Revenue in view of the reasons stated in the impugned order. We therefore set aside the order passed u/s.263 by the Learned Commissioner of Income Tax and allow the appeal of the assessee.” 8.6 By following the above order of the Tribunal, the ld. CIT(A) directed the Assessing Officer to grant renewal of tonnage tax scheme as applied by the assessee. The above order of the Tribunal has not been reverted or reversed by any higher Court. Accordingly, we confirm the order passed by the ld. CIT(A), subject to the final verdict of the Hon’ble Madras High Court as has been contended by the ld. DR that the Department has filed further appeal against the order of the Tribunal.
In the result, both the appeals filed by the Revenue are dismissed. Order pronounced on the 13th October, 2017 at Chennai.