ACIT, CHENNAI vs. WEST ASIA MARITIME LIMITED, CHENNAI

आदेश / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER:

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2. Shri N.Gopikrishna, JCIT, represented on behalf of the Revenue and Shri G.Baskar, Adv., represented on behalf of the assessee.

3. Both the appeals relate to the same assessee and are having identical issues and hence both the appeals are disposed off by this common order.

4. The grounds raised by the Revenue in are –

1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case.

2.1 The CIT(A) erred in holding that the assessee is entitled for the benefit of tonnage tax scheme provided under Chapter XII C of the IT Act, 1961.

2.2 The CIT(A) failed to appreciate the fact that the main activity of the ship M.V.Gem of Ennore (in which the assessee company owns 20% share) is to transport thermal coal from one location to another location within the country and all the ports which are connected by ship MV Gem of Ennore are located within the same country and are well connected by road/rail.

2.3 The CIT(A) ought to have appreciated that movement of coal between these ports can normally be routed through land by means of either road transport or rail transport.

2.4 The CIT(A) erred in not appreciating the fact that as per Sec. 115VD(i), if any sea going ship or vessel transports any goods or services of a kind normally provided on land, then it is not a qualified ship for the purpose of computation of tonnage income and ought to have upheld the disallowance made by the Assessing Officer.

2.5 The CIT(A) ought to have appreciated that whenever the language of the statutory provisions are plain and simple they should be given the natural meaning. Accordingly, as there is no ambiguity in the language employed in clause (i) of Section 115VD, the provisions of Section 115VD have to be given effect to as they are, irrespective of the consequences.

2.6 It is submitted that the relied upon decision of the ITAT for the Asst. Year 2006-07 in assessee’s own case on an identical issue has not been accepted by the Revenue and an appeal has been preferred u/s.260A before the Hon’ble High Court of Madras against the same.

3.1 The CIT(A) erred in deleting the disallowance u/s.40(a)(i) in respect of brokerage paid on sale of ships, without deducting TDS.

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3.2 The CIT(A) failed to appreciate that the purpose behind making such payment of brokerage to someone who possess technical expertise about ships shall be considered only as the payment made for fees for technical services which would clearly fall under Explanation 2 section 9(1)(vii). 3.3 The CIT(A) ought to have appreciated that as per the explanation inserted to Sec.9(2) by the Finance Act 2010 with retrospective effect from 01.06.1976, payments of Fees for Technical Services are taxable in India irrespective of Permanent Establishment of the non-resident and also the place in which the service was rendered.

3.4 The CIT(A) ought to have followed the decision of Authority on Advance Rulings in the case of Steffen, Robertson and Kirsten Consulting Engineers and Scientists Vs. CIT. 230 ITR 206 where it was held that an expenditure shall be considered for TDS u/s.195 if the benefits derived out of the above expenditure is utilized in India.

3.5 The CIT(A) erred in not holding that the assessee ought to have deducted tax at source on the brokerage paid to the non-residents and in any case, it was not open for the assessee to conclude suo-moto that the payments made to non-residents are not chargeable to tax as the proper course for the assessee would be to make an application u/s.195(2) to the concerned Assessing Officer, in the absence of which the assessee ought to have deducted tax at applicable rates.

4.1 The CIT(A) erred in dismissing the assessee’s appeal on the issue of disallowance towards office building repairs and maintenance as infructuous.

4.2 The CIT(A) failed to appreciate the fact that as per ground Nos.2.1 to 2.5 cited above, the assessee is not entitled to tonnage tax scheme and ought to have dealt with the issue on merits.

5.1 The CIT(A) erred in holding that the assessee is eligible for Tonnage tax Scheme and further disallowance u/s.14A cannot be made.

5.2 The CIT(A) failed to appreciate the fact that as per ground Nos.2.1 to 2.5 cited above, the assessee is not entitled to tonnage tax scheme and ought to have upheld the disallowance made by the Assessing Officer u/s.14A.

5.3 The CIT(A), failed to appreciate that the expenditure relating to exempt income is basically not allowable as per the provisions of section 37 of the Act and ought to have upheld the quantification of the disallowance as per the provisions of the section 14A.

5.4 The CIT(A) ought to have appreciated that Section 14A(2) provides that the disallowance may be determined ‘in accordance with such rules as may be prescribed’, which leads to the logical conclusion that the disallowance u/s.14A shall be made in accordance with the method prescribed under Rule 8D.

1. For these and other grounds that may be adduced at the time of hearing, it is prayed that, the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.

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2.1 The CIT(A) erred in deleting the disallowance u/s.40(a)(i) in respect of brokerage paid on sale of ships, without deducting TDS.

2.2 The CIT(A) failed to appreciate that the purpose behind making such payment of brokerage to someone who possess technical expertise about ships shall be considered only as the payment made for fees for technical services, which would clearly fall under Explanation 2 section 9(1)(vii).

2.3 The CIT(A) ought to have appreciated that as per the explanation inserted to Sec.9(2) by the Finance Act 2010 with retrospective effect from 01.06.1976, payments of Fees for Technical Services are taxable in India irrespective of Permanent Establishment of the non-resident and also the place in which the service was rendered.

2.4 The CIT(A) ought to have followed the decision of Authority on Advance Rulings in the case of Steffen, Robertson and Kirsten Consulting Engineers and Scientists Vs. CIT. 230 ITR 206 where it was held that an expenditure shall be considered for TDS u/s.195 if the benefits derived out of the above expenditure is utilized in India.

2.5 The CIT(A) erred in not holding that the assessee ought to have deducted tax at source on the brokerage paid to the non-residents and in any case, it was not open for the assessee to conclude suo-moto that the payments made to non-residents are not chargeable to tax as the proper course for the assessee would be to make an application u/s.195(2) to the concerned Assessing Officer, in the absence of which the assessee ought to have deducted tax at applicable rates.

2.6 It is submitted that the relied upon order of the CIT(A) in assessee’s own case for the Asst. Year 2007-08 has not been accepted by the department and an appeal has been preferred against the same before the ITAT.

3 For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.

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ITA No.934/Mds/2013 for the AY 2007-08

8.1 In regard to Ground Nos.2.1 to 2.6, it was submitted that the issue was as to whether the ship M.V.Gem of Ennore was a qualifying ship for Tonnage Tax Scheme. It was a submission that for the AY 2007-08, the assessee had filed its return of income applying the provisions of Sec.115VG of the Income Tax Act, 1961. It was a submission that the Tonnage Tax Scheme has been prescribed in Sec.115VG. It was a submission that the AO completed assessment taking a view that the ship M.V.Gem of Ennore was not a qualifying ship for tonnage tax levy u/s.115VD. It was a submission that consequently the AO had re-worked the total income of the assessee by applying the provisions of Sec.115V- I(6). At the time of hearing, it was fairly agreed by both the sides that the issue was squarely covered in favour of the assessee by the decision of the third Member in 143 TTJ 0129 and other subsequent orders of the Tribunal. The Ld.AR placed before us copies of the orders of the Tribunal for the AYs 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13 wherein the Co-ordinate Bench of this Tribunal in dated 13.06.2014 for the AY 2008-09 in the assessee’s own case held as follows:

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8.2 We have considered the rival submissions. As it is noticed that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for the AY 2008-09 referred to supra, the findings of the Ld.CIT(A) on this issue stands confirmed.

8.3 In regard to Ground Nos.3.1 to 3.5, which is similar to Ground Nos.2.1 to 2.6 of the Revenue’s appeal in ITA No.1545/Mds/2014. It was submitted by the Ld.DR that the AO had invoked the provisions of Sec.40(a)(i) in respect of brokerage paid by the assessee to the non- resident in respect of sale of two ships. It was a submission that the TDS u/s.195 had not been made on the brokerage paid to the non-resident. It was a submission that the brokerage paid, was in the nature of the fees for technical services, consequently, the TDS was liable to be made.

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8.4 In reply, the Ld.AR submitted that in respect of the assessment year 2007-08, as the assessee was filing his return by applying the provisions of Sec.115VG, the question of disallowance by invoking the provisions of Sec.40(a)(i) would not arise as no expenditure has been claimed separately in respect of the brokerage. It was a further submission that in respect of the assessment year 2005-06 also no disallowance could be made in so far as the brokerage is not in the nature of fee for technical services and the payment has been made to a non-resident who does not have income liable to tax in India. It was a submission that the order of the Ld.CIT(A) was liable to be upheld.

8.5 We have considered the rival submissions. A perusal of the order of the Ld.CIT(A) shows that the Ld.CIT(A) deleted the addition on the ground that the assessee has offered the income for the AY 2007-08 by applying tonnage tax basis. Admittedly, once tonnage tax basis is applied as per the provisions of Sec.115VG then there was no scope for making any disallowance of any expenses as no specific expenditure itself is separately claimed.

8.6. In respect of the AY 2005-06, admittedly the payment had been made to non-resident and brokerage by no stretch of imagination can be considered under fee for technical services. In fact, a perusal of the order of the AO explaining the nature of the brokerage paid which in effect is the reply filed by the assessee before the AO and extracted Para Nos.2.3 &

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2.4 of the Assessment Order would clearly shows that the brokerage is not in any way fee for technical services. Consequently, we are of the view that the same is not hit by the provisions of Sec.195 as also Sec.40(a)(i).

In these circumstances, the findings of the Ld.CIT(A) on this issue stands confirmed.

9.1 In reply, to a specific query from Bench, as to whether the assessee has claimed the expenses in respect of the office building repairs and maintenance, the Ld.DR fairly replied ‘no’. In reply, the Ld.AR submitted that the assessee is following the tonnage tax provisions for filing his returns for the AY 2007-08 has not claimed any expenses separately and consequently no disallowance could be made. He vehemently supported the order of the Ld.CIT(A).

9.2 We have considered the rival submissions. Admittedly, the assessee has applied the tonnage tax provisions when filing its return for the AY 2007-08 and consequently there was no provision for claiming any further expenses. In the absence of claiming any expenses, there was no case for disallowing any expenses also. In these circumstances, we are of the view

ITA No.934/Mds/2013 & :- 9 -: that the finding of the Ld.CIT(A) is on a right footing and does not call for any interference.

10.1 We have considered the rival submissions. We have already held in Ground Nos.4.1 & 4.2 that the assessee has applied the tonnage tax provisions when filing his return for the AY 2007-08 and consequently no expenses having been claimed when filing the return there was no provisions for disallowing any part of the expenditure. Consequently, the finding of the Ld.CIT(A) on this issue stands confirmed.

ITA No.1545/Mds/2014 for the AY 2005-06

ITA No.934/Mds/2013 & :- 10 -: 14. Ground Nos.2.1 to 2.6 are identical to Ground Nos.3.1 to 3.5 of the Revenue’s appeal in 934/Mds/2013 and our findings there, apply to these grounds also.

Order pronounced in the Open Court on September 08, 2017, at Chennai.