Ita v. Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE FRIDAY, THE 23RD DAY OF JANUARY 2015/3RD MAGHA, 1936 ITA.No. 128 of 2012 () ----------------------- (AGAINST THE ORDER IN ITA.NO. 80/COCH/2012 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN DATED 20-07-2012) ------------- APPELLANT/APPELLANT IN ITA: --------------------------------------------------- TRANS ASIAN SHIPPING SERVICES PRIVATE LIMITED., TRANSASIA CORPORATE PARK, SEAPORT AIRPORT ROAD, CHITTETHUKARA, KAKKANAD, KOCHI-682 037. BY SRI. PORUS KAKA, SENIOR ADVOCATE ADV.SRI.SABU S.KALLARAMOOLA RESPONDENT/RESPONDENT IN ITA: -------------------------------------------------------- COMMISSIONER OF INCOME TAX, I S PRESS ROAD, ERNAKULAM, KOCHI-682 018. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 02-09-2014, ALONG WITH ITA.NO. 129/2012, THE COURT ON 23-01-2015 DELIVERED THE FOLLOWING: sts ITA.NO.128/2012 ANNEX LCOPY OF THE COMPARATIVE STATEMENT SHOWING THE TAX PAYABLE UNDER THE TONNAGE TAX SCHEME AND THE NORMAL MODE OF COMPUTATION OF INCOME.PAYABLE UNDER THE TONNAGE TAX SCHEME AND THE NORMAL MODE OF COMPUTATION OF INCOME. RESPONDENT'S ANNEXURES: NIL /TRUE COPY/ P.S.TO.JUDGE Thottathil B.Radhakrishnan & A.Muhamed Mustaque, JJ. = = = = = = = = = = = = = = = = = = = = = = = =I.T.A.Nos.128 & 129 of 2012 = = = = = = = = = = = = = = = = = = = = = = = = Dated this the 23[rd] day of January, 2015 Judgment Thottathil B.Radhakrishnan, J. 1.Should the ‘slot charter’ operations of a ‘tonnagetax company’ be carried on onlyin ‘qualifyingships’ to include the income from such operationsto determine the ‘tonnage income’ under the‘tonnage tax scheme’ in terms of the provisions ofChapter XII G of the Income Tax Act, 1961; the“Act”, for short? In other words, is the incomederived from ‘slot charter’ operations of a‘tonnage tax company’ liable to be excluded whiledetermining the ‘tonnage income’ under the‘tonnage tax scheme’ if such operations arecarried on in ships which are not ‘qualifying ITA128 & 129/12 ships’ in terms of the provisions of that Chapterof the Act and the relevant provisions of theIncome Tax Rules, 1962; for short, the “Rules”?of the Act and the relevant provisions of theIncome Tax Rules, 1962; for short, the “Rules”? 2.Afore-noted is the substantial question of lawarising for decision in these appeals. It isformulated on the basis of the submissions of thelearned Senior Advocates for the assessee and therevenue whom we have heard focusing on thatquestion of law. arising for decision in these appeals. It isformulated on the basis of the submissions of thelearned Senior Advocates for the assessee and therevenue whom we have heard focusing on thatquestion of law. 3.The fact that the appellant, whom we hereinafterrefer to as the ‘assessee’, is a ‘qualifyingcompany’ in terms of Section 115VC and that itowns at least one ‘qualifying ship’ as defined inSection 115VD is not in dispute.refer to as the ‘assessee’, is a ‘qualifyingcompany’ in terms of Section 115VC and that itowns at least one ‘qualifying ship’ as defined inSection 115VD is not in dispute. 4.The appeals relate to two assessment years.Appellant operated its ‘qualifying ship’ and hadalso ‘slot charter’ arrangements in other shipsduring those years. For both those years, theappellant filed returns computing its shippingAppellant operated its ‘qualifying ship’ and hadalso ‘slot charter’ arrangements in other shipsduring those years. For both those years, theappellant filed returns computing its shipping 4.The appeals relate to two assessment years.Appellant operated its ‘qualifying ship’ and hadalso ‘slot charter’ arrangements in other shipsduring those years. For both those years, theappellant filed returns computing its shippingAppellant operated its ‘qualifying ship’ and hadalso ‘slot charter’ arrangements in other shipsduring those years. For both those years, theappellant filed returns computing its shipping ITA128 & 129/12 income, under Chapter XII G of the Act whichcontains special provisions relating to income ofshipping companies in Sections 115V to 115VZC,also reckoning the deemed tonnage in relation toits activities through slot charter arrangements.That did not find favour with the departmentalhierarchy. The Income Tax Appellate Tribunaldismissed the appellant’s appeals against theorders of the Commissioner of Income Tax(Appeals) holding that in order to avail thebenefit of the provisions of Chapter XII G inrelation to ‘slot charter’ arrangements, it isnecessary to show that the ships in which theappellant had operations under ‘slot charter’arrangements are also ‘qualifying ships’ and thatsuch operation has to be evidenced by producingvalid certificate in terms of Section 115VX(1)(b)of the Act, in relation to each such ship. Thesefindings are pointedly under challenge and theresult of these appeals would depend on thequestion whether those findings on issues of laware in terms of the relevant laws. Pithily ITA128 & 129/12 -: 4 :- stated, the question is as to whether theappellant is eligible to include the incomederived from activities through ‘slot charter’arrangements, as relevant shipping income, todetermine the deemed tonnage in terms of Rule 11Qof the Rules, to compute the tonnage income interms of Section 115VG of the Act, without such‘slot charter’ arrangements being carried onthrough ‘qualifying ships’ as defined in the Act. 5.Making reference to the different provisionscontained in Chapter XII G of the Act and therelevant rules and forms in the Rules, thelearned senior counsel appearing for theappellant argued that the provisions clearly showthat the deemed tonnage computation for slotcharters is to be separately computed,independent and in addition to computation forqualifying ships for which the net tonnagecertificate is given for ships owned by theassessee. Specific reference was made to Sections115VA, 115VB and 115VG(4) of the Act and Rule 11Q ITA128 & 129/12 of the Rules and Form No.66 under the Rules.Explanatory Notes to the Finance Act, 2004 werealso referred to. The statutory form of auditreport which should be in Form 66 specificallysays that there is no need to mention the name ofthe ship, income from which is computed on deemedtonnage basis, it is pointed out. The mode inwhich Rule 11Q and the forms are placed and Note3 to Form 66 are also pointedly referred to, toargue that the scheme of the Act and Rules neverpermit an interpretation to hold that to includetheincomederivedfromslotcharterarrangements, such operations ought to be carriedon through qualifying ships. It is further arguedthat the relevant statutory provisions amount tothe inclusion of the concept of slot charter inthe form of a deeming provision. It isaccordingly argued that it is necessary to assumeall those facts on which alone the fiction canoperate and a construction which defeats the veryobject sought to be achieved by the Legislatureought to be avoided. Reference was made to ITA128 & 129/12-: 6 :- ITA128 & 129/12-: 6 :- -Commissioner of Incometax, Delhi v. S.Teja Singh[35 KTR 408 (SC)]. Collector of Customs, Cochinv. State of Kerala[1993 (66) ELT 351 (Kerl)] isreferred to support the submission that a fictionhas to be given its full effect and the Tribunalcannot impose limitations or conditions which arenot found therein. Bajaj Tempo Ltd. v.-Commissioner of Incometax[196 ITR 188 (SC)] isreferred to, to point out that taxing statutesproviding incentives for growth and developmentare to be construed liberally and in a way so asto advance the objective and not frustrate it. 6.The learned senior counsel for the departmentsubmitted that it is relevant to note the suomotu revisional order of the Commissioner on thebasis of which the fresh assessment orders wereissued. The argument is that without anyvariation being brought to that order of theCommissioner, the findings and interpretation ofthe provisions by the Commissioner are binding onthe officer who passed the assessment order. It ITA128 & 129/12 is further argued that in order to avail thebenefit of Chapter XII G, the assessee has toshow that the ship operated by it was aqualifying ship and that could be done only byproducing the valid certificate indicating itsnet tonnage. While the department admits thatvalid certificates were submitted by the assesseefor its own ships, it is argued that the assesseedid not submit such valid certificates for thevessels through which it carried out activitiesunder slot charter arrangements. The argument isthat to bring slot charter arrangements under thescheme, each ship through which such arrangementsare carried, ought to be qualifying ship forwhich valid certificate has to be produced. It ispointed out that the statutory provisions do notenvisage the purchase of slots and even if thecalculation of deemed tonnage is not based on thenet tonnage of the qualifying ships, the basiccondition that the ships should be qualifyingships is not abated in the scheme of deemedtonnage. Reference is made to sub-section 6 of ITA128 & 129/12 -: 8 :- Section 115VI to say that where a tonnage taxcompany operates any ship, which is not aqualifying ship, the income attributable tooperating such non-qualifying ship shall becomputed in accordance with the other provisionsof the Act. The decision of the Tribunal does notwarrant interference, it is argued. 7.Chapter XII G of the Act, consisting of Sections115V to 115VZC, was inserted by Finance (No.2)Act, 2004 with effect from 1.4.2005. 'Tonnage taxscheme' is defined in clause (m) of Section 115Vto mean a scheme for computation of profits andgains of business of operating qualifying shipsunder the provisions of Chapter XII G. Section115V(j) defines 'tonnage income' to mean theincome of the tonnage tax company computed inaccordance with the provisions of that Chapter and'tonnage tax company' is a qualifying company inrelation to which tonnage tax option is in force -Section 115V(l). The appellant is a qualifyingcompany and is a tonnage tax company. Section ITA128 & 129/12-: 9 :- 7.Chapter XII G of the Act, consisting of Sections115V to 115VZC, was inserted by Finance (No.2)Act, 2004 with effect from 1.4.2005. 'Tonnage taxscheme' is defined in clause (m) of Section 115Vto mean a scheme for computation of profits andgains of business of operating qualifying shipsunder the provisions of Chapter XII G. Section115V(j) defines 'tonnage income' to mean theincome of the tonnage tax company computed inaccordance with the provisions of that Chapter and'tonnage tax company' is a qualifying company inrelation to which tonnage tax option is in force -Section 115V(l). The appellant is a qualifyingcompany and is a tonnage tax company. Section ITA128 & 129/12-: 9 :- 115VE prescribes the manner of computation ofincome under tonnage tax scheme. Computation oftonnage income is governed by Section 115VG. Sub-section 4 of that Section says that for thepurposes of Chapter XII G, the tonnage shall meanthe tonnage of a ship indicated in the certificatereferred to in Section 115VX and includes thedeemed tonnage computed in the prescribed manner.That provision stands with an Explanation to theeffect that for the purposes of that sub-section,'deemed tonnage' shall be the tonnage in respectof an arrangement of purchase of slots, slotcharter and an arrangement of sharing of break-bulk vessel. The manner of computing the deemedtonnage for the purpose of sub-section 4 ofSection VG is prescribed in Rule 11Q of the Rules.Sub-rule 1 of that Rule provides the manner inwhich deemed tonnage in respect of an arrangementof purchase of slots and slot charter shall becomputed for the purpose of the Explanation tosub-section 4 of Section 115VG. Sub-rule 2 of thatRule deals with the manner of computation of ITA128 & 129/12 deemed tonnage in respect of an arrangement ofsharing of break-bulk vessel. Both of those sub-rules make specific reference to Form No.66 of theRules and the illustrative formula given in therelevant Note appearing under that form as regardseach of those sub-rules. Thus, the determinationof deemed tonnage for computing the tonnage incomeis to be done having regard to these statutoryprovisions and the clear terms of the statutoryform prescribed for such purpose. Rule 11T of theRules enjoins that the report of audit of accountsof a qualified company which is required to befurnished under clause (ii) of Section 115VW shallbe in Form No.66. At Sl.No.10 of that form is theformat in which details have to be provided forcomputation of tonnage income under Section 115VG.Column No.1 of that format is “name of qualifyingship”. It stands with an asterisk that would takeus to the foot of the form, just above theDeclaration, explaining that “there is no need tomention the name of the ship, income from which iscomputed on deemed tonnage basis.” ITA128 & 129/12 -: 11 :- ITA128 & 129/12 -: 11 :- 8.Reverting to Sections 115VB, 115VC and 115VD, itcan be seen that while it is necessary to own atleast one qualifying ship for a company to be aqualifying company, operating ships may be eitherowned or chartered by the company and include slotcharter, space charter or joint charter. Theseprovisions clearly show that income derived fromslot charter operations of a tonnage tax companyis to be included to determine the tonnage incomeof a tonnage tax company even if such operationsare carried on in ships which are not qualifyingships in terms of the provisions of Chapter XII Gof the Act.can be seen that while it is necessary to own atleast one qualifying ship for a company to be aqualifying company, operating ships may be eitherowned or chartered by the company and include slotcharter, space charter or joint charter. Theseprovisions clearly show that income derived fromslot charter operations of a tonnage tax companyis to be included to determine the tonnage incomeof a tonnage tax company even if such operationsare carried on in ships which are not qualifyingships in terms of the provisions of Chapter XII Gof the Act. 9.The provision in sub-section 4 of Section 115VGitself explicitly demonstrates that what isincluded as deemed tonnage computed in the mannerprescribed under Rule 11Q is not necessarilyreferable to the tonnage of a ship. There isnothing in the Act or rules to even faintlyindicate that the arrangements which fall withinitself explicitly demonstrates that what isincluded as deemed tonnage computed in the mannerprescribed under Rule 11Q is not necessarilyreferable to the tonnage of a ship. There isnothing in the Act or rules to even faintlyindicate that the arrangements which fall within ITA128 & 129/12 the basket of the provision 'deemed tonnage'incorporated through Explanation to sub-section 4of Section 115VG would be operative only if sucharrangements are carried out through qualifyingships. More importantly, when the Legislature hasdeemed a particular situation and has created adeeming provision, it is trite law that the saiddeeming provision should be permitted to permeateto the extent within which the deeming provisionstands. S.Teja Singh (supra) and Collector ofCustoms, Cochin (supra) cited on behalf of theappellant apply on all fours in interpreting theprovision in hand. 10.Form 66 under Rule 11T of the Rules is astatutory form. It prescribes a formula forconversion of TEUs into NT (Slot Charter) in Note3. Note 3.(i) reads as follows: “3. Formula for conversion of TEUs intoNT (Slot Charter) (i) In addition to loading containers ITA128 & 129/12 on their own container vessels, shippingcompanies also hire slots on containerships (not owned by them) plying onvarious routes. These slots could behired for a sector voyage or on long termbasis, all round the year, in variousvessels and in varying numbers and thuscannot be converted to net tonnageidentifying the particular vessel onwhich the slot is hired. Thus, a formulahas been worked out to convert the slotshired into net tonnage. (See theworksheet appearing after this note).” The worksheet is illustrative of the indisputableconclusion that as per the Act and Rules, theslots hired are converted into net tonnage. Thisis enjoined by providing a formula since slots arehired for a sector voyage or on long term basis,all round the year, in different vessels and invarying numbers and thus cannot be converted tonet tonnage identifying the particular vessel onwhich the slot is hired. It is therefore that aformula has been prescribed to convert the slotshired into net tonnage. This clinchingly concludes ITA128 & 129/12 -: 14 :- the issue in favour of the appellant, even goingby the Rules and forms. The stand to the contraryas taken by the department is hereby repelled. The worksheet is illustrative of the indisputableconclusion that as per the Act and Rules, theslots hired are converted into net tonnage. Thisis enjoined by providing a formula since slots arehired for a sector voyage or on long term basis,all round the year, in different vessels and invarying numbers and thus cannot be converted tonet tonnage identifying the particular vessel onwhich the slot is hired. It is therefore that aformula has been prescribed to convert the slotshired into net tonnage. This clinchingly concludes ITA128 & 129/12 -: 14 :- the issue in favour of the appellant, even goingby the Rules and forms. The stand to the contraryas taken by the department is hereby repelled. 11.The argument on behalf of the department as tothe conclusiveness of the order of theCommissioner in the suo motu proceedings does nothold good. That order would have been binding onthe assessing officer but would not bind thesuperior tribunals and courts when questions oflaw arise for consideration; more particularly,when such questions arise as a consequence of theproceedings following the Commissioner's decision.Such decision of the Commissioner to the extent itis contrary to the findings herein, will notstand. 12.For the aforesaid reasons, we answer the questionformulated above by holding that the incomederived from slot charter operations of a tonnagetax company is not liable to be excluded whiledetermining the tonnage income under the tonnage ITA128 & 129/12 tax scheme on the ground that such operations arecarried on in ships which are not qualifying shipsin terms of the provisions of Chapter XII G of theAct. Resultantly, the impugned orders of the Income TaxAppellate Tribunal, Cochin Bench in ITA.Nos.80 and81/Coch/2012 are set aside. Consequentially, theorders of the Commissioner of Income Tax (Appeals)which were challenged before the Tribunal are setaside and the Assessing Officer is directed tomodify the assessment orders concerned inconformity with law as stated above. Sd/- Thottathil B.Radhakrishnan Judge Sha/ Sd/- A.Muhammed Mustaque Judge Judge -true copy- P.S.to Judge