Ita/14/2009 Of The Commissioner Of Income Tax v. South India Corporation Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 01ST DAY OF FEBRUARY 2019 / 12TH MAGHA, 1940 ITA.No. 14 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 429/2007 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 31-07-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAXCOCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: SOUTH INDIA CORPORATION LTD.KOCHI.SRI.K.ANAND (SR.)SMT.LATHA ANANDS.SRIDHAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON01.02.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT Ashok Menon, J. The assessee is a company engaged in the businessof clearing and forwarding, engineering contracts,shipping, etc. It filed returns for the assessmentyear 2004-05 on 01.11.2004 declaring a total income ofRs.19,72,93,190/-. The Assessing Officer (for short“AO”) vide Annexure A order disallowed the entirededuction of Rs.14,12,92,001/- claimed under Section33AC of the Income Tax Act, 1961 (for short “the Act”),depreciation of Rs.3,36,000/- claimed for capitalisedexpenditure in respect of fees paid to the Registrar ofCompanies and deduction of Rs.3,02,583/- claimed underSection 80-IB of the Act. 2.Appeal filed by the assessee before the Commissioner was allowed vide Annexure B order. 3.The Revenue preferred appeal before theTribunal and vide Annexure C order dated 31.07.2008 theorder of the Commissioner was confirmed. That order isimpugned before us. 4.The following questions of law arise for consideration: 5.The impugned order is challenged by the Revenuefirst, for the reason that deduction under Section 33ACwas allowed. The appellant contends that for claiming deduction under the said provision, the assessee shouldbe a Government company or a public company with themain object of carrying on the business of operation ofships. There is nothing to substantiate that theassessee company was formed with the main object ofcarrying on the business of shipping so as to claimthat deduction. 6.It is also pointed out that the Tribunal hasfaulted in allowing depreciation on the cost of feepaid to the Registrar of Companies as no new assetshave come into existence. It is also submitted that the Tribunal failed to notice that the assessee is noteligible to deduction as per Section 80-IB as it is not doing the integrated business of handling storage andtransportation, but only handling and transportation.That apart, no separate books of accounts weremaintained by the assessee and no report in FormNo.10CCB of the undertaking were filed, which are also conditions prescribed for allowing deduction under thesaid provision. 7.Per contra, the assessee would support theimpugned order and contend that the company has fourships acquired between 1995-96 to 2001-02. TheMemorandum of Association would also indicate thatshipping is an activity in which the company isinvolved. 8.We heard Sri. Jose Joseph, learned Standing Counsel, Government of India (Taxes) and Sri. S.Sridhar, learned Counsel appearing for the assessee. 9.The Memorandum of Association of the company isone of the documents relied on by the assessee toindicate that the company is involved in shippingbusiness. What is required under the Section is thatshipping ought to be the main object of the Company. Relevant portion of the Memorandum of Association readsthus: “III.The objects for which the COMPANYis established are:- 8.We heard Sri. Jose Joseph, learned Standing Counsel, Government of India (Taxes) and Sri. S.Sridhar, learned Counsel appearing for the assessee. 9.The Memorandum of Association of the company isone of the documents relied on by the assessee toindicate that the company is involved in shippingbusiness. What is required under the Section is thatshipping ought to be the main object of the Company. Relevant portion of the Memorandum of Association readsthus: “III.The objects for which the COMPANYis established are:- To establish, carry on and promote inPudukottai State and other Native States inIndia and/or the Colony of Ceylon, the straitsSettlements, Federated Malay States andUnfederated Malay States and/or in BritishIndia and/or Burma or elsewhere in any part ofthe World all or any of the following business,viz,The business of xx xxxxxxcoir,sugar, rice and cement mills and factories,metallurgists, carriers by land sea, forwardingand commission agents, insurance agents,Shippers, shipping agents, stevedores, xx xx” 10. The requirement under the Section would be satisfied only if the assessee could prove that the shipping business is the main activity of the company.It may be true that the profits and income derived bythe company includes income from ships as well. Butthat is not sufficient for it to come within thepurview of the provision to claim deduction underSection 33AC of the Act. Shipping is only one of theobjects of the company and not the main object at anyrate. The first ship was acquired by the company onlyin 1995. Had the main object of the company beenshipping, it would not have waited for so long to acquire a ship. Clearing and forwarding or beingstevedores, is not shipping. They are only activitiesrelated to shipping. 11. Earning profit from the shipping business aloneis not sufficient. In order to qualify for deductionunder Section 33AC, the assessee has to prove that themain object of the assessee was carrying on business ofoperation of ships. Undoubtedly, shipping is one of theobjects of the company, which includes various types ofbusiness as mentioned in the Memorandum and Articles ofAssociation. But that would not suffice unless thereis proof regarding the major income of the companybeing derived from shipping business to conclude thatthe assessee is a company with the main object of doingthe business of shipping. The AO has pointed out thatthe revenue earning from shipping is only 14% of thetotal revenue. We cannot agree with the appellateauthority and the Tribunal on the point that any profitassociated with the shipping business can also betermed as “profits derived from shipping”. Theassessee has no case that the company was set up withthe main object of carrying on business of shipping. The intention of the legislature is to promote shippingbusiness of firms and companies, which have their majorbusiness as shipping and not to those who also doshipping business. We cannot therefore, agree with theappellate authority as well as the Tribunal on thispoint. We are therefore, of the opinion that thefinding of the Tribunal as regards the deduction underSection 33AC of the Act is not proper and cannot besustained. 12. The next ground is the deduction claimed underSection 80-IB. The claim was disallowed by the AO onthe ground that there is no storage activity carriedout by the assessee. The assessee had produced copiesof the invoices relating to Food Corporation of India(FCI), which was relied upon by the appellate authorityand the Tribunal. That according to the Tribunalindicates that the contract was not solely for handlingfood grains, but for storing the food grains asdirected by the FCI and that no rebuttal evidence isforthcoming. It is pointed out that the contract withthe FCI not only relates to handling food grains, butalso storing food grains. On facts, the appellate 12. The next ground is the deduction claimed underSection 80-IB. The claim was disallowed by the AO onthe ground that there is no storage activity carriedout by the assessee. The assessee had produced copiesof the invoices relating to Food Corporation of India(FCI), which was relied upon by the appellate authorityand the Tribunal. That according to the Tribunalindicates that the contract was not solely for handlingfood grains, but for storing the food grains asdirected by the FCI and that no rebuttal evidence isforthcoming. It is pointed out that the contract withthe FCI not only relates to handling food grains, butalso storing food grains. On facts, the appellate authority as well as the Tribunal have concluded that the claim allowed under Section 10-IB of the Act issustainable. We find no reason to interfere with thatfinding. 13. Regarding allowing of depreciation on the cost of fees paid to the Registrar of Companies also is a question based on facts, which has been answered in favour of the assessee by the appellate authority aswell as the Tribunal. 14. In the result, while setting aside the deductions allowed under Section 33CA; the rest of theimpugned order is confirmed. For the foregoing reasons, the appeal is allowed inpart. No order as to costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE APPENDIX APPELLANT'S/S ANNEXURES: ANNEXURE A COPY OF ASSESSMENT ORDER DATED 21/12/2006FOR THE ASSESSMENT YEAR 2004-05. ANNEXURE B COPY OF ORDER DATED 26/02/2007 OF THECOMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C COPY OF THE ORDER DATED 31/07/2008 OF THEINCOME TAX APPELLATE TRIBUNAL, COCHIN BENCHIN ITA NO.429/COCH/2007. ANNEXURE D COPY OF ORDER OF HIGH COURT JUDGMENT(TONNAGE TAX). ANNEXURE E COPY OF APPEAL MEMORANDUM FILED BY REVENUEBEFORE TRIBUNAL.