2016 Supreme(SC) 508

SUPREME COURT OF INDIA
T.S. THAKUR, CJI., A.K. SIKRI, R. BANUMATHI, JJ.
Commissioner of Income Tax, Kochi – Appellant
Versus
Trans Asian Shipping Services (P) Ltd. – Respondent
Civil Appeal Nos. 5869 & 5870 of 2016 (Arising out of SLP (Civil) Nos. 25251 & 25252 of 2015)
Decided On : 05-07-2016

IMPORTANT POINT
Full benefits accruing from beneficial schemes must be extended to a qualifying shipping company.

Headnote:(A) Income Tax Act, 1961 – Section 115 VA – Assessment of income of shipping companies – Computation of total income – Option is given to shipping company which is operating qualifying ships, to get its income computed in accordance with provisions of Chapter XIIG, irrespective of those stipulations otherwise contained in Sections 28 to 43C for computation of business income – Though income of such shipping company would be computed

       in manner provided under Chapter XIIG, same would be treated as income from business which is chargeable to tax as provided under head 'Profits and Gains of Business or Profession' and would be treated as chargeable to tax under that head. (Para 4)

       (B) Income Tax Act, 1961 – Sections 115 VA and 15VC – Assessment of income of shipping companies – Computation of total income – A company has to be an Indian company with effective management of company in India and main objective of company is to carry on business of operating ships – Other significant condition is that company itself should own at least one qualifying ship – Once such conditions are fulfilled, income from business of operating qualifying ships is to be computed under Chapter XIIG – Respondent-assessee owns a qualifying ship and fulfills all other conditions as well to make it a qualifying company under Section 115VC – Income that is generated from qualifying ship is exigible to tax as per special provisions contained in Chapter XIIG as assessee has exercised requisite option in this behalf – However, in addition to operating its qualifying ship it had also slot charter' arrangements in other ships – Fulfillment of this condition permits assessee to exercise its option for computation of income from business of operating qualifying ships under Chapter XIIG of the Act – Assessee exercised the option in this behalf as per Section 115VP of the Act in respect of Assessment Years in question – Assessee is a 'qualifying company' under Section 115VC of the Act. (Paras 5, 6, 11 and 18)

       (C) Income Tax Act, 1961 – Section 15VD – Assessment of income of shipping companies – Computation of total income – Whenever question of a tonnage of a ship crops up and tonnage is to be determined, it has to be in accordance with valid certificate indicating its tonnage and it is a compulsory obligation of assessee to produce such a certificate – However, requirement of producing a certificate would not apply when entire ship is not chartered and arrangement pertains only to purchase of slots, slot charter and an arrangement of sharing of break-bulk vessel – Legal fiction created by sub-section (4) of Section 115VG is to be given its proper and sensible meaning – Calculation of income arising from carriage of goods on slot basis has, in wisdom of Legislature, been disconnected from capacity of a ship on account of impossibility of getting such information in relation to ships on which slot charter is undertaken – When scheme of special provision for computation of income under Tonnage Tax Scheme is exempted, balance tilted in favour of assessee as that was precise purpose in introducing Tonnage Tax Scheme in India – Whole purpose of introduction of Scheme was to make Indian shipping industry more competitive in global space by rationalising its tax cost – There is no requirement of certificate under Scheme in relation to vessel on which slot charter operations are carried out – Circulars of CBDT explaining Scheme of the Act are binding on Department – Judgment passed by High Court upheld. (Paras 21, 22, 26, 27 and 28)

       Facts of Case:

       Order of Assessing Officer was upheld by Commissioner of Income Tax (Appeals) resulting into dismissal of appeal filed by assessee. Even ITAT accepted view taken by Assessing Officer and dismissed appeal filed before it by the assessee thereby upholding the order of the Assessing Officer. However, in further appeal that was preferred by assessee to High Court under Section 260A of Income Tax Act, 1961, assessee has succeeded in getting its way through as High Court has found merit in its contention. High Court, vide impugned judgment and order has allowed appeal of assessee holding that income earned by assessee under slot charter arrangement comes under definition of 'deemed tonnage tax' as per explanation to sub-section (4) of Section 115 VG of Income Tax Act, 1961 and, therefore, exclusion of this income while assessing the same under the special provisions was not appropriate. High Court has held that assessee is eligible for tonnage on slot charter related income also. This view taken by High Court is under examination in present proceedings.

       Findings of Court:

       Whole purpose of introduction of Scheme was to make Indian shipping industry more competitive in global space by rationalising its tax cost. For the reason that it is impossible to cater to all shipping routes on owned ships, it is an accepted and widely prevalent practice globally and in India that shipping companies engage in slot charter operations. If such slot charter arrangements are not entered into, then Indian shipping companies will not be able to take up contract of affreightments and these contracts would have fallen to only foreign shipping lines thereby making Indian shipping industry uncompetitive. Such slot charter arrangements being with a shipping company but not in relation to or for a particular ship, it is impossible for Indian shipping company to identify cargo ship which carried goods.

       Result – Appeals dismissed.