Income Tax Appellate Tribunal - Panji
M/S Dredging Corporation Of India ... vs Addl.Cit, Range-3,, Visakhapatnam on 25 October, 2017
आयकरअपीलीयअधधकरण, धिशाखापटणमपीठ, धिशाखापटणम
IN THE INCOME TAX APPELLATE TRIBUNAL,
VISAKHAPATNAM BENCH, VISAKHAPATNAM
श्रीिी. दुगााराि,न्याधयकसदस्यएिंश्रीधड.एस. सुन्दरससह, लेखासदस्यके समक्ष
BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER&
SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER
आयकरअपीलसं./I.T.A.No.555/Viz/2013
(धनधाारणिर्ा/Assessment Year:2009-10)
आयकरअपीलसं./I.T.A.No.602/Viz/2013
(धनधाारणिर्ा/Assessment Year:2010-11)
आयकरअपीलसं./I.T.A.Nos.78-80/Viz/2014
(धनधाारणिर्ा/Assessment Year:2006-07, 2007-08 and 2008-09)
आयकरअपीलसं./I.T.A.No.167/Viz/2016
(धनधाारणिर्ा/Assessment Year:2011-12)
M/s Dredging Corporation Vs. ACIT, Range-3,
of India Ltd. Visakhapatnam
(अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent)
आयकरअपीलसं./I.T.A.No.557/Viz/2013
(धनधाारणिर्ा/Assessment Year:2009-10)
आयकरअपीलसं./I.T.A.No.603/Viz/2013
(धनधाारणिर्ा/Assessment Year:2010-11)
आयकरअपीलसं./I.T.A.No.165 & 166/Viz/2016
(धनधाारणिर्ा/Assessment Year:2009-10 and 2011-12)
DCIT, Circle-3, Vs. M/s Dredging Corporation
Visakhapatnam of India Ltd
(अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent)
Cross Objection Nos.155/Viz/2013 & 156/Viz/2013
Arising out of ITA Nos.557/Viz/2013 and 603/Viz/2013
M/s Dredging Corporation Vs. DCIT, Circle-3,
of India Ltd Visakhapatnam
राजस्व कीओरसे / Revenue by : Shri R.Govindarajan, DR
धनधााररती कीओरसे/ Assessee by : Shri G.V.N.Hari, AR
सुनिाईकीतारीख/ Date of Hearing : 12.10.2017
घोषणाकीतारीख/Date of Pronouncement : 25 .10.2017
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
आदेश /O R D E R
Per Bench
1. These appeals are filed by the assessee and the Revenue against the
orders of the Commissioner of Income Tax (Appeals) [CIT (A)],
Visakhapatnam for the assessment years 2009-10 to 2011-12 and 2006-07
to 2009-10. Since the common issues are involved, all the appeals are
clubbed , heard together and disposed off in a common order for the sake of
convenience as under:
Assessee's appeals ITA No.555/Vizag/2013, ITA No.602/Vizag/2013
and ITA No.167/Vizag/2016 A.Y. 2009-10, 2010-11 and 2011-12
2. The assessee is a public sector undertaking engaged in the activity of
dredging operations. Normally the business income of the assessee has to
be computed under the provisions of sections 28 to 43C of the Income Tax
Act, 1961 (hereinafter called as 'the Act'). However, the resident assessees
engaged in the business of dredging/operation of ships have the option to
declare the income under tonnage scheme under the provisions of section
115V to 115VZC of Chapter XII-G of the Act. This is known as Tonnage Tax
Scheme under which the income is computed at specified rates based on
net tonnage of a ship under section 115VG of the Act. There is no dispute
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
that the assessee had opted for this scheme and the same has been
accepted by the department.
2.1 For the sake of convenience the facts are extracted from the
assessment year 2009-10. For the assessment year 2009-10, the assessee
filed the return of income on 23.09.2009 declaring total income of
Rs.41,51,34,970/. The assessing officer assessed the following income as
non core income and taken out of the scope of tonnage tax and assessed the
profits separately.
(Rs. in lakhs)
1) Interest earned on House Building and other 35.78
advances
2) Sundry Receipts
i) Sale of Scrap etc. 25.00
ii) Exchange difference, Liquidated 12.00
damages
1.25% commission on chartering
service chargers
iii) Insurance claims 492.00
iv) Interest on arbitration awards
a) Balari Bar 900.00
b) Essar 94.00
1558.78
Addition Rs.15,58,78,000/-
2.2 Further, the assessing officer treated the interest on arbitration
award received from link road project Kochi amounting to Rs.54 lakhs and
from Essar steels amounting to Rs.77.62 lakhs as non core income and
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
brought to tax separately. The assessing officer has treated the insurance
claim also out of the scope of tonnage tax and added back to income
separately.
2.3 Aggrieved by the order of the assessing officer, the assessee went
on appeal before the CIT(A) and the Ld.CIT(A) confirmed the following
receipts as income from non core activity and accordingly directed the AO
to assess the receipts separately outside the purview of tonnage tax
scheme.
(a) Interest on HBA
(b) Liquidated damages
(c) Interest on arbitration award Link Road project Kochi
(d) Interest on arbitration award Essar Steel Ltd.
The Ld.CIT(A) held the following receipts are from the core activity and
accordingly directed to include the receipts for tonnage tax scheme.
(e) Sale of scrap
(f) Insurance claim
(g) Foreign exchange
While rendering the decision the Ld.CIT(A) followed the orders of
this tribunal orders in assessee's own case for the assessment year 2006-
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
07 to 2008-09 in appeal No. ITA Nos. 6 to 8 and 15 to 17/Vizag/2011 dated
25th July, 2011. Aggrieved by the order of the Ld.CIT(A) both the revenue
and assessee have filed cross appeals and the assessee also filed cross
objection in support of the Ld.CIT(A) order.
3. The first issue in these appeals is related to the addition of Rs.35.87
lakhs relating to interest on house building and other advances. This
issue is involved in the assessment years 2009-10, 2010-11 and 2011-12.
The amounts separately assessed were Rs.35.87 lakhs for the A.Y. 2009-10,
Rs.29.74 lakhs for the A.Y. 2010-11 and Rs.18.01 lakhs for the A.Y. 2011-12.
The assessing officer during the assessment proceedings found that the
assessee had included the interest earned on house building advance
amounting to Rs.35.78 lakhs in the core activity of dredging and computed
the income as per the provisions of section 115 VG of I.T. Act, but not
offered the same separately to tax. The assessing officer viewed that the
interest on house building advance is not from the core activity of dredging
and required to be assessed as income other than core activity. Therefore,
the receipts on account of interest earned on house building advances had
been reduced from the tonnage tax receipts and assessed separately as
receipts from non core activities. Aggrieved by the order of the assessing
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
officer, the assessee went on appeal before the CIT(A) and the Ld.CIT(A)
confirmed the order of the assessing officer following the ITAT's order in
assessee's own case for the assessment year 2006-07 to 2008-09 in appeal
No. ITA Nos. 6 to 8 and 15 to 17/Vizag/2011. During the appeal hearing
the Ld. AR did not bring any other decision supporting the subject receipt
as the receipt from the core activity. The source of receipt is the interest on
house building advances given by the assessee and not from the dredging
operations carried on by the assessee. The income from shipping is defined
in section 115VI and the incidental activity in Rule 11R of Income tax Rules
and the receipt of interest from the house building advance is not covered
by the Section 115VI and Rule 11R. The Ld. CIT(A) has confirmed the
addition following the order of this Tribunal. As discussed above the
receipts are not from the core activity of shipping operation but from the
interest on House building and other advances. Hence we uphold the
order of the Ld. CIT(A) and dismiss the ground of the assessee on this issue.
Accordingly, the assessee's appeal on this ground for the assessment
year2009-10, 2010-11 and 2011-12 are dismissed.
4. The next issue is related to the liquidated damages collected from
various contract parties as compensatory payment for failure to execute
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
contract work within the stipulated time. This issue also involved for the
assessment years 2010-11 Rs.968.95 lakhs and for A.Y. 2011-12
Rs.3059.32 lacs. The assessee had included the liquidated damages
recovered from the vendors in qualifying shipping receipts for computing
tonnage tax as core income. The assessing officer held that the liquidated
damages has no correlation with the shipping income either from core
activities or from the incidental activities as provided in Section 115VI and
Rule 11R and accordingly brought to tax separately. The Ld.CIT(A)
confirmed the addition following the order of this Tribunal cited supra.
4.1 Appearing for the assessee, Ld.AR argued that the Hon'ble ITAT in the
earlier years decided the issue following the decision of Hon'ble Supreme
Court in the case of Pandian Chemicals Ltd., by interpreting the term
'derived from' holding that 'income from' shipping in Section 115VI of the
Act is akin to the term 'derived from'. The Ld. A.R argued that the Hon'ble
ITAT upheld the principle laid down by the Hon'ble Supreme Court in the
case of Pandian Chemicals Ltd. reported [262 ITR 278] in the assessee's
case following the reasoning that liquidated damages are not forming part
of the core activity of shipping. Subsequently, Hon'ble High Court of
Mandhya Pradesh Indore Bench in the case of CIT Vs. Prakash Oils Ltd.
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
(2011) [58 DTR 0279] held in connection with computing the profits u/s
80IA liquidated damages are directly derived from industrial undertaking
and eligible for deduction u/s 80IA. Therefore, following the decision of
Hon'ble Madhya Pradesh High Court, Ld.AR vehemently argued that the
liquidated damages required to be included in the core income and should
not be assessed separately as income other than core income.
4.2 On the other hand, Ld. DR argued that Chapter XII-G relating to
income from shipping companies is separate code by itself. The section
provides for what is core income u/s 115VI and what is the income
incidental to shipping activity in Rule11R of I.T. Act. The complete meaning
of income from the shipping activity and incidental activity are given in
section 115VI and Rule 11R and the method of computation of income is
provided for in Section 115VG. Ld. DR taken our attention to section 115VA,
115VG and 115VI and Rule 11R and argued that there is no ambiguity in
the section to identify the core income and non core income. When there is
no ambiguity in section with regard to the income from shipping and
incidental activities, there is no requirement to interpret the law. The Ld.
DR argued that the aspect of complete meaning, identification and
definition of core income and non core income given in the section and the
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
Rules was not considered by the Hon'ble ITAT while rendering the decision
in ITA No.6 to 8/Viz/2011 hence interpreted the word 'income from'.
Further, Ld. DR also argued that the Hon'ble ITAT has given a ruling on
consensus reached by both the parties that the term 'income from' used in
section 115VI of the Act is akin to the term 'derived from'. Ld. DR
submitted that since the income from shipping activity and the income
from incidental activities are defined in section 115VI and Rule 11R, he
declined to agree with his predecessor DR to hold that the income from in
115VI is akin to the term 'derived from'. Accordingly, the Ld. DR argued
that liquidated damages is a step away from the core activity, but not from
the shipping activity. The decision relied upon by the Ld.AR is relatable to
the deduction section 80IA, wherein profits and gains derived from
industrial undertaking required be computed as per the provisions of
section 28 to 43C of I.T. Act, whereas, the tonnage tax required to be
computed not withstanding any other provisions contained in section 28 to
43C of I.T. Act as provided in Chapter XII-G of I.T. Act. Therefore, Ld.DR
vehemently opposed that the liquidated damages are not forming part of
the income from shipping activities and required to be excluded from the
receipts of turnover of tonnage tax and to be assessed separately.
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
4.3 We have heard both the parties and perused the material placed on
record. In the earlier order the coordinate bench interpreted the word
used in shipping income u/s 115VI 'Income from' holding that it is akin to
the term derived from since both the Ld. A.R. and the Ld. D.R. agreed that
the term derived from is akin to 'Income from'. However, in the present
appeals, the Ld. D.R. vehemently opposed and argued that there is no
reason to interpret the 'Income from' since the shipping income and the
incidental income is clearly defined in section 115 VI and Rule 11R. We
have carefully considered the argument of the Ld. D.R. and the Ld. A.R. and
also gone through the orders of the Hon'ble ITAT. Since the Ld. D.R.
disagreed, we are of the considered view that section 115VI and Rule 11R
defined the income from shipping and incidental activities very clearly and
there is no ambiguity in the Act and there is no need for separate
interpretation using the word 'derived from'. Accordingly, we decide the
issue whether liquidated damages forms part of core income or not? The
liquidated damages are collected from the various contractors as
compensatory payment for failure to execute the contract works within the
stipulated time. Those are the receipts compensatory in nature but not
from the activity of shipping. The income from shipping activity for the
purpose of computation of tonnage tax is defined in section 115VI as under:
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
Relevant shipping income.
115VI. (1) For the purposes of this Chapter, the relevant shipping income of a tonnage
tax company means--
(i) its profits from core activities referred to in sub-section (2);
(ii) its profits from incidental activities referred to in sub-section (5):
Provided that where the aggregate of all such incomes specified in clause (ii) exceeds
one-fourth per cent of the turnover from core activities referred to in sub-section (2),
such excess shall not form part of the relevant shipping income for the purposes of this
Chapter and shall be taxable under the other provisions of this Act.
(2) The core activities of a tonnage tax company shall be--
(i) its activities from operating qualifying ships; and
(ii) other ship-related activities mentioned as under:--
(A) shipping contracts in respect of--
(i) earning from pooling arrangements;
(ii) contracts of affreightment.
Explanation.--For the purposes of this sub-clause,--
(a) "pooling arrangement" means an agreement between two or more persons for providing
services through a pool or operating one or more ships and sharing earnings or
operating profits on the basis of mutually agreed terms;
(b) "contract of affreightment" means a service contract under which a tonnage tax
company agrees to transport a specified quantity of specified products at a specified
rate, between designated loading and discharging ports over a specified period;
(B) specific shipping trades, being--
(i) on-board or on-shore activities of passenger ships comprising of fares and food and
beverages consumed on board;
(ii) slot charters, space charters, joint charters, feeder services, container box leasing of
container shipping.
(3) The Central Government, if it considers necessary or expedient so to do, may, by
notification in the Official Gazette, exclude any activity referred to in clause (ii) of sub-
section (2) or prescribe the limit up to which such activities shall be included in the
core activities for the purposes of this section.
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
(4) Every notification issued under this Chapter shall be laid, as soon as may be after it
is issued, before each House of Parliament, while it is in session for a total period of
thirty days which may be comprised in one session or in two or more successive
sessions, and if, before the expiry of the session immediately following the session or
the successive sessions aforesaid, both Houses agree in making any modification in the
notification, or both Houses agree that the notification should not be issued, the
notification shall thereafter have effect only in such modified form or be of no effect, as
the case may be; so, however, that any such modification or annulment shall be without
prejudice to the validity of anything previously done under that notification.
(5) The incidental activities shall be the activities which are incidental to the core
activities and which may be prescribed4 for the purpose.
(6) Where a tonnage tax company operates any ship, which is not a qualifying ship, the
income attributable to operating such non-qualifying ship shall be computed in
accordance with the other provisions of this Act.
(7) Where any goods or services held for the purposes of tonnage tax business are
transferred to any other business carried on by a tonnage tax company, or where any
goods or services held for the purposes of any other business carried on by such
tonnage tax company are transferred to the tonnage tax business and, in either case, the
consideration, if any, for such transfer as recorded in the accounts of the tonnage tax
business does not correspond to the market value of such goods or services as on the
date of the transfer, then, the relevant shipping income under this section shall be
computed as if the transfer, in either case, had been made at the market value of such
goods or services as on that date:
Provided that where, in the opinion of the Assessing Officer, the computation of the
relevant shipping income in the manner hereinbefore specified presents exceptional
difficulties, the Assessing Officer may compute such income on such reasonable basis
as he may deem fit.
Explanation.--For the purposes of this sub-section, "market value", in relation to any
goods or services, means the price that such goods or services would ordinarily fetch on
sale in the open market.
(8) Where it appears to the Assessing Officer that, owing to the close connection
between the tonnage tax company and any other person, or for any other reason, the
course of business between them is so arranged that the business transacted between
them produces to the tonnage tax company more than the ordinary profits which might
be expected to arise in the tonnage tax business, the Assessing Officer shall, in
computing the relevant shipping income of the tonnage tax company for the purposes of
this Chapter, take the amount of income as may reasonably be deemed to have been
derived therefrom.
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
Explanation.--For the purposes of this Chapter, in case the relevant shipping income of
a tonnage tax company is a loss, then, such loss shall be ignored for the purposes of
computing tonnage income.
4. See rule 11R.
Similarly, profits from incidental activities are defined in Rule 11R as
under :
Incidental activities for purposes of relevant shipping income.
11R. The incidental activities (details given in Note 5 appearing after the
corresponding Form No. 66) referred to in sub-section (5) of section 115V-I shall be
the following, namely :--
(i) maritime consultancy charges;
(ii) income from loading or unloading of cargo;
(iii) ship management fees or remuneration received for managed vessels;
and
(iv) maritime education or recruitment fees.
4.4 The liquidated damages collected from various contractors do not
cover any of the receipts in section 115VI or within the scope of Rule 11R
of I.T. Act. There is no dispute that the assessee had opted for tonnage tax
scheme and the income has to be computed as per section 115VI and Rule
11R of I.T. Act. Under the tonnage tax scheme, only the receipts from core
activities and receipts from incidental activities are included, which means
that core activities and incidental activities should be the source of profit to
be included under tonnage scheme. As regards the liquidated damages the
source of such income is payment for failure to execute the contract works
14
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
within the stipulated time and not the shipping activity either core or
incidental. Though the liquidated damages may be incidental business
income but the same is not profit from core activities or incidental
activities which have been defined in the Act. They are not directly received
from the shipping activity but are compensatory in nature collected from
the contractors for failure to execute contract. Therefore, liquidated
damages cannot be held to be from the core activity of the shipping and
does not form part for computation in tonnage tax. The reliance placed by
the Ld.AR in the case of Prakash Oils Ltd of Hon'ble High Court of Madhya
Pradesh is related to the computation of profits and gains derived from
industrial undertaking u/s 80IA but not related to the tonnage tax u/s
115VI of I.T. Act. Profits and gains for the purpose of industrial
undertaking required to be computed as per the provisions of section 28 to
43C of I.T. Act and the deduction required to be allowed u/s 80IA of I.T. Act
from the business income. Whereas in the case of tonnage tax as provided
u/s 115VI, the income required to be computed as per Chapter XIIG of I.T.
Act at the option of the assessee. Once, the assessee opts tonnage tax
scheme, the income of the assessee from shipping company required to be
computed as provided in Chapter XIIG .Therefore, the decision relied upon
by the Ld.AR is distinguishable and not applicable in the assessee's case.
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
Accordingly, we hold that Ld.CIT has rightly confirmed the addition and
dismiss the appeal of the assessee on this ground.
5. Next issue is related to the interest on arbitration award for Link
Road Project, Kochi and Essar Steel Projects Ltd. This issue is involved for
the A.Ys 2009-10 and 2008-09 as under:
2008-09 2009-10
Link Road Project Kochi 916.00 lakhs 54.00 lakhs
The assessing officer assessed the above receipts as non core income
and brought to tax separately. Aggrieved by the order of the A.O., the
assessee went on appeal before the CIT(A) and the Ld. CIT(A) confirmed
the action of the A.O.
The facts of the issue are discussed in detail in the Ld. CIT(A)'s order,
which are extracted as under:
"6.6.2. Link Road Project with Cochin Port Trust
6.6.2.1. The appellant had disputes and differences on the Link Road Project with
the Cochin Port Trust, which was resolved by the arbitrator. The arbitrator passed an award
dated 31st January, 2008, in which most of the claims preferred before the arbitrator was
allowed in favour of the appellant. The appellant's claim for interest was also allowed as
follows, in the arbitration award:-
Award : It is apparent from the claimants letter dated 19.06.2001 that the claim
amount was required to be paid by 01.07.1993 but the amount has not been paid
by the respondents, therefore, the claimant; are claiming the interest @ 18% per
annum from 01.07.1993.
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
It is a fact that the Respondents have not paid the entire amount demanded by the
claimants by way of submitting the bills vide their letter dated 05 05.1993. The
balance amount of the bills and the amounts claimed by the claimants by way of
raisinig the aforesaid claims are lying with the Respondent; and the Respondents
might have utilized the amount and have enjoyed the yield of the utilization and on
the other hand have deprived the claimants from the lawful use of their money. The
yield of the amount ' required to be returned to the claimants. The claimants claim
have been allowed as described above. The respondents are liable to pay the claim
amount with interest at the rate of 15% per annum (The rate of Interest viz., 18%
per annual as claimed by the claimants is apparently on the higher side) from
1.7.1993 till the date of payment or 15.5.2008 whichever is earlier. The Respondents
will be liable to pay the claim amount with interest @18% per annum from
1.7.1993 till the date of payment if the claimed amount with interest @15% per
annum is not paid by 15.05.2008.
6.6.2.2. From the perusal of the award it could be seen that the Cochin Port Trust
has not settled the bills raised by this appellant within the agreed time frame. Hence the
arbitrator has accepted the appellant's claim for interest and has directed Cochin Port Trust
to pay interest at 15% latest by 15.05.2008, and in the event of failure to pay by 15.05.2008
to pay higher interest at 18% per annum- Thus it is evident that the appellant's right to
receive interest at 15% or 18% from the Cochin Port Trust arises Award. The right to
receive interest on the unsettled amounts, to the appellant by virtue of the
arbitration award. Hence it cannot be considered to be a receipt considers to be
a receipt derived from dredging activity. It also needs to be noted that the
immediate source giving rise to the interest income is not the dredging activity
but compensatory - right -acquired- in reference to the long default committed by
the other party, and which right was crystalized and concretized in favour of the
appellant by the arbitration award, . Hence I am of the view that the interest -
receipts are not the direct outcome of the appellant's dredging activity and do
not have immediate nexus with the appellant's dredging activity. It 1s ;so
pertinent to note that the Hon'ble ITATJ Visakhapatnam followed the ratio raid -
down by the Hon'ble Apex Court in the case of Pandian Chemicals while deciding
the criteria as to what would constitute receipts derived from core shipping
activity. Following the same principle, it could be concluded that as the appellant
became entitled to interest on the unsettled amounts on the basis of the
arbitration award, which is a step removed from the dredging activity, such
interest income cannot be considered to be derived from core shipping activity.
Hence it is held that the interest income earned from Kolkata Port Trust as per
the arbitration award is liable for taxation as receipt from non-core activity.
6.6.2.3 The appellant in its Annual Report for FX.2007-08 has reported that
"during the year the arbitration in respect of Link Road Project, Cochin has been
adjudicated in favour of the company awarding principal amount of Rs.289 lakhs plus
interest amounting to Rs.801/- lakhs upto 31.03.2008. However, Cochin Port Trust has
17
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M/s Dredging Corporation of India Ltd., Visakhapatnam
not paid any amount. In view of the uncertainty In realization of the amount income
thereto has not been considered in the accounts". The AO subjected to the amount of
Rs.801 lakhs vide his assessment passed u/s.143(3) dated 29.06.2010. On the appellants
appeal, the Hon'ble ITAT Visakhapatnam Bench has held that the interest income is
assessable on accrual basis and directed the AO to verify the nature of interest and if it is
derived from non-core activity, the same may be subjected to tax. The AO in his order
giving effect to the ITAT's order has subjected interest income of Rs.801/- lakhs to
assessment.
6.6.2.4. The ARs further clarified that as Cochin Port did not pay interest within
the stipulated time, interest was computed at 18% which resulted in the additional
amount of Rs.54 lakhsduring this relevant year. It may be noted that the provision made
for F.Y2007-08 was Rs.801 lakhs and For FY.2008-09 was Rs.855 lakhs. As it is seen that
the AO vide his order dtd.28.032013 had already assessed the interest income of Rs,801
lakhs in AY. 2008-09, the additional Interest income accrued to the -appellant of Rs.54
laklhs during the year only need to be assessed for this year. Accordingly the addition
made to the extent of Rs.54 lakhs is confirmed, and the addition made to the extent of
Rs.801 lakhs fbr this year is deleted as it has already been subjected to assessment in
A.Y.2008-09.
6.6.3 Transaction with Essar Steel Ltd
6.6.3.1. It may be noted that the AO had made an addition of Rs.94 lakhs being the interest
income earned from Essar Steels Ltd. Shown under 'sundry receipts from core activity'. The ARs
however clarified vide letter dated 29.05.2013 that the total interest income shown under
sundry receipts was Rs.900 lakhs from Balari Bar arbitration and Rs.94 lakhs from Essar Steel
Ltd., but, the correct amount was Rs.9,16,14,901/- from Balari Bar Project and Rs.77,62,902/-
from Essar Steel Ltd. It was also represented that the appellant had actually received the
interest amount of Rs.77,62,902/- during the relevant financial Year 2008-09 as per the
settlement agreement entered with Esser Steel Ltd 22.07.2OO8. A copy of the settlement
Agreement was also filed, I find from the settlement agreement with Essar Steel Ltd that there
were disputes and differences in respect of release of payments to this appellant. Essar Steel Ltd
agreed to pay the principal amount of Rs.1,67,70,000/-. In full and final settlement during the
conciliatory meeting held on 18.03.1996. As the commitment was not honoured by Essar Steel
Ltd, the appellant filed suit before high court of Mumbai for an amount, of Rs2,09,93,26J- which
included claim of interest amount of Rs.42,23,268/- apart from the admitted principal amount
of Rs.1,67,70,000/-. Subsequently on the decree of the Court, Essar Steel Ltd paid the principal
amount of Rs.1,67,70,000/- on 3101.2004 The appellant's clam for interest was pending before
the court. Subsequently after various rounds of discussion, Essar Steel Ltd agreed to pay interest
of Rs.77,62,902/- as interest in full and Final settlement of the dispute on interest vide
agreement dtd22-07-2008, The recitals in the Settlement agreement dearly show that the
dispute related to payment of interest, and such interest receipt was not derived from the
dredging activity. As could be seen that the assessee's claim for interest was not Immediately
decreed-by the Court It was only after several rounds of discussion, the Essar Steel Ltd agreed to
pay Interest to the appellant. The right to interest accrued to the appellant only after the
18
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M/s Dredging Corporation of India Ltd., Visakhapatnam
signing of the Settlement Agreement. Hence it cannot be considered to be a receipt derived
from dredging activity. It also needs to be noted that the immediate source giving rise to the
interest Income is not the dredging activity but a compensatory right acquired in reference to
the long default committed by the other part and which right was crystallized and concretized
in favour of the appellant by the Settlement Agreement. Hence, I am of the view that the interest
receipts are not the direct outcome of the appellants dredging activity and do not have
immediate nexus with the appellant's dredging activity. It is also pertinent to note that the
Hon'ble ITAT, Visakhapatnam followed the ratio laid down by the Hon'ble Apex Court in the
ease of Pandian Chemicals while deciding the criteria as to what would constitute receipts
derived from core shipping activity. Following the same principle, it could be concluded that as
the appellant became entitled to interest on the unsettled amounts on the basis of the settlement
agreement, which is a step removed from the dredging activity, such interest Income cannot be
considered to be derived from core shipping activity. Hence it is held that the interest income
earned from Essar Steel Ltd as per the settlement is liable for taxation as receipt
from non-core activity. Admittedly the amount was received during the year, and
there is no dispute regarding the year of assessment. However, in View of the
clarification given vide letter dated 29.05.2013 and also with reference to the
amount recorded in the settlement agreement, the interest income earned can be
considered to be only Rs77,62,902/- from Essar Steel Ltd and not Rs.94 lakhs which
was subjected to assessment. Hence the addition made to the extent of
Rs.77,62,902/- is confirmed."
Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal
before this Tribunal
5.1 This issue is considered by the Hon'ble ITAT in it's order 6 to 8& 15
to 17/Vizag/2011 and set aside the issue to the file of the AO for the
A.Y.2008-09 with a direction to examine the issue since the details were
not furnished to ascertain whether the same forms income from core
activity of shipping or not.. The, Ld.AR argued that the receipt was directly
from shipping and the same should be considered as receipt from operating
the qualifying ships and to be included in tonnage tax. The Ld.AR relied on
the orders of the Hon'ble Supreme Court in the case of CIT Vs. Jindal
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557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
Polysters [105 DTR 253], Jt.CIT Vs. Mohinder Singh [33 CCH 0508], CIT Vs.
Universal Pipes Ltd. [254 CTR 0311], CIT Vs. Govinda Choudhury &
Sons[116 CTR 0661]. Ld.AR argued that the interest income received by
the assessee in arbitration award has direct nexus for the shipping
activities, hence, the same should be treated as the shipping income for
computation of tonnage tax as per section 115 VI of I.T. Act.
5.2 On the other hand, Ld. DR reiterated the submissions made while
arguing the liquidated damages in para No.4 of this order and argued that
the receipts are not from the shipping activity and the lower authorities
have rightly treated the receipts separately not forming part of core
income.
5.3 We have heard both the parties and perused the material placed on
record. At the outset, impugned receipts of arbitration award was
related to the works carried on by the assessee company prior to
introduction of tonnage tax scheme and the corresponding expenditure
should have been claimed by the assessee in the respective A.Y. under
normal provisions. The interest on arbitration award was also related to
the activity before the introduction of tonnage tax scheme. i.e. prior to the
20
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557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
A.Y 2004-05 which should be taxed under normal provisions. The
corresponding expenditure should have been claimed by the assessee in
the respective A.Y. under normal provisions. This is not the receipt after
introduction of tonnage tax scheme and not related to the year under
consideration. Therefore this receipt cannot be included for tonnage tax
purpose and should be taxed separately in addition to the profits under
tonnage tax scheme.
5.4 The assessee had received the arbitration award in connection with
Link Road Project Kochi for delay in settlement of bills. The assessee
submitted the bills, but due to delay in settlement, the arbitrator has
awarded the interest for the delayed period of unsettled amounts. The
income from the arbitration award on principal amount is the core income.
The interest on arbitration award is not directly from the shipping activity
but is compensatory in nature akin to the interest on deposits. This is one
step away from the shipping activity and is not covered for the purpose of
core income within the meaning of section 115VI or Rule 11R of I.T. Rules.
As discussed earlier in Para No.4 in liquidated damages, Chapter XIIG is a
complete code by itself and the income from shipping activity is defined in
section 115VI of I.T. Act and the incidental activity is defined in Rule 11R of
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M/s Dredging Corporation of India Ltd., Visakhapatnam
I.T. Rules. There is no ambiguity in identification of direct sources of
income since it is provided in relevant sections and rules as discussed
earlier. Since there is no ambiguity in the sources of income, the interest
on arbitration award does not spring directly from the shipping activity
and is one step away from the shipping activity, therefore, we hold that the
interest on arbitration award is not from the shipping activity. The Ld.AR
relied on the decision of Hon'ble Supreme Court in the case of CIT Vs.
Govind Choudary & Sons, wherein the Hon'ble Apex Court held that the
interest cannot be separated and treated as income from other sources and
held that the income required to be assessed as business income. The
decision is rendered in connection with the computation of business
income in normal provisions u/s 28 to 43 C of I.T. Act. Whereas, the
question is whether the interest can be included in the income from
qualifying shipping operation u/s 115VI of the I.T. Act?. The decision of
Hon'ble Supreme Court has not rendered the judgement in connection with
the computation of income u/s 115VI of I.T. Act. U/s 115VI of I.T. Act, r.w.
Rule 11R the income from shipping and incidental to shipping activity is
defined and no other receipt could be brought under the tonnage tax
scheme. Hence the decision of Hon'ble supreme court is distinguishable on
facts and not applicable in assessee's case.. The Ld.AR relied on the
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M/s Dredging Corporation of India Ltd., Visakhapatnam
decision of Hon'ble High Court of Gauhati in the case of CIT Vs. Universal
Pipes Ltd. which is related to the deduction u/s 80IA which is again
computation of income u/s 28 to 43C. Similarly in the case of Mohinder
Singh and Company cited supra was also related to the computation of
income u/s 28 to 43C and the decision of Hon'ble High Court of Allahabad
in the case of Jindal Polyster and Steel Ltd. is with regard to deduction u/s
80HH and 80 I. The decisions relied upon by the assessee of Hon'ble High
Courts did not consider the term income from shipping operation with
reference to the provisions of 115VI of I.T. Act. Hence, the case laws relied
upon by the Ld. A.R. are distinguishable and not applicable in assessee's
case. Since the income from shipping activity is clearly spelt out in section
115VI and Rule 11R, we hold that the interest on arbitration award is not
from the core activity and should be separated from the core activity and to
be taxed separately. Accordingly, we uphold the order of the Ld.CIT(A) and
dismiss the assessee's appeal. This issue is involved for the assessment
year 2009-10 and 2008-09. The assessee's appeals for both the years are
dismissed.
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M/s Dredging Corporation of India Ltd., Visakhapatnam
6. The next issue is related to the following receipts. These issues are
involved for the assessment year 2010-11 and 2011-12 as per the details
given under:
2010-11 2011-12
(a) Recovery towards lease quarters 1.13 8.84
(b) Staff car recoveries 0.12 0.25
(c) Fee for RTI 0.04 0.02
(d) Sale of tender documents 1.54 1.67
(e) Mess charges - 0.01
(f) Rent for hiring quarters / offices 1.46 1.64
(g) Late attendance receipts 0.62 0.66
6.1 The Ld.AR argued that the above receipts form part of income from
shipping and required to be included in tonnage tax. The Ld. D.R. relied on
the order of the lower authorities.
6.2 Ld.CIT(A) confirmed the addition following the order of the Tribunal in
assessee's own case dated 25.11.2011 in ITA 6 to 8 and 15 to
17/Vizag/2011 for the assessment year 2006-07 to 2008-09.
6.3 We have heard both the parties and find that the above receipts do not
form part of income from shipping within the meaning of section 115VI and
Rule 11R as discussed above. During the appeal hearing, Ld.AR did not
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557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
demonstrate how the above receipts are from the shipping within the
meaning of section 115VI and Rule 11R of I.T.Act. The issue with regard to
shipping for tonnage tax scheme was discussed in detail in para No.4 in
Liquidated damages. The above receipts do not fall under the tonnage tax
scheme as envisaged in section 115VI and Rule 11R of I.T. Rules. This
tribunal in assessee's own case expressed the same view in the case cited
(supra). Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the
appeal of the assessee for both the assessment years 2010-11 and 2011-12.
7. The Next issue in assessee's appeal for the A.Ys 2010-11 and 2011-12 is
Miscellaneous income. For the A.Y 2010-11 the miscellaneous receipt was
Rs.135 63 lacs and the ld.CIT(A) has remitted the matter back to the file of
the assessing officer to examine the nature of receipts and decide whether
the same are from qualifying shipping income for tonnage tax purpose or
not. For the A.Y.2011-12 the amount was Rs.40.46 Lakhs and the Ld.CIT(A)
has dismissed the appeal of the assessee. In both the years the assessee has
not furnished the details to ascertain whether the receipts qualify for
tonnage tax or not. Both the Ld. DR and Ld. AR agreed to remit the matter
back to the file of the AO to examine the nature of receipts and to decide the
issue on merits. Therefore, we remit the matter back to the file of the AO
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557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
with a direction to examine the issue and decide the issue afresh on merits.
The assessee's appeal on this ground for the 2010-11, 2011-12 are allowed
for statistical purpose.
8. The next issue is related to the claim of expenses. The Ld.AR raised the
ground that if the assessee's contention that the above receipt constitute as
a core income is not accepted the income should be computed as per
section 28 to 43 C of I.T. Act and allow the deduction towards the
expenditure for earning the above receipts of non core income. The
Ld.CIT(A) has dismissed this ground of the assessee following the order of
this Tribunal in ITA 6 to 8 and 15 to 17/Vizag/2011 cited supra. The
Hon'ble ITAT in the assessee's own case cited supra decided the issue
against the assessee as under :
10.1 The assessee has also taken a stand that if any item of receipts is
not considered as receipts relating to the core activity of dredging, then the
deduction towards the expenditure incurred towards earning such receipts
should be allowed as a deduction and accordingly only net income should be
charged to tax. The tax authorities have pointed out that all the expenses
incurred by the assessee shall be deemed to have been allowed while
computing the income of the assessee under the special provisions of the Act,
cited above and hence there cannot be any further deduction of the same
expenditure. We agree with the observations of tax authorities in this regard. If
the claim of the assessee is allowed, then it would amount to double deduction
of the same expenditure, which is not permitted under the Act. Accordingly we
dismiss this ground of the assessee.
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
In this case, the assessee did not demonstrate that it had incurred the
expenditure separately over and above the expenditure debited to the
Profit & Loss Account. No separate books of accounts are maintained for
non core income and core income and this issue is squarely covered by the
decision of this Tribunal cited supra. Therefore, following the order of this
Tribunal, we dismiss the appeal of the assessee on this ground for the
assessment year 2009-10 to 2011-12 and 2006-07, 2007-08 and 2008-09.
ITA Nos.78 to 80/Vizag/2014
9. These appeals are filed by the assessee against the order of the Ld.
CIT(A), Visakhapatnam dated 28.01.2014 for the assessment years 2006-07
to 2008-09.
9.1 First issue is related to the other income which was not included by
the assessing officer in the core income for the purpose of tonnage tax as
per the details given hereunder :
Sl.No. Issue Involved A.Y.2006-07 A.Y.2007- A.Y.2008-
(Rs.) 08 09
(Rs.) (Rs.)
1. Major Credits
Interest in 83,33,048/- 4,74,337/-
Foreign Exchange
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M/s Dredging Corporation of India Ltd., Visakhapatnam
2. Minor Credits
Recruitment Fee 39,600/- 2,62,243/- 1,24,595/-
Cost of new 500/- 400/-
identity card
recovered
Cancellation 53,052/-
cheques/DD
(unclaimed)
Seminar 40,500/-
Registration fee
Excess PF 3,004/- - 8,040/-
refunded by the
employee
EMD Forfeited - 4,000/- 2,99,814/-
Vendor - 16,700/- 2,400/-
Registration
form/Tender
form
Reimbursement - 1,844/- 8,333/-
of Taxi Hire
charges /crane
hire charges
Provision for - - 4,50,000/-
expenses booked
now reversed
Transportation of - 1,00,000/- -
pipeline
guarantee amount
forfeited
3. Miscellaneous 67,500/- 1,57,148/- 1,21,478/-
Receipts
(bifurcation under
process)
9.2 The assessee had included the above receipts in the core income in
the original assessments made u/s 143(3) of the I.T. Act. The above
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M/s Dredging Corporation of India Ltd., Visakhapatnam
receipts were categorized under the head 'other income'. The issue has
travelled to the Tribunal and the ITAT in it's earlier order in appeal Nos.6
to 8/Vizag/2011 and 15 to 18/Vizag/2011 dated 25.7.2011 remitted the
matter back to the file of the Assessing Officer, since the assessee has not
furnished the details to ascertain the true nature of receipts. The ITAT has
directed the assessing officer to examine the nature of receipts and decide
the issue on merits. The assessing officer examined the issue and held that
nature of receipts are such that they are not directly form the activity of
shipping as defined in Section 115VI of I.T. Act and Rule 11R of IT Rules. All
the receipts are one step away from the main activity of income. For Ex.
Interest on foreign exchange the source of receipt is the interest for delay
in payments which is compensatory in nature but not from the main
activity of income. Similarly, other receipts are from allied activities of
company but not from the main activity of operation of shipping, therefore,
the assessing officer held that the above receipts cannot be included in the
shipping activity within the meaning of 115VI and Rule 11R of IT Rules,
accordingly, brought to tax separately as the income other than tonnage
tax. The assessee went on appeal before the CIT(A) and the Ld.CIT(A)
confirmed the order of the assessing officer holding that the receipts are
not forming part of operation of the qualifying ships. For the sake of
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M/s Dredging Corporation of India Ltd., Visakhapatnam
convenience, we extract the relevant paragraphs of the order of the Ld.
CIT(A) which reads as under:.
"9.3. I have considered the submissions made. The AR during the course of
appellate proceedings relied on the decision of the Hon'ble ITAT Mumbai in the
case of Shipping Corporation of India Ltd. Vs. Addl.CIT and represented that as
the assessee has opted for Tonnage Tax Scheme, none of these additions are
warranted. I have considered the plea raised. At the outset, it is to be noted
that the impugned orders are passed consequent to the direction of the Hon'ble
ITAT in the assessee's case wherein categorical decision was taken as to what
receipts would come within the purview of 'core activity' or 'incidental activity'
for the purpose of Tonnage Tax Scheme and it was also held that receipts which
are not from the activity of operating of qualifying ships would be taxable and
would not fall within the purview of Tonnage Tax Scheme. The Hon'ble ITAT
has decided the AO to examine the nature of receipts shown under the category
'other sources' and take appropriate decision in accordance with law. The
Hon'ble ITAT has already laid down the legal principle for taxation of receipts
other than from operation of qualifying ships in the assessee's own case which
would be binding on the AO and the appellate authority. Accordingly, the plea
raised by the AR is rejected as without merits.
10. Interest on foreign exchange - Rs.83,33,048/- for A.Y.2006-07 and
Rs.4,74,337/- for A.Y.2007-08
10.1. The AO noted that the assessee had entered into dredging agreement
with M/s Ganah Bahrain, as per which the assessee is entitled to interest if the
payment was not made by the party within the stipulated time. The AO noted
that the impugned receipts are only in the nature of compensatory payment for
the breach committed by M/s.AIGanah Bahrain and is not related to the core
shipping activity of the assessee, and hence made the impugned addition. In
this regard the assessee made the following written submissions.
"Under this ground, the issue urged is regarding addition to total
income on account of interest received from a customer for delayed
payment for services rendered by the appellant. The appellant had
dredging agreement with M/s AI Ganah Bahrain. There was a delay
in making payments for the dredging services rendered and as per
the terms of agreement, the customer has to pay interest for delayed
payments. Thus the said interest is received only during carrying
out of core activities of the company, which is otherwise not
receivable. It has a direct nexus with the core activity. If no
dredging services rendered, interest would not have been received.
We agree that it is a compensatory charge for the breach of
commitment by the customer, but the commitment was in
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M/s Dredging Corporation of India Ltd., Visakhapatnam
connection with core activity, compensation for breach of said
commitment is also for core activity only. It is urged that the said
receipt being in the nature of income from operations, that it should
only be considered as income from core activity but not as income
other than from core activity. Compensation for breach of
agreement is with respect to core activities carried out by the
appellant and thus the interest received under the agreement for
dredging is having direct nexus with the core activity. In view
of above submissions made and decisions relied upon, we submit
that the appellant is carrying on shipping activities only and
whatever income earned is only on account of said activities and
accordingly eligible for Tonnage Tax and the said income should not
be separately taxed as income other than income from business."
10.2. The assessee also filed a copy of the agreement with AI Ganah
Bahrain. It is noted that as per the agreement, the assessee is entitled to
charge interest if the payment is not received within 5 days from the due
date agreed for payment. Thus the assessee's right to interest accrues
on account of the agreement ot charge interest. Hence, I find that the
view taken by the AO that such receipts are not form core activity is
justified. Accordingly the impugned addition made is confirmed.
10.3. Other additions : (under the category minor credits)
10.3.1. The AO made addition in respect of recruitment fee, cost of new
ID Card, miscellaneous receipts, EMD forfeited sale of assets etc. I have
gone through the submission and contentions raised by the assessee
against these additions. I am of the view that the following additions :
(i) Recruitment fee
(ii) Cancellation of DD
(iii) Seminar registration fee
(iv) Excess PF refunded
(v) EMD forfeited/Transportation of pipeline
(vi) Vendor registration
(vii) Miscellaneous receipts
(viii) Provision for expenses reversed
Are in accordance with the directions and decision rendered by
the Hon'ble ITAT in ITA No.6 to 8/Vizag/2011 and ITAT
Nos.17/Vizag/2011 and accordingly these additions are upheld."
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ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
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M/s Dredging Corporation of India Ltd., Visakhapatnam
9.3 We have heard both the parties and perused the material placed on
record. While deciding the issue with regard to the liquidated damages and
arbitration award, we have elaborately discussed the issue what
constitutes core income. The assessee has opted for tonnage tax scheme
under the provisions of 115VI under Chapter XIIG of I.T. Act. This is known
an tonnage tax scheme under which the income is computed at specified
rate, net tonnage of the ship under section 115VG. The definition of core
activities has been defined as activities from operating qualifying ships and
other shipping related activities. Therefore, the interest received on
delayed payments and other miscellaneous receipts such as recruitment
fee, cancellation of DD, seminar expenses, EMD forfeited, vender
registration form/tender form, transportation of pipeline guarantee
amount forfeited and miscellaneous receipts (bifurcation under process)
cannot be held to be received from the shipping activities. Therefore, we
do not find any infirmity in the order of the Ld. CIT(A) and the appeals of
the assessee are dismissed.
10. The next issue in appeal No.80/V/2014 for the A.Y 2006-09 is the
interest on arbitration award (Link Road project ,Kochi) and Essar steels
which was decided against the assessee in this order in appeal
32
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
No.555/V/2013 for the A.Y.2009-10. Accordingly the appeal of the assessee
on this ground is dismissed. Accordingly, the appeals of the assessee for
A.Y. 2006-07 to 2008-09 are dismissed.
Department Appeals for AY 2009-10 to 2011-12, 557/Viz/2013, 603/
Viz/2013 and 167/Viz/2016
11. The assessing officer treated the receipts on account of sale of scrap,
insurance and foreign exchange as non core income and separately
computed the profits.
The Ld.CIT(A) following the order of this Tribunal held that the
income from the above receipts as core income and allowed the appeal of
the assessee. This issue is involved for the assessment from 2009-10 to
2011-12. Against the order of the Ld.CIT(A) the Revenue has filed the
appeals before this tribunal.
12. We have heard both the parties and perused material placed on
record. The Hon'ble ITAT, Visakhapatnam in ITA No. 6 to 8 and 15 to
17/Vizag/2011 dated 25.7.2007 in assessee's own case allowed the appeal
of the assessee holding that the income from the above receipts forms part
of the income from the core activity of operating the qualifying ships. For
33
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
ready reference, we reproduce Para No.9 of the ITAT's order supra which
reads as under:
9. In the case of Dy. CIT v. Core Healthcare Ltd. [2009] 308 ITR 263 (Guj.), the
question whether the income generated from the sale of empty containers
can be treated as income derived from industrial undertakings was raised
before the High Court. The question was answered in affirmative and for the
sake of convenience, we extract below the relevant head note:
"Held that it was an accepted position that the empty containers, which
were sold, were containers in which raw material in bulk had been
purchased by the assessee. The cost of the containers was part of the
purchase price which went to make up the total cost of the manufactured
product and was thus directly relatable to the manufacturing activity of
the industrial undertaking. The income generated on sale of such empty
containers could be set off against the purchase cost, in other words
bringing down the purchase price of raw material, or it could be treated
as income directly relatable to the activity of industrial undertaking. The
net result would be the same-either the cost of raw material gets reduced
and thus increases profits of manufactured products on sale or the sale
price of containers is directly added to swell the total profits. Therefore, in
the light of the decision of this High Court in the case
of Dy.CIT v. HarjivandasJuthabhaiZaveri [2002] 258 ITR 785 , there was
no infirmity in the impugned order of the Tribunal".
Applying the above said ratio, the income received by the assessee on sale of
scraps and sale of assets could be treated as income directly relatable to the
activity of operating qualifying ships. Accordingly, we affirm the order of
Learned CIT(A) on these two types of income.
9.1 The amount received on insurance claim was held to be derived from
industrial undertaking by Hon'ble Delhi High Court in the case
of CIT v. Sportking India Ltd . [2010] 324 ITR 283/[2009] 183 Taxman 312.
By following the ratio of the said decision, we uphold the decision of Learned
CIT(A) on this issue.
34
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
The Ld. D.R did not controvert or bring any other order to support
that the income was from non core activity. Therefore respectfully
following the order of this Tribunal we uphold the order of the Ld.CIT(A)
and dismiss the appeal of the revenue for the above assessment years.
13. The next issue in ground Nos. 6 to 8, of Revenue appeal for the A.Y
2011-12 is provisions written back. The assessee has written back the
provisions representing Bad debts, impairment of loss, leave encashment,
spares etc.. amounting to Rs.834.55 lakhs since they were no longer
required. These items were related to the expenditure debited to the Profit
& Loss account in the earlier years which is reversed by the assessee. This
provision was not created or debited to the profit and loss account of the
year under consideration. The provisions were already created and
outstanding, since the provisions were no longer required, they were
reversed by the company and included in the receipts of the core activity.
The assessing officer did not accept the contention of the assessee and
brought the receipts to tax separately from the shipping activity. Aggrieved
by the order of the assessing officer, the assessee went on appeal before the
CIT(A) and the Ld. CIT(A) deleted the additions observing that item of
credit was only a reversal of debit made earlier and the same cannot be
35
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
considered as an item of income. For the sake of clarity and convenience,
we reproduce the relevant paragraphs of the order of the Ld. CIT(A) which
reads as under :
"I have considered the above submissions. I find that an item of credit which
is only a reversal of debit made earlier and when such debit is not an
allowable item, the same cannot be considered as an item of income when
income is being determined under special provisions applicable to the
assessee. In fact, the same issue came up in the assessee's own case for the
Asst. Yr. 2010-I1. The then CIT(Appeals) in his order in ITA No283112-
13/Addl.CIT, R 3!Vsp!2013-14, dated 3172013, after carefully examining the
matter has allowed the assessee's appeal on this ground. I am also of the
view that the stand taken by the then Ld.CIT(A) is correct. Accordingly, the
AO is directed to delete the addition made towards provisions written
14. We have heard both the parties and perused the material placed on
record. The provisions were debited to the Profit & Loss account in the
earlier years in which it was created. The provisions are not allowed as
deduction as per the act while computing the income of the corresponding
assessment year. However, the expenditure debited to Profit & Loss
account has no relevance for computation of the income under tonnage tax,
as the income is computed as per Section 115VG of the Act and the
expenditure is not allowed as deduction irrespective of the expenditure
debited to the Profit & Loss account. Therefore, debiting of expenditure to
the Profit & Loss account and reversal of expenditure has no relevance in
computation of income under tonnage tax scheme when the income is being
determined under the special provisions applicable to the assessee.
36
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
Therefore, there is no case for excluding the items or provison written back
from the core income and to tax separately. Accordingly, we do not find any
infirmity in the order of the Ld. CIT(A) and the same is upheld.
15. The next issue in Ground Nos. 9 to 11 in the A.Y 2011-12 is the
Employees Contribution to PF. The assessing officer made the addition of
Rs.3,16,363/- u/s 36(1)(va) of I.T. Act. Ld. CIT(A) deleted the addition as
under :
9.2. I have carefully considered the above submissions. The issue to be
resolved is whether the assessee would be entitled to claim deduction
for the employees contribution to PF paid after the due date prescribed
under the PF Act but before the due date prescribed for filing of income tax
return in the light of the provisions contained in Sec.36(1)(va) and Sec43B
of the I.T. Act.
9.2.1 In the case of EssäeTeraoka (P) Ltd. Vs. DCIT 43 Taxmann 33, the
Hon'ble Karnataka High Court took the View that the word contribution
occurring in Sec.43B of the I.T. Act would include employees contribution
to PF act .In the light of the definition of the word, 'contribution' by
Sec2(c) of P.F. Act, as per which contribution would mean both
theempoyers contribution and employees' contribution. Accordingly, it
was 'held that the provisions of Sec. 43B of the I.T. Act for allowing
deduction for payment made before the filing of the income tax return
cannot be ignored.
9.2.2 In the case of CIT Vs. Kichha Sugar Co. Ltd. 35 Taxmann 54, the
Hon'be High Court of Uttarakhand held that the due date referred in
Sec.36(v)(a) should be read in conjunction with Sec.43B(b) of the I.T. Act
and that deduction should payment made before the due date for filing
of the return of income.
37
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
9.2.3. In the case of CIT Vs Udaipur DugdhUtpadak Sahakari
Sangh Ltd. 35 Taxmann 616, the Hon'ble High Court & Rajasthan
after referring to the Apex Court decision in the case of CIT Vs. Alom
Extrusions Ltd. (319 ITR 306) held that the deduction should be allowed if
the payment of employees contribution is made into the PF fund before the
due date for filing return of income. Similarly in the case of CIT Vs. State
Bank of Bikaner, the Hon'ble Rajasthan High Court held that the P.F.
contribution paid after the due date under the respective Act but before
filing of the return of income u/s.139(1) cannot be disallowed u/s 43B or
u/s.36(1)(v)(a) of the I.T. Act. Similar views were taken by the Hon'ble
Calcutta High Court (in the case of CIT Vs. Vijay Shree Ltd. 43 Taxmann
396), the Hon'ble Delhi High Court in the case of (CIT Vs. Dharmendra
Sharma 297 ITR 328) and the Hon'ble Madras High Court in the case of CIT
Vs. Nexus Computer Pvt. Ltd. 313 FIR 144.
9.2.4 In the case of CIT Vs. Ghatge Path Transports Ltd., the Hon'ble
Bombay High Court held that both employees' and employer's
contributions were covered under amendment to S.43B. Relying on the
decision of the Hon'ble Supreme Court in the case of M/s. Alom Extrusions
Ltd. (319 ITR 306), the Hon'ble Bombay High Court in the above mentioned
case has held as under :
"In this manner, the amendment provided by Finance Act, 2003
put on par the benefit of deduction of tax, duty, cess and fee on the
one hand with contributions to various Employees' Welfare Funds
on the other. All this came up for consideration before the Hon'ble
Supreme Court in the case of Alom Extrusions Ltd. The Tribunal in
the case at hand relied upon the said judgement. There is no
reason to fault the order passed by the Tribunal. We are of the
view that the decision of the Supreme Court in Alom Extrusions
Ltd. Applies to employees' contribution as well as employer's
contribution. Question Nos.2, 3 & 4 are accordingly answered in
faovur of the assessee and against the revenue."
38
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
9.2.5 In the light of the above judicial pronouncements, I hold that
the assessee would be entitled for deduction of the employees
contribution of PF made before the due date for filing of the return
of income u/s.139(1) of the I.TAct. The Assessing Officer is, therefore,
directed to delete the impugned addition.
Since the Ld. CIT(A) allowed the appeal of the assessee following the
decisions of Hon'ble High Courts cited supra, we do not find any infirmity in
the order of the Ld.CIT(A) and the same is upheld. And this ground of
appeal of the revenue is dismissed.
16. In the result, the appeals of the revenue for the A.Y. 2009-10 to 2011-
12 are dismissed.
ITA 165/Viz/2016 A.Y. 2009-10
17. This appeal is filed by the revenue against the order of the
Commissioner of Income Tax (Appeals)-1, [CIT(A)], Visakhapatnam vide
ITA No.1145/2014-15/DCIT C-3(1), Vsp/2015-16 dated 29.01.2016 for the
assessment year 2009-10. The assessing officer passed the orders u/s
143(3) r.w.s. 263 taxing the provisions separately excluding from the
shipping receipts. The Ld.CIT(A) deleted the addition holding that in
39
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
computing the income under tonnage tax scheme the expenses debited in
profit and loss account has no relevance.
18. The same issue has been considered by us in ITA No.166/Viz/2016
and held that this is an item of credit which is only reversal of debit made
earlier. When it was debited to Profit & Loss Account, it was added back in
the computation of income when such item was not allowed/claimed as
deduction while computing the income, the same cannot be considered as
an item of income. Further when the assessee has opted for tonnage tax
scheme, the amounts debited to Profit & Loss account has no relevance in
computation of tonnage income. Therefore, we do not find any infirmity in
the order of the CIT(A) and the same is upheld. The appeal of the revenue
is dismissed.
Cross Objection Nos.155/Viz/2013 and 156/Viz/2013
19. The assessee had filed the cross objections in support of the
Ld.CIT(A) for the A.Y. 2009-10 and 2010-11 in respect of the receipts of
sale of scrap and the insurance claim. In revenues appeal we have upheld
the order of the Ld. CIT(A) and dismissed the appeal of the revenue hence
the cross objections of the assessee are allowed.
40
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
20. In the result the appeals of the assessee in ITA Nos.555/Viz/2013 for
the A.Y. 2009-10 is dismissed, in ITA Nos. 602/Viz/2013 and 167/Viz/2016
for A.Ys. 2010-11 and 2011-12 are partly allowed for statistical purpose
and in ITA Nos.78-80/Viz/2014 for the A.Ys. 2006-07, 2007-08 and 2008-
09 are dismissed and cross objections in CO Nos. 155& 156/Viz/2013 are
allowed.
The appeals of the revenue in ITA No.557/Viz/2013 for the A.Y.
2009-10, in ITA No.603/Viz/2013 for the A.Y.2010-11 and in ITA Nos.165
& 166/Viz/2016 for the A.Y.s 2009-10 and 2011-12 are dismissed.
The above order was pronounced in the open court on 25th Oct 2017.
Sd/- Sd/-
(िी.दुगाा राि) (धड.एस. सुन्दर ससह)
(V. DURGA RAO) (D.S. SUNDER SINGH)
न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER
धिशाखापटणम /Visakhapatnam
ददनांक /Dated : 25.10.2017
L. Rama, SPS
41
ITA Nos.555/Viz/2013, 602/Viz/2013, 78-80/Viz/2014, 167/Viz/2016
557/Viz/2013, 603/Viz/2013, 165 & 166/Viz/2016, CO Nos.155 & 156/Viz/2016
M/s Dredging Corporation of India Ltd., Visakhapatnam
आदेश की प्रधतधलधप अग्रेधर्त/Copy of the order forwarded to:-
1. अपीलाथी / The Appellant - Dredging Corporation of India Ltd. Dredge
House, Port Area, Visakhapatnam530 035
2. प्रत्याथी / The Respondent-ACIT, Range-3,Visakhapatnam
3. The Commissioner of Income Tax-1, Visakhapatnam
4. The Commissioner of Income Tax (Appeals), Visakhapatnam
5. धिभागीयप्रधतधनधध, आयकरअपीलीयअधधकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam
6. गाडाफ़ाईल / Guard file
आदेशानुसार / BY ORDER
// True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM