Income Tax Appellate Tribunal - Chennai
Buharia Holdings Pvt. Limited, Chennai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH "C "
BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND
SHRI N.S.SAINI, ACCOUNTANT MEMBER
Date of hearing :05.05.11 Drafted on:10.05.11
ITA No.356/Mds/2010
Assessment Year : 2005-2006
M/s.Buharia Holdings Vs. Assistant Commissioner of
Private Ltd., Income Tax,
7 t h floor, No.4 Moores Company Circle -1(2),New
Road, No.46, Mahatma Gandhi Road,
Chennai 600 006. Nungambakkam,
Chennai 600 034.
PAN/GIR No. : AAACB 2679 M
(APPELLANT) .. (RESPONDENT)
Appellant by : Dr.Anita Sumanth
Respondent by: Shri Tapas Kumar Datta
ORDER
PER N.S.SAINI , ACCOUNTANT MEMBER :-
This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax(Appeals), Chennai-I, in C.No.218(12)/CIT-I/263/2009-10 dated 25.01.10.
2. The assessee has taken the following the grounds of appeal.
I. GROUNDS ON JURISDICTION
(a) The order of the Commissioner of Income-tax, dated 25.01.2010 is
illegal, erroneous and liable to be quashed.
(b) The Commissioner of Income-tax ought not to have revised the order of assessment dated 7.12.2007 passed under Sec.143(3) of the Income Tax Act when the twin conditions 'erroneous' and 'prejudicial to the interests of the Revenue' prescribed under Sec.263 have not been satisfied.
(c) The Commissioner of Income-tax ought to have seen that by virtue of the impugned order, the depreciation available to the appellant in fact increases. Accordingly, Sec.263 cannot be called into operation.
(d) The Commissioner of Income-tax ought not to have invoked jurisdiction under Sec.263 when the issue of eligibility for tonnage -2- tax was a matter that had been considered and accepted at the initial stage. There is, therefore, no error in the stand taken in the original assessment calling for revision under Sec.263. II. GROUNDS ON MERITS (WITHOUT PREJUDICE TO GROUNDS RAISED ON JURISDICTION)
(a) The Commissioner of Income-tax erred in concluding that the appellant is not eligible for Tonnage Tax Scheme as per Sec.115VC. His interpretation of the statutory provisions is erroneous, unjustified and illegal.
(b) The Commissioner of Income-tax erred in not noting that the issue of eligibility to the Tonnage Tax Scheme had been considered by the Additional Commissioner of Income-tax by his order dated 28.01.2005. The impugned revision, thus, seeks to revise the order of the Additional Commissioner of Income-tax, dated 28.01.2005 and is accordingly barred by limitation.
(c) The Commissioner of Income-tax failed to note that the exclusion provided in Sec.115VD would not apply to the appellant's case, in so far as the transport of coal from one port to another, being the activity that the appellant is engaged in, is not 'an activity for provision of goods and services of the kind normally provided on the land'.
(d) The case laws relied on by the Commissioner of Income-tax are not relevant to the issue at hand.
(e) The Commissioner of Income-tax erred in exercising jurisdiction under sec.263 in view of his clear admission in the concluding paragraph that the issues dealt with by him in the impugned order are 'debatable' and capable of interpretation in more than one way. This establishes the appellant's case that there is no 'error' in the original order, liable to be revised under Sec.263.
(f) Any other grounds that may raise at the time of personal hearing.
3. The brief facts of the case are that CIT has passed an order u/s.263 of the Act and set aside the order of the Learned Assessing Officer with the direction to the Learned Assessing Officer to pass his speaking order. While doing so, he held as under:- -3-
"Order under section 263 of the Income Tax Act, 1961 The assessment in the assessee's case for the captioned assessment year was completed on 07.12.2007 u/s.143(3_ of the Income-tax Act accepting the income returned. We believe that the assessment made by the Learned Assessing Officer is erroneous and prejudicial to the interests of revenue for the following reasons.
2. The total income of the assessee company was determined as NIL and tonnage income of Rs.5,72,904/- was determined u/s.143(3). The assessee company was a co-owner with 20% of ownership of the ship "Gem of Ennore" as per the co-ownership agreement dt.25.09.2001 filed in ITMR of AY 05-06.
3. As per this agreement, M/s.West Asis Martime Ltd., Chennai was authorized as executive authority for the purpose of carrying on business on behalf of this assessee company.
4. Clause 6(b) of this agreement, authorize M/s.West Asis Martime Ltd.(WAM) Chennai to charter the vessel to M/s.Poompuhar Shipping Corporation Ltd., Chennai (PSC) on the terms as already agreed between PSC and WAM for transporting thermal coal from Pradip Port to Ennore Port.
5. As per Section 115VD, a sea going ship or vessel, the main purpose for which it is used is the provision of goods or services of a kind normally provided on land is not a qualified ship for the purpose of computation of tonnage income.
6. As per Section 115VC(c), the assessee company should own at least one qualifying ship. In this case, the assessee owns only a part of the ship and not the entire ship. The assessee company has only 20% share in the ship 'MV Gem of Ennore". In the circumstances, the assessee company is not qualified as per section 115VC to be eligible for tonnage tax scheme.
7. The assessing officer while completing the assessment applying Tonnage Tax Scheme has not considered whether the conditions as aforesaid, application of Section 115VD and Section 115VC(c) to the assessee's case.-4-
8. In response to the notice issues, the assessee has contested the issue of proceedings u/s.263 on various grounds and also on merits. These are briefly stated below:
(i) The Additional Commissionr of Income Tax, had passed order u/s.115VP approving the assessee's appelication to exercise the option in favour of the tonnage tax scheme. The assessing officer is precluded from examining the issue of qualification under the scheme after the approval granted by the Add;. CIT.
CIT does not have the jurisdiction to revise the assessment order dated 07.12.2009 without revising the order dated 28.01.2005 passed by the Additional Commissioner under section 115VP.
(ii) The mere fact that the assessee was the co-owner of the ship does not disentitle the assessee the benefit of Chapter XIIG. The fact that under the agreement the West Asia Martime Ltd. had the executive authority on certain activities would not also militate against the claim.
(iii) The transport of coal through the sea from Paradip Port to normally provided on land. It would be totally opposed to facts to contend that that transport of goods from one port to another through the sea is an activity of provision of goods and services of kind normally provided on land. I am unable to accept the assessee's contention on the issue of legality of proceedings u/s.263 for the following reasons:
(i) The approval under section 115VP is for the exercise of an option. The order has to be passed by the Additional Commissioner within 30 days of the application. It was intended to be a preliminary enquiry. The Additional Commissioner in his order dated 28.01.2005 has clearly stated as follows: "On the basis of details filed and undertaking given with regard to qualifications required for tonnage tax scheme the assessee is granted approval for tonnage tax scheme option with effect from assessment year 2005-06. However, it must be noted that the above approval is subject to compliance of various conditions as prescribed in Chapter XIIG of the Income Tax Act dealing with special provisions relating to Income of shipping companies". The approval given by the Additional Commissioner is a qualified one and it is not intended that he should go into the details of eligibility at the initial stage.
(ii) Secondly the assessee has stated in the application in Form No.65 under rule 11P filed before the Additional CIT that the company owns 1 qualifying ship -5- without stating that the assessee is only part owner of the ship and also that the management and operation of the ship is done by West Asis Martime Pvt. Ltd.,
(iii) Similar issue on the restriction of the powers of the assessing officer once the approval given under the statute with regard to the eligibility by a higher authority was considered by the Karnataka High Court in the case of Weizmann Homes Ltd., v. CIT 265 ITR 601. The Court, in the context of approval given by the Board u/s.36(1)(vii) and binding nature of such approval on the assessing officer held that 'grant of approval by itself does not directly provide for direct concession to the petitioner. It is further subject to strict scrutiny at the time of assessment proceedings."
(iv) Sub section (5) of section 115VE states that where a company is engaged in the business of operating qualifying ships is not covered under the tonnage tax scheme or has not made an option to that effect, the profits of such company shall be computed in accordance with other provisions of the Act. This makes it clear that the option for the scheme and actually being covered under the tonnage tax scheme are cumulative conditions. Even if the option is exercised and approved by the Additional CIT, Learned Assessing Officer may examine whether the other condition of being covered under the scheme has been fulfilled.
I am therefore of the view that CIT under section 263 is not precluded from revising the assessment made by the Learned Assessing Officer applying the benefit of tonnage tax scheme to the assessee merely for the reason that approval for exercise of option under section 115VP has been given by the Additional CIT.
On the merits of the case, it is seen that the assessing officer has not considered the issue whether a part ownership of a ship could be considered as 'owning at least one qualifying ship' (emphasis supplied) under clause (c) of section 115VC. Secondly the Learned Assessing Officer has not considered whether income derived from mere part ownership with sharing of profits without actual 'operation' of the ship by the assessee would amount to 'income from the business of operating a qualifying ship' (emphasis supplied), an essential requirement under section 115VA, the charging section. The issue of whether transportation of coal between two ports in India would make it provision of goods or a service of a kind normally provided on land and therefore -6- disentitle the assessee the benefit of tonnage scheme has also not been considered by the Learned Assessing Officer even though on the very same issue the appeals are pending before the CIT(A), in certain other cases. Though the issues are debatable, the CIT is not precluded from exercising his powers under section 263 to direct the Learned Assessing Officer to consider the same in accordance with law. In this regard I rely on the decision of the Madras High Court in the case of CIT v. Seshashayee paper Boards 217 ITR 258 which has been approved by the Supreme Court in the case of CIT v. G.M.Mittal Stainless Steel P. Ltd 263 ITR 255.
I, therefore, set aside the order of the assessing officer for the impugned assessment year with the direction to him to pass a speaking order after considering the issues discussed above relating to application of tonnage tax scheme to the assessee in accordance with law."
4. The Learned Authorized Representative for the assessee submitted as under:-
"BRIEF FACTS The Appellant is engaged in shipping business and is the co-owner of a ship by name "MV Gem of Ennore" having 20% share along with an entity by name, M/s. West Asia Maritime Ltd. and two others. The appellant opted for the provisions of Tonnage Tax Scheme introduced in the Income Tax Act with effect from 2005 onwards. As per the provisions of Sec. 115VP, an application was filed by the appellant seeking approval for opting for the Tonnage Tax Scheme. Approval under Sec. 115VP (3) was granted by the authorities and in terms of the provisions of Sec. 115 VP (5) required the approval "shall" apply from the assessment year relevant to the previous year in which the option for Tonnage Tax Scheme is exercised. This approval was granted by the Additional Commissioner after due application of mind on the application filed by the appellant seeking to opt for Tonnage Tax Scheme. The order of approval under Sec. 115VP (3) is filed as Annexure I of Typed Set 1 and is dated 28.01.2005. Thereafter, the assessment was taken up for scrutiny and the Assessing Officer under Sec. 143 (3) of the Income Tax Act examined the claim of the assessee in the light of the approval dated 28.01.2005 for opting the Tonnage Tax Scheme and completed the assessment pursuant thereto determining the amount refundable under the Tonnage Tax Scheme at Rs.19,85,439/-. The depreciation loss amounting to a total of approximately Rs.10 Crores was however not available for set off against any other income in view of with the provisions of Sec. 115VM (2) which reads as follows :-
"Exclusion of loss.
115VM (1) ..........
(2) The losses referred to in sub-section (1) shall not be available for set off against any income other than relevant shipping income in any previous -7- year beginning on or after the company exercises its option under section 115VP."
While this is so, the Commissioner of Income-tax issued a show cause notice dated 12.10.2009 seeking to revise the order of assessment dated 07.12.2007 on the ground that the appellant had violated the provisions of Sec. 115VB and Sec. 115VC (c) and the aforesaid provisions had not been considered by the Assessing Authority in completing the assessment under Sec. 143 (3), The Commissioner has alleged that the assessment is erroneous and prejudicial to the interests of the Revenue and liable to be revised. A copy of the show cause notice is placed in Typed Set Vol.1 at Page 4. A detailed reply was filed by the appellant, placed at Page 6 of the Typed Set - Vol.1.
Notwithstanding the same, the impugned order under Sec. 263 was passed by the Commissioner of Income-tax, dated 25.01.2010. ARGUMENTS
(i) The impugned order does not satisfy the mandatory requirements of Sec. 263 of the Income Tax Act. The requirements for the exercise of jurisdiction under Sec. 263 are that the assessment made originally should be cumulatively, erroneous as well as prejudicial to the interests of the Revenue. It is submitted that the assessment dated 07.12.2007 is neither erroneous nor prejudicial to the interests of the Revenue.
(ii) The Assessing Officer has made the order dated 07.12.2007 based on the approval by the Additional Commissioner and accepting the claim for opting the Tonnage Tax Scheme. The finding of the Commissioner of Income-tax that the conditions under 115VD and 115 VC (c) are not complied with is incorrect on facts and in law and proceeds on an incorrect appreciation of the statutory provisions -8-
(iii) Sec. 115VD prescribes the parameters for determining what would be a "qualifying ship". A ship is excluded from the definition if it is a sea going ship or vessel if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land. The intent behind the insertion of the aforesaid clause has been elaborated in the discussion of Core Committee at the time of introduction of Chapter XIIB in the Income Tax Act. It was noted that some companies, in order to avail the beneficial provisions of Tonnage Tax Scheme provided on a ship services like restaurants, hotels, shops and super markets, casinos, financial service providers etc. which are normally services that are provided on land and claimed the benefit in respect of income arising there from. To avoid the abuse of this provision, Sec. 115VD
(i) has been included which requires that provision of goods or services of a kind normally provided on land on a vessel would disentitle a ship from being a "qualifying ship" entitled to the Tonnage Tax Scheme. This provision is entirely inapplicable to the appellant's case, in so far as the appellant is engaged in the carriage of thermal coal from Paradip Port to Tuticorin Port. The view taken by the Assessing Authority therefore that the activity carried on by the appellant does not disentitle it to the Tonnage Tax Scheme is thus correct. The view of the Assessing Authority is supported by the order of the Commissioner of Income-tax (Appeals) dated 02.02.2009 in the case of West Asia Maritime Ltd. (one of the co-owners along with the appellant of "MV Gem of Ennore") where an identical contention taken by the Assessing Officer has been rejected by the Commissioner of Income-tax (Appeals). This order of the Commissioner of Income-tax dated 21.04.2010 (annexed at Page 1 of the Typed Set - Vol. 2) was carried on in appeal before this Hon'ble Tribunal. The matter appears to have been posted before the Hon'ble Bench in November, 2010, and on account of clevege of opinion between the Hon'ble Judicial and -9- Accountant Members has been referred to the Hon'ble Third Member for resolution. This establishes that the view taken by the Assessing Officer is definitely one possible view in so far as it is supported by the opinion of the Hon'ble Accountant Member of this Tribunal (Copy of the orders of this Hon'ble Tribunal in the case of West Asia Maritime Ltd. along with the reference under Sec. 255 (4) filed herewith as Annexure "A"). The condition of order of assessment dated 07.12.2007 being "erroneous" has thus not been satisfied in so far as the Assessing Officer has taken one possible view. Reliance is placed on the judgments of the Hon'ble Supreme Court in the case of Malabar Industrial Co.Ltd. Vs CIT.(243 ITR 93) and C.I.T. vs. Max India (295 ITR 346).
(iv) No prejudice is caused to the Revenue by virtue of order of assessment dated 7.12.2007. In fact prejudice is caused to the Revenue only by virtue of the impugned order of the Commissioner of Income-tax under Sec. 263 of the Income Tax Act, dated 25.01.2010. The order of assessment passed under Sec. 143 (3) computes the amount refundable at Rs.19,85,439/-. The shipping depreciation loss computed at an amount of Rs.10 Crores (Approx.) is not available for set off in terms of the provisions of Sec. 115VM (2). The order of the Assessing Authority passed in consequence of the Commissioner's order under Sec. 263 of the Income Tax Act, dated 31.12.2010, is placed herewith as Annexure "B". The Assessing Authority rejecting the option for Tonnage Tax Scheme has computed the taxable income at Rs.3,25,14,087/-, set it off against the carried forward depreciation and determined the taxable amount at NIL. A balance of nearly Rs.7 Crores (approx) being the unabsorbed shipping depreciation loss is still available for set off against the income for the later years. This is possible only since the Tonnage Tax Scheme is made inapplicable to the appellant. Prejudice is thus caused to the department.
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Even under the computation of income under Sec. 115JB the amount determined is a refund of Rs.5,64,210/-. Thus, the impugned order under Sec. 263 of the Income Tax Act does not establish any prejudice caused to the Revenue by the order of assessment dated 7.12.2007. The condition of prejudice being caused to the Revenue by virtue of the order of assessment under Sec. 143 (3) is thus not satisfied.
(v) On the aspect of jurisdiction, the appellant submits that neither of the conditions stipulated under Sec. 263 have been satisfied, either independently or concurrently.
(vi) On merits, as stated above, the view taken by the Assessing Officer is established to be one possible view, in view of the order of the Commissioner of Income-tax (Appeals) in the case of a co-owner of a ship upheld by the Hon'ble Accountant Member of the Income Tax Appellate Tribunal.
(vii) In fact the Commissioner of Income-tax in the impugned order at Page 4 (unnumbered last page) himself admits that the issues dealt with by him in the order are debatable. Reliance placed on the judgment of the Madras High Court in the case of C.I.T. vs. Seshasayee Paper Boards is misplaced. DEPARTMENT'S CONTENTION
(i) The department sought to contend that the order under Sec. 143 (3) dated 7.12.2007 does not contain any discussion on the points raised by the Commissioner of Income-tax in the impugned order.
ASSESSEE'S REPONSE
(i) This is factually incorrect as the issue was discussed in detail prior to the passing of the order. In fact the order of assessment dated 7.12.2007 states clearly that "the details were examined and after discussion with the assessee's representative the income returned is accepted and computed". It is to be noted that in cases where the Assessing Officer applies his mind to the relevant issues there would be no discussion and
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it is only in cases where he seeks to differ with the assessee that the order would contain a detailed discussion. (CIT vs. Gabriel India - 203 ITR 108 - Bombay H C) Further an order of a subordinate Authority can be revised only if the conditions under sec. 263 are satisfied on facts. The mere fact that the Assessment order does not contain a discussion would not be sufficient to vest jurisdiction u/s 263 on the Commissioner of Income Tax.
Reliance is placed in this connection on the following Judgments :
Commissioner of Income Tax Vs Hindustan Coco Cola Beverages P.Ltd. (331 ITR 192).
Commissioner of Income Tax Vs Sunbeam Auto Ltd. (332 ITR 167).
DEPARTMENT'S CONTENTION
(ii) The Commissioner of Income-tax (DR) also sought to rely on the Commissioner's submission that the assessee owns only part of a ship and accordingly the provisions of Sec. 115VC (c) are violated ASSESSEE'S REPONSE The Commissioner of Income-tax has faulted the order of assessment dated 7.12.2007 on the ground that the scheme would require that the qualifying company shall own the whole of the qualifying ship, while the appellant owns only 20% of "MV Gem of Ennore" and accordingly this statutory provision has not been complied with.
This contention is incorrect in so far as Chapter XIIG itself recognizes co-ownership of the ship and statutorily provides for situations where the vessels are co-owned or co- chartered under Sec. 115VH and for computation in cases of joint ownership, operation and joint usage. This establishes clearly that the scheme would be available even to an assessee owning a ship either by itself or jointly with others. Reliance is placed on Circular No.2 of 2005 (reported in 276 ITR 147) at Page 186 wherein it is clarified that even in cases of charter of a vessel, two or more parties may be involved)
(ii) Chapter XIIG nowhere requires that the benefit of Tonnage Tax Scheme is available only to an entity that owns 100% of a vessel. In fact Sec. 115VH itself
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statutorily provides for joint operation or joint ownership. Reliance is also placed on Circular No.2 of 2005 in this connection.
On the basis of the above submissions, the submissions made at the personal hearing and the annexures filed herewith, it is prayed that the appellant's appeal be allowed and justice rendered."
5. The Learned Departmental Representative relied on the reasonings given by the Learned Commissioner of Income Tax for passing the order under section 263 of the Act.
6. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In the instant case the undisputed facts are that the assessee is a co-owner of a ship, owning 20% of the ownership. The assessee opted for tonnage tax scheme and accordingly made application before the Additional Commissioner of Income Tax having jurisdiction over the assessee company. The Additional Commissioner of Income Tax passed an order dated 28.01.2005 in writing approving the option for tonnage sheme as applied by the assessee company. The Learned Assessing Officer thereafter completed the assessment u/s.143(3) assessing the total income on the basis of tonnage tax scheme as provided in Chapter -XIIG of the Act. The Learned Commissioner of Income Tax thereafter set aside the said assessment order vide its order passed u/s.263 on 25.01.2010 which is challenged by the assessee before us in the appeal.
7. The main reason for considering the assessment order passed by the Learned Assessing Officer are erroneous and prejudicial to the interest of the Revenue as stated by the Learned Commissioner of Income Tax in the impugned order are:-
"I am unable to accept the assessee's contention on the issue of legality of proceedings u/s.263 for the following reasons:
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(i) The approval under section 115VP is for the exercise of an option.
The order has to be passed by the Additional Commissioner within 30 days of the application. It was intended to be a preliminary enquiry. The Additional Commissioner in his order dated 28.01.2005 has clearly stated as follows: "On the basis of details filed and undertaking given with regard to qualifications required for tonnage tax scheme the assessee is granted approval for tonnage tax scheme option with effect from assessment year 2005-06. However, it must be noted that the above approval is subject to compliance of various conditions as prescribed in Chapter XIIG of the Income Tax Act dealing with special provisions relating to Income of shipping companies". The approval given by the Additional Commissioner is a qualified one and it is not intended that he should go into the details of eligibility at the initial stage.
(ii) Secondly the assessee has stated in the application in Form No.65 under rule 11P filed before the Additional CIT that the company owns 1 qualifying ship without stating that the assessee is only part owner of the ship and also that the management and operation of the ship is done by West Asis Martime Pvt. Ltd.,
(iii) Similar issue on the restriction of the powers of the assessing officer once the approval given under the statute with regard to the eligibility by a higher authority was considered by the Karnataka High Court in the case of Weizmann Homes Ltd., v. CIT 265 ITR 601. The Court, in the context of approval given by the Board u/s.36(1)(vii) and binding nature of such approval on the assessing officer held that 'grant of approval by itself does not directly provide for direct concession to the petitioner. It is further subject to strict scrutiny at the time of assessment proceedings."
(iv) Sub section (5) of section 115VE states that where a company is engaged in the business of operating qualifying ships is not covered under the tonnage tax scheme or has not made an option to that effect, the profits of such company shall be computed in accordance with other provisions of the Act. This makes it clear that the option for the scheme and actually being covered under the tonnage tax scheme are cumulative conditions. Even if the option is exercised and approved by
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the Additional CIT, Learned Assessing Officer may examine whether the other condition of being covered under the scheme has been fulfilled. I am therefore of the view that CIT under section 263 is not precluded from revising the assessment made by the Learned Assessing Officer applying the benefit of tonnage tax scheme to the assessee merely for the reason that approval for exercise of option under section 115VP has been given by the Additional CIT.
On the merits of the case, it is seen that the assessing officer has not considered the issue whether a part ownership of a ship could be considered as 'owning at least one qualifying ship' (emphasis supplied) under clause (c) of section 115VC. Secondly the Learned Assessing Officer has not considered whether income derived from mere part ownership with sharing of profits without actual 'operation' of the ship by the assessee would amount to 'income from the business of operating a qualifying ship' (emphasis supplied), an essential requirement under section 115VA, the charging section. The issue of whether transportation of coal between two ports in India would make it provision of goods or a service of a kind normally provided on land and therefore disentitle the assessee the benefit of tonnage scheme has also not been considered by the Learned Assessing Officer even though on the very same issue the appeals are pending before the CIT(A), in certain other cases. Though the issues are debatable, the CIT is not precluded from exercising his powers under section 263 to direct the Learned Assessing Officer to consider the same in accordance with law. In this regard I rely on the decision of the Madras High Court in the case of CIT v. Seshashayee paper Boards 217 ITR 258 which has been approved by the Supreme
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Court in the case of CIT v. G.M.Mittal Stainless Steel P. Ltd 263 ITR
255."
8. To adjudicate the issue under consideration it is considered useful to extract some of the relevant provisions of the Act as under:-
115VA. Computation of profits and gains from the business of operating qualifying ships.--Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of a company, the income from the business of operating qualifying ships, may, at its option, be computed in accordance with the provisions of this Chapter and such income shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".
*115VB. Operating ships.--For the purposes of this Chapter, a company shall be regarded as operating a ship if it operates any ship whether owned or chartered by it and includes a case where even a part of the ship has been chartered in by it in an arrangement such as slot charter, space charter or joint charter :
Provided that a company shall not be regarded as the operator of a ship which has been chartered out by it on bareboat charter-cum-demise terms or on bareboat charter terms for a period exceeding three years.
*115VD. Qualifying ship.--For the purposes of this Chapter, a ship is a qualifying ship if--
(a) it is a sea going ship or vessel of fifteen net tonnage or more ;
(b) it is a ship registered under the Merchant Shipping Act, 1958 (44 of 1958), or a ship registered outside India in respect of which a licence has been issued by the Director-
General of Shipping under section 406 or section 407 of the Merchant Shipping Act, 1958 (44 of 1958) ; and
(c) a valid certificate in respect of such ship indicating its net tonnage is in force, but does not include--
(i) a seagoing ship or vessel if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land ;
(ii) fishing vessels ;
(iii) factory ships ;
(iv) pleasure crafts ;
(v) harbour and river ferries ;
(vi) offshore installations ;
(vii) dredgers ;
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(viii) a qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year.
115VP. Method and time of opting for tonnage tax scheme.--(1) A qualifying company may opt for the tonnage tax scheme by making an application to the Joint Commissioner having jurisdiction over the company in the form and manner as may be prescribed, for such scheme.
(2) The application under sub-section (1) may be made by any existing qualifying company at any time after the 30th day of September, 2004 but before the 1st day of January, 2005 (hereafter referred to as the "initial period") :
Provided that--
(i) a company incorporated after the initial period ; or
(ii) a qualifying company incorporated before the initial period but which becomes a qualifying company for the first time after the initial period, may make an application within three months of the date of its incorporation or the date on which it became a qualifying company, as the case may be. (3) On receipt of an application for option for tonnage tax scheme under sub-section (1), the Joint Commissioner may call for such information or documents from the company as he thinks necessary in order to satisfy himself about the eligibility of the company and after satisfying himself about such eligibility of the company to make such option for tonnage tax scheme, he--
(i) shall pass an order in writing approving the option for tonnage tax scheme ; or
(ii) shall, if he is not so satisfied, pass an order in writing refusing to approve the option for tonnage tax scheme, and a copy of such order shall be sent to the applicant :
Provided that no order under clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
(4) Every order granting or refusing the approval of the option for tonnage tax scheme under clause (i) or clause (ii), as the case may be, of sub-section (3) shall be passed before the expiry of one month from the end of the month in which the application was received under sub-section (1).
(5) Where an order granting approval is passed under sub-section (3), the provisions of this Chapter shall apply from the assessment year relevant to the previous year in which the option for tonnage tax scheme is exercised.
9. Sec.115VC envisages that a qualifying company owns at least one qualifying ship. This has been enacted with reference to the fact that such qualifying company may
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operate other qualifying ship by chartering the qualifying ships. We find that the stress is on owing of a qualifying ship and has not been provided that it should fully own a qualifying ship and on part ly owning a qualifying ship the assessee will not be a qualifying company.
10. Still further we find that as per provision of Sec.115VA in the case of the company the income from the business of operating qualifying ship at the option of such company shall be computed as per tonnage tax scheme. Nowhere this section provides that such company should be a qualifying company.
10. We find that it is not in dispute that the assessee company opted for tonnage tax scheme which option was duly approved by Additional Commissioner of Income Tax vide his order dated 28.01.2005 passed u/s.115VP(3) of the Act. Further it is also not in dispute that the said order of the Additional Commissioner of Income Tax is still in force and the same has not been set aside by any higher authority. In the impugned order also, the Learned Commissioner of Income Tax has considered the said order of the Additional Commissioner of Income Tax and has not set aside that order and has observed in regard to that order that:-
"The order has to be passed by the Additional Commissioner within 30 days of the application. It was intended to be a preliminary enquiry."
"The approval given by the Additional Commissioner is a qualified one and it is not intended that he should go into the details of eligibility at the initial stage."
11. However, we find that as per provisions of sub section(3) of sec.115VP the Joint CIT (Additional Commissioner of Income Tax in this case) has the power to call for such information all documents from the applicant company as he thinks necessary in order to satisfy himself about the eligibility of the company for tonnage Tax Scheme and only after satisfying himself about such eligibility to issue approval or order refusing granting of approval. Thus, we are unable to agree with the observation of the Learned Commissioner of Income Tax to the extent to which it has been stated that the approval granted u/s.115VP(3) is merely a preliminary order and the Additional Commissioner of Income Tax can grant the approval even without satisfying himself completely about the eligibility of the applicant company for tonnage tax scheme.
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12. Once it has been provided in statute by the Parliament that the Joint Commissioner of Income Tax shall approve the option for Tonnage Tax Scheme after satisfying himself about the eligibility of the company for the said scheme and in pursuance to which the competent authority has granted the approval then it cannot be held that such approval was granted by making only a preliminary enquiry without satisfying as was the competent authority duty bound to do , without any relevant material. As the said order of the Additional Commissioner of Income Tax is still in force, not set aside by any higher authority in our considered opinion it cannot be disputed by the Revenue that the assessee company was not a qualifying company or the company which was not eligible for tonnage tax scheme.
13. We find that the Learned Commissioner of Income Tax has brought no material on record after going through the agreement dated 25.09.2001 referred in show cause notice that the assessee company has chartered out on bare boat charter cum demise terms or on bare boat charter terms for a period exceeding 3 years to any other person. Thus we do not find any material on the basis of which it has been held that the Learned Assessing Officer has not examined the fact that the assessee company was engaged in operation of the ship during the year or not . In our considered opinion, provision of Sec.263 cannot be resorted for making a roving or fishing enquiry without bringing on record some material to show that the assessment order as passed by the Learned Assessing Officer was erroneous as well as prejudicial to the interest of the Revenue.
14. The only other ground for treating the assessment order as erroneous and prejudicial to the interest of the Revenue by the Learned Commissioner of Income Tax was that in his opinion the Learned Assessing Officer has not considered that whether the transportation of goods between two ports situated within India falls within clause (1) of Section 115VD or not. In this respect, the Learned Commissioner of Income Tax himself further observed in the impugned order that the view adopted by the Learned Assessing Officer in the assessment order is a debatable issue. However in his opinion Learned Commissioner of Income Tax is not precluded from passing an order u/s.263 in respect of disputable issue. We find that similar issue came before this Tribunal in the case of The Additional Commissioner of Income Tax Co. Circle II(3),Chennai Vs,. M/s.West Asia Martitime Ltd. in ITA No.1195/Mds/10 in assessment year 2006-07 wherein due to difference in opinion between the two members constituting the Bench the
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matter has been referred to Third Member Bench. Thus it is admitted position that the issue under consideration is a debatable issue or an issue in respect of which more than one view is possible. We find that Hon'ble Supreme Court in the case of Learned Commissioner of Income Tax Vs. Max India 295 ITR 346 has reiterated the view that passing of an order u/s.263 is not envisaged in the Act in respect of debatable issue where more than one view is possible. Thus the opinion of the Learned Commissioner of Income Tax cannot be upheld.
15. In view of the above in our considered view the Learned Commissioner of Income Tax was not justified in treating the order of assessment dated 07.12.2007 passed by the Learned Assessing Officer as erroneous as well as prejudicial to the interest of Revenue in view of the reasons stated in the impugned order. We therefore set aside the order passed u/s.263 by the Learned Commissioner of Income Tax and allow the appeal of the assessee.
Order signed, dated and pronounced in the Court on this 13th day of MAY, 2011.
Sd/- Sd/-
(HARI OM MARATHA) ( N.S. SAINI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: Chennai, 13th day of MAY, 2011.
Compiled and compared by: K S Sundaram
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals)-
5. The DR, Chennai Bench
6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, CHENNAI
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Date Initials
1. Draft dictated on --------------- -------------------
2. Draft Placed before authority --------------- -------------------
3. Draft proposed & placed --------------- ------------------- JM Before the Second Member
4. Draft discussed/approved --------------- ------------------- JM/AM By Second Member
5. Approved Draft comes to P.S ---------------- --------------------
6. Kept for pronouncement on ---------------- --------------------
7. File sent to the Bench Clerk ---------------- --------------------
8. Date on which file goes to the ---------------- --------------------
9. Date of dispatch of Order ---------------- ---------------------