Madras High Court
Chola Fish & Farms P. Ltd. vs Commissioner Of Income Tax on 5 April, 1995
Equivalent citations: [1996]217ITR609(MAD)
JUDGMENT Mishra, J.
1. The assessee, an Indian company, has been using diesel powered mechanised trawlers in the course of its business of catching fish from the sea and selling them. It claimed development rebate of 40% under s. 33 of IT Act, 1961 (hereinafter referred to as "the Act"), on its mechanised diesel fishing trawlers and deduction in respect of the profits and gains allegedly derived from the trawlers under s. 80J of the Act. The ITO declined to grant the higher rate of rebate as claimed by the assessee and also rejected the claim of the assessee under s. 80J of the Act. The CIT(A) held that the trawlers cannot be considered as "ship" for the purpose of s. 80J of the Act and the same ratio would apply regarding the assessee's claim for the higher rate of deduction under the development rebate. On the Revenue's (sic) further appeal, the Tribunal noted that the assessee-company carries on business of catching and selling fish from the seas by plying diesel powered mechanised trawlers. It accepted the verdict of the CIT, however, on both counts and rejected the assessee's claims.
The assessee proposed and the Tribunal has accordingly referred to us the following three questions :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in denying the higher development rebate of 40% on mechanised diesel fishing trawlers ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in denying the relief under the provisions of s. 80J of the Act ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in interpreting that the shipping trawlers cannot be said to be included in the words 'ship' appearing in s. 80J of the Act ?"
2. Since it is not in dispute that the assessee had used in the relevant accounting year diesel powered mechanised fishing trawlers for catching fish from the sea, the question whether a diesel powered mechanised trawler is a ship for the purposes of both the ss. 80J and 33 of the Act is important and the answer to the third question, in our opinion, will be relevant for both first and second questions referred to us.
3. A Bench of this Court in Chola Fish & Farms Pvt. Ltd. vs. CIT (1987) 166 ITR 600 (Mad) has held that trawlers would come within the word "ship" in s. 33 of the Act. The Court set aside the order of the Tribunal which had held :
"Judged by the above principle, it will be appreciated that ship is generally understood as a vessel intended for transport of passengers or cargo in the high seas, that is to say, for navigation purposes. It can by no means be understood as a vessel provided with appliances for catching fish. I am, therefore, of the opinion that fishing trawlers cannot be considered as "ship". The facts that fishing boats have been included under the head "Ship" in item 4 of Part I of Appendix I to the IT Rules, 1962, is of no guidance in construing the expression "ship" occurring in s. 33(1)(b) of the IT Act, 1961. I, therefore, hold that the assessee will be entitled to development rebate in respect of fishing trawlers only at the rate of 15 per cent."
The Court's reasons for not accepting the Tribunal's view are stated as follows :
"The word 'ship' is not defined in the IT Act, 1961. Normally, in such circumstances, the word should not be understood in any technical sense, but it has to be construed in the popular sense and as pointed out by the Tribunal, in the sense that people conversant with the subject-matter with which the statute deals would attribute to it. But this rule also should not be understood in its absoluteness. The word will have to be understood in the context in which it occurs in the statute, the purpose of the provision and other relevant considerations. The word 'ship' has been defined in the Carriage of Goods Act, 1925, as meaning any vessel used for the carriage of goods by sea. However, the same word 'ship' occurring in the Marine Insurance Act of 1963, has been defined as including every description of vessels used in navigation. The word 'ship' is a generic term comprehending many types of sea-going vessels within it. Particular expressions are given with reference to the use as a ship. That is how trawler gets its name. Having regard to its use in fishing, the vessel is called a trawler. Webster's Third New International Dictionary gives the meaning of the word 'ship' as :
'any large sea-going boat; a sailing boat having a bowsprit and usu. A square-rigged foremast, mainmast, and mizzenmast each composed of a lower mast, a topmast, a topgallant mast, and sometimes higher masts; a boat intended or used for navigation and propelled by power or sail; a boat or structure used for purposes of navigation or intended or used for transportation on a river, sea, ocean, or other navigable water without regard to its form or means of propulsion';
Webster's New Twentieth Century Dictionary, second edition, 1979, gives its meaning as :
'any vessels of considerable size navigating deep water and not propelled by oars, paddles, or the like; distinguished from boat'.
Similar meanings are given for the word in other dictionaries. Webster's Dictionary gives the meaning of the word 'trawl' as 'a long line, sometimes more than a mile in length and support by buoys, from which short lines with baited hooks are suspended; used especially in deep sea fishing, as for cod or haddock; a large, bag-like net dragged along the bottom of a fishing bank by a boat. As a verb 'trawl' means, to drag, to catch or take with a trawl". It is from this the vessel gets its name as a trawler, one which trawler, a fishing boat which trails or drags a trawl. Thus, the word 'trawler' would come within the meaning of 'ship' as per the meaning given in the dictionary. We also find that for the purpose of s. 32 of the IT Act which provides for depreciation in respect of certain classes of vessels, Part I of Appendix I to the IT Rules, 1962 describes ship as a class of vessels and under the heading of 'Ships', four different classes of ships are mentioned :
(1) Ocean-going ships -
(i) Fishing vessels with wooden hull,
(ii) Other ships (2) Vessels ordinarily operating on inland waters -
(i) Speed boats,
(ii) Other vessels'.
As will be seen from this description of 'ship' as a class of vessels, for the purpose of depreciation of the vessels including trawlers, it would come within the word 'ship' and the percentage of depreciation is put only with reference to the ocean-going ships and vessels ordinarily operating on inland waters. Learned counsel for the assessee contended that though the description of the word 'ship' in Part I of Appendix I to the IT Rules, 1962, is for the purpose of determining the depreciation under s. 32, since even for the purpose of s. 32, the word 'ship' is not defined, the description given in Part I of Appendix I of the Rules could with justification be applied in interpreting the word occurring in s. 33 also. In this connection, learned counsel also referred to a decision of the Gujarat High Court in CIT vs. Shri Digvijay Cement Co. Ltd. (1986) 159 ITR 253 (Guj). In that case also, the meaning of the word 'ship' in s. 33 came up for consideration, but that was with reference to a vessel known as pontoon, but what is relevant for our purpose is that in that case also, the Bench considered Part I of Appendix I of the Rules where the categories of ships covered for the purpose of depreciation, as an inherent indication of the broad classification of vessels which will come within the word 'ship' for the purpose of the IT Act and that the ratio of that classification could be applied in interpreting the word for the purpose of development rebate under s. 33. We are in entire agreement with the assessee in regard to this approach to the question. Except that s. 33 is applicable to priority industries whereas depreciation is allowed in respect of every category and not restricted to priority industries, we are not able to see any distinction between ss. 32 and 33 in so far as the meaning of the word 'ship' is concerned. In these circumstances, we are of the view that trawlers are covered by the expression 'ship' in s. 33 and, therefore, the assessee is entitled to development rebate at 40%, of its cost."
4. We are in respectful agreement with the above view of the Court. The Court has recorded the above in the case of the assessee for rebate under s. 33 of the Act for the asst. yr. 1974-75. Learned counsel for the Revenue has not been able to give to us any strong reasons to differ from the view taken by the Court in Chola Fish & Farms P. Ltd.'s case (supra). Since the Court has accepted that the trawlers used by the assessee come within the meaning of "ship" and also held that the assessee is qualified for rebate under s. 33 of the Act, the first question is answered in full against the Revenue and in favour of the assessee. But, the third question is still not answered, unless s. 80J of the Act, is seen and it is examined whether there is any different meaning assigned to the word "ship" in the said section or there are any reasons to restrict the trawlers to qualify "ship" for the purposes of ss. 32 and 33 of the Act and not for the purpose of s. 80J. There is no provision in s. 80J which can prompt us to take a view that the ordinary meaning which the word "ship" assumes is not given to it for the purpose of this section. On the other hand, there is a provision in sub-s. (5) of s. 80J which says that this section applies to any ship, where the conditions that it is owned by an Indian company and is wholly used for the purposes of the business carried on by it, that it was not previous to the date of its acquisition by the Indian company, owned and used in Indian territorial waters by a person resident in India and that it is brought into use by the Indian company at any time within a period of thirty-three years next following the 1st day of April, 1948, are fulfilled. Since the trawlers in respect of which the assessee has claimed deduction under s. 80J of the Act, satisfy the above conditions and they come within the word "ship", it is difficult to accept without any valid reason that the trawlers in the hands of the assessee did not/do not qualify for deduction in respect of the profits and gains. The assessee's claim of deduction, however, can be accepted only when its gross total income includes any profits or gains derived from the trawlers, that is, ships.
5. In a recent judgment in the case of CIT vs. Eastern Sea Foods Exports (P) Ltd. (1955) 215 ITR 64 (Mad), a Bench of this Court, of which one of us was a member, has gone into some detail to know the meaning which the terms "derived from" should receive for the purpose of s. 80J(1) of the Act. It is noticed by the Court that where a provision is intended to be wider in import, the ordinary expression "attributable to" is used and if effective source alone is intended, the words "derived from" are used. The Court in that judgment took notice of the conflicting points of view and the observations in the judgment in the case of Mst. Sarju Bai vs. CIT (1947) 15 ITR 137 (All) which are as follows :
"The conflicting points of view are put with clarity in the judgment of Braund J., in Sarju Bai vs. CIT (1947) 15 ITR 137 (All), at pages 144, 145 where he expresses himself as follows :
'The argument on the one hand is that interest payable (whether by statute or not) on arrears of rent which have already become a debt due is not referable in any way to the agricultural relationship as landlord and tenant, but is attributable solely to their character as creditor and debtor. It is said that the interest is in its nature merely that commercial compensation which either the accepted practice of business or in some case the legislature has adopted to see that a creditor does not suffer from the default of his debtor. That, it is said, has nothing whatever to do with the relationship of landlord and tenant and, therefore, is not in any way derived from the agricultural land which is the subject-matter of the tenancy. That is one way of putting it. The other way of putting it is that interest on arrears of rent is something which in this case has been introduced by the United Provinces Tenancy Act as a condition of the relationship between landlord and tenant. Arguing from that, it is said that, whether or not such interest can be strictly classified as rent, it certainly can be classified as coming within the larger expression "revenue" which forms part of the definition of agricultural income. It will be remembered that the definition speaks of "any rent or revenue derived from land". Those who put it in this way say that such interest, when received, has its origin in the tenancy, because, if there had been no tenancy, there would have been no arrears of rent and if there had been no arrears of rent, there would have been no statutory interest. Following this sequence of causes, they say that it is obvious that interest in circumstances such as these must be classified as "revenue derived from land".
Their Lordships of the Privy Council in CIT vs. Raja Bahadur Kamakhya Narayan Singh (1948) 16 ITR 326 (PC) however, said, 'the interest clearly is not rent' and 'equally clearly the interest on rent is revenue' but in their Lordships' opinion it is not revenue derived from land. Speaking as to the word 'derived', their Lordship said :
"The word "derived" is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition.
There is no commercial connection between the interest and the rented land and the effective source - not land - has become apparent.'"
The Court has concluded in these words :
"It has to be held in view of the above that the expression 'derived from the business' in s. 80J should receive a restricted meaning and if it is an income directly relatable to the business activities of the assessee, it will be deemed to be derived from the business of the assessee."
6. The business activity of the applicant-assessee is fishing in the sea and selling the fish for profits. The source of the business of the assessee is the fish in the sea or other water in which trawlers are used as an instrument. Its income is directly relatable to fishing and since fishes are in the sea or water, at best to the sea or water, but evidently not to the trawlers. When compared to any produce of the land, fish is a product of the sea or water. It is obviously not a product of the trawlers. One cannot relate the fishes to trawler, although trawlers are used to catch fish. Our view has an eminent companion in the judgment of the Bombay High Court in the case in New India Fisheries Ltd. vs. P. M. Mehra, ITO (1971) 82 ITR (Bom). Tulzapurkar, J. posed two rival interpretations :
(1) The expression "any profits or gains derived from a ship" occurring in sub-s. (1) of s. 80J should be read along with the first condition appearing in sub-s. (5) of s. 80J and, if it is so read, it would be clear that the profits and gains earned by the company during the relevant years, if not wholly, at least a substantial part thereof, could be said to have been derived from a ship (meaning the trawlers in question), for it was clear that but for the fact that the company owned the eight trawlers and used them for its business of deep sea fishing, a substantial part of their profits and income would not have been earned at all; and (2) In order that the benefits of ss. 80J and 80K could be availed of by an assessee, it must be shown that the profits and gains must have been derived directly from a ship or ships owned by an assessee and not by using the ships as instruments with which the business of the assessee is carried on;
The judgment proceeded in these words :
"In first place, sub-s. (1) and sub-s. (5) cannot be read together in the manner suggested by him. It is true that sub-s. (5) of s. 80J prescribes certain conditions which must be fulfilled before the section could be applied to any ship owned by an Indian company. But sub-s. (5) merely prescribes conditions and that sub-section will have no bearing on the question as to what should be the proper interpretation of the expression 'any profits and gains derived from a ship' occurring in sub-s. (5) of 80J. Sub-s. (5) is not the section which confers any benefit, the benefit has been conferred by the operative part which is contained in sub-s. (1) and it is the expression 'any profit and gains derived from a ship' occurring in the operative part of sub-s. (1) of s. 80J that is to be construed. The conditions mentioned in sub-s. (5) must of course be fulfilled by a ship, and it is only after these conditions are satisfied by a ship that the question arises as to whether the profits and gains earned by the Indian company owning the ship are 'derived from the ship' or not... having regard to this scheme of the Act it would be reasonable to construe the expression 'profits and gains derived from a ship' occurring in sub-s. (1) of s. 80J as meaning profits and gains derived directly from a ship, that is to say, the ship must be the direct source of income and not a ship when it is used as an instrument for carrying on the business activity which produces the income. Further, the other two sources which have been included in sub-s. (1) of s. 80J would also indicate that the relief thereunder is conferred in respect of profits and gains which are derived directly from those two other sources. Sub-s. (1) provides that where the gross total income of an assessee includes any profits and gains derived from (i) an industrial undertaking, or (ii) a ship, or (iii) the business of a hotel, to which this section applies, there shall be a particular deduction as provided for in the latter part of that sub-section. The fact that these three different sources have been grouped together in sub-s. (1) clearly shows that the legislature intended to confer benefits of the said sub-section upon the profits and gains derived directly from the sources mentioned therein and, therefore, in my view, the expression 'any profits and gains derived from a ship' occurring in sub-s. (1) will have to be construed as profits and gains directly derived from that source and the benefit of that provision cannot be availed of if the assessee is using the ship or ships as instruments for carrying on his business activity which produces the income. If profits and gains derived from the business activity like catching fish and selling the same are to be regarded as profits and gains derived from a ship simply because the ship is used for catching fish, then profits and gains derived from a business carried on by using the building where the business is housed will have to be regarded as profits and gains derived from the house property."
7. Learned counsel for the assessee, however, has drawn our attention to a cryptic order by Division Bench of this Court in TC No. 246 1982 dt. 17th Feb., 1994 [Chola Fish & Farms (P) Ltd. vs. CIT]. The order runs as follows :
"In this tax case at the instance of the assessee, the Tribunal has referred the following questions of law under s. 256(1) of the IT Act, 1961, for the opinion of this Court :
'1. Whether the Tribunal was right in holding that the fishing trawlers cannot be said to be included in the word 'ship' appearing in s. 80J ?
2. Whether the relief sunder s. 80J is not available to the applicant ?"
It is not in dispute that this tax case is covered by the judgment of this Court in Chola Fish & Farms (P) Ltd. vs. CIT (1987) 166 ITR 600 (Mad), wherein similar questions have been answered in favour of the assessee. Following the said decision, we answer both the questions in favour of the assessee. No costs."
8. It is no judgment for us to accept that the question "whether, on the facts and in the circumstances of the case, the Tribunal was right in denying the relief under the provisions of s. 80J of the Act?" should be answered as the Bench has done saying that the case was covered by the judgment of this Court in Chola Fish & Farms (P). Ltd.'s case (1987) 166 ITR 600 (Mad). We have followed the judgment in Chola Fish & Farms (P) Ltd. case (1987) 166 ITR 600 (Mad) for the answer to the first and third questions, namely "whether, on the facts and in the circumstances of the case, the Tribunal was right in denying the higher development rebate of 40 per cent on mechanised diesel fishing trawlers ?" and "whether, on the facts and in the circumstances of the case, the Tribunal was correct in interpreting that the shipping trawler cannot be said to be included in the word "ship" appearing in s. 80J for the Act ?" but have found nothing in the said judgment for the answer to the question whether the relief under s. 80J is available to the assessee. There is no ratio decidendi the order in TC No. 246 of 1982 (supra). We have drawn the ratio decidendi in Chola Fish & Farms (P) Ltd.'s case (1987) 166 ITR 600 (Mad), clearly and without any ambiguity. We cannot but answer the second question against the assessee and in favour of the Revenue.
Learned counsel for the assessee has made a serious endeavour to persuade us to remand the case to the Tribunal for a fresh consideration in the light of the observations by us as to the correct application of the law under s. 33 as well as s. 80J of the Act. He has pointed out that the Revenue authorities including the Tribunal have not considered the claim of the assessee for deduction under s. 33 and 80J of the Act for, according to them, the trawlers of the assessee were not ships for the purposes of the said provisions. It would have been a good ground because we have found that the trawlers are ships and answered the third question accordingly for the purposes of ss. 33 and 80J of the Act and further found that the trawlers of the assessee are qualified for the rebate under s. 33 of the Act for a remand. There may be a situation where the trawlers are not merely instruments but are the source of income. We are not, however, required to go into this aspect and we have found no reason to remand the case for the said purpose because it is clearly stated in the statement of the case and there is no dispute as to that before us, that the petitioner has been using diesel powered mechanised trawlers for fishing in sea. The trawlers, in these circumstances, cannot be anything but instruments used by the assessee, whose business activity is fishing and income is derived from the business of selling the fish.
9. In sum, the first and third questions are answered in favour of the assessee, but the second question is answered against it but not for the reasons as stated by the Revenue authorities. There will be no order as to cost.