Case Law Details
RELEVANT PARAGRAPH
6. We have heard both the parties and perused the orders of the revenue authorities. The case of the revenue is that the ‘barges’ are not the ‘ships’ and the earnings made out of running and maintaining of the barges, which are not owned by the assessee, are not covered by the provisions of section 33AC of the Act. Further, the hiring receipts out of let out of assessee’s barge are also not eligible for deduction. Such incomes are not considered derived from the business of ‘operation of ships’. Considering the above issue, in our opinion, we need to examine the provisions of sub-section (1) of section 33AC of the Act one side and the decision of the Chennai Bench decisions referred to above. To start with the subsection (1) of section 33AC, the said provisions read as under;-
“(1) In case of an assessee, being a Government company or a public company formed and registered in India with the main object of carrying on the business of operation of ships, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount not exceeding fifty percent of profits derived from the business of operations of ships (computed under the head ‘profits and gains of business or profession’ and before making any deduction under this section), as is debited to profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account, to be utilized in the manner laid down in sub-section (2)”.
As seen from above, the assessee is under statutory obligation to fulfill the following conditions in order to avail the benefits of the above section. They are: (1) assessee should either be a Government Company or a Public Company formed and registered in India; (2) main object of assessee company should be that of carrying on business of operation of ships; (3) assessee should have debited an amount not exceeding 50 per cent of profits derived from business of operation of ships to its Profits and Loss Account; and (4) assessee should have credited the amount to a reserve account viz Shipping Reserve Account. Considering the dispute between the parties, the phrase “profits derived from the business of operation of ships” the used in sub-section (1) above are relevant for the instant case. To elaborate the same, the assessee-company must have been incorporated with the `object of carrying on the business of operation of ships ‘and the deduction u/s section 33AC is available out of the profits derived from `business of operation of ships’.
7. Applying the above statutory requirements to the facts of the case, we find that there is no dispute with regard to conditions (1), (2) and (4) above. Thus, the dispute in the appeal is restricted to whether the expression ‘ship’ covers the ‘barge’ and the business of ‘operation of running and maintaining the barges of JNPT (third party) constitute the business of’ operation of ships’ within the meaning of section 33AC of the Act. Considering the ground taken by the appellant, the issue of whether the hiring receipts out of letting out of the assessee’s barge’ constitutes the business of’ operation of ships’ within the meaning of section 33 AC of the Act is not relevant here.
8. We shall now proceed to discuss on the first issue relating to whether the ship includes the barge or not. The decision of the AO is negative and in this regard, as discussed in para 15 of his order, he relied the dictionary meaning of the expression ‘ship’ which described as a large vessel, esp a three masted square rigged sailing vessel. Where as, the ‘barge’ is described as a small sailing vessel – a flat bottomed freight boat with or without sails, used on river and canals. Thus from the AO’s point of view, the ‘ship’ and the ‘barge’ are two different entities in matters of their composition, strength, utility, peril bearing capacities, revenue earning capacities etc. On the contrary, the CIT (A) has a couple of reasons to accept the assessee’s submissions that the ship includes barge. They are: (i) definition given to the expression ‘ship’ as per the provisions of section 2(55) of the General Clauses Act, 1897, which defines that the ‘ship’ shall include ‘ every description of vessel used in navigation not exclusively propelled by oars’. In effect, it has very wider connotation and it includes “barges’.
10. Further, the C1T (A) also relied on the ratio decidendi of the Apex court’ judgment in the case of Digvijay Cement CO Ltd (232 ITR 709) for the proposition to borrow the definition to the expression ship given in the above mentioned Appendix -I of the Income Tax rules. It is a fact that the expression ship is undefined in the Income tax Act and the parties in the appeal have not brought in any new material or information or arguments on the subject apart from the ones put forwarded before the revenue authorities. Under these circumstances, in our opinion, the legal opinions existing on the topic as rightly borrowed by the CIT(A) are more relevant than the dictionary descriptions borrowed by AO for understanding the meaning of the expression `ship’. Accordingly, we find no reason to interfere with the order of the CIT (A) on this issue. Therefore, the ships include barges.
11. The next issue for discussion relates to whether the business of “operation of running and maintaining the barges of JNPT (third party)-constitute the “business of operation of ships’ within the meaning of section 33AC of the Act. This issue has two components and they are: (i) ownership issue and (ii) the activity of operation of running and maintaining the barges.
12. The ownership issue was discussed in the assessment order and in his opinion the deduction u/s 33AC is allowed keeping the intention of generating the internal resources to augment their fleet and the contents of Circular of the Board dated 13-2-1990 is the basis for the same. On the contrary, the impugned order does not refer to this issue. In this regard, we have perused the contents of the said circular and find that the interpretation given by the AO is misplaced. In our opinion, the owning a ship/barge is different from the application of the earning of the business of operation of ships/barges. As detailed above, the provisions of section 33AC (1) refers to the conditions of (i) status, (ii) object of the business of the company; (iii) eligibility profits and the application of the same; and (iv) credited to the Shipping Reserve Account. These conditions do not refer to the ownership of the ships/barges. What is needed is the `carrying on the business of operation of ships’ and not the `owning of the ships/barges’ and the intention of deduction may be to generate internal resources to augment the fleet, which the assessee in any case doing by complying with the conditions (iii) and (iv) above. Under these circumstances, we are of the opinion, that the owning the ships/barges is not a condition for availing the benefits of section 33AC of the Act. In other words, the ships/barges owned by the third party i.e. JNPT in the instant case when operated in the assessee’s business, the assessee is entitled to the deduction.
good