By TIOL News Service

ERNAKULAM, FEB 09, 2015: THE issue before the Bench is - Whether the income derived from 'slot charter' operations of a 'tonnage tax company' is liable to be excluded while determining the 'tonnage income' under the 'tonnage tax scheme' if such operations are carried on in ships which are not 'qualifying ships'. NO is the answer.

Facts of the case

The assessee is a 'qualifying company' in terms of Section 115VC and it owns at least one 'qualifying ship' as defined in Section 115VD. Assessee operated its 'qualifying ship' and had also 'slot charter' arrangements in other ships during those years. For both those years, the appellant filed returns computing its shipping income, under Chapter XII G of the Act which contains special provisions relating to income of shipping companies in Sections 115V to 115VZC, also reckoning the deemed tonnage in relation to its activities through slot charter arrangements. That did not find favour with the departmental hierarchy. The Tribunal dismissed the appellant's appeals against the orders of CIT(A) holding that in order to avail the benefit of the provisions of Chapter XII G in relation to 'slot charter' arrangements, it is necessary to show that the ships in which the appellant had operations under 'slot charter' arrangements were also 'qualifying ships' and that such operation had to be evidenced by producing valid certificate in terms of Section 115VX(1)(b), in relation to each such ship. These findings were under challenge and the result of these appeals would depend on the question whether those findings on issue of law were in terms of the relevant laws. Pithily stated, the question was as to whether the assessee was eligible to include the income derived from activities through 'slot charter' arrangements, as relevant shipping income, to determine the deemed tonnage in terms of Rule 11Q of the Rules, to compute the tonnage income in terms of Section 115VG, without such 'slot charter' arrangements being carried on through 'qualifying ships' as defined in the Act.

Held that,

++ the determination of deemed tonnage for computing the tonnage income is to be done having regard to these statutory provisions and the clear terms of the statutory form prescribed for such purpose. Rule 11T of the Rules enjoins that the report of audit of accounts of a qualified company which is required to be furnished under clause (ii) of Section 115VW shall be in Form No.66. At Sl.No.10 of that form is the format in which details have to be provided for computation of tonnage income u/s 115VG. Column No.1 of that format is "name of qualifying ship". It stands with an asterisk that would take us to the foot of the form, just above the Declaration, explaining that "there is no need to mention the name of the ship, income from which is computed on deemed tonnage basis";

++ Reverting to Sections 115VB, 115VC and 115VD, it can be seen that while it is necessary to own at least one qualifying ship for a company to be a qualifying company, operating ships may be either owned or chartered by the company and include slot charter, space charter or joint charter. These provisions clearly show that income derived from slot charter operations of a tonnage tax company is to be included to determine the tonnage income of a tonnage tax company even if such operations are carried on in ships which are not qualifying ships in terms of the provisions of Chapter XII G. The provision in sub-section 4 of Section 115VG itself explicitly demonstrates that what is included as deemed tonnage computed in the manner prescribed under Rule 11Q is not necessarily referable to the tonnage of a ship. There is nothing in the Act or rules to even faintly indicate that the arrangements which fall within the basket of the provision 'deemed tonnage' incorporated through Explanation to sub-section 4 of Section 115VG would be operative only if such arrangements are carried out through qualifying ships. More importantly, when the Legislature has deemed a particular situation and has created a deeming provision, it is trite law that the said deeming provision should be permitted to permeate to the extent within which the deeming provision stands. S.Teja Singh and Collector of Customs, Cochin cited on behalf of the appellant apply on all fours in interpreting the provision in hand. Form 66 under Rule 11T of the Rules is a statutory form. It prescribes a formula for conversion of TEUs into NT (Slot Charter) in Note 3;

++ the argument on behalf of the department as to the conclusiveness of the order of the Commissioner in the suo motu proceedings does not hold good. That order would have been binding on the AO but would not bind the superior tribunals and courts when questions of law arise for consideration; more particularly, when such questions arise as a consequence of the proceedings following the Commissioner's decision. Such decision of the Commissioner to the extent it is contrary to the findings herein, will not stand. For the aforesaid reasons, we answer the question formulated above by holding that the income derived from slot charter operations of a tonnage tax company is not liable to be excluded while determining the tonnage income under the tonnage tax scheme on the ground that such operations are carried on in ships which are not qualifying ships in terms of the provisions of Chapter XII G. Resultantly, the impugned orders of Tribunal, Cochin Bench 2012-TIOL-490-ITAT-COCHIN are set aside. Consequentially, the orders of CIT(A) which were challenged before the Tribunal are set aside and the AO is directed to modify the assessment orders concerned in conformity with law as stated above.

(See 2015-TIOL-300-HC-KERALA-IT)