|CORAM:||A.K. Sikri J., R. Banumathi J, T. S. Thakur J|
|SECTION(S):||115VA, 115VF, 115VG|
|CATCH WORDS:||shipping income, Slot Charters, Tonnage Tax Scheme|
|DATE:||July 5, 2016 (Date of pronouncement)|
|DATE:||July 6, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Entire law on assessment of shipping companies under the "Tonnage Tax" Scheme in Chapter XIIG of the Income-tax Act, 1961 in the context of "slot charters" explained|
It is only income from the business of operating qualifying ship that has to be computed in accordance with the provisions of Chapter XIIG. As per Section 115VB of the Act, a company is regarded as operating a ship if it operates any ship which is owned by it or a ship which is chartered by it and it also includes a case where even a part of the ship has been chartered by it in an arrangement such as slot charter, space charter or joint charter etc. The question that has arisen for consideration pertains to ‘slot charter’ i.e. should the ‘slot charter’ operations of a ‘Tonnage Tax Company’ be carried on only in ‘qualifying ships’ to include the income from such operations to determine the ‘tonnage income’ under ‘TTS’ in terms of the provisions of Chapter XIIG of the Act? In other words, is the income derived from ‘slot charter’ operations of a ‘Tonnage Tax Company’ liable to be excluded while determining the ‘Tonnage Income’ under the ‘TTS’ if such operations are carried on in ships which are not ‘qualifying ships’ in terms of the provisions of that Chapter of the Act and the relevant provisions of the Income Tax Rules, 1962? HELD by the Supreme Court:
(i) When the scheme of the aforesaid special provision for computation of income under TTS is exempted, we find the balance tilted in favour of the assessee as that was the precise purpose in introducing TTS in India. It may be stated in brief that in view of the stiff competition faced by the Indian shipping companies vis-a-vis foreign shipping lines, and in order to ensure an easily accessible, fixed rate, low tax regime for shipping companies, the Rakesh Mohan Committee in its report (of January, 2002) recommended the introduction of the TTS in India, which was similar to, and adopted some of the best global practices prevalent. The whole purpose of introduction of the Scheme was to make the Indian shipping industry more competitive in the global space by rationalising its tax cost. For the reason that it is impossible to cater to all shipping routes on owned ships, it is an accepted and widely prevalent practice globally and in India that shipping companies engage in slot charter operations. If such slot charter arrangements are not entered into, then Indian shipping companies will not be able to take up contract of affreightments and these contracts would have fallen to only foreign shipping lines thereby making Indian shipping industry uncompetitive. Such slot charter arrangements being with a shipping company but not in relation to or for a particular ship, it is impossible for the Indian shipping company to identify the cargo ship, which carried the goods.
(ii) We would also like to refer to Circular No. 05/2005 dated 15.07.2005 explaining the need and essence of the introduction of these provisions which was issued contemporaneously by the Central Board of Direct Taxes (CBDT). The Circular clarifies that the Scheme is a “preferential regime of taxation”. It also clarifies that “charging provision is under Section 115VA read with Section 115VF and Section 115VG.” Circulars of CBDT explaining the Scheme of the Act have been held to be binding on the Department repeatedly by this Court in a series of judgments including Azadi Bachao Andolan v. Union of India 263 ITR 706, Navnit Lal Jhaveri v. K.K. Sen 56 ITR 198 SC, and UCO Bank v. CIT 237 ITR 889 SC.