Income Tax Act, 1961 – Sections 115VG, 115VD – Assessments relating to income of shipping companies – Computation of tonnage income – Tonnage Tax Scheme – Qualifying ship – slot charter – requirement of producing ‘valid certificate’ – there is no requirement of the certificate under the Scheme in relation to the vessel on which slot charter operations are carried out.
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
(T.S. THAKUR, C.J.I.) (A.K. SIKRI) AND (R. BANUMATHI) JJ.
JULY 05, 2016
CIVIL APPEAL NO. 5869 OF 2016
(ARISING OUT OF SLP (CIVIL) NO. 25251/2015)
COMMISSIONER OF INCOME TAX, KOCHI …..APPELLANT(S) VERSUS TRANS ASIAN SHIPPING SERVICES (P) LTD. …..RESPONDENT(S)
W I T H
CIVIL APPEAL NO. 5870 OF 2016
(ARISING OUT OF SLP (CIVIL) NO. 25252/2015)
J U D G M E N T
A.K. SIKRI, J.
Leave granted. Matter finally heard as the case was fixed for final hearing.
Chapter XIIG of the Income Tax Act, 1961
(hereinafter referred to as the ‘Act’) contains special provisions for assessments relating to income of shipping companies. Under this Chapter, shipping companies are given a choice to either get income from the shipping business computed in accordance with the provisions contained in the Act meant for computation of income in respect of business or profession or opt for methodology of computing income as per the special formula provided in that Chapter which accords a different treatment and different manner of computation of income for the shipping business.
3. Chapter IV of the Act deals with ‘Computation of Total Income’ and as per the scheme of the Act, such a computation of total income is governed by five heads which are provided in Section 14 of the Act. These are: (i) Salaries; (ii) Income from House Property; (iii) Profits and Gains of Business or Profession; (iv) Capital Gains and (v) Income from Other Sources. Thereafter, manner of computation of the income under the aforesaid heads is stipulated in various sections falling under Chapter IV. As far as Income from Profits and Gains of Business or Profession is concerned, Sections 28 to 44DB of the Act contain the procedure for computation of income under this head. Therefore, any person, natural or juristic, who earns income from business in India is supposed to get the income from the said business computed in the manner provided in those sections. However, Chapter XIIG makes an exception thereto by carving out special provisions relating to income of shipping companies. It would mean that those companies which are shipping companies are permissible to get their income computed under the said Chapter. Section 115VA of the Act gives this option and reads 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”.
4. As is clear from the bare reading of this Section, option is given to the shipping company, which is operating “qualifying ships”, to get its income computed in accordance with the provisions of Chapter XIIG, irrespective of those stipulations otherwise contained in Sections 28 to 43C for computation of business income. Once such an option is exercised and income is computed in accordance with the provisions of the said Chapter, a fiction is created by deeming the said income to be the profits and gains of such business chargeable to tax under the head ‘Profits and Gains of Business or Profession’. To put it otherwise, though the income of such shipping company would be computed in the manner provided under Chapter XIIG, the same would be treated as income from business which is chargeable to tax as provided under the head ‘Profits and Gains of Business or Profession’ and would be treated as chargeable to tax under that head.
5. For a shipping company to be eligible to exercise such an option, there are certain conditions to be fulfilled, which are as under:
(i) In the first place, the assessee has to be a ‘company’. The word ‘company’ is defined in Section 2(17) of the Act. Such a company may have various businesses and one such business may be the business of operating qualifying ships. However, it is only that income which is generated from ‘The Business of Operating Qualifying Ships’ that will be computed as per the special provisions in Chapter XIIG. Income from other businesses will be computed in the same manner as provided in Sections 28 to 43C. In case the business of the company is to operate qualifying ships only, then the income from that sole business will be under this Chapter.
(ii) Income from the business of operating qualifying ships shall be computed under Chapter XIIG only if such an option is specifically exercised by the assessee company. This requirement is particularly mentioned in Section 115VP of the Act. Such an option, when given, is to remain in force for a period of ten years from the date on which the said option is exercised, and this period is prescribed in Section 115VQ of the Act. However, it can be renewed within one year from the end of the previous year in which the option ceases to have effect (Section 115VR). In certain circumstances stipulated in Section 115VS of the Act, there is a prohibition to opt for the scheme. The scheme that is to be opted for computation of income under this Chapter is known as ‘Tonnage Tax Scheme’ (for short ‘TTS’) as defined in sub-section (m) of Section 115V of the Act.
(iii) Though, these special provisions relate to income of shipping companies, it is only that income which is received from business of “operating qualifying ships” that is eligible for computation under this Chapter.