Thursday, July 7, 2016

Shipping Co. earning income from slot charter is also entitled to benefits of 'Tonnage Tax Scheme'

Facts:

a. The assessee owned a qualifying ship and the income generated from the said qualifying ship was exigible to tax as per ‘Tonnage Tax Scheme. However, it also had 'slot charter' arrangements in other ships. The assessee had also included the income from such slot charter arrangements for the purpose of computation thereof under ‘Tonnage Tax Scheme’.

b) The AO was of the view that the income earned under slot charter arrangement did not qualify under ‘Tonnage Tax Scheme’ as this income was not generated by the assessee from its own ship, i.e., it is neither from the ship owned by the assessee nor from the entire ship chartered by the assessee.

c) He was of the view that in order to avail the benefit of ‘Tonnage Tax Scheme, the assessee was supposed to show that the ship operated by it was qualifying ship and for this purpose itwas incumbent upon the assessee to produce a 'valid certificate indicating its net tonnage' as provided in Section 115VX(1)(b).

d) The order of the AO was upheld by the CIT(A) and the ITAT. However, the High Court held in favour of assessee. Aggrieved revenue filed the instant appeal.

The Supreme Court held in favour of assessee as under:


1) The whole purpose of introduction of the ‘Tonnage Tax 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 andwidely prevalent practice globally and in India that shipping companies engage in slot charter perations.

2) 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. 

3) 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. This peculiarity has been duly recognized at Note 4(b) to Form 66 and reproduced as under:

"Since the entire vessel is not chartered and only a small space is booked in the vessel, conversion of chartered space into net tonnage is not available. Hence, a conversion formula of cargo carried on a ship to its net tonnage has been worked out".

Accordingly, there was no requirement of the certificate under the Scheme in relation to the vessel on which slot charter operations are carried out. 

4) Thus, income earned under slot charter arrangement qualify under ‘Tonnage Tax Scheme’ – CIT v. Trans Asian Shipping Services (P.) Ltd. [2016] 71 taxmann.com 74 (SC)
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