Once Tonnage Tax Scheme is opted, no set off against any deduction allowed – ITAT
In a recent judgment, ITAT Hyderabad has held that once the assessee opts for a Tonnage Tax Scheme, then Tonnage income cannot be set off against any deduction provided under the Act.
ABCAUS Case Law Citation:
ABCAUS 4131 (2024) (07) ITAT
Important Case Laws relied upon:
CIT Vs. Reliance Utilities and Power Limited (2009) 313 ITR 340
South Indian Bank [2021] 130 taxmann.com 178 (SC)
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming disallowing expenditure claimed for the reason that the assessee had opted for Tonnage Tax Scheme under the provisions of the Income Tax Act, 1961 (the Act).
The assessee company was deriving income from Express Cargo Distribution and Warehousing. It filed its return of income for the Assessment Year under consideration with net loss after setting off the losses. Subsequently, the assessee filed a revised return of income on declaring a lower net loss after disallowing notional loss.
During the year, the assessee company has paid interest/premium on redemption of Foreign Currency Convertible Bonds (FCCB) issued which had been utilised for acquisition of assets pertaining to shipping business. The said premium/interest paid was claimed as expenditure.
The return was processed u/s 143(1) of the Act. The case was selected for scrutiny under CASS and notices u/s 143(2) and u/s 143(2) and 142(1) of the Act were issued and served along with questionnaire. In response, the assessee submitted information from time to time.
After verifying the information submitted, Assessing Officer completed the assessment by making disallowance inter alia of expenditure on redemption of bonds towards and passed assessment order u/s 143(3) of the Act reducing the loss.
The CIT(A) held that since tonnage income scheme takes care of every allowable item of expenditure, no separate interest claim (on funds utilized for purchase of new vessels) in the computation is allowable. Therefore, CIT(A) upheld the addition the proportionate disallowance of interest.
Before the Tribunal, the contention of the assessee were two folds that the assessee was having surplus fund and therefore, the investment made by the assessee for acquisition of vessels was not assessable to the funds taken by the assessee under FCCB. Secondly, it was submitted that during the financial year, the part of the FCCB had been repeated and the funds were available with the assessee. Therefore, the disallowance made by the assessee on a prorate basis for the whole amount was not permissible as after requiring only part of FCCB were available. Thirdly the assessee relied upon the decisions of Hon’ble Supreme Court to buttress its arguments.
On the contrary, the Revenue contended that once the assessee has opted for the Tonnage Tax Scheme as applicable for section 115VG(6) of the Act, then no deduction, then no deduction is allowable.
The Tribunal observed that reading of provisions of Section 115VG of the Act makes it abundantly clear that once the assessee opts for a Tonnage Tax Scheme, then Tonnage income cannot be set off against any deduction provided under the Act. In the present case, it was admitted that the assessee had opted for Tonnage Income Tax which had been accepted by the Assessing Officer and CIT(A).
The Tribunal opined that therefore, the question must be considered whether, after opting for the Tonnage Tax Scheme, the assessee can claim the deduction in derogation of the provision of the Act provided under section 115VG(6) of the Act. The Tribunal opined, the law is clear and unambiguous, which provides that once specified provisions deal with the subject and have been accepted by the assessee, the assessee is precluded from taking the deduction of any other expenditure under any other provisions of the Act against the Tonnage income. The provisions of section 115 VG of the Income Tax Act, 1961 are complete, and once the assessee opts for the Tonnage Tax Scheme, the assessee cannot take the shield of taking the deduction of any other expenditure. Hence, the assessee was not entitled to deduction as claimed by the assessee towards interest paid being the pro rata term paid on FCCB.
Further, the argument of the assessee was that the assessee was having free funds is devoid of any merit, as it was not a case before the CIT(A) that the investments were made out of free funds available within it on account of liquidation of the part of the FCCB. Further, once the specific provision which prohibits the assessee from claiming any deduction, then the question of allowing the deduction of interest on the pretext of availability of mixed funds does not arise. In so far as the case laws relied upon by the assessee, those case laws were not applicable to the present.
As a result the ground of appeal was dismissed.
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