THE issues before the Bench are - Whether recruitment fees received can be treated as a part of the shipping income subject to Tonnage Tax as per Chapter XII-G - Whether there is any scope for addition of the same separately by treating such fees as income not incidental for computing shipping income under Tonnage Tax Scheme - Whether when an assessee receives miscellaneous income on account of VISA processing fees, charges for seaman book and had claimed adhoc expenses in respect thereof, the same can be allowed by the assessing authority. And the verdict partly goes in favour of the assessee.
Facts of the case
A
ssessee, a company was engaged in the business of shipping operations and was approved u/s 115 VI(3) to pay Tonnage Tax in respect of its income from shipping business. It owns and operates ships comprising tankers, bulk carriers and offshore supply vessels. During assessment, AO noticed that there was an agency division operated by the assessee which was engaged in recruitment of personnel on foreign lines. The said agency division was advising foreign principals owning and operating cruise ships to recruit their Indian Food and Beverages Personnel and for the said services, the assessee company had received recruitment fees of Rs. 40,73,177/-. The said activity carried on by the agency division was categorized by the assessee as incidental activity to its core shipping business and accordingly the income from recruitment fees was not offered to tax separately. According to AO, the process of earning recruitment fees should had been linked with the operation of ships. AO was also of the opinion that recruitment fees ought to had some linkage or association with “maritime education” since both these incomes were placed in the same category. AO held that it was not a kind of activity which had any linkage either with any kind of education or any aspect of running operation of ships. The A.O. held that none of the aforesaid services was in any way relating to shipping activities and no expertise in shipping business was required for providing such services. AO therefore held that the said services could not treated as incidental to the assessee’s core shipping business and the recruitment fees charged by the assessee for the said services could not be treated as forming part of the relevant shipping income of a Tonnage Tax Company. AO therefore treated the recruitment fees received by the assessee as its income chargeable to tax under the head “income form other sources” and after allowing deduction of Rs. 6,38,000/- on account of salary paid to one employee for looking after the agency division, the net income from recruitment fees amounting to Rs. 34,35,177/- was brought to tax in the hands of the assessee under the head “income from other sources” in the assessment completed u/s 143(3).
On appeal before CIT(A), AR contended that AO had erred in treating the activity of its agency division relating in recruitment fees as not incidental to the core shipping activities. It was also submitted that the expression “maritime education” and “recruitment fees” used in Rule 11-R indicated two distinct activities and both quality as incidental activities as long as they were related to business of shipping. It was submitted that recruitment fees received by the assessee during the year under consideration included the fees received for recruitment of personnel on ships. It was submitted that the food and beverage personnel recruited by the assessee on foreign ships were part of floating staff of ocean going ships and the said personnel were part of minimum safe manning recruitment as specified by DG of Shipping, India. It was contended that the activity of the assessee company rendering the services for such recruitment of floating staff of ocean going ships thus was very much incidental to the business of shipping and the recruitment fees received for such services was very much forming part of shipping income of a Tonnage Tax Company as defined in section 115 V-I. However, CIT(A) had upheld the action of the AO as the assessee had provided only administrative services and was not engaged in providing skilled services in the shipping industry. As rightly pointed out by the AO other than the fact that the appellant provided these services to the persons owning ships, these services had nothing to do with the business of shipping. Moreover, it was found that in the AY 2004-05, the appellant had claimed deduction u/s 33AC on these receipts and the AO had rejected the claim of the appellant and the CIT(A) had upheld the action of the AO holding that income of the appellant from ‘recruitment fee’ cannot be said to be income derived from the business of shipping.
Before Tribunal, AR had submitted that recruitment fees had been explained as fees earned from foreign ship owners for rendering services by way of training, interview, short listing and recruitment of floating staff and officers. AR also invited attention to the services provided by the assessee to the principal as per the Manning Agency Agreement and submitted that the services provided by the assessee resulting in recruitment fees were squarely covered in the incidental activities as provided in section 115 V-I (5) r.w.r. 11-R of the I.T. Rules. AR also presented copies of debit notes issued by the assessee for recruitment fees and submitted that the recruitment fees was received by the assessee in relation to the crew members for their particular positions on the particular ships. He contended that the fees in question thus was clearly received by the assessee in connection with recruitment of crew members for ships and it was in the nature of Maritime recruitment fees covered u/s 115 V-I(5). It was also contended that the provisions of section 115 V-I were made applicable for the first time in the year under consideration i.e A.Y. 2005-06 and the assessee was eligible for the benefit provided therein in respect of recruitment fees arising from incidental activities. On the other hand, DR had relied on the order of the CIT(A) in support of the Revenue’s case on this issue and submitted that the reasons given by the CIT(A) to deny the benefit to the assessee in respect of recruitment fees may be taken into consideration to decide this issue. DR also submitted that similar claim of the assessee for the benefit in respect of recruitment fees was rejected in A.Y. 2004-05 and the same was accepted by the assessee.
B) During the year, the assessee had received miscellaneous income of Rs. 3,58,636/- on account of VISA processing fees, charges for seaman book etc. Against the said income, adhoc expenses of Rs. 2,06,299/- were claimed by the assessee which the AO had disallowed for want of details as well as for the reason that no such expenses were claimed by the assessee in the earlier year. On appeal, CIT(A) had confirmed the disallowance made by A.O. on this issue observing that neither any specific submissions were made on behalf of the assessee in support of its claim for the said expenses nor any details of the said expenses were furnished.
Having heard the matter, Tribunal held that,
A) ++ as provided in s.s. (5) of section 115 V-I, the incidental activities shall be the activities which are incidental to the core activities and which may be prescribed for the purpose. The incidental activities for the purposes of relevant shipping income are prescribed in Rule 11-R, which are maritime consultancy charges, income from loading or unloading of cargo, ship management fees or remuneration received for managed vessels; and maritime education or recruitment fees. A perusal of the relevant Rule 11-R shows that the Maritime Education or Recruitment Fees is prescribed as incidental activity for the purposes of relevant shipping income. In our opinion, if the nature of services rendered by the assessee as provided in the relevant Manning Agency Agreement is taken into consideration, the fees received for the said services clearly fall in the recruitment fees as prescribed in Rule 11-R being incidental activities for the purpose of relevant shipping income as further elaborated in Note-5 appearing after the corresponding Form 66 which describes the “recruitment fees” as fees earned from foreign ship owners for rendering services by way of screening, interviewing, short-listing and recruitment of floating staff and officers. Even the copies of debit notes raised by the assessee on foreign ships owners on account of recruitment fees showing the positions for which recruitments were made as well as giving the details of crews further support the case of the assessee that the fees was received in connection with the services rendered to the foreign ship owners for recruitment of floating staff on board their ships. Having regard to all these facts of the case clearly borne out from the relevant documentary evidence placed on record before us, we are of the view that the recruitment fees received by the assessee was clearly in the nature of its profits from incidental activities referred to sub section (5) of section 115 V-I as prescribed in Rule 11-R r.w. Note 5 below Form No. 66. Accordingly, we hold that the recruitment fees received by the assessee was very much part of the relevant shipping income of Tonnage Tax Company for the purpose of Chapter XII-G and the same having been included in the relevant shipping income declared by the assessee as per Tonnage Tax Scheme, there was no justification to add the same separately as done by the A.O. and confirmed by the CIT(A). As regards the contention of the Revenue that similar addition made by the A.O. separately in the earlier years was accepted by the assessee, it is observed that in the earlier years, Chapter XII-G was not applicable for the purpose of computing income of shipping companies containing special provisions which was inserted in the statute only w.e.f. 1-4-2005. Prior to A.Y. 2005-06 the benefits of shipping company were provided in section 33AC by way of deduction of an amount not exceeding 50% of profits derived from the business of operation of ships. As rightly submitted by the ld. counsel for the assessee, the scope of benefits provided u/s 33AC thus was limited to the profits derived from the operation of ships in which the recruitment fees arising from incidental activities was not covered. Chapter XII-G, however, has extended this scope from A.Y. 2005-06 which in addition to the profits from core activities from operating qualifying ships also includes profits from incidental activities. Keeping in view this extended scope of benefits available now under Chapter XII-G inserted in the statute w.e.f. 1-4-2005, the assessee has claimed the benefit in respect of recruitment fees which was earlier not available u/s 33AC , the scope of which was limited only to profits derived from the operations of ships. We, therefore, delete the addition made by the A.O. and confirmed by the ld. CIT(A) on account of recruitment fees and allow this ground of the assessee’s appeal for A.Y. 2005-06;
B) ++ the counsel for the assessee has merely sought that the issue may be restored to the file of the A.O. for giving the assessee an opportunity to support and substantiate its claim for expenses incurred against the miscellaneous income. However, as rightly submitted by the D.R., the details of the expenses claimed by the assessee have not been furnished by the assessee either before the authorities below or even before the Tribunal and in the absence of the same, we agree with the contention of the D.R. that there is no case made out by the counsel for the assessee to justify any more opportunity to be given to the assessee at this stage to support and substantiate its claim on this issue. We therefore reject the contention raised by the counsel for the assessee and uphold the impugned order of the CIT(A) confirming the disallowance made by the A.O. on this issue. This ground of assessee’s appeal for A.Y. 2006-07 is accordingly dismissed. In the result, both the appeals of the assessee are partly allowed.
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