Full Judgment Text
$~1 & 2
* IN THE HIGH COURT OF DELHI AT NEW DELHI
th
Date of decision: 8 November, 2012
+ ITA 1395/2010
THE COMMISSIONER OF INCOME TAX
NEW DELHI ..... Appellant
versus
JAGGON INTERNATIONAL LTD ..... Respondent
+ ITA 1289/2011
CIT ..... Appellant
versus
JAGSON INTERNATIONAL LTD ..... Respondent
Presence : Mr. Sanjeev Sabharwal, sr. Standing counsel with Mr. Puneet
Gupta, jr. Standing counsel for the appellant
Mr. C S Aggarwal, Sr. Adv. with Mr. Rajeev Saxena, Mr.
Pravesh Kumar and Ms. Pushpa Sharma, Advs. for the
respondent.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V.EASWAR
S. RAVINDRA BHAT, J: (OPEN COURT)
The substantial question of law arising for consideration is ―Whether
on the true and correct interpretation of section 115VD of the Act could it be
held that ―Deep Sea Matdrill‖ is a ship for the purposes of chapter XX-G of
I.T. Act?‖
2. The relevant facts are that the assessee sought to opt for tonnage tax
scheme under Chapter XII-G especially Section 115VP/115VR of the Income
ITA 1395/2010 & ITA 1289/2011 Page 1 of 8
Tax Act, 1961. The assessee claims to be owner of ship/ vessels engaged in
drilling operations. Its claim was rejected on the ground that in terms of
Section 115VD, Deep Sea Matdrills were not qualifying ships. The Assessing
Officer rejected the claim stating as follows:
“ I have gone through the submission of the assessee and the
AO‘s report. After going through the submission of the
assessee as well ass (sic) the AO‘s report, I am satisfied that
assessee‘s claim is not found to be acceptable for the purpose
of Section 115VP/115VR of the I.T.Act because as per I.T.
Act, the drilling rig is not covered under the definition of
―Qualifying ship‖. The claim of the assessee was not
registered as a ship under the Merchant Shipping Act, 1958.
The assessee‘s main object of business was not the carrying
on of the business of the operation of ships.‖
3. It transpired that the assessee had applied but had not been granted
registration under Section 407 of the Merchant Shipping Act, 1958 which was
granted on 19.5.2006. In these circumstances, the Appellate Commissioner
directed the assessing officer to reconsider the vessel of the assessee as a
“qualifying ship”. The Commissioner after considering the remand report
dated 5.2.2007 allowed the claim and permitted the respondent to claim
tonnage tax. The Revenue, claiming to be aggrieved approached the Income
Tax Appellate Tribunal („Tribunal‟, for short). Its contentions essentially
were that the vessels used by the assessee did not amount to qualifying ships
in view of the Section 115VD; more particularly they amounted to “off shore
installations” under sub-clause 115VD. The Tribunal considered various
materials including the dictionary meaning of “off shore” and “installations”.
It observed as follows: -
―It may be appreciated that the word ―offshore‖ therefore
means away from the shore or located at a little distance
from the shore while the installations‖ has been explained as
an apparatus or establishment which have been fixed at a
ITA 1395/2010 & ITA 1289/2011 Page 2 of 8
place or set in a position for use. It does not mean anything
i.e. apparatus or establishment which is being used without
being fixed or set in a position for its use. Anything which is
moving from one place to another for using the same cannot
be termed as installed. Any movable thing cannot be treated
as installation. Thus any installation which has been fixed or
set in a position at distance place from shore or away from
the shore is called ―offshore installation‖. The ‗installation‘
is built by installing various equipments, fixing them for the
work and then dismantled and shifted to another site. The
ship is build or constructed also by various equipments and
material for the purpose for which it is required to be used
but they are not dismantled instead ship itself shifts from one
place to another for working on the other site. The ships are
required to be registered under Merchant Shipping Act but
not installations secondly they are not those which are not
moveable and required to be shifted after dismantling. In the
modern world there could be a case of installing any
equipment on the ship for the specific cause or requirement
but this would not be called offshore installation instead it
would be called installation on the ship. There may be a case
of installation which is taken from one place to another but
that cannot be called as ship because while shifting from one
place to another it is required to be partially or totally
dismantled according to distance of place and availability of
facilities. Further for a ship it is not only necessary to be
registered under the Merchant Shipping Act but it has to
fulfill all the requirements and formalities to be fulfilled.
7. The relevant chapter of Merchant Shipping Act is
named as ―Control of Indian ships and ships engaged in
coasting trade‖. This clearly shows that it applies to only
ships and not to the offshore installation. Section 405
specifically explained about application of part – it clearly
states as under :
―Application of part. – This Part applies only to sea-
going ships fitted with mechanical means of propulsion of
not less than one hundred and fifty tons gross, but the
Central Government may, by notification in the Official
Gazatte, fix any lower tonnage for the purposes of this
part‖
Thus ‗ship‘ required to be licensed is sea-going ship fitted with
ITA 1395/2010 & ITA 1289/2011 Page 3 of 8
mechanical means of propulsion which is not provided in any of
the ―offshore installation‖.
4. The Tribunal took into consideration the observations of the Appellate
Commissioner and noticed that in this case the ship was not initially built and
thereafter equipments were amounted or attached. In fact the Tribunal
noticed that the Matdrill vessel was built by Nippon Kokan K.K. of Japan in
1981. It was planned for the special purpose of offshore drilling and all
equipments befitted or mounted at that stage itself. The Tribunal was thus
alive to the fact that the ship was initially designed for the purpose of drilling
and that it moves from one place to another and in fact consists of
equipments, boats, life saving devices, its quarters having accommodation of
74 person, canteen, recreation facilities etc. The Tribunal also importantly
observed that for the exploration of mineral oil various steps are necessary
and for different purpose shipping equipments and installations are used. The
assessee owns the vessels which were used for the various purposes such as
drilling, testing, casing, producing data and preparing all the reports etc.
Thereafter, the Tribunal concluded as follows: -
―This clearly show that ships used for drilling, dredging etc
are not offshore installations otherwise deletion of dredgers
was not required. The offshore installations are those which
are fixed for the specific purpose of fishing, production of
mineral oil and after finishing the purpose are dismantled
and shifted to other site. In case of short distance they are
fixed to other site through cranes or through ships. While
ships used for drilling, dredging etc are moved from one
place to another without being dismantled or without the help
of crane. It is therefore submitted that assessee‘s ship which
is duly been registered and has obtained the licence under
Merchant Shipping Act, 1958 by an authority of Director
General Shipping be treated as ―Qualifying ship‖ and not as
an ―offshore installations‖ as understood by Ld. Addl. CIT.
Apart from certificate from DG Shipping various other
certificates have already been filed which were also
ITA 1395/2010 & ITA 1289/2011 Page 4 of 8
necessary for issuing certificate by the office of DG
Shipping.‖
5. The Tribunal was also made aware of decision of this Court CIT Vs.
Jagson International (2008) 214 CTR (Del) 227 where the same equipment
was considered for the purpose of Section 33AC. This Court had also held
that Deep Sea Matdrills owned or leased by the assessee were ships. The
observations of this Court are as follows :
―The issue whether the ‗Deep Sea Matdrill‘ is a ship for the
purposes of section 33AC was decided in favour of the
assessee in respect of the assessment year 1994-95. There is
merit in the contention urged by learned counsel for the
assessee that this issue cannot be agitated by the revenue
again and again. The drilling rig was placed on a vessel
described as a barge, which could be moved out from place
to place for offshore drilling. The Tribunal considered this
aspect of the matter and came to the conclusion that the
‗Deep Sea Matdrill‘ is nothing but a ship. It is a barge,
which can be moved from place to place like any other ship.
When the drilling rig is in use, then apparently to save some
expenses the ship‘s propeller is removed; but whenever it is
required to be shifted, the propeller is refixed and the ship is
made mobile. On merits, therefore, we are of the view that
the claim made by the assessee in respect of section 33AC of
the Act is quite justified. Only one view is possible, namely,
that the ‗Deep Sea Matdrill‘ is a ship. Even if learned
counsel for the revenue is right in contending that the ‗Deep
Sea Matdrill‘ is not a ship, we do not think that exercise of
power under section 263 of the Act by the Commissioner
would be justified only because the assessing officer has
taken a view in favour of the assessee. The law requires the
view to be erroneous also, and that has not been
substantiated by learned counsel for the revenue.
Insofar as the second issue relating to section 80-IA(3) of the
Act if concerned, which is to the effect whether the ‗Deep Sea
Matdrill‘ was used in the Indian territorial waters before its
acquisition by the assessee, we find that this is essentially a
question of fact. That apart, we find that under section 148
ITA 1395/2010 & ITA 1289/2011 Page 5 of 8
of the Act, the assessing officer had specifically mentioned in
the reasons recorded that he was prima facie of the view that
the vessel had been used in the Indian territorial waters prior
to its acquisition by the assessee. A response was given by
the assessee to the notice in which it was categorically
mentioned that the ship was never used in India so deduction
under section 80-IA93) could not be denied to the assessee.
The last issue addressed by learned counsel for the revenue
relates, to section 80-IA(4) of the Act a bare reading of
section 80-IA(4) of the Act shows that what is required to be
determined is essentially factual and there is no legal issue
which is involved, much less a substantial question of law.
This issue was raised by the assessing officer during the
course of reassessment proceedings and it was replied to by
the assessee. The assessing officer was satisfied with the
explanation and did not raise any further questions. The
Tribunal has not erred in taking the view that it took, namely,
th
that the CIT had overlooked the agreements dt.28 Feb.1995
th
and 30 September, 1999 which were on the record of the
AO. In all the three issues that have been urged by the
counsel for the revenue, no substantial question of law arises.
Deduction u/s 33AC is allowable in respect of a barge with
the drilling rig over it which can be moved from place to
place and therefore, CIT was not justified in exercising
power u/s 263 on the ground that the barge is not a ship and
assessee‘s claim for deduction u/s 33AC has been wrongly
allowed; question whether the conditions laid down in SS80-
IA(3) and 80-IA(4) are fulfilled by the assessee are
essentially question of fact and the AO having allowed the
claim for deduction u/s 80-IA, revision u/s 263 was not
justified.‖
6. This Court has considered the submissions. Section 115VD which
defines a ship as “Qualifying Ship” reads as follows :
“ 115VD. For the purposes of this Chapter, a ship is
a qualifying ship if—
( a ) it is a sea going ship or vessel of fifteen net tonnage or
more;
( b ) it is a ship registered under the Merchant Shipping Act,
1958 (44 of 1958), or a ship registered outside India in respect
ITA 1395/2010 & ITA 1289/2011 Page 6 of 8
of which a licence has been issued by the Director-General of
Shipping under section 406 or section 407 of the Merchant
Shipping Act, 1958 (44 of 1958); and
(c)a valid certificate in respect of such ship indicating its net
tonnage is in force,
but does not include—
( i ) a sea going ship or vessel if the main purpose for which
it is used is the provision of goods or services of a kind normally
provided on land;
( ii ) fishing vessels;
( iii ) factory ships;
( iv ) pleasure crafts;
( v ) harbour and river ferries;
( vi ) offshore installations;
( vii )3[] *
( viii ) a qualifying ship which is used as a fishing vessel for a
period of more than thirty days during a previous year.‖
7. In the facts of this case the vessels were consistently registered under
Section 407 of the Merchant Shipping Act and had a valid certificate which
was produced for consideration by the appellate authority who sought remand
report. It is also not disputed that the vessel is a qualifying ship for sea in
terms of clause (a) of Section 115VD. The question as to whether it
amounted to “off shore installations” was gone into in considerable detail by
the Tribunal. The Tribunal noticed that unlike in the case of offshore
installations which are stationed at one place, the very nature of the activity in
which the assessee engaged is to carry out operations in different places;
necessarily, at least for a short duration the vessel has to be stationed at one
place. In these circumstances, Revenue‟s contentions that the vessel is
nothing but “offshore installations” has no merit, in the case of Matdrills of
the kind put to use by the assessee.
ITA 1395/2010 & ITA 1289/2011 Page 7 of 8
8. For these reasons the Court is of the opinion that the reasoning and
findings of the Appellate Commissioner and the Tribunal cannot be found
fault with. The substantial question of law is therefore answered in favour of
the assessee and against the Revenue. The appeals are consequently
dismissed.
S. RAVINDRA BHAT, J
R.V.EASWAR, J
NOVEMBER 08, 2012
vld
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