Ancillary hospitality and round-trip voyages constitute "carriage of passengers" under Section 44B presumptive taxation.

The Respondent, M/S Star Cruises (India) Pvt. Ltd., acted as the Indian agent for Superstar Libra Ltd. (SLL), a non-resident entity operating cruise services

SLL conducted "round-trip" cruises originating and terminating at Mumbai Port, providing onboard hospitality and entertainment

For the assessment years 2006-07 to 2008-09, the Respondent sought to compute SLL’s taxable income at the presumptive rate of 7.5% under Section 44B of the Income Tax Act, 1961, which applies to the "carriage of passengers"

The Assessing Officer (AO) rejected this, concluding that the activity was primarily "entertainment and hospitality" rather than "carriage," as the cruises returned to the same port. The AO estimated the income at 25%

The CIT(A) and the ITAT reversed the AO’s decision, holding that round trips constitute carriage and that hospitality was merely incidental

The High Court of Bombay dismissed the Revenue’s appeal, leading to this Supreme Court challenge

1. Whether the High Court was justified in upholding that the assessee is engaged in the business of operation of ships and entitled to be assessed under Section 44B of the Income Tax Act?

2. Whether the business activity was primarily providing hospitality and entertainment rather than the "carriage of passengers" under Section 44B due to the round-trip nature of the voyage?

The court applied Section 44B of the Income Tax Act, 1961, which provides a simplified, presumptive taxation scheme for non-residents engaged in the business of operating ships; it deems 7.5% of the aggregate amount received for the carriage of goods or passengers as taxable profit

The court also referred to CBDT Circulars No. 763 (18.02.1996) and No. 169 (23.06.1975), which clarify that "carriage" payments include handling charges and that the section aims to simplify computation for foreign shipping enterprises

The Court rejected the Revenue's restrictive interpretation that "carriage" necessitates movement only from "Port A to Port B"

It affirmed the ITAT’s finding that a round-trip voyage constitutes two separate acts of carriage (A to B and B back to A) and noted that passengers had the option to disembark at intermediate ports

The Court reasoned that providing ancillary services like hospitality and entertainment does not strip the primary activity of its character as "carriage" under Section 44B

Since SLL fulfilled the twin conditions of being a non-resident and operating ships, the statutory presumptive rate of 7.5% was applicable regardless of the cruise's luxury components

The Court found no perversity in the concurrent findings of fact by the lower authorities

The Court affirmed that income should be assessed at the presumptive rate of 7.5% rather than the 25% estimated by the Revenue