Case: Gal Offshore Services Limited) (Now The Great Eastern Shipping ) Company Limited) Vs. The Commissioner of Income Tax ) City-V, Aayakar Bhavan, Maharshi) Karve Road, Mumbai

Section 33AC only to companies which already own vessels would work against new entrants into the field by denying them a much needed incentive to enter the field by purchasing their first vessel and would actually go against the object of encouraging the nascent shipping industry in India.10. The learned Counsel for the revenue submitted before us that the assessee would be entitled to deduction under section 33AC only if the assessee has, in the previous year relevant to the assessment year, earned income from the shipping business. He submitted that in the instant case, the assessee had only purchased ships in the previous year relevant to the assessment year 1994-95. He, therefore, submitted that the assessee was not entitled to deduction as claimed. No case law was cited before us on behalf of the revenue nor any submissions were made as regards the case law cited in support of the assessees case.11. We have considered the arguments advanced by Learned Advocates for the assessee as well as the revenue. We have also considered the case law cited by the Advocate for the assessee. Section 33AC as applicable to the Assessment Year 1994-95 and amended section 33AC which came into effect from 1st April, 1996 are set out in paragraph 4 above. It is clear from section 33AC(1) as applicable to the Assessment Year 1994-95 that the only requirements prescribed are that the assessee must be a Government Company or a company formed and registered in India with the main object of carrying on of the business of operation of ships. If this condition is satisfied, the assessee would be entitled to deduction of an amount not exceeding the total income, as is debited to the profit and loss of the previous year in respect of which the deduction is to be allowed and credited to the reserve account to be utilised in the manner laid down in sub-section (2). There is no such requirement that the assessee in order to be eligible for deduction has to actually operate ships or that the amount in respect of which deduction is to be allowed and credited to the reserved account, had to be the income earned from shipping business. In the instant case, the assessee was a company formed and registered in India and one of its main objects was to carry on the business of operations of ships. The company had entered into agreement for purchase of ships in the relevant assessment year i.e. 1994-95 and actually operated them in the assessment year 1995-96. We agree with the submissions made on behalf of the assessee that the principles of statutory provisions laid down by the Honble Supreme Court in the case of Orissa State Warehousing Corporation (supra) and in the case of Padmasundara Rao (decd) and others (supra) squarely applies to the instant case. We, therefore, do not agree with the argument of the revenue and upheld by the Tribunal that section 33AC contemplates actual carrying on of business of operation of shipping in the year of claim.12. As regards the arguments/contentions of the revenue/Tribunal that the amendment brought by Finance Act, 1995 with effect from 1st April, 1996 is clarificatory and not retrospective, we are of the view that since clause 24.4 of the Circular No.717 dated 14th August, 1995 expressly states that the amendment will take effect from 1st April, 1996 and will accordingly apply in relation to the assessment year 1996-97 and subsequent years, establishes beyond doubt that the said amendment cannot be termed as clarificatory and/or retrospective. In this regard we are also bound by the decision of the Honble Supreme Court in the case of Sedco Forest International Drill Inc and others Vs. Commissioner of Income Tax and another (supra), cited before us by the Learned Advocate for the assessee.13. It is also the submission of the revenue which was accepted by the Tribunal that section 33AC of the said Act as applicable to the assessment year 1994-95 allowed deductions only to the company which was actually engaged in the business of shipping or that amount so deducted, had to be from the income earned from the shipping business. In our view this submission is completely erroneous. Clause 24.2 of the Departmental Circular no.717 dated 14th August, 1995 explains why section 33AC was amended with effect from 1st April, 1996 and made applicable in relation to the assessment year 1996-97 and subsequent years. The explanation given is that it was noticed that the shipping companies had diversified into trading, real estate business etc. and were claiming deductions under this section even in respect of the income from the activities other than shipping and, there was no justification for allowing 100% deduction with reference to income from activities other than operation of shipping. This shows that there was a lacunae in section 33AC(1) of the said Act because of which the assessee was in a position to claim deduction even in respect of its income from the activities other than shipping and this lacunae was corrected only by introducing an amendment to section 33AC with effect from 1st April, 1996. By the said amendment the deduction was restricted to only 50% of profits and that too derived from the business of operation of ships. It is, therefore, established that despite being conscious of the fact that prior to the amendment the assessees were claiming deduction in respect of their income from activities other than shipping, the framers of the amendment did not think it fit to make it applicable retrospectively but brought the said amendment into effect only from 1st April, 1996. The assessees were, therefore, allowed to claim the deductions even in respect of the income from the activities other than shipping prior to 1st April, 1996. In view thereof, in the instant case also, it cannot be insisted that the deduction claimed by the assessee ought to be in respect of their income from the activities from shipping and not from any other business.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It is clear from section 33AC(1) as applicable to the Assessment Yearthat the only requirements prescribed are that the assessee must be a Government Company or a company formed and registered in India with the main object of carrying on of the business of operation ofthe instant case, the assessee was a company formed and registered in India and one of its main objects was to carry on the business of operations of ships. The company had entered into agreement for purchase of ships in the relevant assessment year i.e.and actually operated them in the assessment yearWe agree with the submissions made on behalf of the assessee that the principles of statutory provisions laid down by the Honble Supreme Court in the case of Orissa State Warehousing Corporation (supra) and in the case of Padmasundara Rao (decd) and others (supra) squarely applies to the instant case. We, therefore, do not agree with the argument of the revenue and upheld by the Tribunal that section 33AC contemplates actual carrying on of business of operation of shipping in the year of claim.12. As regards the arguments/contentions of the revenue/Tribunal that the amendment brought by Finance Act, 1995 with effect from 1st April, 1996 is clarificatory and not retrospective, we are of the view that since clause 24.4 of the Circular No.717 dated 14th August, 1995 expressly states that the amendment will take effect from 1st April, 1996 and will accordingly apply in relation to the assessment yearand subsequent years, establishes beyond doubt that the said amendment cannot be termed as clarificatory and/or retrospective. In this regard we are also bound by the decision of the Honble Supreme Court in the case of Sedco Forest International Drill Inc and others Vs. Commissioner of Income Tax and another (supra), cited before us by the Learned Advocate for theexplanation given is that it was noticed that the shipping companies had diversified into trading, real estate business etc. and were claiming deductions under this section even in respect of the income from the activities other than shipping and, there was no justification for allowing 100% deduction with reference to income from activities other than operation of shipping. This shows that there was a lacunae in section 33AC(1) of the said Act because of which the assessee was in a position to claim deduction even in respect of its income from the activities other than shipping and this lacunae was corrected only by introducing an amendment to section 33AC with effect from 1st April, 1996. By the said amendment the deduction was restricted to only 50% of profits and that too derived from the business of operation of ships. It is, therefore, established that despite being conscious of the fact that prior to the amendment the assessees were claiming deduction in respect of their income from activities other than shipping, the framers of the amendment did not think it fit to make it applicable retrospectively but brought the said amendment into effect only from 1st April, 1996. The assessees were, therefore, allowed to claim the deductions even in respect of the income from the activities other than shipping prior to 1st April, 1996. In view thereof, in the instant case also, it cannot be insisted that the deduction claimed by the assessee ought to be in respect of their income from the activities from shipping and not from any other business.