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

3. The relevant facts giving rise to the present appeal are briefly set out hereunder.a) The main objects for which the assessee company was incorporated are reproduced hereunder:1) To promote, manage, assist, render services to and to invest in projects relating to offshore and onshore gas and oil exploration, prospecting, development and production, including but without being limited to, brokering of work contracts, construction contracts, exploration licences and financing agreements and arrangements in India and in any part of the world.2) To acquire, purchase, sell, own, lease, charter, let out to hire, administer, manage, control, operate, construct, repair, alter, equip, furnish, fit out, decorate, improve and otherwise deal in offshore and onshore rigs and platforms, works, buildings, conveniences and equipments of all kinds, including equipments for seismic, electrologging, mudlogging, perforation, cementing, production, maintenance, diving and construction, irrigation, reclamations, sewage, drainage and sanitary works, water, gas, oil, motor, electrical, telephone, telegraphic and power supply works connected with the oil and gas industry.3) To acquire, purchase, sell, own, lease, charter, let out to hire, administer, manage, control, operate, construct, repair, alter, equip, furnish, fit out, decorate, improve and otherwise deal in ships, vessels, barges and sailing craft of all kinds including supply vessels, anchor handling tugs, multi support vessels, diving support vessels, pipe laying barges, non destructive testing vessels, oil and gas production vessels, cargo vessels, storage vessels and passenger vessels.b) On 24th November, 1994, the assessee filed its return of income under section 139(1) of the Income Tax Act, 1961 (the said Act) Act declaring the total income of Rs.On 28th November, 1995 the assessee revised its above referred return of income returning the total income as "NIL". In the revised return the appellant claimed deduction of Rs.1,34,70,565/under section 33AC of the said Act.c) On 27th March, 1997, the Deputy Commissioner of Income Tax, Special Range 25, Mumbai passed an order under section 143(3) assessing the assessees income at Rs.3,84,66,760/by, interalia, disallowing the claim of deduction under section 33AC of the said Act on the ground that the assessee is not engaged in the shipping business.d) On 1st May, 1997, the assessee preferred an appeal against the said order dated 27th March, 1997 to the Commissioner of Income Tax (A). The said appeal was dismissed by the learned CIT(A) by its order dated 5th December, 1997 on the ground that section 33AC not only requires the objects but also carrying on of actual shipping business in the year under consideration.e) Being aggrieved by the order of the CIT(A) dated 5th December, 1997, the assessee preferred an appeal to the ITAT, Mumbai. On 7th June, 2004 the ITAT, Mumbai dismissed the appeal filed by the assessee upholding disallowance of deduction under sec.33AC primarily on the following grounds:i) Section 33AC contemplates actual carrying on of the business of operations of shipping in the year of claim;ii) Amendment brought by Finance Act, 1995 with effect from 1st April, 1996 is clarificatory and retrospective.iii) Circular No.554 dated 12th December, 1994 clarifies that companies should engage in the business of operation of ships.4. Being aggrieved by the said order of the ITAT the present appeal is filed and is admitted on the questions set out in paragraph 2 above.

Court's reasoning:
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.