Commissioner of Income Tax vs Navix Lines

K. Raviraja Pandian, J.—The revenue is on appeal against the order of the Income Tax Appellate Tribunal dated 17.07.2003 made in ITA No. 872/Mds/1996 relating to the assessment year 1993-94.

The appeal was admitted on the following substantial question of law:

Whether on the facts and circumstances of the case, the Tribunal was right in holding that the demurrage charges received by the assessee does not form part of its income?

The facts are: The assessee, a non resident company filed its return of income relating to the assessment year 1993-94 on 31.12.1993 admitting an income of Rs. 4,74,83,480/-. The return has been processed u/s 143(1)(a) of the Income Tax Act and intimation to that effect was sent to the assessee on 31.01.1994. Consequently notice u/s 143(2) of the Act was issued to the assessee posting the case for hearing. The assessee has claimed that demurrage earned is not taxable as has been decided by the Income Tax Appellate Tribunal, Madras in the assessee''s own case for earlier years, but that has not been accepted by the department on the ground that the reference application has been taken out to the High Court and is pending finalisation and as such the demurrage earned is included in freight earnings and assessment was made. The Commissioner of Income Tax (Appeals), on appeal has accepted the stand of the assessee and deleted the demurrage charges. The revenue carried the matter on appeal to the Tribunal, which also held that the demurrage is not includible in the total income. The correctness of the same is canvassed in this appeal.

An identical question of law came up for consideration before this Court in the case of Commissioner of Income Tax Vs. Japan Lines Ltd. (Navix Lines Ltd.), , wherein the Division Bench answered the question in favour of the revenue by holding that Explanation to Section 44B inserted with retrospective effect from April 1, 1976, was applicable and the demurrage charges admittedly received in India had to be included in the assessee''s income, by observing as follows:

Section 44B of the Act, which is a special provision for computing profits and gains of shipping business in the case of non-residents, under the Explanation that was added by the Finance Act, 1997 with effect from April 1, 1976, expressly provides that demurrage charges or handling charges or any other amount of similar nature shall be regarded as the part of the amount paid or payable to the person engaged in the business of operation of ships on account of the carriage of passengers, livestock, mail or goods shipped at any port in India.

Following the above said judgment the question of law is answered in favour of the revenue and against the assessee. The appeal stands allowed. No costs.