No Deduction for Interest Paid on FCCD under Tonnage Tax Scheme: ITAT [Read Order]

The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) has ruled against the deduction of interest paid on Foreign Currency Convertible Debentures (FCCD) under the Tonnage Tax Scheme, deeming the claim for deduction invalid.

The assessee, All Cargo Gati Limited's eligibility for deductions under the Tonnage Tax Scheme, as outlined in Section 115VG(6) of the Income Tax Act, was scrutinized, with Ms. K. Haritha representing the revenue and presenting Section 115VG, which details the computation of tonnage income, stating that the tonnage income of a company for a previous year is the sum of the tonnage income of each qualifying ship, calculated based on the daily tonnage income multiplied by the number of days the ship was operational within that year.

The provision also clarifies that "tonnage" refers to the measurement indicated in the ship's certificate per Section 115VX, including any deemed tonnage computed via prescribed methods. The rounding rules state that tonnage figures should be rounded to the nearest multiple of 100 tons, ignoring kilograms, with specific adjustments based on whether the remaining tonnage is above or below 50 tons.

The tribunal found that once an assessee opts for the Tonnage Tax Scheme, the tonnage income cannot be offset by any other deductions available under the Act. It was acknowledged that the assessee had chosen the Tonnage Tax Scheme, which was accepted by both the Assessing Officer and the Commissioner of Income Tax (Appeals) [CIT (A)].

Further highlighted that if an assessee opts for the Tonnage Tax Scheme, they are precluded from claiming deductions under any other provisions against their tonnage income. This interpretation was supported by the two-member bench consisting of G. Manjunatha (Accountant Member) and Laliet Kumar (Judicial Member).

The bench dismissed the assessee's argument that they were entitled to deductions on the interest paid as part of the pro-rata term on Foreign Currency Convertible Debentures (FCCD). They argued that the investments were made from free funds. However, this argument was found to lack merit as it was not demonstrated before the CIT (A) that the investments were indeed made from free funds available due to the liquidation of FCCD Bonds.

The bench concluded that, given the specific prohibition in Section 115VG against claiming any other deductions, the argument of mixed funds does not apply. Consequently, the tribunal dismissed the ground raised by the assessee, affirming that the claim for deduction was invalid under the Tonnage Tax Scheme.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates