The Income Tax Appellate Tribunal (ITAT), Visakhapatnam Bench ruled that liquidated damages not core activity of shipping and not part for computation in tonnage tax, thereby granting relief to M/s Dredging Corporation of India Ltd.
The assessee company, M/s Dredging Corporation of India Ltd is a public sector undertaking engaged in executing offshore dredging activities under the Ministry of Shipping, Govt. of India, filed its return of income for the A.Y.2015-16 electronically on 23.09.2015 declaring a total income of Rs.8,21,67,900/- and claiming a refund of Rs.14,80,79,080/-.
Subsequently, the assessee company filed its revised return of income on 07.05.2016, admitting total income of Rs.8,59,91,810/- and claiming a refund of Rs.14,61,78,510/-. The case was selected for limited scrutiny under CASS and a notice u/s 143(2) was issued to the assessee on 07.04.2016. Assessment order u/s 143(3) of the Income Tax Act, 1961 was passed with the addition of other operating revenue of Rs.9,43,65,403/-.
Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the CIT(A) partly allowed the appeal of the assessee. Hence this appeal has been preferred. The issue is regarding receipt of an amount of Rs.2,21,31,709/- towards ‘Liquidated Damages.
A Bench consisting of Duvvuru R L Reddy, Judicial Member and S Balakrishnan, Accountant Member held that “As regards the liquidated damages the source of such income is payment for failure to execute the contract works within the stipulated time and not the shipping activity either core or incidental. Though the liquidated damages may be incidental business income but the same is not the profit from core activities or incidental activities which have been defined in the Act. They are not directly received from the shipping activity but are compensatory in nature collected from the contractors for failure to execute contract. Therefore, liquidated damages cannot be held to be from the core activity of the shipping and does not form part for computation in tonnage tax.”
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