Whether a foreign shipping enterprise operating round-trip cruise services with hospitality and entertainment facilities is engaged in the business of carriage of passengers so as to be entitled to presumptive taxation under Section 44B of the Income-tax Act, 1961.

Direct Tax/ Income Tax 0
2

Supreme Court: Director of Income Tax (IT)-I v. Superstar Libra Ltd. [Civil Appeal Nos. 3334–3336 of 2012]

BACKGROUND

The assessee, acting as an agent of Superstar Libra Ltd. (SLL), a non-resident shipping company, sought a certificate under Section 195 by claiming that the income of SLL was taxable under Section 44B at the presumptive rate of 7.5% of the gross cruise fare collected. The Assessing Officer rejected the claim, holding that SLL’s activities primarily involved hospitality and entertainment and not the carriage of passengers, as the cruises originated from and terminated at Mumbai Port. Accordingly, the AO estimated the deemed income at 25% of the cruise fare. The CIT(A) held that Section 44B was applicable and estimated the income at 7.5% of the gross receipts. The ITAT affirmed the order of the CIT(A). Aggrieved, the Revenue appealed before the High Court, which dismissed the appeals, leading to the present civil appeals before the Supreme Court.

DECISION

The Supreme Court dismissed the Revenue’s appeals and upheld the applicability of Section 44B. The Court held that the Assessing Officer had adopted an unduly restrictive interpretation of the expression “carriage” by confining it to transportation from one port to another. It agreed with the concurrent findings of the CIT(A) and the ITAT that round-trip cruise services fall within the ambit of “carriage” under Section 44B and that the provision of ancillary hospitality and entertainment services does not alter the character of the activity. Finding no perversity in the concurrent findings of fact, the Court held that the estimated income of SLL was liable to be computed under Section 44B at the statutory presumptive rate and dismissed the civil appeals

EDITOR’S COMMENTS

➢ Hospitality and entertainment offered on board a cruise do not alter the essential nature of the activity as the carriage of passengers under the Income Tax Act.
➢ Ruling on the applicability of the presumptive taxation regime for non-resident shipping companies under Section 44B, the court observed that ancillary services provided during a voyage do not take the operation outside the scope of the provision.

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