IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5869 OF 2016 (ARISING OUT OF SLP (CIVIL) NO. 25251/2015) COMMISSIONER OF INCOME TAX, KOCHI .....APPELLANT(S) VERSUS TRANS ASIAN SHIPPING SERVICES (P) LTD. .....RESPONDENT(S) WITH CIVIL APPEAL NO. 5870 OF 2016 (ARISING OUT OF SLP (CIVIL) NO. 25252/2015) JUDGMENT A.K. SIKRI, J. Leave granted. Matter finally heard as case was fixed for final hearing. 2. Chapter XIIG of Income Tax Act, 1961 (hereinafter referred to as 'Act') contains special provisions for assessments relating to income of shipping companies. Under this Chapter, shipping companies are given choice to either get income from Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 1 of 31 Page 1 shipping business computed in accordance with provisions contained in Act meant for computation of income in respect of business or profession or opt for methodology of computing income as per special formula provided in that Chapter which accords different treatment and different manner of computation of income for shipping business. 3. Chapter IV of Act deals with 'Computation of Total Income' and as per scheme of Act, such computation of total income is governed by five heads which are provided in Section 14 of Act. These are: (i) Salaries; (ii) Income from House Property; (iii) Profits and Gains of Business or Profession; (iv) Capital Gains and (v) Income from Other Sources. Thereafter, manner of computation of income under aforesaid heads is stipulated in various sections falling under Chapter IV. As far as Income from Profits and Gains of Business or Profession is concerned, Sections 28 to 44DB of Act contain procedure for computation of income under this head. Therefore, any person, natural or juristic, who earns income from business in India is supposed to get income from said business computed in manner provided in those sections. However, Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 2 of 31 Page 2 Chapter XIIG makes exception thereto by carving out special provisions relating to income of shipping companies. It would mean that those companies which are shipping companies are permissible to get their income computed under said Chapter. Section 115VA of Act gives this option and reads as under: 115VA. Computation of profits and gains from business of operating qualifying ships. - Notwithstanding anything to contrary contained in sections 28 to 43C, in case of company, income from business of operating qualifying ships, may, at its option, be computed in accordance with provisions of this Chapter and such income shall be deemed to be profits and gains of such business chargeable to tax under head "Profits and gains of business or profession". 4. As is clear from bare reading of this Section, option is given to shipping company, which is operating qualifying ships , to get its income computed in accordance with provisions of Chapter XIIG, irrespective of those stipulations otherwise contained in Sections 28 to 43C for computation of business income. Once such option is exercised and income is computed in accordance with provisions of said Chapter, fiction is created by deeming said income to be profits and gains of such business chargeable to tax under head 'Profits and Gains of Business or Profession'. To put it otherwise, Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 3 of 31 Page 3 though income of such shipping company would be computed in manner provided under Chapter XIIG, same would be treated as income from business which is chargeable to tax as provided under head 'Profits and Gains of Business or Profession' and would be treated as chargeable to tax under that head. 5. For shipping company to be eligible to exercise such option, there are certain conditions to be fulfilled, which are as under: (i) In first place, assessee has to be 'company'. word 'company' is defined in Section 2(17) of Act. Such company may have various businesses and one such business may be business of operating qualifying ships. However, it is only that income which is generated from 'The Business of Operating Qualifying Ships' that will be computed as per special provisions in Chapter XIIG. Income from other businesses will be computed in same manner as provided in Sections 28 to 43C. In case business of company is to operate qualifying ships only, then income from that sole business will be under this Chapter. (ii) Income from business of operating qualifying ships shall Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 4 of 31 Page 4 be computed under Chapter XIIG only if such option is specifically exercised by assessee company. This requirement is particularly mentioned in Section 115VP of Act. Such option, when given, is to remain in force for period of ten years from date on which said option is exercised, and this period is prescribed in Section 115VQ of Act. However, it can be renewed within one year from end of previous year in which option ceases to have effect (Section 115VR). In certain circumstances stipulated in Section 115VS of Act, there is prohibition to opt for scheme. scheme that is to be opted for computation of income under this Chapter is known as 'Tonnage Tax Scheme' (for short 'TTS') as defined in sub-section (m) of Section 115V of Act. (iii) Though, these special provisions relate to income of shipping companies, it is only that income which is received from business of operating qualifying ships that is eligible for computation under this Chapter. 115VD. Qualifying ship.- For purposes of this Chapter, ship is qualifying ship if (a) it is sea going ship or vessel of fifteen net tonnage or more; Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 5 of 31 Page 5 (b) it is ship registered under Merchant Shipping Act, 1958 (44 of 1958), or ship registered outside India in respect of which licence has been issued by Director-General of Shipping under section 406 or section 407 of Merchant Shipping Act, 1958 (44 of 1958); and (c) valid certificate in respect of such ship indicating its net tonnage is in force, but does not include (i) sea going ship or vessel if main purpose for which it is used is provision of goods or services of kind normally provided on land; (ii) fishing vessels; (iii) factory ships; (iv) pleasure crafts; (v) harbour and river ferries; (vi) offshore installations; (vii) (Clause (vii) omitted by Finance Act, 2005 (18 of 2005), sec. 36 (w.e.f. 1-4-2006). Clause (vii), before omission, stood as under: (vii) dredgers . (viii) qualifying ship which is used as fishing vessel for period of more than thirty days during previous year. Which ship should be treated as 'operating ship', is to be understood from prescription thereof as mentioned in Section 115VB which reads as under: 115VB. Operating ships.- For purposes of this Chapter, company shall be regarded as operating ship if it operates any ship whether owned or chartered by it and includes case where even part of ship has been chartered in by it in arrangement such as slot charter, space charter or joint charter : Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 6 of 31 Page 6 Provided that company shall not be regarded as operator of ship which has been chartered out by it on bareboat charter-cum-demise terms or on bareboat charter terms for period exceeding three years. As per this, ship would be treated as 'operating ship' if company: (a) operates any ship, whether owned or chartered by it; (b) where even part of ship has been chartered by that company in arrangement such as slot charter, space charter or joint charter. only exception is that if ship has been chartered out by company on bareboat charter-cum-demise terms or on bareboat charter terms for period exceeding three years, then that company shall not be regarded as operator of that particular ship. (iv) company operating such ships has to be qualifying company as defined in clause (g) of Section 115V of Act which says qualifying company means company referred to in Section 115VC of Act. Section 115VC lays down certain conditions to be fulfilled for company to be qualifying company. It reads as under: 115VC. Qualifying company. - For purposes of this Chapter, company is qualifying company if Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 7 of 31 Page 7 (a) it is Indian company; (b) place of effective management of company is in India; (c) it owns at least one qualifying ship; and (d) main object of company is to carry on business of operating ships. Explanation. For purposes of this section, "place of effective management of company" means (A) place where board of directors of company or its executive directors, as case may be, make their decisions; or (B) in case where board of directors routinely approve commercial and strategic decisions made by executive directors or officers of company, place where such executive directors or officers of company perform their functions. As may be seen from reading of aforesaid provision, apart from conditions that company has to be Indian company with effective management of company in India and main objective of company is to carry on business of operating ships, other significant condition is that company itself should own 'at least one qualifying ship'. description of qualifying ship is contained in Section 115VD, as already noted above, and owning at least one qualifying ship is one of Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 8 of 31 Page 8 eligibility conditions for getting income computed under these special provisions. 6. Once aforesaid conditions are fulfilled, income from business of operating qualifying ships is to be computed under Chapter XIIG. manner of computation of such income, as provided under this Act, is under 'TTS'. Clause (m) of Section 115V defines TTS as under: (m) "tonnage tax scheme" means scheme for computation of profits and gains of business of operating qualifying ships under provisions of this Chapter. 7. provisions for TTS are contained in Section 115VE onwards. For our purposes, it is not necessary to take stock of all these provisions. As we are primarily concerned with Section 115VE and Section 115VG of Act, we shall discuss schemes with reference to these provisions. TTS talks of 'Tonnage Income' which is to be computed under Section 115VG of Tonnage Tax Company. This Tonnage Income, as per Section 115VG of Act, is income of each qualifying ship. formula of calculating this Tonnage Income of each qualifying ship is stipulated in sub-sections (2) and (3) of Section 115VG. Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 9 of 31 Page 9 Sub-section (4) of Section 115VG defines 'Tonnage' to mean tonnage of ship indicated in certificate referred to in Section 115VX and 'includes deemed tonnage computed in prescribed manner'. Explanation to sub-section (4) of Section 115VG clarifies that deemed tonnage shall be tonnage in respect of arrangement of purchase of slots, slot charter and arrangement of sharing of break-bulk vessel. 8. Section 115VE deals with manner of computation of income under TTS. In nutshell, such company which has exercised option under this Chapter is known as 'Tonnage Tax Company' and its income from business of operating qualifying ships shall be considered as separate business distinct from all other activities of business carried on by company. income from this particular business only is to be computed separately from profits and gains from any other business. income for this activity under TTS is known as 'tonnage income' (Section 115VF). computation of tonnage income is to be done in manner prescribed in Section 115VG. As this is important provision for purposes of deciding instant appeal, same is reproduced below: Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 10 of 31 Page 10 115VG. Computation of tonnage income.- (1) tonnage income of tonnage tax company for previous year shall be aggregate of tonnage income of each qualifying ship computed in accordance with provisions of sub-sections (2) and (3). (2) For purposes of sub-section (1), tonnage income of each qualifying ship shall be daily tonnage income of each such ship multiplied by (a) number of days in previous year; or (b) number of days in part of previous year in case ship is operated by company as qualifying ship for only part of previous year, as case may be. (3) For purposes of sub-section (2), daily tonnage income of qualifying ship having tonnage referred to in column (1) of Table below shall be amount specified in corresponding entry in column (2) of Table: Table Qualifying ship having Amount of daily tonnage net tonnage income (1) (2) up to 1,000 Rs. 70 for each 100 tons Rs 700 plus Rs. 53 for exceeding 1,000 but each 100 tons not more than 10,000 exceeding 1,000 tons Rs. 5,470 plus Rs. 42 for exceeding 10,000 but each 100 tons not more than 25,000 exceeding 10,000 tons Rs. 11,770 plus Rs. 29 exceeding 25,000 for each 100 tons exceeding 25,000 tons.] Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 11 of 31 Page 11 (4) For purposes of this Chapter, tonnage shall mean tonnage of ship indicated in certificate referred to in section 115VX and includes deemed tonnage computed in prescribed manner. Explanation. For purposes of this sub-section, "deemed tonnage" shall be tonnage in respect of arrangement of purchase of slots, slot charter and arrangement of sharing of break-bulk vessel. (5) tonnage shall be rounded off to nearest multiple of hundred tons and for this purpose any tonnage consisting of kilograms shall be ignored and thereafter if such tonnage is not multiple of hundred, then, if last figure in that amount is fifty tons or more, tonnage shall be increased to next higher tonnage which is multiple of hundred and if last figure is less than fifty tons, tonnage shall be reduced to next lower tonnage which is multiple of hundred; and tonnage so rounded off shall be tonnage of ship for purposes of this section. (6) Notwithstanding anything contained in any other provision of this Act, no deduction or set off shall be allowed in computing tonnage income under this Chapter. 9. We would also like to point out at this stage that Section 115V-I deals with 'relevant shipping income' and as per Section 115VF, such relevant shipping income shall not be chargeable to tax. 10. After narrating scheme of Chapter XIIG containing special provisions for computation of profits and gains from business Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 12 of 31 Page 12 of operating qualifying ships by company, we advert to precise nature of dispute that has arisen in instant appeal. As mentioned above, it is only income from business of operating qualifying ship that has to be computed in accordance with provisions of Chapter XIIG. As per Section 115VB of Act, company is regarded as operating ship if it operates any ship which is owned by it or ship which is chartered by it and it also includes case where even part of ship has been chartered by it in arrangement such as slot charter, space charter or joint charter etc. question that has arisen for consideration pertains to 'slot charter' i.e. should 'slot charter' operations of 'Tonnage Tax Company' be carried on only in 'qualifying ships' to include income from such operations to determine 'tonnage income' under 'TTS' in terms of provisions of Chapter XIIG of Act? In other words, is income derived from 'slot charter' operations of 'Tonnage Tax Company' liable to be excluded while determining 'Tonnage Income' under 'TTS' if such operations are carried on in ships which are not 'qualifying ships' in terms of provisions of that Chapter of Act and relevant provisions of Income Tax Rules, 1962? Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 13 of 31 Page 13 11. As matter of fact, respondent-assessee owns qualifying ship and fulfills all other conditions as well to make it qualifying company under Section 115VC. income that is generated from said qualifying ship is exigible to tax as per special provisions contained in Chapter XIIG, as assessee has exercised requisite option in this behalf. However, in addition to operating its qualifying ship, in relevant Assessment Years i.e. 2005-2006 and 2008-2009 it had also 'slot charter' arrangements in other ships. In relevant income tax returns filed by assessee, assessee had also included income earned from such slot charter arrangements for purpose of computation thereof under Chapter XIIG. It is in this context question has arisen as to whether assessee was eligible to include income derived from activities through 'slot charter' arrangements as relevant shipping income to determine deemed tonnage in terms of Rule 11Q of Income Tax Rules. 12. Assessing Officer was of view that income earned under slot charter arrangement did not qualify for coverage to be given special treatment in Chapter XIIG as this income was not generated by assessee from its own ship, i.e., it is neither Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 14 of 31 Page 14 from ship owned by assessee nor from entire ship chartered by assessee. He took view that in order to avail benefit of Chapter XIIG, assessee was supposed to show that ship operated by it was qualifying ship and for this purpose it was incumbent upon assessee to produce 'valid certificate indicating its net tonnage' as provided in Section 115VX(1)(b) of Act. However, assessee had submitted such valid certificate only in respect of its own ship and did not submit same in respect of ship chartered by assessee under slot charter arrangement. contention of assessee was that requirement of producing 'valid certificate' is to be insisted only for assessee's own ships and for ships hired fully. This contention was not accepted by Assessing Officer. assessee had also argued that as per method of computation provided under Section 115VG of Act read with Rule 11Q of Rules income for full ship is to be computed on basis of 'net tonnage' shown in valid certificate, whereas income of part of ship is computed as 'deemed tonnage'. This argument was also rejected by Assessing Officer on ground that there was requirement of producing valid certificate even for part of ship and in absence thereof income from Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 15 of 31 Page 15 slot charter arrangement could not be included for purpose of computation of tonnage income under TTS. 13. order of Assessing Officer was upheld by Commissioner of Income Tax (Appeals) resulting into dismissal of appeal filed by assessee. Even ITAT accepted view taken by Assessing Officer and dismissed appeal filed before it by assessee thereby upholding order of Assessing Officer. However, in further appeal that was preferred by assessee to High Court under Section 260A of Act, assessee has succeeded in getting its way through as High Court has found merit in its contention. Thus, High Court, vide impugned judgment and order dated 23.01.2015, has allowed appeal of assessee holding that income earned by assessee under slot charter arrangement comes under definition of 'deemed tonnage tax' as per explanation to sub-section (4) of Section 115 VG of Act and, therefore, exclusion of this income while assessing same under said special provisions was not appropriate. In other words, High Court has held that assessee is eligible for tonnage on slot charter related income also. This view taken by High Court is Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 16 of 31 Page 16 under examination in present proceedings. 14. Mr. Rohatgi, learned Attorney General who appeared for Income Tax Department/Revenue, at outset referred to reasoning which was adopted by ITAT and submitted that ITAT had rightly interpreted provisions even in respect to deemed tonnage and came to correct conclusion that even slot charter arrangement has to be in respect of qualifying ship. He read out relevant portions of discussion contained in order of ITAT in this behalf and submitted that in order to get particular income covered under these special provisions, it was necessary to fulfill all conditions which are stipulated in various provisions of this Chapter. His argument was that it is only business of operation of qualifying ships that was covered by Chapter. Therefore, even slot charter arrangement had to necessarily be in respect of 'qualifying ship'. It was submitted that unless this threshold is crossed and test of eligibility as per conditions stipulated under Section 115VA to Section 115VE of Act are fulfilled, question of crossing over to second stage of computation of income as per method of determination of tonnage would not arise. On that Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 17 of 31 Page 17 basis, he argued that entire approach of High Court by solely relying upon explanation to sub-section (4) of Section 115VG was erroneous. 15. Per contra, Shri Porus Kaka, senior advocate appearing for assessee, made endeavour to justify view taken by High Court by adopting reasons which are given in impugned judgment. In process, learned senior counsel went into background as to how TTS was introduced in scheme on basis of recommendations contained in Report given in January, 2002 by Rakesh Mohan Committee, which was appointed by Government. He emphasised that main purpose of introducing TTS was to ameliorate hardships suffered by Indian shipping companies vis-a-vis foreign shipping lines because of stiff competition faced by Indian companies and also to ensure easily acceptable fixed rate low tax regime for shipping companies. His submission was that Chapter XIIG incorporating this TTS which was introduced by Finance Act, 2004, had to be interpreted keeping in view aforesaid objective. He also argued that legal fiction created by sub-section (4) of Section 115VG along Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 18 of 31 Page 18 with Rule 11Q of Rules had to be given its proper and sensible meaning and read in this manner and insistence of Income Tax Authorities requiring production of valid certificates even in respect of slot charter was totally inappropriate demand and that would render redundant and otiose many provisions of this Chapter. 16. Dilating aforesaid submissions, he argued that explanation to Section 115VG(4) which clarifies 'deemed tonnage' to include slot charter had to be read along with Circular No. 05/2005 which was contemporaneous expositio circular issued after inserting said Chapter and clarifies that tonnage income shall be further increased by deemed tonnage which is to be computed in manner prescribed in Rule 11Q. Deemed tonnage means tonnage in respect of arrangement of purchase of slots, slot charter, and arrangement of sharing of break-bulk vessels. He, thus, argued that arrangements of slot charter even on non-qualifying ship are statutorily included within ambit of term 'income from business of operating qualifying ship'. 17. We have given our earnest consideration to respective Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 19 of 31 Page 19 submissions. 18. To recapitulate briefly, assessee is company as defined under Section 2(17) of Act and is also in business of operating qualifying ship(s). It is also not in dispute that it owns qualifying ship and fulfillment of this condition permits assessee to exercise its option for computation of income from business of operating qualifying ships under Chapter XIIG of Act. assessee exercised option in this behalf, as per Section 115VP of Act in respect of Assessment Years in question. Therefore, assessee is 'qualifying company' under Section 115VC of Act. In fact, income that is generated from qualifying ship owned by assessee is also assessed under special provisions contained in Chapter XIIG of Act. dispute, however, pertains to income from slot charter arrangements which assessee has made in other ships during concerned Assessment Years. ships where slot charter are arranged are obviously not owned by assessee. Further, as only some slots are chartered, full ships are not chartered. In this context, first question would be as to whether such Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 20 of 31 Page 20 slot charter can be treated as 'operating ships' within meaning of Section 115VB of Act? This provision specifically provides that for purpose of Chapter XIIG, company would be regarded as operating ship 'if it operates any ship whether owned or chartered by it and includes case where even part of ship has been chartered by it in arrangement such as slot charter, space charter or joint charter'. It is clear from above that slot charter is specifically included as instance of ship chartered by company. 19. Next comes issue as to whether it would be treated as 'qualifying ship' as defined under Section 115VD of Act. perusal of provisions of Section 115VD of Act would indicate that all conditions laid down therein are fulfilled by assessee, except conditions stipulated in clause (c) which impose obligation on assessee to produce valid certificate in respect of such ship where slot is chartered, indicating its net tonnage in force. entire controversy revolves around production of this certificate. As per Revenue, this is essential requirement contained in Section 115VD of Act which cannot be done away with because of Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 21 of 31 Page 21 formula that is contained in Section 115VG of Act for computation of Tonnage Income. It is argued that computation of Tonnage Income under TTS has to be as for provisions of Section 115VG and sub-section (4) thereof defines 'Tonnage' to mean tonnage of ship indicated in certificate referred to in Section 115VX. This Section makes following reading: 115VX. (1) For purposes of this Chapter, (a) tonnage of ship shall be determined in accordance with valid certificate indicating its tonnage; (b) "valid certificate" means, (i) in case of ships registered in India (a) having length of less than twenty-four metres, certificate issued under Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 made under Merchant Shipping Act, 1958 (44 of 1958); (b) having length of twenty-four metres or more, international tonnage certificate issued under provisions of Convention on Tonnage Measurement of Ships, 1969, as specified in Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 made under Merchant Shipping Act, 1958 (44 of 1958); (ii) in case of ships registered outside India, licence issued by Director-General of Shipping under section 406 or section 407 of Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 22 of 31 Page 22 Merchant Shipping Act, 1958 (44 of 1958) specifying net tonnage on basis of Tonnage Certificate issued by Flag State Administration where ship is registered or any other evidence acceptable to Director-General of Shipping produced by ship owner while seeking permission for chartering in ship. 20. This argument seems to be convincing in first blush as requirement of producing valid certificate is specified in Section 115VD as well as in sub-section (4) of Section 115VG. However, little closer scrutiny of aforesaid provisions would take away sheen of this submission and negate contention of Revenue, thereby persuading us to accept reasoning given by High Court as well as manner in which aforesaid statutory provisions are interpreted by it. In this behalf, we reproduce sub-section (4) of Section 115VG of Act which is provision regarding computation of tonnage income: (4) For purposes of this Chapter, tonnage shall mean tonnage of ship indicated in certificate referred to in section 115VX and includes deemed tonnage computed in prescribed manner. Explanation. For purposes of this sub-section, "deemed tonnage" shall be tonnage in respect of arrangement of purchase of slots, slot charter and arrangement of sharing of break-bulk vessel. Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 23 of 31 Page 23 21. Aforesaid provision is in two parts insofar as computation of tonnage is concerned. When it comes to tonnage of ship, certificate as mentioned in Section 115VX is to be produced. Second part of this provision talks about 'deemed tonnage' in contradistinction to 'actual tonnage' mentioned in certificate. Thus, it is not only actual tonnage that is mentioned in certificate referred to in Section 115VX of Act which this provision deals with. In addition, deemed tonnage is also to be included if there is such deemed tonnage, and that deemed tonnage is to be added to actual tonnage which is indicated in certificate. Explanation to sub-section (4), inter alia, mentions that insofar as slot charter arrangements are concerned, purchase of such slot charter shall be treated as deemed tonnage. Legislature has, thus, clearly visualised that insofar as deemed tonnage is concerned, there would not be any possibility of producing certificate referred to in Section 115VX of Act. When we read provision in this manner, it becomes amply clear that Section 115VD of Act which talks of qualifying ship, contemplates situation in which entire ship is either owned or chartered. Similar is position which inheres in Section 115VX of Act as it refers to 'the tonnage of Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 24 of 31 Page 24 ship'. Therefore, whenever question of tonnage of ship crops up and said tonnage is to be determined, it has to be in accordance with valid certificate indicating its tonnage and it is compulsory obligation of assessee to produce such certificate. However, this requirement of producing certificate would not apply when entire ship is not chartered and arrangement pertains only to purchase of slots, slot charter and arrangement of sharing of break-bulk vessel. contention of senior counsel for assessee is right that legal fiction created by sub-section (4) of Section 115VG is to be given its proper and sensible meaning. This position becomes abundantly clear by reading Rule 11Q of Rules which specifies basis/formula of computing deemed tonnage in respect of arrangement of slot charter and reads as under: 11Q. (1) For purpose of Explanation to sub-section (4) of section 115VG, deemed tonnage in respect of arrangement of purchase of slots and slot charter shall be computed (illustrative formula given in Note 3 appearing after corresponding Form No. 66) on following basis : 2.5 TEU = 1 Net Tonnage (1 NT) where TEU is Twenty foot Equivalent Unit (Container of this size) Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 25 of 31 Page 25 (2) Computation of deemed tonnage (illustrative formula given in Note 4 appearing after corresponding Form No. 66) in respect of arrangement of sharing of break-bulk vessel shall be made on following basis : (i) in case where cargo is restricted by volume: 19 cubic meter (cbm) = 1 net tonnage (1 NT); and (ii) in case where cargo is restricted by weight 14 metric tons = 1 net tonnage (1 NT) 22. In Karimtharuvi Tea Estates Ltd. v. State of Kerala and Ors.1, Constitution Bench of this Court, while interpreting conflicting tax provisions held that Rules made under Act, must be taken to be prescribed by Act and definitions contained therein must apply to other provisions. In same judgment, it was held that if two provisions are in conflict, they must be interpreted in harmonious manner. calculation of income arising from carriage of goods on slot basis has, in wisdom of Legislature, been disconnected from capacity of ship, on account of impossibility of getting such information in relation to ships on which slot charter is undertaken. This aspect has due recognition in Note 3 of said Form 66. Thus, Act and Rules for computation on tonnage tax specifically and 1 (1968) 48 ITR (SC) 28 Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 26 of 31 Page 26 categorically differentiate requirement of Certificate with regards to owned ship and slot charter. In law, said Rule also recognizes that identification of vessel for slot charter cannot be done. 23. It would also be pertinent to mention that Note 3 below Form No. 66, in terms of Rule 11D, recognizes reason for prescribing separate formula for slot charter by mentioning: 3. Formula for conversion of TEUs into NT (Slot Charter) (i) In addition to loading containers on their own container vessels, shipping companies also hire slots on container ships (not owned by them) plying on various routes. These slots could be hired for sector voyage or on long term basis, all round year, in various vessels and in varying numbers and thus cannot be converted to net tonnage identifying particular vessel on which slot is hired. Thus, formula has been worked out to convert slots hired into net tonnage. 24. position is taken beyond any pale of doubt with following Note in Form No. 66: There is no need to mention name of ship, income from which is computed on deemed tonnage basis. 25. We may also point out that in terms of Section 115VI(2), relevant Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 27 of 31 Page 27 shipping income of Tonnage Tax Company means its profits from core activities and its profits from incidental activities. Core activities of Tonnage Tax Company have been specified in sub-section (2) of said section. These include its activities from operating qualifying ships and other ship related activities including slot charter. 26. When scheme of aforesaid special provision for computation of income under TTS is exempted, we find balance tilted in favour of assessee as that was precise purpose in introducing TTS in India. It may be stated in brief that in view of stiff competition faced by Indian shipping companies vis-a-vis foreign shipping lines, and in order to ensure easily accessible, fixed rate, low tax regime for shipping companies, Rakesh Mohan Committee in its report (of January, 2002) recommended introduction of TTS in India, which was similar to, and adopted some of best global practices prevalent. whole purpose of introduction of Scheme was to make Indian shipping industry more competitive in global space by rationalising its tax cost. For reason that it is impossible to cater to all shipping routes on Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 28 of 31 Page 28 owned ships, it is accepted and widely prevalent practice globally and in India that shipping companies engage in slot charter operations. If such slot charter arrangements are not entered into, then Indian shipping companies will not be able to take up contract of affreightments and these contracts would have fallen to only foreign shipping lines thereby making Indian shipping industry uncompetitive. Such slot charter arrangements being with shipping company but not in relation to or for particular ship, it is impossible for Indian shipping company to identify cargo ship, which carried goods. This peculiarity has been duly recognized at Note 3 of Form 66 and reproduced as under: In addition to loading containers on their own container vessels, shipping companies also hire slots on container ships (not owned by them) plying on various routes. These slots could be hired for sector voyage or on long term basis, all round year, in various vessels and in varying numbers and thus cannot be converted to net tonnage identifying particular vessel on which slot is hired. Thus, formula has been worked out to convert slots hired into net tonnage . Similarly, for space charter also, this business aspect has been recognized at Note 4(b) to Form 66 as under: Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 29 of 31 Page 29 Since entire vessel is not chartered and only small space is booked in vessel, conversion of chartered space into net tonnage is not available. Hence, conversion formula of cargo carried on ship to its net tonnage has been worked out . Accordingly, there is no requirement of certificate under Scheme in relation to vessel on which slot charter operations are carried out. 27. We would also like to refer to Circular No. 05/2005 dated 15.07.2005 explaining need and essence of introduction of these provisions which was issued contemporaneously by Central Board of Direct Taxes (CBDT). Circular clarifies that Scheme is preferential regime of taxation . It also clarifies that charging provision is under Section 115VA read with Section 115VF and Section 115VG. Circulars of CBDT explaining Scheme of Act have been held to be binding on Department repeatedly by this Court in series of judgments including Azadi Bachao Andolan v. Union of India2, Navnit Lal Jhaveri v. K.K. Sen3, and UCO Bank v. CIT4. 2 263 ITR 706 3 IAC 56 ITR 198 SC 4 237 ITR 889 SC Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Page 30 of 31 Page 30 28. We, thus, agree with decision of High Court and find no merit in instant appeals. same are hereby dismissed. There shall, however, be no order as to cost. C.J.I. (T.S. THAKUR) J. (A.K. SIKRI) J. (R. BANUMATHI) NEW DELHI; JULY 05, 2016 Civil Appeal No. 5869 of 2016 & Anr. (arising out of SLP (C) No. 25251 of 2015 & Anr.) Commissioner of Income-tax, Kochi v. Trans Asian Shipping Services (P) Ltd