JUDGEMENT
R.L. Sangani, Judicial Member -
(1.)THESE two appeals by the assessee relate to the assessment years 1984-85 and 1985-86.
(2.)We shall first deal with the assessment year 1984-85. The assessee had purchased a barge 'Vishal Laxmi' on 11-10-1983. The assessee gave it on lease on 19-10-1983 to M/s Salg'aocar Mining Industries Pvt. Ltd. The document of lease was executed between the parties. The assessee claimed investment allowance in respect of the said barge. The ITO rejected the said claim. According to the Income-tax Officer, the assessee was not engaged in the business of operation of ships prior to the acquisition of the said barge. After acquiring the said barge, the assessee had given the same on lease for five years. The said act of giving the barge on lease, according to the ITO, did not amount to exploitation of commercial asset. Consequently, the income from the transaction of giving the barge on lease was not assessable as business income but was assessable as Income from other sources. Since, the said income was not business income, investment allowance, according to the ITO, was not allowable. The ITO accordingly disallowed the claim for investment allowance. Attention of the ITO had been drawn to certain passages in the book on "Charter parties and Bills of Lading" by Scrutton (18th Edition). One of the passages towards which attention of the ITO had been drawn is as follows :
Charter parties may be categorised according to whether or not they amount to a demise or lease of the ship. A charter by demise operates as a lease of the ship itself, to which services of the master and crew may or may not be superadded. A charter by demise of a ship without master or crew is sometimes called a "bareboat" or "net" charter. In contract ordinary "time charter" is sometimes called a "gross" charter. Under Charter by demise, the Charterer becomes for the time being the owner of the vessel, the master and crew become to all intends his servants, and through him the possession of the ship is with him.
Under charter not by demise (time charter) on the other hand, the ship owner agrees with the charterer to render "services" by the master and crew, to carry the goods which are put on board his ship by or on behalf of the charterer In this case, notwithstanding the right of the charterer to have his goods loaded and conveyed in the vessel, the ownership and also possession of the ship remains in the original owner, through the master and crew, who continue to be his servants. Although the master, by agreement between the owner and charterer may acquire authority to sign bills of lading on behalf of the latter, he nevertheless remains in all other respects the servant of the owner. The similar is the opinion, of Carver in "Carriage by Sea" Volume I.
The ITO observed that the lease of the barge in question was only "bareboat" charter wherein ownership, at least temporarily, passes on to charter and what is received by the owner is only lease rent and as such, the said lease rent could not be regarded as income from business and the same had to be considered as income from other sources, in consequence whereof investment allowance claimed by the assessee could not be allowed.
The assesscc went, in appeal before the CIT(A). The CIT(A) noted that the crucial point to be considered was whether the assessee was engaged in the business of operation of ships. He noted that the barge in question had been purchased in the concerned accounting year and that apart from income from said barge, there was no other income from the business operation of ships. The intention of the assessee was to lease the barge right from the inception. He relied on certain decisions. He examined the clauses of the lease deed and found that there was no responsibility on the assessee either for maintaining machinery or for repairs of the vessel or employment of the crew. All these responsibilities were that of the lessee. According to him, the terms of the lease deed indicated that the intention on the part 1 of the assessee was to part with the commercial asset as such and confine himself solely to derive income in lieu of ownership thereof by leasing and as such the income would, be assessable not as business income but as income from other sources u/s 56 of the Income-tax Act. According to him, the lease of this nature could not be regarded as business of operation of ships. Consequently, according to him, the assessee was not entitled to investment allowance He accordingly confirmed the disallowance. The assessee is now in further appeal before us and the first point raised is that both the authorities below had erred in coming to the conclusion that the act of the assessee did not amount to engaging in the business of operation of ships.
(3.)SHRI Dilip Choksi, who appeared on behalf of the assessee, drew our attention to certain passages in the following books :
(i) Scrutton on Charterparties and Bills of Lading (19th Edition)
(ii) Patrick M. Alderton on Sea Transport
(iii) Payne and Ivamy's Carriage of Goods by Sea
(iv) C.J.S. Hills on an Introduction to the Law of Carriage of Goods by Sea
(v) C.P.H. Cufflay on Ocean Freights and Chartering.
He submitted that one of the methods by which a person may be engaged in the business of operation of ships was by means of which is technically known as a "Charter by demise" without master or crew, which is called as "bareboat" or "net" charter. In the present case, the assessee had entered into such charter and that the said act of entering into the charter amounting to engagement in the business of operation of ships and as such the income was assessable as business income and investment allowance was allowable. SHRI Khaladkar, the learned, departmental representative, who appeared for the revenue, on the other hand, relied on the decisions given in the orders of the ITO and the CIT(A). He submitted that this was a case of mere grant of lease of the barge acquired by the assessee and that this act did not amount to the act of being engaged in the business of operation of ships, and as such the income in question was not assessable as business income and investment allowance was not allowable.
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