The Supreme Court has held that the word “carriage” under Section 44B of the Income Tax Act, cannot be confined to mean only point-to-point transportation from one port to another. The Court explained that a round-trip voyage constitutes carriage of passengers within the meaning of Section 44B, and the provision of ancillary services such as hospitality and entertainment on board does not detract from the essential character of the activity as carriage.
The Apex Court also clarified that where a non-resident entity engaged in the business of operating ships satisfies the twin conditions under Section 44B, its income is assessable at the statutory presumptive rate of 7.5% of gross receipts, and the Revenue cannot recharacterize the activity as entertainment or hospitality to justify a higher estimation of income.
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A Two-Judge Bench comprising Justice S.V.N. Bhatti and Justice N.V. Anjaria expressed disapproval of the restrictive construction placed by the Assessing Officer on SLL’s activity. The Assessing Officer had insisted that to attract the meaning of the word “carriage,” the movement must necessarily be from place A to place B. The Court found it difficult to confine the meaning of “carriage” in such a limited manner.
The Court noted that the CIT(A) and the ITAT, being competent authorities to examine facts in issue, had held that the activity established by SLL does not fall outside the expression of “carriage” as per Section 44B. The Court observed that SLL, being a foreign entity, was providing cruise services in India through the Assessee, and that the possibility of passengers disembarking at intermediate ports was not taken into account by the Assessing Officer.
The Court further observed that on a voyage, the providing of ancillary services does not take away from the meaning of “carriage” as per Section 44B. The meaning adopted by the Assessing Officer was restrictive in the facts and circumstances of the case, and the illegality was factually corrected by the impugned orders.
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Briefly, M/s Star Cruises (India) Pvt. Ltd., the Assessee, acted as the agent of Superstar Libra Ltd. (SLL), a non-resident entity that operated the cruise ship “Superstar Libra” in India. The Assessee was responsible for conducting the cruise and collecting revenue from the sale of cruise packages and shore excursions in India.
The Assessee claimed that income accruing to SLL should be computed under Section 44B of the Income Tax Act, at the presumptive rate of 7.5% of the cruise fare collected, and sought a certificate for TDS under Section 195 at that rate. The Assessing Officer rejected this claim, holding that SLL’s activity was primarily entertainment and hospitality, not “carriage of passengers” within the meaning of Section 44B. The Assessing Officer restricted the meaning of “carriage” to transportation from one port to another, and since SLL’s cruises were round trips originating and terminating at Mumbai Port, the activity was held to fall outside Section 44B. Consequently, the Assessing Officer estimated deemed income at 25% of the cruise fare, instead of 7.5%.
The CIT(A) set aside the assessment order, holding that the deemed income of SLL was correctly estimable at 7.5% of receipts under Section 44B. The ITAT also concurred after recording key findings of fact: a round-trip voyage constitutes two separate acts of carriage; passengers could disembark at intermediate ports; booking slips showed primary fees were for cabin and transport fares with on-board entertainment being incidental; and CBDT Circulars No. 763 and 169 clarified that carriage payments include handling charges and that Section 44B was designed to simplify computation of taxable profits for foreign shipping enterprises.
