ORDER
H.S. Sidhu, J.M.
1. The assessee has filed the present appeal against the order dt. 28th Feb., 1997, of the CIT(A), Hyderabad, for the asst. yr. 1993-94 on the following grounds:
1. That the CIT(A) erred in not allowing deduction of Rs. 1,97,94,400 under Section 33AC of the IT Act in respect of appellant’s Shipping Division.
2. That on the facts and in the circumstances appellant is entitled to a deduction of Rs. 1,97,94,400 under Section 33AC of the IT Act in respect of its Shipping Division.
3. That the CIT(A) erred in holding that the appellant’s main object was not carrying on the business of operation of ships.
4. That the CIT(A) erred in holding that the appellant did not fulfil the condition of creating appropriate reserve as contemplated in Section 33AC of the IT Act.
5. That the CIT(A) erred in sustaining the disallowance of Rs. 51,460 on account of expenditure towards rent and depreciation.
6. That on the facts and in the circumstances disallowances of Rs. 51,460 on account of expenditure on rent and depreciation is not justified.
7. That the manner and basis on which interest under Sections 234B and 234C has been calculated is incorrect and the CIT(A) should have directed the AO to correct the said manner and basis.
2. The assessee carried on business of long distance transport of goods by road and sea and also owned diesel pumps at various places. The assessee had also other business including TCI Shipping, Wheels Rent-A-Car, Gati Desk-to-Desk Cargo and Transcorp International Bureau D Exchange. For the assessment year under consideration, the assessee filed its return declaring total income of Rs. 4,77,35,842 on 31st Dec., 1993. After going through the procedure prescribed under law, the AO completed the assessment by making various additions vide order dt. 28th March, 1996. The assessee filed an application on 12th Feb., 1996 to the AO requesting that its claim amounting to Rs. 1,97,94,400 being twice the amount of paid-up share capital of Rs. 98,97,200 may be allowed under Section 33AC of the IT Act, 1961 while completing the assessment in dispute. The contents of the said application dt. 12th Feb., 1996 is reproduced below :
“The Dy. CIT,
Special
Range-2,
Hyderabad.
Dear Sir,
Sub: Assessment year 1993-94
While filing our return of income for the year 1993-94 following deductions were not claimed through oversight. We therefore request that the same may please be allowed while completing assessment for the year 1993-94:
1. Rent of Rs. 43,500 payable to National Airport Authority of India, Bombay, for an outlet at the Airport for our wheels Rent-a-Car division from 1st Sept., 1992 to 31st March, 1993, for which period is relevant to asst. yr. 1993-94. The same was debited to rent account in the financial year 1993-94 relevant to asst. yr. 1994-95. Since the period for which rent was payable relates to the previous year relevant to asst. yr. 1993-94 the same is deductible in the year 1993-94. To the extent the same is allowed in 1993-94 a corresponding disallowance may be made in 1994-95.
2. During the previous year a donation of Rs. 1,00,000 was paid to Indian Institute of Education, Pune. In respect of this donation, deduction to the extent of 50 per cent was claimed in the return under Section 80G of IT Act. However, donations to the said institutions are eligible for deduction to the extent of 100 per cent in terms of Section 35(i)(ii). Accordingly deduction may please be allowed to the extent of 100 per cent of the said donation of Rs. 1,00,000. The original receipt for the payment has already been filed with you.
3. We are entitled to a deduction out of profits and gains derived from ships at our TCI Shipping Division in terms of Section 33AC of the IT Act. The deduction in this behalf amounts to Rs. 1,97,94,400 being twice the amount of paid up share capital of Rs. 98,97,200. The same may please be allowed while completing the assessment.
Should you need any further clarification/information in respect of the claim for above deductions, we shall be glad to furnish the same on hearing from you.
Thanking you,
Yours faithfully,
for Transport Corporation of India Ltd.,
Sd/-
D.C. Agarwal
Company Secretary”
2.1. The AO has not considered the aforesaid request of the assessee while completing the assessment on 28th March, 1996, for the asst. yr. 1993-94. The assessee filed an application under Section 154 of the IT Act, 1961 for consideration of the same request vide application dt. 22nd April, 1996, the contents of which are as under:
“The Dy. CIT,
Special Range-2,
Hyderabad.
Dear Sir,
Sub: Assessment year 1993-94
We write with reference to the order of assessment made for the asst. yr. 1993-94. In this connection, we invite your kind attention to our letter dt. 12th Feb., 1996, wherein we had made the following claims for deductions while completing the assessment:
1. Deduction for rent of Rs. 43,500 paid to National Airport Authority of India for the period from 1st Sept., 1992 to 31st March, 1993.
2. Deduction under Section 35(1)(ii) for a donation of Rs. 1,00,000 paid to Indian Institute of Education, Pune.
3. Deduction under Section 33AC in respect of our Shipping Division for a sum of Rs. 1,97,94,400.
It appears from the assessment order that said letter has escaped your attention while completing the assessment. As all the relevant information and papers in connection with the above claims made by us in the said letter dt. 12th Feb., 1996 have already been furnished we would request that our said claims may kindly be considered and the assessment modified accordingly.
Thanking you,
Yours faithfully,
for Transport Corporation of India Ltd.
Sd/-
Secretary”
The AO vide his order dt. 6th Aug., 1996, having considered the aforesaid claim of the assessee, held as under :
“With reference to the assessee’s petition under Section 154 dt. 22nd April, 1996 cited above, assessment order under Section 143(3) dt. 28th March, 1996 is required to be rectified. The mistake pointed out by the assessee in the petition is as under :
1. Deduction for rent of Rs. 43,500 paid to NAAI.
2. Deduction under Section 35(i)(ii) for donation of Rs. 1,00,000.
3. Deduction under Section 33AC.
On verification of the connected records the mistake Nos. 1 & 2 pointed out is found to be correct.
Insofar as the point mentioned at Item No. 3 above, is concerned, a similar issue is involved, in the case of the assessee for the asst. yr. 1992-93. On an appeal, the CIT(A) in Order No. 97/CC-2/CIT(A)/1995-96 dt. 29th March, 1996 directed the AO to consider the claim of the appellant for the deduction under Section 33AC of the IT Act and allow the same after verification. In view of the above, the issue involved will be considered, at the time of examining the matter for the asst. yr. 1992-93.”
2.2. Aggrieved by the order passed by the AO, in which the AO has made various additions while completing the assessment, the assessee filed an appeal before the CIT(A) who vide his order dt. 28th Feb., 1997 partly allowed the appeal of the assessee but the main ground raised by the assessee praying for deduction of Rs. 1,97,94,400 under Section 33AC of the IT Act in respect of assessee’s Shipping Division and disallowance of Rs. 51,460 on account of expenses towards rent and depreciation have been disallowed by the learned first appellate authority for the asst. yr. 1993-94. The assessee preferred the present appeal raising the aforesaid seven grounds.
3. At the time of hearing, the learned counsel appearing for the assessee contended that grounds 1 to 4 are related to the deduction of Rs. 1,97,94,400 under Section 33AC of the Act in respect of the appellant’s Shipping Division and ground Nos. 5 and 6 are relating to the disallowance of Rs. 51,460 on account of expenditure towards rent and depreciation and ground No. 7 is about interest under Sections 234B and 234C which he challenged. Learned counsel for the assessee first argued grounds 5 and 6 i.e., about disallowance of expenditure towards rent and depreciation for which he stated that this claim of the assessee has been wrongly disallowed by the Revenue authorities which has already been settled by decisions of various High Courts and the Tribunal. He produced before us a copy of the order dt. 28th Nov., 2001 of the Hyderabad Bench ‘A’ of this Tribunal in ITA No. 169/Hyd/1996 for the asst. yr. 1993-94 in the case of this very same assessee and stated that the issue in dispute in ground Nos. 5 & 6 is squarely covered in favour of the assessee and prayed that the same relief may be given to the assessee in the present appeal also.
4. To the above prayer of the learned counsel for the assessee, no serious objection has been raised by the learned Departmental Representative.
5. We have gone through the order of the Tribunal, Hyderabad Bench ‘A’, dt. 28th Nov., 2001 in ITA No. 169/Hyd/1996 for the asst. yr. 1993-94. We are of the considered opinion that the issue in dispute regarding allowance of expenditure towards rent and depreciation is now settled in favour of the assessee by the above order of the Tribunal. Respectfully following the said order of the Tribunal, grounds 5 and 6 are allowed and the AO is directed to grant relief by modifying the assessment order accordingly in favour of the assessee.
6. Grounds 1 to 4 relate to the assessee’s claim of deduction under Section 33AC of the Act amounting to Rs. 1,97,94,400 in respect of the appellant’s Shipping Division. The learned counsel for the assessee contended that the lower authorities have wrongly disallowed the claim of the assessee for deduction of Rs. 1,97,94,400 under Section 33AC of the Act in respect of assessee’s Shipping Division on the basis of presumptions and assumptions on the ground that the assessee is not: in the business of shipping and consequently the main object of the assessee is not to carry on the business of shipping. He also filed a written statement before us contending that the CIT(A) in his order dt. 28th Feb., 1997 dismissed the appeal by making a short work of it merely by saying that the appellant is not entitled to any allowance under Section 33AC of the Act. He drew our attention to paras 10.2 and 10.3 of the order of the CIT(A) which read as under:
“10.2. Sec. 33AC is applicable to a Government company or public company formed and registered in India with the main object of carrying on the business of operation of ships and the deduction has to be allowed to the extent of the total income by debiting it to the P&L a/c and mainly crediting it to a Reserve account to be utilised for acquiring new ship within a period of 8 years. However, the aggregate of the amount carried to the reserve a/c from time to time should not exceed the twice amount of paid up share capital excluding the amounts capitalised from reserves.
10.3. I find that during the year, the total income of the appellant was Rs. 193.72 crores out of which Rs. 177.74 crores had been received by way of freight, Rs. 14.33 crores by way of sales and services, and Rs. 1.64 crores by way of other incomes like rent, dividend, interest, profit on sale of investments, etc. Out of the total freight of Rs. 177.74 crores, the freight received from road transport was Rs. 172.96 crores and the shipping freight and charter hire was Rs. 4.78 crores. This indicates that the appellant’s main object was not carrying on the business of operation of ships and even the shipping freight was less than the income by way of sales and services. Moreover, the appellant has not fulfilled the condition of debiting the income from shipping business to the P&L a/c and crediting the same to a reserve a/c. Therefore, I hold that the appellant was not entitled to the deduction under s, 33AC. This ground fails.”
From the aforesaid analysis the learned counsel stated that the first appellate authority was of the opinion that out of the total freight earned of Rs. 177.74 crores freight received from road transport was Rs. 172.96 crores and shipping freight and charter hire was Rs. 4.78 crores. Therefore, he concluded that the assessee’s main business was not of operation of ships and the requirement of Section 33AC of the IT Act have not been met. He drew our attention towards the order passed by the CIT(A) wherein the second reason given by him is that the appellant has not complied with the requirement of debiting the P&L a/c and crediting the reserve a/c with the amount claimed as a deduction. Therefore, on both the counts, the disallowance claimed was negatived. The learned counsel for the assessee then drew our attention to Section 33AC as it then stood on the statute book as on 1st April, 1993, relevant to the asst. yr. 1993-94 the relevant portion of which is extracted below :
“33AC. In the case of an assessee, being (a Government company or) a public company formed and registered in India with the main object of carrying on the business of operation of ships, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount, not exceeding the total income (computed before making any deduction under this section and Chapter VI-A), as is debited to the P&L a/c of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised in the manner laid down in Sub-section (2) :
Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital (excluding the amounts capitalized from reserves) of the assessee, no allowance under this sub-section shall be made in respect of such excess.”
Sec. 33AC was amended by the Finance Act, 1995 w.e.f. 1st April, 1996. The amended section applicable w.e.f. 1st April, 1996 is as below :
“33AC. In case of an assessee, being a Government company or a public company formed and registered in India with the main object of carrying on the business of operation of ships, there shall, in accordance with and subject to the provisions of this section be allowed a deduction of an amount not exceeding fifty per cent of profits derived from the business of operation of ships (computed under the head ‘profits and gains of business or profession’ and before making any deduction under this section), as is debited to the P&L a/c of the previous year in respect of which the deduction is to be allowed and credited to a reserve account, to be utilised in the manner laid down in Sub-section (2) :
Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital (excluding the amounts capitalized from reserves) of the assessee, no allowance under this sub-section shall be made in respect of such excess.”
6.1. According to the learned counsel for the assessee, the main ingredients for applicability of Section 33AC for the asst. yr. 1993-94 are as under:
(a) It is applicable only to a Government Company or a Public Company.
(b) Such company should have been formed and registered in India with the main object of carrying on business of operation of ships.
(c) The available deduction is of an amount not exceeding total income (computed before making the deduction under this section and Chapter VI-A).
(d) An amount equal to deduction should be debited to P&L a/c of the year in which the deduction is to be allowed and credited to a reserve a/c.
(e) The reserve a/c should be utilised in the manner laid down in Sub-section (2).
(f) The total amount of allowance under Section 33AC for all years put together cannot exceed twice the amount of paid up share capital.
The main emphasis of the learned counsel for the assessee is that the amendment was brought about w.e.f. 1st day of April, 1996, which has made a major change. Prior to the amendment, the section envisaged deduction of the full amount of the profit of the entire business. It did not specify that the deduction available would be out of profits derived from the business of the operation of ships only. By the amendment brought about by the Finance Act, 1995, it is now specified that deduction available would be out of profit derived from the business of operation of ships only. He stressed that the only requirement was that if the company is incorporated with the main object of carrying on of business of operation of ships it would be entitled to deduction of the entire amount of the total income of its business. The deficiency has been made good by the amendment brought about by Finance Act, 1995. He drew our attention by stating that the assessee-company has three ships which operate from Madras to Port Blair, Calcutta and other neighbouring countries. The effect would be that for the asst. yr. 1993-94, the entire total income earned from business is entitled for deduction and that the section does not require that the deduction should be only out of profits derived from business of operation of ships. He also brought to our notice the CBDT Circular No. 717, dt. 14th Aug., 1995 reported in (1995) 215 ITR (St) 84 which is to the following effect :
“Amendment of Section 33AC to limit deduction to 50 per cent only in respect of income derived from the carrying on of shipping operations
24.1 Sec. 33AC of the IT Act, 1961 was inserted by the Direct Tax Laws (Second Amendment) Act, 1989 w.e.f. 1st April, 1990, with a view to provide a tax incentive to public/government companies engaged in the business of operation of ships. This deduction is available to the extent of the total income provided the amount is credited to a reserve account and is utilised for the purchase of a new ship within the specified period.
24.2 It was noticed that shipping companies have diversified into trading, real estate business, etc. and are claiming deduction under this section even in respect of their income from activities other than shipping, There is no justification for allowing 100 per cent deduction with reference to income from activities other than operation of ships.
24.3 Sec. 33AC has been amended to restrict the deduction to 50 per cent of the income derived from the business of operation of ships only. This takes outside the purview of the deduction any income arising from business other than shipping business, or from sources other than business.
24.4 The amendment will take effect from 1st April, 1996 and will accordingly apply in relation to the asst. yr. 1996-97 and subsequent years.”
6.2. The learned counsel for the assessee submitted that the assessee-company was incorporated on 6th April, 1965, and the requirements with respect to the memorandum of association are contained in Section 13 of the Companies Act which requirements have been fulfilled. He drew our attention to Clause 2 of the objects clause in the memorandum of association of the assessee-company which is as under :
“To carry on the business of public carriers, transporters and carriers, goods, passengers, merchandise, corn-commodities and other products and goods and luggage of all kinds and description in any part of India and elsewhere, on land, water and air by any conveyance whatsoever.”
He argued that the business of the assessee-company is to carry on business as transporters of goods on land, water and air, and the main object of the assessee-company is carrying on this business which it is doing for the past several years. But the AO has wrongly considered that the main object of the assessee-company is not carrying on of the business of shipping. The test adopted by the AO treating the main object as transportation on land is not correct. He, therefore, prayed that the orders of the authorities below are contrary to the law and facts on record and are liable to be cancelled. The assessee has also filed a paper book containing 30 pages. The learned counsel for the assessee has drawn our attention to p. 15 of the assessee’s published accounts (p. 13 of the paper book). This is the P&L a/c of the assessee-company and it shows that a sum of Rs. 1,54,22,900 is transferred to reserve a/c and this transfer appears in the balance-sheet under the head reserve & surplus at p. 16 of the published accounts (p. 14 of the paper book) as general reserve and he submitted that a credit to the general reserve should be considered as sufficient compliance because the requirement in the statute is a transfer to the reserve. He contended that the requirement of transfer to reserve should be deemed to have been met by credit to general reserve. He concluded his arguments by submitting that the assessee has debited to the P&L a/c and transferred to the balance-sheet an amount of Rs. 1,54,22,900. The allowance is, therefore, restricted to this amount of Rs. 1,54,22,900 which is actually transferred and he, therefore, submitted the assessee’s claim under Section 33AC stand reduced from Rs. 1,97,94,400 to Rs. 1,54,22,900 which may be allowed.
7. On the contrary, Shri Ch. Purushotham, the learned Department Representative controverted the arguments advanced by the learned counsel for the assessee by submitting as follows. He submitted that there are two requirements which are to be fulfilled under Section 33AC. They are as under:
(1) The main object of the business–in the case of the assessee, being a public company formed and registered in India with the main object of carrying on the business of operation of ships;
(2) Profits and gains derived from the business of shipping should be debited to the P&L a/c and credited to a reserve a/c. This reserve should be utilised for the purpose of acquiring a new ship within a period of 8 years.
The learned Departmental Representative contended that the assessee failed to fulfil both the above conditions. He further contended that the assessee’s main object is not shipping and it is road transportation. The assessee derived maximum revenue from the business of road transport. Of the total freight receipt of Rs. 177.74 crores, the freight received from road transport was Rs. 172.96 crores and the shipping freight and charter hire was Rs. 4.78 crores. This according to the learned Departmental Representative shows that the assessee’s main object was not carrying on the business of operation of ships. He pointed out that though the memorandum of association of the assessee contained a. long list of 36 objects it nowhere indicated as to what is the main object. An analysis of the objects of the company showed that more than 90 per cent of the objects related to road transport. The learned Departmental Representative sought to controvert the assessee’s argument that the company is registered prior to 1965 and as per Section 13(1)(c) of the Companies Act there was nothing like main object, as not tenable because the assessee-company was re-incorporated on 2nd Jan., 1974, and there was change in the objects clause, which came into effect from 6th May, 1981. However, here too no main object found place. As there is no definition of the main object in the IT Act, the learned Departmental Representative sought to derive its meaning from Law Lexicon, 2nd Edn., the Chambers Dictionary and Stroud’s Judicial Dictionary, 4th Edn. and submitted that the following meanings can be derived for the ‘main object’:
(a) Main means principal, chief, much, important and substantial.
(b) Main object is one from which substantial income is derived.
(c) Main object is one for which the assessee-company deploys maximum resources and employees to reach targets.
(d) As held in the case of Miller v. Ottilie (Owners) 60 TLR 169 “A worker’s ‘main’ remuneration is that which he can depend on from week to week and not the fluctuating addition which is dependent on many uncertain factors.” In the present case, the assessee’s main remuneration is from road transport but not from shipping. As held in the case of Fawcett Properties v. Buckingham County Council (1961) AC 636, main probably means more than half. In the present case, the assessee’s revenue from shipping is a meagre 2.68 per cent.
7.1. The learned Departmental Representative, then pointed out that as per Section 33AC(2), a special reserve is to be created by debiting the P&L a/c and crediting the reserve a/c. This reserve should be utilised for the purpose of acquiring new ship within a period of 8 years. The heading of the section itself is Reserves for Shipping. The assessee has failed to fulfil this condition as well. Further the assessee has not debited any amount to create reserve as required under this section. The learned Departmental Representative did not agree with the argument of the learned counsel for the assessee that general reserve is created in appropriation account for fulfilling this statutory obligation for the following reasons :
(a) General reserve is not created for the purpose of Section 33 AC. General reserve is different from Reserves for Shipping.
(b) This claim was not taken before the AO and the CIT(A). Had this been a genuine reserve created from out of the profits derived from shipping and solely for the purpose for which it is meant as per Section 33AC, nothing prevented the assessee to make this claim before the lower authorities.
(c) The fact that the general reserve created is far less than the claim made by the assessee for deduction proves that this explanation is created to satisfy the Bench that the company created a reserve as per the requirement. This kind of after-thought explanations and make-belief stories are not acceptable.
(d) Alternatively, as per Section 33AC(2), the reserve created should be utilised in a period of 8 years. The assessment year in question is 1993-94 and the time-limit available to the assessee was upto 31st day of March, 2001. Had the general reserve is really meant for the purpose of Section 33AC then the assessee should have utilised the reserve for acquiring a new ship or would have offered the same as income in the asst. yr. 2001-2002. The assessee failed to produce any evidence to show that the assessee has complied with this requirement as the time-limit of 8 years as the same is completed by now.
8. No other point has been argued by both sides.
9. We have heard the learned counsel for the assessee as well as the learned Departmental Representative. We have also perused the relevant records available with us as well as the written submissions filed by the assessee’s counsel as well as by the learned Departmental Representative. We have also perused the paper book filed by the assessee. No doubt the AO completed the original assessment on 28th March, 1996 and did not consider the application dt. 12th Dec., 1996, filed by the assessee for considering the claim amounting to Rs. 1,97,94,400 claimed by the assessee under Section 33AC. On the application dt. 22nd April, 1996, filed by the assessee under Section 154 for the same request as the assessee has made in its application dt. 12th Feb., 1996, which we have reproduced above, stated that similar issue is involved in the case of the assessee for the asst. yr, 1992-93 and on appeal, the CIT(A) in his order dt. 29th March, 1996 directed the AO to consider the claim of the assessee for deduction under Section 33AC of the Act and allow the same after verification. In view of the above, the issue involved will be considered at the time of examining the matter for the asst. yr. 1992-93. The AO disposed of the application filed by the assessee dt. 22nd April, 1996, under Section 154, on 6th Aug., 1996, by observing as above. In compliance of the order dt. 29th March, 1996, passed by the CIT(A) the AO vide his order dt. 18th March, 1998, held that the assessee’s claim for deduction under ss. 33AC and 80-1 of the Act is not considered in the absence of full details furnished and as and when the assessee furnishes the details, the same will be considered. Against the above order dt. 18th March, 1998, the assessee filed an appeal before the learned CIT(A) for considering the claim of deduction under Section 33AC along with other claims. The learned CIT(A)-IV, Hyderabad by his order dt, 28th Nov., 2001, again directed the assessee to follow up the matter with the AO for the claim of deduction under Section 33AC by observing that the appellant may furnish the particulars required by the AO and claim the deduction since the AO has not declined the claim. The matter in dispute for the asst. yr. 1992-93 is still alive before the AO as informed by the learned Departmental Representative to the Bench. In a nut-shell, the matter in dispute regarding the claim under Section 33AC is still pending before the AO for the asst. yr. 1992-93. But we are only concerned with the asst. yr. 1993-94 which is in dispute before us although the matter is similar which is required to be considered by us on the basis of the order passed by the Revenue authorities. No doubt the assessee has filed an application dt. 12th Feb., 1996 for considering the claim in dispute but the AO has completed the assessment without considering the claim of the assessee. The AO has, however, considered the application under Section 154 dt. 22nd April, 1996 filed by the assessee. Aggrieved by the same, the assessee filed an appeal before the CIT(A) who vide his order dt. 28th Feb., 1997 decided the issue against the assessee holding as under in paras 10 to 10.3 of his order;
“10. The appellant has contended in the next ground that the AO erred in not allowing deduction of Rs. 1,97,94,500 under Section 33AC of the IT Act in respect of appellant’s shipping division. The learned authorised representative has submitted that this claim had been made by the appellant during the assessment proceeding by its letter dt. 12th Feb., 1996. A copy of the letter has been furnished before me. In para 3 of the aforesaid letter, the appellant has claimed as under:
‘We are entitled to a deduction out of profits and gains derived from ships at our TCI Shipping Division in terms of Section 33 of the IT Act. The deduction in this behalf amounts to Rs. 1,97,94,400 being twice the amount of paid up share capital of Rs. 98,97,200, the same may please be allowed while completing the assessment.’
10.1 Since this claim had not been considered, the appellant filed a petition under Section 154 after receiving the assessment order and requested the AO to rectify the mistake, the AO has observed in his order under Section 154 as under :
‘Insofar as the point mentioned at Item No. 2 above, is concerned, a similar issue is involved in the case of the assessee for the asst. yr. 1992-93. On an appeal, the CIT(A) in Order No. 97/CC-2/CIT(A)/IV/1995-96 dt. 29th March, 1996, directed the AO to consider the claim of the appellant for the deduction under Section 33AC of the IT Act and allow the same after verification. In view of the above, the issue involved will be considered at the time of examining the matter for the asst. yr. 1992-93.’
10.2 Sec. 33AC is applicable to a Government Company or a Public Company formed and registered in India with the main object of carrying on the business of operation of ships and the deduction has to be allowed to the extent of the total income by debiting it to the P&L a/c and crediting it to a reserve a/c to be utilised mainly for acquiring new ship within a period of 8 years. However, the aggregate of the amount carried to the reserve a/c from time to time should not exceed twice the amount of paid up share capital excluding the amounts capitalised from Reserves.
10.3. I find that during the year, the total income of the appellant was Rs. 193.72 crores out of which Rs. 177.7.4 crores had been received by way of freight, Rs. 14.33 crores by way of sales and services, and Rs. 1.64 crores by way of other incomes like rent, dividend, interest, profit on sale of investments, etc. Out of the total freight of Rs. 177.74 crores, the freight received from road transport was Rs. 172.96 crores and the shipping freight and charter hire was Rs. 4.78 crores. This indicates that the appellant’s main object was not carrying on the business of operation of ships and even the shipping freight was less than the income by way of sales and services. Moreover, the appellant has not fulfilled the condition of debiting the income from shipping business to the P&L a/c and crediting the same to a reserve a/c. Therefore, I hold that the appellant was not entitled to the deduction under Section 33AC. This ground fails.”
9.1. The learned counsel for the assessee drew our attention to the written submissions along with the paper book filed by it in which his main stress on the fact that the assessee is in the business of shipping and its object is also to carry on the business of public carriers, transporters and carriers, goods, passengers, merchandise, com-commodities and other products, and goods and luggage of all kinds and description in any part of India and elsewhere, on land, water and air by any conveyances whatsoever. He also drew our attention towards the memorandum of association of the assessee-company which came into existence on 6th April, 1965 and has stressed that the unamended provision of Section 33AC is applicable to the case of the assessee and that it is entitled to deduction of the amount of the total income as debited to the P&L a/c of the previous year and credited to the reserve a/c in respect of which deduction is to be allowed. He has also brought to our notice the fact that the assessee has debited to the P&L a/c for the year ending 31st March, 1993 (at p. 13 of the paper book filed) an amount of Rs. 1,54,22,900 and credited the same amount to “General Reserve” (in the balance-sheet) and argued that this amount of Rs. 1,54,22,900 which has been earned from the business of the assessee is to be allowed as 100 per cent deduction under Section 33AC (unamended) since the main object of the assessee is business of shipping, as already stated above by him.
9.2. We have perused the paper book filed by the assessee, the written arguments filed as well as the orders passed by the Revenue authorities and also gone through the arguments advanced by the learned Departmental Representative who controverted the arguments advanced by the learned counsel for the assessee by stating that the assessee is carrying on so many business including shipping but has not shown any separate income from shipping business, has not kept separate records for the same in its books of account and has not created a reserve for the purpose of acquiring new ships within the period of 8 years. He further stated that the assessee has not fulfilled the conditions prescribed under Section 33AC of the IT Act by not debiting any amount to create a reserve under this section. We are of the considered opinion that the assessee has not established its case either before the authorities below or even before us for substantiating its claim for deduction under Section 33AC of the Act. Merely claiming benefit prescribed under Section 33AC of the Act does not mean that the assessee is entitled for the same without production of material evidence in support of it. Therefore, the assessee is not entitled for the deduction as claimed for want of fulfilling the requisite conditions prescribed under Section 33AC. We fully agree with the order passed by the learned CIT(A) reproduced above by holding that the appellant’s main object was not carrying on operation of ships but ‘road transport’. After a perusal of the records available with us, we are of the considered opinion that the assessee is deriving maximum revenue from business of road transport as narrated in the impugned order passed by the first appellate authority reproduced above. The memorandum of association of the assessee contained many objects but there is no mention about the main object of the assessee in it. This is the requirement of Section 33AC of the Act. No doubt the assessee-company is registered prior to 1965 as per Section 13(1)(c) of the Companies Act but without fulfilling the requirements prescribed by the statute, the benefit under Section 33AC cannot be granted to the assessee. As already stated above under Section 33AC(2) reserve is to be created by debiting the P&L a/c and crediting the reserve a/c and the same should be utilised for the purpose of acquiring new ships within a period of 8 years. The assessee has not produced any evidence to satisfy the same either before the Revenue authorities or before us. The assessee has not debited any amount to create the reserve as required under this section and has not shown any evidence for utilising the same even within the prescribed period under law. Keeping in view all the facts and circumstances of the present case and after examining the relevant records available with us, we are of the considered opinion that the assessee has failed to produce any evidence to show that it has complied with the requirements prescribed under law under which he has claimed the deduction in dispute without substantiating it. We, therefore, hold that the assessee is not entitled for any benefit as claimed under Section 33AC of the IT Act. No interference is, therefore, called for in the well-reasoned orders passed by the Revenue authorities. These grounds of the assessee, therefore, fail.
10. In the result, the appeal of the assessee is partly allowed.