ORDER
1. The Revenue is aggrieved by an order dt. 31st May, 2005 passed by the Income-tax Appellate Tribunal (the Tribunal’) Delhi Bench ‘D’ Delhi in ITA Nos. 1690 to 1693/Del/2004 relevant for the asst. yrs. 1996-97 to 1999-2000.
2. The assessed had purchased a vessel called a ‘Deep Sea Matdrill’, which is a shipping vessel with a drilling rig installed on it. This purchase was made by the assessed on 18th March, 1993.
3. In the asst. yr. 1994-95, an issue came up for consideration whether the vessel was a ship or not. In the assessment order passed for that year, the AO took the view, after discussing the matter with a representative of the assessed, that the vessel in question was a ship and, therefore, he allowed 20 per cent depreciation claimed by the assessed. It was noted by the AO that the vessel was actually a barge with a drilling rig installed on it. It was mobile and could be used for offshore drilling. It was, therefore, held that the assessed was entitled to claim a deduction under Section 33AC of the IT Act, 1961 (for short the Act’).
4. The AO also noted, in a office note along with the assessment order, that as per the memorandum and articles of association of the assessed, one of its main objects is to purchase, charter, hire, build or otherwise acquire, ships and to employ the same. He further noted that a contract was entered into by the assessed with the Oil and Natural Gas Commission (for short ‘ONGC’) where besides drilling equipments, the ONGC required various other facilities for offshore drilling like helipad, three level quarters with accommodation for 75 persons, dining and recreation facilities, hospital, etc. He noted that these facilities are normally provided in a ship and the “Deep Sea Matdrill” was in fact a ship, which was used for offshore drilling for the exploration of oil. It was also noted that the objects and reasons given in introducing Section 33AC of the Act are not limited by Parliament to ships used for passengers, cargo or live stock etc. The section was introduced to encourage investment in the shipping industry.
The assessment order passed by the AO for the asst. yr. 1994-95 has since become final.
5. In the assessment years with which we are concerned, that is, in the asst. yrs. 1996-1997 to 1999-2000, the same issue has again been raised namely whether the ‘Deep Sea Matdrill’ purchased by the assessed is a snip or not.
6. It appears that in the asst. yr. 1996-97, as also for other assessment years (subject to some changes in dates, amounts etc.), returns were filed by the assessed and they were accepted under Section 143(l)(a) or under Section 143(3) of the Act by the AO on 5th Jan., 1998.
7. Thereafter, on 9th Jan., 2002, the AO issued a notice to the assessed under Section 148 of the Act in which it was opined that the assessed had wrongly claimed a deduction under Section 80-IA(3) of the Act. No such notice, was issued to the assessed in respect of the claim adjudicated in respect of Sectiom 33AC of the Act.
8. The assessed gave a reply to the notice on 7th Feb., 2002 in which it was explained that the ‘Deep Sea Matdrill’ was never used in the territorial waters of India so the deduction claimed under Section 80-IA(3) of the Act could not be denied. At this stage, it is necessary to refer Section 80-IA(3) of the Act, which reads as follows:
80-IA. Deduction in respect of profits and gains from industrial undertakings etc. in certain cases:
(1)…
(2)…
(3) This section applies to any ship, where all the following conditions are fulfillled, namely:
(i) it is owned by an Indian company and is wholly used for the purposes of the business carried on by it;
(ii) it was not, previous to the date of its acquisition by the Indian company, owned or used in Indian territorial waters by a person resident in India; and
(iii) it is brought into use by the Indian company at any time during the period beginning on the 1st day of April, 1991 and ending on the 31st day of March, 1995.
(4) to (12)…
9. A reassessment order was made by the AO on 6th March, 2002 in which no reference was made to the claim of the assessed that the ship had not been used in the Indian territorial waters prior to its acquisition. More than two years later on 18th March, 2004, the CIT issued a notice to the assessed under Section 263 of the Act alleging that the reassessment order was prejudicial to the interest of the Revenue. The petitioner gave its reply to the show-cause notice and orders were passed under Section 263 of the Act on 25th March, 2004 rejecting the contentions of the assessed.
10. In appeal, the Tribunal set aside the order passed under Section 263 of the Act and these appeals arise out of orders passed by the Tribunal.
11. It is the contention of learned Counsel for the Revenue that there was no application of mind by the AO to the fact that the ship was or was not used in the Indian territorial waters prior to its acquisition by the assessed.
12. Insofar as the first issue, whether the ‘Deep Sea Matdrill’ is a ship for the purposes of Section 33AC of the Act is concerned, we find that this issue was decided in favor of the assessed in respect of the asst. yr. 1994-95. We find merit in the contention urged by learned Counsel for the assessed that this issue cannot be agitated by the Revenue again and again.
13. Learned Counsel for the assessed contended that a drilling rig can be of two kinds namely one on a stationary platform and the other placed on a ship, which can be moved out. Insofar as the present case is concerned, it does appear quite clearly that the drilling rig was placed on a vessel described as a barge, which could be moved out from place to place for offshore drilling. The Tribunal considered this aspect of the matter and came to the conclusion (with which we do not find any fault) that the ‘Deep Sea Matdrill’ is nothing but a ship. It is a barge, which can be moved from place to place like any other ship. When the drilling rig is in use, then apparently to save some expenses the ship’s propeller is removed; but whenever it is required to be shifted, the propeller is refixed and the ship is made mobile. On merits, therefore, we are of the view that the claim made by the assessed in respect of Section 33AC of the Act is quite justified.
14. It has also been submitted by learned Counsel for the assessed that insofar as proceedings under Section 263 of the Act are concerned, if two views are possible and both the views are reasonable then the authorities should not substitute their view even if the other view is against the Revenue. Reference in this regard was made to Malabar Industrial Co. Ltd. v. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) and CIT v. G.M. Mittal Stainless Steel (P) Ltd. .
15. Insofar as present case is concerned, we are of the opinion that only one view is possible, namely, that the ‘Deep Sea Matdrill’ is a ship. Even if learned Counsel for the Revenue is right in contending that the ‘Deep Sea Matdrill’ is not a ship, we do not think that exercise of power under Section 263 of the Act by the CIT would be justified only because the AO has taken a view in favor of the assessed. The law requires the view to be erroneous also–and that has not been substantiated by learned Counsel for the Revenue.
16. Insofar as the second issue relating to Section 80-IA(3) of the Act is concerned, which is to the effect whether the ‘Deep Sea Matdrill’ was used in the Indian territorial waters before its acquisition by the assessed, we find that this is essentially a question of fact. That apart, we find that under Section 148 of the Act, the AO had specifically mentioned in the reasons recorded that he was prima facie of the view that the vessel had been used in the Indian territorial waters prior to its acquisition by the assessed. A response was given by the assessed to the notice in which it was categorically mentioned that the ship was never used in India so deduction under Section 80-IA(3) could not be denied to the assessed.
17. The AO in the reassessment order did not deal with the issue apparently because he was satisfied with the explanation given by the assessed.
18. Learned Counsel for the Revenue relied upon a decision of this Court in Gee Vee Enterprises v. Addl. CIT and Ors. to contend that it is the duty of the ITO, who is not only an adjudicator but also an investigator, to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. If no such inquiry is made, then the order passed by the AO can be said to be erroneous.
19. We find from the facts of this case that the AO had specifically raised the issue of the applicability of Section 80-IA(3) of the Act in the notice given by him under Section 148 of the Act and that issue was responded to by the assessed. It does appear that the AO did not conduct any further inquiry apparently because he was satisfied with the explanation given. We cannot understand Gee Vee Enterprises (supra) to mean that that even when the AO is satisfied with the explanation given by the assessed, he must make a further investigation so as to unearth something against the assessed.
20. That apart, the Tribunal has noted that there was no material at all before the CIT to take a different view of the matter particularly since the AO had dropped the objection. It is true that if there was material before the CIT to have the issue reconsidered, he could have done so but it was noted by the Tribunal that there was no material before the CIT to contradict the view taken by the AO. No such material has been shown to us also.
21. For these reasons, we are of the opinion that the Tribunal has not erred in interpreting Section 80-IA(3) of the Act in favor of the assessed.
22. The last issue addressed by learned Counsel for the Revenue relates, to Section 80-IA(4) of the Act (as it now stands). This provision requires that any enterprise, carrying on the business of developing, operating and maintaining any infrastructure facility must fulfilll the condition that it starts operating and maintaining such infrastructure facility on or after the 1st day of April, 1995.
23. Insofar as this is concerned, a bare reading of Section 80-IA(4) of the Act shows that what is required to be determined is essentially factual and there is no legal issue which is involved, much less a substantial question of law.
24. We also find that this issue was raised by the AO during the course of reassessment proceedings and it was replied to by the assessed. The AO was satisfied with the explanation and did not raise any further questions.
25. Reference was also drawn by the assessed to two documents which are on the record of the AO namely an agreement dt. 28th Feb., 1995 and another dt. 30th Sept., 1999. These agreements deal with infrastructure facilities. Insofar as the agreement dt. 30th Sept., 1999 is concerned, it was given retrospective effect from 8th Nov., 1996. According to learned Counsel for the Revenue, this was not permissible. We need not go into the merits of this issue, since in any case the agreement was entered into after 1st April, 1995 and learned Counsel for the Revenue cannot take any advantage of any alleged illegality in giving retrospective effect to the agreement.
26. We are of the opinion that the Tribunal has not erred in taking the view that it took, namely, that the C1T had overlooked the agreements dt. 28th Feb., 1995 and 30th Sept., 1999, which were on the record of the AO.
27. In all the three issues that have been urged by learned Counsel for the Revenue, no substantial question of law arises.
The appeal is dismissed.