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| Ship-breaking industry gets tax relief from SC |
| Anindita Dey & Nevin John / Mumbai Dec 05, 2008, 01:00 IST |
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The ship-breaking industry can now claim heavy deductions from their taxable income following a recent Supreme Court order.
The Supreme Court, in its order in a case involving Vijay Ship Breaking Corporation, has stated that ship-breaking activity tantamounts to production and not a recycling process.
Following this clarification, the industry could ask for deductions from taxable income under Sections 80-I and 80-HH of the Indian Income Tax Act, 1961.
Under these sections, an assessee can claim deduction from the gross total income up to 20 per cent of profits and gains if these products and gains are derived from an industrial undertaking or a ship or business of hotel or repairs to ocean-going vessels.
The litigation related to whether the ship-breaking industry produces anything new and distinct, which is one of the conditions for claiming such deduction under Section 80-HH. The Income-tax Department rejected the claim of the assessee for deductions as an industrial undertaking, stating that ship-breaking activity does not produce new article.
The Supreme Court, however, is of the view that production has a much wider connotation and it includes all byproducts, intermediate products and residual products that emerge in the course of manufacturing, and thus it does not only mean production of new article.
“With this order, the ship-breaking industry could get rid of the past liabilities of around Rs 50 crore that include tax, interest on tax and penalty,” said an industry expert.
It could be mentioned that in the case of Commissioner of Income Tax vs N C Budhiraja and Company in 2002, the Gujarat High Court had held that the articles that emerged from ship-breaking activity continued to be part of the ship and such parts did not constitute new goods.
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