The Supreme Court has held that cruise operators providing passenger transportation remain eligible for the presumptive taxation scheme under Section 44B of the Income Tax Act, 1961, even when the voyage includes hospitality and entertainment services. 

The bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria ruled that  that providing ancillary hospitality, accommodation or entertainment during a voyage does not change the essential nature of passenger carriage. These services are merely incidental to the cruise business and do not deprive the operator of the benefit available under Section 44B. 

The dispute arose from assessments relating to Assessment Years 2006-07, 2007-08 and 2008-09. The petitioner/assessee is a foreign company, which operated the cruise vessel “Superstar Libra” in India through its Indian agent, M/s Star Cruises (India) Pvt. Ltd. The Indian entity collected cruise fares and remitted the amounts to the foreign operator while seeking withholding tax certificates under Section 195 of the Income Tax Act. 

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The assessee contended that SLL, being a non-resident engaged in operating ships, was entitled to the benefit of Section 44B, which provides a presumptive taxation mechanism whereby 7.5% of the gross receipts is deemed to be taxable income.

However, the Assessing Officer rejected this claim. According to the Revenue, the cruise did not merely transport passengers from one port to another. Since the vessel started and ended its journey at Mumbai while offering accommodation, dining, recreation and entertainment during the voyage, the activity was predominantly one of hospitality and tourism rather than carriage of passengers. Consequently, the Assessing Officer estimated the taxable income at 25% of the cruise receipts instead of the statutory presumptive rate of 7.5%. 

The Commissioner of Income Tax (Appeals) overturned the assessment, holding that the cruise operator fulfilled the conditions prescribed under Section 44B.

The Income Tax Appellate Tribunal (ITAT) affirmed this conclusion and observed that a round-trip voyage still involves carriage of passengers from one location to another and back. Passengers were charged primarily for cabin accommodation and transportation. Entertainment and hospitality provided onboard were merely incidental to the principal business of operating ships. CBDT Circulars supported a broad interpretation of carriage for purposes of Section 44B. The foreign shipping company therefore qualified for taxation under the presumptive scheme at 7.5% of gross receipts. 

The Bombay High Court upheld the Tribunal’s decision, following which the Revenue approached the Supreme Court.

The Supreme Court considered whether the assessee was engaged in the business of operating ships and therefore entitled to Section 44B; and the cruise business should instead be viewed primarily as hospitality and entertainment rather than passenger carriage. 

A Bench rejected the Revenue’s narrow interpretation of the expression “carriage.”

The Court observed that the Assessing Officer had wrongly assumed that carriage necessarily requires transportation from Point A to Point B. Such a restrictive interpretation ignored the realities of cruise operations and the factual findings recorded by the appellate authorities.

The Supreme Court noted that passengers could disembark at intermediate ports and that the Tribunal had correctly found the principal activity to be the operation of ships for transporting passengers.

The Bench observed that the meaning attributed by the Assessing Officer to the term “carriage” was unduly restrictive and had rightly been corrected by the appellate authorities.

Finding no error in the concurrent findings of the Commissioner (Appeals), ITAT and the Bombay High Court, the Supreme Court held that Section 44B squarely applies to the income earned by the foreign cruise operator.

Accordingly, the Court dismissed the Revenue’s civil appeals and also dismissed a companion appeal involving another assessment year by adopting the same reasoning. 

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