Cruise Services Qualify as Carriage of Passengers Under Section 44B, Supreme Court Rules
A bench of Justices S.V.N. Bhatti and N.V. Anjaria upholds presumptive taxation of a foreign cruise operator's income at 7.5%, rejecting Revenue's demand to assess it at 25%.
The Supreme Court has dismissed the Director of Income Tax (International Taxation)'s challenge to a concurrent chain of findings that cruise services operated by a foreign non-resident entity through an Indian agent attract the presumptive income regime under Section 44B of the Income Tax Act, 1961. A division bench of Justices S.V.N. Bhatti and N.V. Anjaria, deciding Civil Appeal Nos. 3334–3336 of 2012 along with a companion appeal, held that the Assessing Officer's restrictive reading of the word “carriage” — confining it to movement from port A to port B — was untenable and had been correctly set aside by both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. The judgment, dated 30 July 2026, is marked non-reportable.
How the Dispute Reached the Supreme Court
The assessments relate to assessment years 2006–07, 2007–08, and 2008–09. Superstar Libra Ltd. (SLL), a non-resident entity, operated a cruise ship called “Superstar Libra” in Indian waters. M/s Star Cruises (India) Pvt. Limited acted as SLL's agent in India, conducting the cruise and collecting revenue from the sale of cruise packages and shore excursions.
The Assessee sought a lower TDS certificate under Section 195 of the Act, arguing that SLL's income should be computed at 7.5% of gross cruise fare receipts under Section 44B — the presumptive rate applicable to foreign shipping enterprises. The Assessing Officer rejected this position by order dated 30 March 2007, estimating deemed income instead at 25% of the cruise fare collected.
The Assessing Officer's reasoning was that SLL's round-trip cruises — originating and terminating at Mumbai Port — were primarily entertainment and hospitality services, not carriage of passengers or goods. In his view, “carriage” required movement from one port to another, and a cruise returning to its origin did not satisfy that condition.
The CIT(A), Mumbai, allowed the Assessee's appeal by order dated 15 June 2007, setting aside the Assessment Order. The Revenue then appealed to the ITAT, which dismissed the appeal by order dated 1 July 2009. The High Court of Judicature at Bombay, through the impugned order dated 1 July 2011 in Income Tax Appeal Nos. 485, 486, and 683 of 2010, again dismissed the Revenue's appeals. The matter then came to the Supreme Court.
The ITAT's Concurrent Findings
The Tribunal's findings, affirmed through the appellate chain, addressed the Revenue's arguments in detail. On the meaning of “carriage,” the Tribunal held that a round-trip voyage constitutes two separate acts of carriage — from station A to station B and back. The Tribunal also noted that the Assessee offered one-way cruises, and passengers booking round-trip cruises were entitled to disembark at intermediate ports without being compelled to return to Mumbai.
On the nature of on-board services, the Tribunal held that booking slips showed the primary fees collected from passengers were for cabin and transport fares. Any on-board entertainment, whether included in the fare or charged separately, was incidental to the main business of operating ships.
The Tribunal further relied on CBDT Circulars No. 763 and No. 169 dated 18 February 1996 and 23 June 1975 respectively, which clarify that carriage payments include handling charges and that Section 44B was designed to simplify the computation of taxable profits for foreign shipping enterprises. Since SLL is a non-resident entity engaged in the business of operating ships, the Tribunal held it satisfies the twin conditions under Section 44B. Income was accordingly directed to be assessed at the statutory presumptive rate of 7.5% of gross cruise fare receipts for the purpose of TDS under Section 195.
Arguments Before the Supreme Court
The Revenue, represented by Additional Solicitor General Raghavendra P. Shankar assisted by Advocate Pallavi Mishra, argued that the dominant purpose of SLL's activity was conducting tour packages and excursions for tourists rather than carriage of passengers from one port to another. Even if SLL satisfied Section 44B's twin conditions, the Revenue contended that the final estimation at 7.5% depended on the activity being carriage of passengers or goods. The findings of fact, it was argued, were untenable and warranted interference. Income should have been estimated at 25% of receipts.
The Assessee, represented by Advocate Anand Varma, argued that the applicability of Section 44B depends on the twin test in that section, and that concurrent findings across three orders held both requirements to be satisfied. The Assessing Officer's restriction of “carriage” to movement from port A to port B had been correctly rejected. Making an ancillary purpose — entertainment — the dominant purpose was erroneous. The findings were neither perverse nor unlawful, and the scope of a civil appeal did not permit interference with concurrent findings of fact.
The Court's Reasoning
The Court declined to define the word “carriage” as an abstract legal exercise, instead examining its application to the facts before it. It expressed disapproval of the Assessing Officer's construction, which insisted that “carriage” required movement strictly from place A to place B.
The Court found it difficult to confine the word “carriage” in the manner the Assessing Officer had. Both the CIT(A) and the ITAT, as competent authorities to examine facts, had held that SLL's activity does not fall outside the expression “carriage” as used in Section 44B. A specific factor the Court highlighted was that the Assessing Officer had not accounted for the possibility of passengers de-boarding at intermediate ports during the voyage.
The Court held that the provision of ancillary services on a voyage does not strip the activity of its character as “carriage” within the meaning of Section 44B. The Assessing Officer's interpretation was restrictive and had been factually and legally corrected by the orders under appeal. The Court said it was satisfied that Section 44B is attracted to the estimated income of SLL for the subject assessment years, and that no interference with the view taken below was warranted.
Companion Appeal
A companion appeal, Civil Appeal arising from Special Leave Petition (C) No. 1440 of 2016, involved the same parties — Director of Income Tax (IT)-I as appellant and Superstar Libra Limited as respondent — but for a different assessment year. Leave was granted, and the Court adopted the same view as in the main appeals. The companion appeal was also dismissed on 30 July 2026 by the same bench.
Outcome
Civil Appeal Nos. 3334–3336 of 2012 and the companion civil appeal arising from SLP (C) No. 1440 of 2016 are dismissed. The concurrent determination that SLL's income is to be assessed at the presumptive rate of 7.5% of gross cruise fare receipts under Section 44B — rather than at 25% as estimated by the Assessing Officer — stands. Pending applications, if any, are disposed of.