Thanks to a ruling by the Supreme Court, there has been some great news for the Indian ship-breaking industry. The recent decision means that Indian ship breaking companies can now claim heavy deductions from their taxable income and it would seem that it's all down to how one interprets the small print and the question of whether 'ship-breaking is a production process or recycling'.
According to the Business Standard (India), the legal tussle related to whether the ship-breaking industry produced anything new and distinct, one of the conditions for claiming a tax deduction. In this battle between the Income Tax Department and a large ship breaking company, the prize to be won was up to 20 per cent of profits and gains.
The Income-tax Department rejected the claim for deductions, stating that ship-breaking activity does not produce new article. The Supreme Court of India however, is of the view that production has much broader connotations and includes all byproducts, intermediate products and residual products that emerge in the course of manufacturing, and thus as well as dealing with the production of new article it should also encapsulate the production of a very desirable byproduct, scrap.
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