The Supreme Court of India has held that operating cruise services involving round-trip voyages and providing on-board hospitality falls within the ambit of “carriage of passengers” under Section 44B of the Income Tax Act, 1961. A Bench comprising Justice S.V.N. Bhatti and Justice N.V. Anjaria dismissed the civil appeals filed by the Director of Income Tax (International Taxation), affirming that foreign shipping enterprises operating cruises in India are entitled to be assessed at the statutory presumptive rate of 7.5% on gross receipts under Section 44B for tax withholding under Section 195 of the Act, rather than a higher rate estimated by the Revenue.
Background of the Case
M/s Star Cruises (India) Pvt. Ltd. (the Assessee) acted as the agent for M/s Superstar Libra Ltd. (SLL), a foreign non-resident entity that operated the cruise ship “Superstar Libra” in India. The agent conducted the cruise operations and collected revenue from the sale of cruise packages and shore excursions in India for the assessment years 2006-07, 2007-08, and 2008-09.
When seeking a tax deduction at source (TDS) certificate under Section 195 of the Act, the Assessee claimed that SLL’s income should be computed under Section 44B of the Act, which provides a presumptive taxation mechanism for non-residents engaged in the business of operating ships. Under this provision, the estimated income was taken as 7.5% of the cruise fare collected.
However, the Assessing Officer, through an order dated March 30, 2007, rejected this claim. The Assessing Officer held that the term “carriage” strictly means transporting passengers or goods from one port to another. Since SLL operated round-trip cruises originating and terminating at Mumbai Port while extending hospitality and entertainment on board, the Assessing Officer categorized the activity as entertainment and hospitality rather than carriage of passengers. Consequently, the Assessing Officer estimated SLL’s deemed income at 25% of the collected cruise fare.
Appellate History
The Assessee challenged the Assessing Officer’s order before the Commissioner of Income Tax (Appeals) [CIT(A)], Mumbai. On June 15, 2007, the CIT(A) allowed the appeal and set aside the assessment order, accepting that the deemed income should be estimated at 7.5% under Section 44B.
The Revenue then appealed to the Income Tax Appellate Tribunal (ITAT). On July 01, 2009, the ITAT dismissed the Revenue’s appeal, recording several key findings of fact:
- A round-trip voyage constitutes two separate acts of carriage (from Station A to Station B and back to Station A), and passengers booking round trips were permitted to disembark at intermediate ports.
- Booking slips established that the primary fees collected were for cabin and transport fares, while on-board entertainment was merely incidental to the main business of operating ships.
- Central Board of Direct Taxes (CBDT) Circulars No. 763 (dated February 18, 1996) and No. 169 (dated June 23, 1975) clarify that carriage payments include handling charges and that Section 44B was enacted to simplify profit computation for foreign shipping enterprises.
The Revenue carried the matter to the High Court of Judicature at Bombay, which dismissed the Income Tax Appeals on July 01, 2011. The Revenue subsequently filed Civil Appeals before the Supreme Court.
Arguments Before the Supreme Court
The Revenue argued before the apex court that a round trip with amenities is not simple carriage of passengers under Section 44B. It contended that the dominant purpose of SLL’s activity was conducting excursion packages for tourists featuring hospitality and entertainment, rather than transporting passengers from one port to another. Therefore, the Revenue maintained that the estimated income ought to be assessed at 25%.
Conversely, the Assessee submitted that SLL satisfied the twin statutory requirements under Section 44B as a non-resident shipping operator. It argued that the Assessing Officer had adopted an unlawfully restrictive definition of “carriage” by requiring movement strictly from Port A to Port B, and that ancillary hospitality services on board do not alter the primary nature of the carriage operation.
Court’s Analysis and Decision
Delivering the judgment, Justice S.V.N. Bhatti noted disapproval of the narrow construction placed on SLL’s activity by the Assessing Officer. The Supreme Court observed:
“We find it difficult to confine the meaning of the word ‘carriage’ as attributed by the Assessing Officer.”
The Court affirmed the findings of the CIT(A) and ITAT, emphasizing that providing on-board amenities does not dilute the core activity of passenger transportation under the tax statute. The Bench observed:
“On a voyage, the providing of ancillary services does not take away from the meaning of ‘carriage’ as per Section 44B of the Act.”
Holding that the lower appellate authorities had factually corrected the Assessing Officer’s restrictive interpretation, the Supreme Court concluded that Section 44B is applicable to SLL’s estimated income for the assessment years in question.
Accordingly, the Supreme Court dismissed the Revenue’s Civil Appeals as well as a companion appeal involving SLL for a subsequent assessment year.
Case Details:
Case Title: The Director of Income Tax, (International Taxation) v. M/s Star Cruises (India) P. Ltd. Case No.: Civil Appeal No(s). 3334-3336 of 2012
Bench: Justice S.V.N. Bhatti and Justice N.V. Anjaria
Date: July 30, 2026
