The Supreme Court has upheld the Bombay High Court's ruling in favour of M/s Star Cruises (India) Pvt. Ltd., holding that income earned from operating cruise services in India falls within the scope of Section 44B of the Income Tax Act, 1961. The Court rejected the Income Tax Department's argument that cruise operations are primarily hospitality and entertainment activities rather than the carriage of passengers, and dismissed all civil appeals filed by the Revenue.
Background of the Case
The dispute arose from assessment years 2006-07, 2007-08 and 2008-09. M/s Star Cruises (India) Pvt. Ltd. acted as the Indian agent for Superstar Libra Ltd. (SLL), a foreign company operating the cruise vessel "SuperStar Libra" in India. The company collected cruise fares and handled operations on behalf of SLL.
The company sought a tax deduction certificate under Section 195 by claiming that SLL's income should be computed under Section 44B of the Income Tax Act. Under that provision, taxable income of foreign shipping companies is presumed at 7.5% of gross receipts. However, the Assessing Officer rejected the claim, reasoning that the cruise mainly provided entertainment and hospitality and did not amount to the "carriage" of passengers. The officer instead estimated taxable income at 25% of the cruise fare receipts.
The Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal (ITAT), and later the Bombay High Court all ruled in favour of the assessee, prompting the Revenue to approach the Supreme Court.
Arguments Before the Supreme Court
The Revenue argued that Section 44B applies only where ships transport passengers or goods from one port to another. It contended that the dominant purpose of the cruise business was tourism, hospitality and entertainment, making it different from ordinary passenger transportation. Therefore, according to the Department, the concessional presumptive taxation under Section 44B was unavailable.
The assessee countered that the statutory conditions under Section 44B had already been satisfied. It submitted that the cruise business remained one of operating ships and carrying passengers, while entertainment and hospitality provided onboard were merely incidental services.
Court's Observations
A Bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria observed that the Assessing Officer had adopted an unduly narrow interpretation of the word "carriage."
The bench noted that the law does not require transportation strictly from one port to another for Section 44B to apply. It accepted the factual findings recorded by the appellate authorities that passengers could board and disembark at intermediate ports and that the primary business remained the operation of ships for carrying passengers.
The Court observed,
"We find it difficult to confine the meaning of the word 'carriage' as attributed by the Assessing Officer."
It further held that providing ancillary services such as hospitality or entertainment during a voyage does not alter the essential character of passenger carriage under Section 44B.
The Supreme Court also found no reason to interfere with the concurrent findings recorded by the Commissioner (Appeals), the ITAT and the Bombay High Court, all of which had concluded that the company's activities qualified for presumptive taxation under Section 44B.
Supreme Court's Decision
Dismissing the appeals, the Supreme Court held that the cruise operations conducted through the assessee qualified for the benefit of Section 44B of the Income Tax Act. The Court ruled that the Assessing Officer's restrictive interpretation of the expression "carriage" was not supported by the facts of the case and affirmed that ancillary hospitality services do not deprive cruise operations of their character as passenger carriage.
Accordingly, the Court upheld the earlier decisions allowing SLL's income to be computed under Section 44B at the statutory presumptive rate and dismissed the Revenue's civil appeals. A companion appeal concerning another assessment year was also dismissed on the same reasoning.
Case Details
Case Title: The Director of Income Tax (International Taxation) v. M/s Star Cruises (India) Pvt. Ltd.
Case Number: Civil Appeal Nos. 3334–3336 of 2012
Judge: Justice S.V.N. Bhatti and Justice N.V. Anjaria
Decision Date: July 30, 2026
