Supreme Court Holds Round-Trip Cruise Operations Qualify as Carriage of Passengers Under Section 44B; Dismisses Revenue’s Appeals
Facts
The appeals arose from assessments concerning M/s Star Cruises (India) Pvt. Ltd., the Indian agent of Superstar Libra Ltd. (SLL), a non-resident company operating the cruise vessel Superstar Libra in India.
The assessee collected cruise fares and remitted amounts to SLL after seeking a certificate under Section 195 of the Income Tax Act. It claimed that SLL’s income should be computed under the presumptive taxation scheme contained in Section 44B, whereby deemed income is fixed at 7.5% of the gross receipts.
The Assessing Officer rejected this claim, holding that SLL’s activity was predominantly hospitality and entertainment rather than carriage of passengers because the cruises originated and ended at Mumbai after a round trip. Consequently, the Assessing Officer estimated income at 25% of the cruise fare. The Commissioner (Appeals), ITAT and Bombay High Court all ruled in favour of the assessee, following which the Revenue approached the Supreme Court.
Issues
- Whether cruise operations involving hospitality and entertainment qualify as the business of operating ships under Section 44B of the Income Tax Act.
- Whether a round-trip cruise constitutes “carriage of passengers” for purposes of Section 44B.
- Whether the assessee was entitled to computation of income at the presumptive rate of 7.5% under Section 44B instead of 25% estimated by the Assessing Officer.
Appellant’s Arguments
The Revenue contended that:
- Section 44B applies only where the dominant activity is carriage of passengers or goods.
- A round-trip cruise offering accommodation, hospitality and entertainment is primarily a tourism and hospitality activity.
- The voyage was an excursion rather than transportation between ports.
- Therefore, the assessee was not entitled to presumptive taxation under Section 44B and its income should be estimated at 25% of the receipts.
Respondent’s Arguments
The assessee submitted that:
- Section 44B requires only that the assessee be a non-resident engaged in the business of operating ships.
- Cruise operations necessarily involve carriage of passengers notwithstanding ancillary hospitality services.
- The Assessing Officer adopted an unduly restrictive interpretation by insisting that carriage must necessarily be from one port to another.
- Concurrent factual findings by the appellate authorities established that passengers could board or disembark at intermediate ports and that transportation remained the primary activity.
Analysis of the Law
The Supreme Court held that the case concerned the application of the expression “carriage” in Section 44B rather than an abstract definition of the term.
The Court held that:
- The Assessing Officer wrongly restricted the meaning of “carriage” to travel strictly from one port to another.
- Cruise operations involving round trips remain carriage of passengers.
- Ancillary hospitality, accommodation and entertainment provided during the voyage do not alter the essential character of operating ships for carriage of passengers.
- Concurrent factual findings of the appellate authorities deserved deference and disclosed no perversity warranting interference.
Precedent Analysis
The Court principally relied upon the concurrent factual findings recorded by the Commissioner (Appeals), the ITAT and the Bombay High Court.
It also noted the relevance of:
- CBDT Circular No. 169 dated 23 June 1975, explaining the object of Section 44B.
- CBDT Circular No. 763 dated 18 February 1996, clarifying the scope of carriage-related receipts under Section 44B.
The judgment did not rely upon any earlier Supreme Court precedent while deciding the issue and instead affirmed the concurrent factual findings of the tax authorities and the High Court.
Court’s Reasoning
The Supreme Court observed that:
- The Assessing Officer adopted an impermissibly narrow interpretation of “carriage.”
- The appellate authorities correctly found that cruise passengers could disembark at intermediate ports and that the voyage still constituted carriage of passengers.
- Onboard entertainment and hospitality are merely ancillary services provided during the voyage and do not transform the essential business into one of hospitality.
- Section 44B applies to foreign shipping enterprises operating such cruise services in India.
- The concurrent findings of fact by the Commissioner (Appeals), ITAT and High Court were neither illegal nor perverse and therefore required no interference.
Conclusion
The Supreme Court dismissed the Revenue’s appeals.
It upheld the Bombay High Court’s judgment and confirmed that Section 44B applied to the respondent’s cruise operations. Consequently, the respondent’s income remained taxable on the presumptive basis of 7.5% of the gross cruise fare receipts, and not at 25% as estimated by the Assessing Officer. The connected appeal concerning another assessment year was also dismissed on the same reasoning.
Case Details
Case: The Director of Income Tax (International Taxation) v. M/s Star Cruises (India) Pvt. Ltd.
Court: Supreme Court of India
Case Number: Civil Appeal Nos. 3334–3336 of 2012
Bench: Hon’ble Justice S.V.N. Bhatti and Hon’ble Justice N.V. Anjaria
Date: 30 July 2026
Citation: 2026 INSC 771
Result: Appeals dismissed. The Supreme Court upheld the applicability of Section 44B of the Income Tax Act and confirmed computation of the foreign cruise operator’s income at the statutory presumptive rate of 7.5%. The connected companion appeal for another assessment year was also dismissed
