‘Ancillary Services Don't Override Carriage’: Supreme Court Upholds 7.5% Presumptive Income For Cruise Operators Under Section 44B IT Act, Rejects Revenue's Higher Tax Claim

"On a voyage, the providing of ancillary services does not take away from the meaning of ‘carriage' as per Section 44B of the Act." Supreme Court of India, in a significant ruling dated July 30, 2026, affirmed that cruise operations, even with bundled hospitality and entertainment, primarily constitute "carriage of passengers" for the purpose of Section 44B of the Income Tax Act, 1961.

A Bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria dismissed the Revenue's appeals, upholding the application of a 7.5% presumptive income rate over a higher 25% estimation.

The appeals arose from a dispute concerning the assessment of income for Superstar Libra Ltd. (SLL), a non-resident entity operating cruise services in India through its agent, M/s Star Cruises (India) P. Ltd. (Assessee). The Assessee contended that SLL's income should be assessed at a presumptive rate of 7.5% of gross receipts under Section 44B of the Income Tax Act, 1961, considering the activity as "carriage of passengers."

However, the Assessing Officer (AO) viewed the activity as primarily "entertainment and hospitality" and not mere carriage, thereby estimating the deemed income at 25% of the cruise fare. This decision was challenged by the Assessee through the appellate hierarchy.

The primary question before the Supreme Court was whether the High Court was justified in upholding the ITAT’s decision that the assessee was engaged in the business of operating ships, entitled to assessment under Section 44B of the Income Tax Act. The Court also had to determine if the High Court erred by not considering whether the business activity was predominantly providing hospitality and entertainment rather than mere transportation of passengers.

Initial Dispute Over Interpretation of 'Carriage'

The Assessing Officer had taken a restrictive view of the term 'carriage', insisting that for an activity to qualify as carriage, the movement must strictly be from one distinct point 'A' to another distinct point 'B'. Consequently, the AO had determined a higher income estimation for SLL.

Appellate Authorities Corrected the Restrictive View

The Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT) rejected the AO's narrow interpretation. They found that a round-trip voyage constitutes two separate acts of carriage (from station A to station B and back to station A), and passengers could even disembark at intermediate ports.

Nature of Primary Services and Incidental Entertainment

The appellate authorities, upon examining booking slips, established that the primary fees collected from passengers were for cabin and transport fares. Any on-board entertainment or hospitality, whether included or separately paid for, was deemed incidental to the main business of operating ships, which is carriage.

Guidance from CBDT Circulars

The ITAT also relied on CBDT Circulars No. 763 dated 18.02.1996 and 169 dated 23.06.1975, which clarify that carriage payments include handling charges and that Section 44B of the Act was specifically designed to simplify the computation of taxable profits for foreign shipping enterprises. As SLL is a non-resident entity engaged in operating ships, it fulfilled the essential conditions under this section.

Supreme Court Rejects Narrow Definition of 'Carriage'

The Supreme Court explicitly found it difficult to confine the meaning of the word 'carriage' to the restrictive interpretation adopted by the Assessing Officer. The bench noted that the CIT(A) and ITAT, being competent authorities to examine the facts, had correctly held that SLL's activity falls within the expression of 'carriage' as per Section 44B of the Act.

Ancillary Services Do Not Alter Core Business

The Court further observed that the possibility of passengers de-boarding at intermediate ports was not taken into account by the Assessing Officer. It was crucial that on a voyage, the providing of ancillary services like hospitality and entertainment does not detract from the core meaning of 'carriage' under Section 44B of the Income Tax Act, 1961. The restrictive meaning adopted by the Assessing Officer was factually corrected by the appellate orders.

Concurrent Findings of Fact Upheld

The Supreme Court ultimately found no perversity in the concurrent findings of fact recorded by the appellate authorities. It noted that the appeals did not warrant interference with the conclusion that Section 44B of the Act is attracted to the estimated income of SLL for the subject assessment years.

The companion Civil Appeal No. 1440 of 2016, which pertained to a different assessment year but involved substantially similar issues, was also dismissed following the same view.

Date of Decision: July 30, 2026