1999 (2) TMI 55 - HC - Income Tax

Export cash assistance (CCS) receipts and export promotion costs-treated as taxable business profits; s. 35B weighted deductions denied

The dominant issues were whether the Tribunal could admit additional grounds, whether CCS receipts were taxable business profits, and whether certain ... Seeking to agitate additional grounds - cash compensatory support (CCS) receipts from the Government - profits and gains within the meaning of section 28(i) Or section 28(iv) of the Income-tax Act, 1961 - Entitlement to weighted deduction u/s 35B - under the heading 'Export promotion' - HELD THAT:- Admitting the additional grounds of appeal filed before it on May 25, 1982, is now squarely covered by the decision of the Supreme Court in National Thermal Power Co. Ltd.[1998 (3) TMI 104 - DELHI HIGH COURT], holding that the Tribunal has the discretion to allow or not to allow new grounds to be raised. Even in a situation where the Tribunal is only required to consider the question of law arising from facts, which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised, when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. Accordingly, this question is answered in the affirmative and against the Revenue. The Finance Act, 1990, incorporated clause (iiib) to section 28 of the Income-tax Act, 1961, with effect from April 1, 1967, to the effect that cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government shall be chargeable to income-tax under the head 'Profits and gains of business or profession'. This amendment has been made retrospectively with effect from April 1, 1967. Sub-clause (vb) in clause (24) of section 2 of the Income-tax Act, 1961, was also incorporated by the Finance Act, 1990, with effect from April 1, 1967, that income includes any sum chargeable to income-tax under clause (iiib) of section 28. Thus the cash compensatory support (CCS) receipts received from the Government would be taxable receipts in the hands of the assessee and constitute profits and gains. This court in CIT v. Smarts (P.) Ltd. [1998 (1) TMI 45 - DELHI HIGH COURT], has also taken note of these amendments. Accordingly, the questions are answered in favour of the Revenue. The amount of commission was paid in India though for export. In CIT v. Stepwell Industries Ltd. [1997 (8) TMI 5 - SUPREME COURT], it was held that merely because some activities took place outside India, the same will not qualify the exporter for deduction mentioned in section 35B of the Act. In International Exporters' case [1998 (3) TMI 104 - DELHI HIGH COURT], this court held that the amount of commission paid in India though on export sales would not quality for weighted deduction under any of the sub clauses of section 35B(1)(b) of the Act. As such the question is answered in the negative in favour of the Revenue that the assessee was not entitled to weighted deduction under section 35B of the Act. International Exporters' case [1998 (3) TMI 104 - DELHI HIGH COURT], that expenditure under the heading 'Export promotion' is not entitled to weighted deduction under any of the sub-clauses of clause (b) of section 35B(1) of the Act. The question thus is answered in the negative and in favour of the Revenue. The heading 'Export guarantee insurance' is not only covered in International Exporter's case [1998 (3) TMI 104 - DELHI HIGH COURT], but also by another decision in CIT v. Gedore Tools (India) Pvt. Ltd. [1998 (3) TMI 111 - DELHI HIGH COURT], by this court. Thus, the question is answered in the negative and in favour of the Revenue. Issues:1. Admissibility of additional grounds of appeal2. Taxability of cash compensatory support (CCS) receipts3. Nature of cash compensatory support as receipt4. Entitlement to weighted deduction on commission5. Consideration of additional ground by Commissioner of Income-tax (Appeals)6. Powers of enhancement by Commissioner of Income-tax (Appeals)7. Entitlement to weighted deduction on 'Export promotion'8. Entitlement to weighted deduction on 'Export guarantee insurance'9. Entitlement to weighted deduction on 'Interest paid on post-shipment export credit loans'10. Taxability of draw back of duty11. Taxability of gains from sale of import entitlement12. Entitlement to weighted deduction on specific items under section 35BAdmissibility of Additional Grounds of Appeal:The court held that the Tribunal has the discretion to allow new grounds to be raised, even if the facts are on record in the assessment proceedings. This discretion extends to situations necessary for correctly assessing the tax liability of an assessee. The decision was based on the Supreme Court ruling in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383.Taxability of Cash Compensatory Support (CCS) Receipts:The court ruled in favor of the Revenue, stating that cash assistance received against exports is chargeable to income tax under the head 'Profits and gains of business or profession.' This decision was supported by amendments in the Income-tax Act, 1961, by the Finance Act, 1990, making such receipts taxable.Nature of Cash Compensatory Support as Receipt:The court held that cash compensatory support (CCS) receipts constitute taxable receipts in the hands of the assessee and constitute profits and gains. This decision was based on relevant amendments in the Income-tax Act, 1961.Entitlement to Weighted Deduction on Commission:The court ruled against the assessee, stating that the amount of commission paid in India for export sales does not qualify for weighted deduction under section 35B of the Act. This decision was supported by previous court rulings.Consideration of Additional Ground by Commissioner of Income-tax (Appeals):The court clarified that the power for enhancement by the Commissioner of Income-tax is subject to limitations provided in the Income-tax Act. The question of enhancement can only be considered if notice is given in that regard.Entitlement to Weighted Deduction on Specific Items under Section 35B:The court ruled that certain specific items, such as 'Export promotion' and 'Export guarantee insurance,' are not entitled to weighted deduction under section 35B of the Act. This decision was based on previous court judgments.Taxability of Draw Back of Duty and Gains from Sale of Import Entitlement:The court ruled in favor of the Revenue, stating that the draw back of duty and gains from the sale of import entitlement are taxable and not in the nature of capital receipts.Conclusion:The judgment addressed various issues related to taxability, admissibility of grounds of appeal, entitlement to weighted deduction, and the nature of specific receipts. The decisions were based on relevant provisions of the Income-tax Act, previous court rulings, and amendments introduced by the Finance Act, 1990.