TaxTMI 
TaxTMI 
1988 (3) TMI 105
X X X X Extracts X X X X
X X X X Extracts X X X X
....t section 35B deduction should be allowed in respect of bifurcated expenses on wrappers. The directions are similar to the one given in the assessee's own case in respect of assessment year 1976-77 (Unanimous view) - Ground No. 2. 3. Ground No. 3 of the Revenue's appeal against the CIT (A)'s decision that the assessee is entitled to depreciation and investment allowance on fixed assets without reducing their cost to the extent of Central Subsidy received from the Government for moving into or setting up plants in industrially backward areas, is rejected (Unanimous view). 4. The Revenue also falls on its last ground agitating that the learned CIT (Appeals) had erred in holding that there was no justification for endorsement of income by withdrawing the weighted deduction under section 35B on Rs. 27,76,816. It is held that the power to make enhancement vests in the first appellate authority and if he does (sic). 5. Cash Compensatory Support held to be not taxable (Majority view)-Ground No. 3. 6. Draw-back of Duty is held to be taxable (Unanimous view) - Ground No. 4. 7. Import Entitlement is held to be taxable (Unanimous view) - Ground No. 5. 8. The assessee fails i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9. However, he also observed that in the case the retrospective amendment of section 80J and the validity of rule 19A were upheld by the Supreme Court the Inspecting Assistant Commissioner (Assessment) should revise the allowances and restrict them to the amount actually allowed. 3.1 After hearing the learned counsel on both the sides we find that the issue regarding the validity of the retrospective amendment of section 80J has since been laid to rest by the Supreme Court in the case of Lohia Machines Ltd. An identical issue was before the Tribunal in the assessee's own case for the assessment year 1976-77 in ITA No. 696 (Delhi) of 1982 when vide its order dated 29th May, 1985 the appellate Tribunal had the matter restored back to the file of the assessing officer with the direction that section 80J relief be recomputed in the light of Supreme Court's decision in the case of Lohia Machines Ltd. The Inspecting Asstt. Commissioner (Assessment) is accordingly direction to recompute the relief under section 80J in accordance with the amended provisions as applicable for the assessment year in question. 4. The next ground relates to the claim of weighted deduction under section 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....81,188. 4.2 Both the sides place reliance on the decision of the Special Bench of the Tribunal in the case of J. Hem Chand & Co. v. Second ITO [1982] 1 SOT 150 (Bom). They also sought to rely on the other decisions of the Tribunal for example, in respect of packing material the learned counsel for the assessee submitted that though the said expense was held to be not entitled to weighted deduction by the Special Bench, but due to peculiar circumstances in the assessee's own case it was allowed by the Tribunal in the earlier assessment year. Similarly regarding the assessee's claim in respect of commission paid on exports the learned Departmental Representative relied on the decision of the Hon'ble Madras High Court in the case of CIT v Southern Sea Foods (P) Ltd. [1983] 140 ITR 855. We have considered the rival submissions and the nature of the assessee's trade as also the earlier orders of the Tribunal in the assessee's own case. Following with respect the aforesaid Special Bench decision and the earlier decision of the Tribunal in the assessee's own case we are of the view that the assessee is not entitled to any weighted deduction on the following items : (1) Interest on p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 25,02,836 but it shall be subject to bifurcation, if necessary, after it is subject to the scrutiny of the ITO. 11. We like to mention here that the CIT (A) disallowed the claim by observing that packing expenses were incurred in the year. As observed above, if part of the expenses reach the customers as beautiful souvenirs along with goods sold, these should better be considered in the category of samples of goods for export." It was in view of the above observations that the learned counsel for the assessee prayed for an identical finding and he also stated that after verification the Income-tax Officer had allowed 25 per cent of such expenses on packing material. Following the Tribunal's earlier order we similarly restore this matter to the file of the IAC (Assessment) with directions to him to examine and screens the expenses in respect of packing material as in the past and to allow weighted deduction thereon accordingly. In respect of Revenue's appeals again following the decisions of the Special Bench, we are unable to confirm the findings of the Commissioner of Income-tax (Appeals) in respect of the following items : (1) Inspection fee no export; (2) Insurance ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rst and then only the subsidy was given. The subsidy in the instant case also did not relate to the cost of the asset and it could, therefore, not go to reduce the same. This has been the consistent view of the Tribunal and has been affirmed in the following decisions : (i) CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632 (AP); and (ii) CIT v. Bhandari Capacitors (P). Ltd [1987] 168 ITR 647 (MP). Following with respect the said Special Bench decision we find no warrant or justification for interfering with the order of the learned CIT (Appeals) on this point. The Revenue, therefore, fails on this ground. 6. The last ground in the Revenue's appeal, reads as under : "On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in holding that there was no justification in the enhancement of income by withdrawing the weight ed deduction under section 35B on Rs. 27,76,816 already allowed to the assessee. The CIT (Appeals) had wrongly given the figures at Rs. 12,10,893 in the order." In respect of this ground, the learned Departmental Representative relied on the decision of the Madras High Court in the case of Southern ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceipts arose to it on capital account which had to be excluded from its income. The Income-tax Officer however treated them as revenue receipts and therefore, taxable. 7.1 The CIT (A) traced the history from July, 1963 when the Government of India had constituted a Market Development Fund for financing schemes and projects for the development of foreign market forIndiaproducts and commodities. He held that the following was the nature of the 7 criteria on the balance determination of which the rate of cash assistances was based, in view of the report of Bose Mullick Committee (appointed by the Cabinet Committee in November, 1975), decision dated 29-1-1976 of the Cabinet Committee, 39th Report (1980-81) of the Seventh Lok Sabha and the latter dated 11-5-1984 received by the CIT (A) from the Commerce Ministry in reply to his letter dated 23-4-1984 :. ----------------------------------------------------------------------------------- Sl. Criteria Whether capital or  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; to be allowed. nor revenue ----------------------------------------------------------------------------------- Since the precise quantification of the weightage given to the various disadvantages for determining the CCS rate was not possible, the learned CIT (A) made an ad hoc apportionment in the form of percentage mentioned in the last column of the above table. He held that 55 per cent of the entire cash receipts representing revenue receipts were taxable as income u/s. 28(iv) of the Income-tax Act, 1961. He noticed that CCS was paid to the exporter with reference to the value of exports and therefore, the payment arose directly from the business carried on by the assessee. He further held that the CCS was not a bounty and that there was a definite linkage between the activity of the export (which is the assessee's business activity) and the eligibility to CCS from the Government. However, he held that receipts on capital account were outside the purview of section 28(iv). 7.2 So far as th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the assessee and the Governmental and that it was not a condition of the grant that the assessee should carry on the business for the export of its products and that the receipt was dehors the assessee's business. The view taken was that the CCS granted under the Ministry of Commerce letter dated17-8-1976was an outright grant as an incentive to export made without consideration and was given by an administrative act of the Government. The Bench was also of the view that the exporter could call in aid the doctrine of promissory estoppel invoked by the Supreme Court in the case of Union of India v. Anglo Afghan Agencies Air 1968 SC 718. It was held that the motivation of the Govt. was spelt out in the Export Policy Resolution of 1970. The decision of the Hon'ble Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448 was held to be not binding on the ground that it was based on the following factual infirmities : (i) In the judgment the letter dated17-8-1966is referred but the text of the letter dated24-8-1966from the Engineering Export Promotion Council to its member was given. (ii) Treating the nature CCS as the same as that of IE which was in iss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st of manufacturing the exported goods and that it was linked directly with the export business of the assessee as it was computed at a certain percentage of the FOB value. It was held that the payment of CCS was directly related to the export effort of the individual and one received it only if one was doing export business of the specified engineering goods. It was, therefore, held to be purely a trade receipt received by a trader in the course of his business for the purpose of making it more competitive in the international market. It was held that the CCS was not gratuitous but was government by proper rules and regulations and every citizen had a right to enforce its claim under it on the principle of promissory estoppel. The nature of the CCS, it was held, was the same as that of cash subsidy and that it aimed at subsidising the cost of production and to wipe out or to reduce the export losses or to increase export profits by keeping the cost of production low. It was also held that the CCS receipt was in the course of business and backed by an enforceable right and was therefore a trading receipt and not on capita; account. It was also held that CCS was linked directly with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sions referred to above. No doubt as held by the Hon'ble Madras High Court in the case of S. Dev Raj, it is not proper for the Benches of the Tribunal to pass contradictory orders. Ordinarily and earlier order of the Bench in the case of the assessee itself is not be ignored and the decision of another Bench in another case cannot be followed, as held in the 3rd Member case of Graha Lakshmi & Co. In the case of L. G. Ramamurthi it was held by the Hon'ble Madras High Court that the Appellate Tribunal should not come to a different conclusion for a subsequent year but to make reference to the special Bench, if necessary. In the case of Hari Nath & Co. also the same view has been expressed by the Hon'ble Allahabad High Court. The same principle is also expressed in the decision of the Supreme Court in the case of Ujagar Prints. In fact it is only due to the fact that there were conflicting decisions of two Benches of the Tribunal that it was considered fit and proper by the President to constitute the present Special Bench u/s. 255(3) of the Income-tax Act, 1961. The position as clarified by the Third Member in the case of Export House namely that when conflicting decisions are there,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Supreme Court. In the case of Godavaridevi Saraf, the Hon'ble Bombay High Court had held that if at the time when the Tribunal decides a question, no other High Court in the country has taken a contrary view, the view of a High Court even if it is not the jurisdictional High Court, can be followed by it. However the Hon'ble Karnataka High Court in the case of Patil Vijaykumar has take the view that the decision of a High Court operates only in the territorial area of that High Court and that it does not operate in any other territorial area however incongruous, unlike the case of a decision rendered by the Supreme Court. So far as the decision of the Hon'ble Delhi High Court in the case of All India Lakshmi Commercial Bank Officers' Union is concerned, it was only held therein that the income-tax authorities acting anywhere i India have to respect the law laid down by a High Court, whether in the State in which they are functioning or in a different State, in the absence of any contrary decision of any other High Court. The Appellate Tribunal is not an income-tax authority as defined in section 116 of the Income-tax Act, 1961. Both the parties are, therefore, free the canvass t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vy tax on the CCS as it would amount to taking away with one hand what was given with the other. He submitted that the CCS was a capital receipt and not a trading receipt though trade occasioned it and that the division attempted by the learned CIT (A) into revenue and capital account as percentages was arbitrary and without any basis or justification. He explained that no expenditure was recouped by these incentives. Elaborating further he explained that the Government was only providing to the exporters stimulii to export more in order to enable it to realise its national objective of securing the targeted exports and of the expansion of the exports and of the export market to which a very high priority had been accorded in the plan. The objective, he said, was to putIndiaon the export map in a much better way and to increase foreign exchange earnings. In this connection two illustrations were given by him. The first illustration was that if I ask another person to jump high and tell him that I will indemnify him for all his incapacities and losses, I give him stimulus to see how well he does it and that similar was the position of the jumper (exporter) here vis-a-vis the Governm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the payments were voluntary and made out of the consolidated Fund of India under the head 'Export Promotion'. According to Shri Sharma there could be no such grant out of public funds to augment a private gain. He submitted that there was no nexus between the grant and the private gain. He also submitted that every pecuniary benefit could not be construed as a business gain. Reference was also made by him to the 10 per cent outright grant scheme, 1971 of the Central Government for setting up industries in backward area, whereunder, the receipts had been held by the CBDT, the Appellate Tribunal (SB) and the High Courts to be only of a capital nature. He referred to the papers relating to the grant of these incentives, the factual aspects and the written submissions of the assessee on CCS. DBK and IE separately as also a plethora of decisions of the House of Lords, the Supreme Court, the High courts and of the appellate Tribunal having a bearing on these incentives (lists given). He submitted that DBK was given under section 75 of the Customs Act, 1962 and section 37 of the Central Excises & Salt Act, 1944 and the rules framed thereunder. He submitted that DBK was discretionary a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ating to these incentives also through various decisions, of which a list was given. He argued that the export incentive schemes were floated to overcome difficulties and that the object of the Central government was not to earn foreign exchange. He submitted that the concessions were all given towards the trading activities of the assessee. He argued that the CCS did assist the assessee continuing its business as the business transaction took place only after the benefits provided by the schemes before the assessee were taken into account before making its bilateral transactions of export. Next, he submitted that the fact that the Government had the power to enhance or withdraw CCS showed that it was only a recompense. In this connection Shri Misra pointed out that even the assessee had offered all these disputed receipts for taxation before the ITO and that it is only afterwards that it was claimed that they were not taxable. Shri Misra submitted that the object of the Government Export Policy Resolution of 1970 was to assist the assessee in making the exports more convenient and profitable. He argued that the idea was to compensate the exporters for the financial handicaps. He s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Summing up his arguments, Shri G. C. Sharma said that (i) the nature of the business was of export whose development was the Govt.'s avowed objective, (ii) the nature of the income was a receipt promised by the Govt. before the commencement of each transaction, and (iii) the nature of the right lay not under any statute but in promissory estoppel. Shri Sharma argued that the matter had to be decided in the light of the settled principles and the decisions of the House of Lords and of the Supreme Court. He also submitted that the decision of the Hon'ble Calcutta High Court in the case of Jeewanlal (1929) Ltd. on which heavy reliance was placed on behalf of the revenue, could not assist the department because it was based on erroneous assumptions as the following : (i) The learned judges assumed that CCS was being granted with the object indicated in the EPC's letter dated24th August, 1966circulated to its constituents. (ii) The learned judges failed to notice that all the schemes for export promotion in force till6th June, 1966when the Rupee was devalued, had been abolished and that Cash Assistance was granted only by a letter dated17th August, 1966. (iii) The learned judg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure of the receipt is to be determined from a commercial point of view [National Cement Mines Industries Ltd. v. CIT [1961] 42 ITR 69 (SC)] (ii) The name given to the transaction which is the source of the receipt, is not conclusive though it may be useful in ascertaining the intention of the parties. [National Cement Mines Industry Ltd.'s case and Karam Chand Thapar & Bros. (P.) Ltd. v. CIT [1971] 82 ITR 899 (SC)] (iii) The nature of the receipt is to be seen in the hands of the receiver and not in the hands of the payer. [CIT v. Kamal Behari Lal Singha [1971]82 ITR 460 (SC)] (iv) The nature and quality of the payment is to be seen and the motive of the payer is not material though motive may be enquired into. Whether the amount was large or was periodic in character, they do not determine its quality. [P. H. Divecha v. CIT [1963] 48 ITR 222 (SC)] (v) Profit motive is not decisive of the question whether a particular receipt is capital or income [A.K.T.K.M. Vishnudatta Antharjanam v. CAIT [1970] 78 ITR 58 (SC)]. (vi) The fund out of which the money came is not material. [IRC v. Trustees of Reid [1949] 17 ITR Suppl. 41 (H. L.)] (vii) The question whether the payer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he activity may have helped to earn the income or profit in an indirect or remote manner. [Cochin Co. v. CIT [1978]114 ITR 822 (Ker.)] (xiii) The payments would be of a revenue nature if they were given specifically to reimburse or compensate for : (a) Any specified expenditure or trading expenses. [V. S. S. V. Meenakshi Achi v. CIT [1966] 60 ITR 253 (SC), CIT v. Malayalam Plantations Ltd. [1987] 168 ITR 63 (Ker.) and CIT v. West Coast Industrial Co. Ltd. [1987] 168 ITR 72 (Ker.)] (b) Any loss of profits. [Ratna Sugar Mills Co. Ltd.'s case] (c) Cost of inputs. [Ahmedabad Mfg. & Calico Printing Co. Ltd.'s case]. (xiv) The payment would be of a revenue nature if they were given specifically : (a) To start early crushing or sugarcane. [H. R. Sugar Factory (P.) Ltd.'s case] (b) For goods sold by way of export. [Swadeshi Cotton Mills Co. Ltd.'s case] (c) To carry on business in a commercial manner so as to yield profits. [Dhrangadhra Chemical Works Ltd.'s case, Kesoram Industries & Cotton Mills Ltd. v. CIT [1978] 115 ITR 143 (Cal.), Hindustan Lever Ltd. v. CIT [1980] 121 ITR 951 (Bom.) and Wheel & Rim Co. of India Ltd.'s case] (d) To assist in carrying on his ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... alia, for supply of the raw materials of iron and steel at concessional rates to enable the manufacturers to produce exportable engineering goods at cheaper rates so as to make them competitive in the international market. This is intended to promote exports in order to reduce the deficit in balance of payments. In order to overcome price resistance to many of the exports in foreign markets the Govt. had tried many measures during the earlier years. For example, the Govt. had been subsidising exports in several ways by import entitlements to exporters, by direct subsidies and by tax credit certificates. On the devaluation of the Indian rupees with effect from6-6-1966all the incentives granted under the erstwhile Special Export Promotion Scheme were withdrawn. In this connection the Finance Minister's broadcast of5-6-1966is relevant. Thereafter the Scheme of Cash Compensatory Support (CCS) was introduced by the Govt. with effect from6-6-1966as per Ministry of Commerce Circular letter dated17-8-1966. That letter was addressed to the Secretary, Engineering Export Promotion Council. The Govt. announced its decision of granting cash assistance against exports of specified engineering g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ping facilities needs to be emphasised. (x) A steady growth of export earnings @ 7 per cent per annum can be achieved only if adequate export performance is accepted as a national goal of very high priority. In its letter dated23-1-1976to the Secretary, Engineering Export Promotion Council, the Ministry of Commerce no doubt clarified that the phrase "Cash Compensatory Support" used in its letters dated15-10-1975and16-10-1975, was in no way different from the cash assistance scheme. However, much cannot be read into this letter as it also clarified that the scheme of registration of export contracts for cash assistance purposes also covered products, the exports of which qualified for the grant of CCS. This letter is therefore not of assistance to us regarding the contents of the Scheme of CCS. A perusal of paras 1.59, 1.61 and 1.63 of the 39th Report (1980-81) Seventh Lok Sabha shows that the position adopted by the Secretary, Ministry of Commerce before the PAC was that from 1-4-2976 there were seven factors which went to determine the cash assistance (they are enumerated in para 7.1 of this order). It said that unless there was some motivation for a fellow to export, why shoul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e CIT (A)] (i) The concept of Cash Assistance was modified w.e.f. 1-4-1976 when it was delinked from mere compensation for losses arising to the trader from exports (as was the position till then) and was made more broad-based to subserve the development of the infrastructure for improving exports of specific products on a continuing basis. (ii) Certain elements such as labour intensiveness of the industry, nature of the products, nature of the industry (whether small scale or cottage) are given due weight age while determining the CCS rate, subject to budgetary constraints of the Govt. (iii) Precise quantification of the weightage given to the various disadvantages separately for determining CCS rate was not possible. 9.8 The first thing to be notices is that we have to examine the scheme relevant for the assessment year in question. Next, it has to be borne in mind that the assistance offered by the Government to the exporters is in the form of a package. Availability of adequate foreign exchange resources is an important factor for a planned growth of a developing country likeIndia. A major chunk of foreign exchange accrues by way of exports. Various measures have th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cial arrangement or contract nor for any services rendered nor can it be said to flow out of love and affection. However, it can also not be treated to be a pure bounty or a gift paid out of sheer benevolence of the Government. However it cannot be said that unless the Government had a bilateral arrangement no receipt from it to the assessee could be considered as taxable. The Export Policy Resolution, 1970 put the compound rate of 7 per cent per annum of the expansion of export earnings during the Fourth Plan period as a notional goal of very high priority. It was intended to achieve economics of scale, improve efficiency of production, reduce costs and adopt production to meet the requirements of the customers abroad. It also referred to the objective to improve the competitiveness of the exporter in the international market. A restriction was envisaged on domestic consumption with a view to export more. It also refers to the build up of the export potential and to earn and sustain the confidence of overseas customers. The Export Policy Resolution, 1970 referring to the inadequacies of the existing infrastructure for exports emphasised that shipping facilities needed to be improv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....try into new market", the learned CIT (A) observed in para 8 of the impugned order that that cost could take two forms : viz. (1) to incur capital expenditure so as to improve the infrastructural facilities such as construction of godown and warehouse in the vicinity of their foreign market, and (2) to incur extra expenditure on advertisement, publicity, etc., for the promotion of the product. He also noticed that the assessee had constructed in the subsequent years a warehouse in theUSAto have adequate storage of its products for ready supplies on indents and had similar plans of constructing warehouses in some centres ofEurope. This fact has not been disputed on behalf of the department. This suggests the giving and the necessity of the CCS in the capital field. Having regard to the above facts it is clear that in the light of the broad principles guiding the determination of the character of a receipt and doing so from a commercial point of view, that though the assessee received CCS in its capacity as registered exporter of specified engineering goods, the CCS receipts in question could not be treated as supplementary trading receipts received by it as a trader in the course of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion" are wider. In this connection the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 is relevant. However, we do not agree that each transaction of export is of such a nature that the CCS is treatable as given to assist the assessee to start its business or "before the commencement of business" so as to make it a capital receipt in the sense in which the Hon'ble Delhi High Court was treating it in the case of State Trading Corpn. of India Ltd. 9.9 The Central Government had announced in 1971 a separate scheme known as the "10 per cent Central Outright Grant of Subsidy Scheme 1971" for industrial units to be set up in certain selected backward districts/areas. It was given primarily for helping the growth of industries and not for supplementing their profits. Under that scheme the quantum of subsidy was determined with reference to the fixed capital and not the profits. The working capital was specifically excluded from the computation of fixed capital for this purpose. One of the conditions for the grant of that subsidy was that the undertaking must remain in production at least for a period of 5 years after it w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... these cases. The first is that if subsidy is granted more as recompense of the hardships and inconveniences in the setting up of the industry the subsidy can be justifiably taken as on capital account. The second point is that in the case of subsidies if both views are plausible, we would be justified in adopting the interpretation which is favorable to the assessee. In this sense the decision in the case of Godavari Plywoods Ltd. also would help the assessee. 9.10 We may, before parting, with the discussion on this point, also refer to certain decisions not already discussed. In the case of Kesoram Industries & Cotton Mills Ltd. the A. Y. involved was 1963-64. There, under the export promotion scheme (prior to6-6-1966) the exporter of cotton cloth or yarn was eligible for the grant of import licences to the extent specified. Similar was the case in Swadeshi Cotton Mills Co. Ltd.'s case which dealt with the cotton textile export incentive scheme announced by a press note dated.22-11-1958. The assessee had received import entitlements which were partly utilised and partly surrendered to get cash. In the case of Handicrafts & Handloom Export Corpn. loss incurred by the subsidiary....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the dock co. without any special allocation to any particular part of their property-capital or revenue-and did not bear any resemblance to a trade receipt. In the case of CIT v. Sahney Steel & Press Works Ltd. [1985] 152 ITR 39 (AP) dealing with refund of sales tax on purchase of machinery and raw materials and on the sale of finished goods, it was held, that it was not a voluntary payment but one connected with the assessee's business and therefore assessable under section 28 and 41(1). In the case of Dusad Industries under a scheme framed by the Govt. of M. P., the Govt. granted sales tax subsidies to industries set up in backward areas. It was held that the same was given by way of an incentive for capital investment and not by way of addition to the profits of the assessee. In Malayalam Plantations Ltd.'s case and West Coast Industrial Co. Ltd.'s case subsidy received from Rubber Board towards reimbursement of expenditure incurred in replantation, development, maintenance and upkeep of rubber tree was held to be a revenue receipt. In respect of backward areas, the a subsidies were held to be not deductible in determining actual cost of assets under section 43(1) in the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase for an earlier year though for other reasons. 9.11 We now take up the question of the assessability of DBK. We have already noticed that though DBK forms part of a package of incentives, its nature is not the same as that of the CCS. It flows from statute. In relation to any goods manufactured in India and exported, DBK as defined in rule 2(a) of the Customs & Central Excise Duty Drawback Rules, 1971 (framed u/s 75 of the Customs Act, 1962 and section 36 of the Central Excise & Salt Act, 1944) means the rebate of duty chargeable on any imported materials or excisable materials in the manufacture of such goods in India. The learned CIT (A) is right in observing that the nature of the benefit by way of DBK is the same as benefit by way of cheaper export credit except that in the case of a bank finance, the cheaper rate of interest is a predetermined event while borrowing, while DBK follows the export and claim for relief. The factual position also is that the assessee had itself taken credit for the concessional interest by claiming only the actual interest expenditure and, therefore, the assessee had reduced the cost of other inputs on which DBK had been claimed and allowed o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be taxable as revenue receipts and there are decisions to the contrary : (1) Wheel & Rim Co. of India Ltd.'s case; (2) Agra Chain Mfg. Co.'s case; (3) CIT v. Ashoka Lungi Co. [1979] 120 ITR 413 (Mad.); (4) Swadeshi Cotton Mills Co. Ltd.'s case; (5) Shardlow India Ltd. v. CIT [1981] 128 ITR 571 (Mad.); (6) Jeewanlal (1929) Ltd.'s case; (7) ITAT v. B. Hill & Co.(P.) Ltd. [1982] 29 CTR (All.) 301; (8) Kamani Engg. Corpn. Ltd. v. CIT [1983] 37 CTR (Bom.) 204 and (9) O. K. Industries v. CIT [1987] 163 ITR 51 (Ker.). No doubt, in the following cases when the department sought to levy capital gains on the sale of import entitlements, it was held by the various High Courts, on the 128 basis of the well-known decision of the Supreme Court in the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 that since the cost of its acquisition was nil, no capital gains tax could be levied. (The import entitlement was no doubt considered as a capital asset) : (1) CIT v. T. Kuppuswamy Pillai & Co. [1977] 106 ITR 954 (Mad.); (2) K. N. Daftary v. CIT [1977] 106 ITR 998 (Cal.); (3) Addl. CIT v. K. S. Sheik Mohideen [1978] 115 ITR 243 (Mad.)(FB); (4) Nonsuch Tea Estates Ltd. v. CIT [1981] 129 IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cash compensatory support extended being for making up the deficiencies, inadequacies and hardships generally in the export infrastructure and export set up. Therefore, whereas the DBK and receipts by way of sale of the IE constitute supplementary trading receipts by way of income, the CCS receipts are to be treated in their entirety as capital receipts. It is not possible to pinpoint or specifically identify any defined portion or component of the CCS as income or a supplementary trading receipt. Even if two views were possible on this point the benefit had to go to the assessee. 9.16 In the end we would like to acknowledge the valuable assistance rendered to the Bench by the very able, detailed, sustained and persuasive arguments, paper book and case law on both the sides. 10. In the result the appeals are partly allowed. Per Shri Anand Prakash, Accountant Member - These are cross-appeals pertaining to assessment year 1979-80 for which accounting period of the assessee commenced on1-7-1977 and ended on30th June, 1978. 2. The first ground of appeal of the assessee pertains to its claim under section 80J of the Income-tax Act, 1961. My brother Shri V. P. Elhence has dea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Tribunal made up of beautiful expensive plastic and were colourful and were meant to be of durable nature and they were more or less like beautiful souvenirs to the customers who purchased the assessee's goods. In view of this, it was observed by the Tribunal that "if the assessee is in a position to separate its cost from the total packing expenses, the same (special wrapping) should be given the benefit of section 35B of the Act...." At the time of hearing, the assessee submitted that the ITO had since given effect to the above order and had bifurcated the expenses and allowed weighted deduction in respect of the special packing material. 5. When the matter came up for hearing before the present Special Bench, the assessee conceded that the expenditure may not amount to sending samples but that it amounted to doing advertisement. Any body who saw the special wrappers would be attracted and catching attention of others was the essence of advertisement and, therefore, even though the special wrappers may not be treated as samples, but they may be treated as advertisement. 6. The above argument of the assessee was opposed by the revenue and the learned D. R. submitted that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; 1,33,82,158 2. Draw-back of duty 51,93,926 3. Income from sale of import entitlement 16,73,519 My learned brothers Sh. V. P. Elhence has held that whereas the items at 2 and 3 above are taxable being revenue receipts and item No. 1 is not taxable as it is a capital receipt. He has also held that "the benefit resulting to the assessee as an exporter (in the form of cash compensatory support) was incidental". It was so because, according to him "the dominant object of granting CCS was the targeted expansion of its export earnings as a nation a goal of a very high priority to fulfil which even the domestic sales were to be restricted for increasing exports. The dominant purpose was also to gear up and improve the foreign exchange earning set up of the Government in which the assessee's contribution and co-operati....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... entrepreneurs. The underlying principle is that the benefits of individuals will add up to the benefit of the nation in this regard. 12. The next point which deserves to be emphasised at the outset is that export means nothing more than sales of the goods of an individual in the foreign market, as opposed to the sales of the goods of the same individual in the internal market. The exports are in fact as good sales as the sales in the internal market. There is no difference in the nature of the two at all. Therefore when Government endeavours to increase the exports of our country what it does is to ensure that the individual units are encouraged to sell their goods more and more in the foreign market. To view exports as a category apart, and as if it is something different from the sakes in the internal market may not be correct. Its essential nature, as emphasised earlier, is nothing but that of sale on one's goods. It is true that in the case of sale to the foreign markets, there are more restrictions than in the case of sales so goods in the internal market, but the intervention of these restrictions does not transform the nature of the exports which remains that of sales. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tile Export Incentive Scheme. Under the announcement all exporting mills would be granted with effect from the quarter ended March 1959 import quotas for raw cotton equal to 60 per cent of the F. O. B. value of their exports. Under the modified Scheme of the imports the eligible mills will be allowed to retain only 10 per cent for their own use as against 15 per cent allowed under the Old Scheme; the balance being made available to the Textile Commissioner.....". In September 1959 a new Scheme for the promotion of exports of engineering goods was announced. According to the Scheme, "it was open both to established and to prospective exporters. Manufactures could obtain their requirements of raw materials, indigenous steel and pig iron, tools, components, etc., for fulfilling the export targets agreed to by them....". In their report for the period1-7-1960to30-6-1961, the Central Board of Directors of the Reserve Bank ofIndia, reported, inter alia, as below : ".... The relatively poor export performance reflected the severe competition that all major exporters had to face abroad and emphasized the imperative necessity to reduce costs and improve quality at the same time as the vo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... addition to these policies, it was realised that further steps will have to be taken to provide case assistance to the exporters with a view to provide them incentive and also to neutralize some of the disadvantages which they were still facing and which were not removed by the above mentioned policies and on account of which the cost of production of the said goods was at a higher level. Export policy resolution of 1970 of the Govt. of India took note of the various disadvantages faced by the Indian exporters in expanding their exports in the foreign markets. It noted the crucial role of the export earnings for financing the ongoing plans for the country's economic development in the form of placing at its disposal the foreign resources and it pointed out that "to achieve national self-reliance and to reduce dependence on external assistance export earnings needs to be expanded at a high rate....". It then identified the various field of the country's economy which would provide fruitful domain for augmenting export efforts. After referring to the agricultural sector, horticultural sector, export of sea foods, Indian forest products, mineral produce of the country and textile ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cash assistance to the engineering industries was dated17-8-1966and was addressed to the Engineering Promotion Council. It read, inter alia, as below : "(1)(i) The Government has decided to grant cash assistance against exports effected from6-6-1966of specified engineering products. A list of products eligible for such assistance with the percentage of assistance in annexed. There will be no concessional supply of iron and steel in addition....". The cash assistance was to be given as a percentage of FOB value. The above communication may it be noted did not indicate the basis on which cash assistance was to be given. 20. The said Engineering Export Promotion Council to whom the aforesaid communication dated17-8-1966was addressed wrote in its turn to its Members on24 August, 1966stating, inter alia, as below : ".... As Members are aware, the special export promotion scheme for engineering goods was abolished by the Government w.e.f.6-6-1966, the Government has since announced a new scheme under which exporters will get cash assistance against exports effected from6-6-1966. In addition, exporters would also be eligible for replenishment for the exported material to the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....low : "In many export products, the profitability from exports is low and our indigenous costs are high mainly because of the high cost of domestic raw material and intermediates. In such cases, it is much better to remove the disadvantages to our exporters at the source by making available inputs at international prices, if necessary through imports provided value added is reasonable.... In such cases, where the import replenishment is pushed up to order to accommodate inputs at international prices which the exporter has at present to procure from the high cost domestic market, the rates of cash assistance should be suitably adjusted downwards." 23. In paragraph 6, the Committee went on to discuss the present basis of determining cash assistance, the inadequacy thereof and laying down the criteria for begin adopted in future while determining case assistance for individual industries. It is important to note the content of paragraph 6 in entirety to appreciate the background which weighed with the Members of the Committee when they recommended the 7 criteria to which reference has been made by my learned Brothers Sh. V. P. Elhence in his order. It reads, inter alia, as belo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sticity of the products; (b) import content and domestic value added; (c) approximate implicit subsidy, if available under the import replenishment scheme; (d) compensation for irrecoverable taxed and levies; (e) difference between the domestic cost and international price of indigenous inputs and raw materials; (f) costs of entry into new market; and (g) a cut off point up to which subsidy is to be allowed." 23.1 From the above, it will be seen that up to31-3-1976, the rates of cash assistance were determined with reference to the difference between the F. O. B. price realization and the marginal cost of production. Marginal cost of production is equal to the cost of raw material plus conversion cost plus variable product expenses and the fixed overhead expenses. Marginal cost has not been defined. But as can be seen from the circular issued by the ministry of Commerce, Civil Supplies and Co-operation dated23rd October, 1978addressed to all Export Promotion Councils, the formula for determining the marginal cost and F. O. B. value was as below :  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t F. O. B. realisation. (9) Shortfall on net F. O. B. cost. (10) Shortfall as a percentage of net F. O. B. realisation. Date : Signature Place : Name Designation." 23.2 As has been pointed out by the Committee itself, in practice, it was very difficult to ascertain the marginal cost or production of a certain industry. Apparently, the figure which emer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....articular industry from a number of different angles which would require a detailed examination of the disadvantages suffered by an industry and the methodology by which such disadvantages can be removed...." Accordingly, the Bose Malik Committee shifted the focus from the totality of the cost to certain specific elements of costs which according to it were more readily tractable and amenable to remedial action and would due to their visibility be more readily measurable. For example, reference may be made to clause (d) of their recommendation : "compensation for irrecoverable taxes andlevis". Apparently reference here is to taxes like sale tax, octroi, etc. which are not reimbursed to the producer through Duty Drawback schemes or rebate of Central excise scheme, etc. Clause (e) similarly takes into account the difference in cost of international prices of the inputs and the indigenous prices thereof. Clause (f) similarly takes into account the costs which one has to incur in order to make an entry into the new market in the form of high-pressure, publicity, travelling expenses to those countries, appointment of agents, etc., in those countries to canvass orders and the like. It....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uction for a product vis-a-vis an industry and that in comparison it was easier to identity and measure individual elements of costs referred to above, and to spell out practical policies on their basis. 24.3 The search was, thus, for a suitable measure to determine cash assistance; the rationale of cash assistance continued to be the same as earlier, namely to assist the exporter by removing his impediments and disadvantages vis-a-vis the cost of production with a view to improve the acceptability of the Indian Exports in the international market and to induce the Indian exporters to sell more and more of their exportable goods to foreign countries by making "export activity profitable". To confuse the change in the measure of cash assistance with change in its rationale would be confusing the root for the branches. 25. In view of what has been stated above, it is not understood as to how could the CIT (A) regard criterion No. (a), (b) & (f) referred to above as on capital account. Apparently, he did so because he did not have before him the Bose Malik Committee Report. He was misled by what was told to him by the Jt. Secretary of the Ministry of Commerce who gave his own in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Bose Malik Committee. I am unable to comprehend as to wherefrom my learned Brothers gathered the above impression. It could not have been from the report of the Bose Malik Committee and it may be clarifies that there was no other report on the basis of which the cash assistance measure might have been formulated for the period1-4-1976to31-3-1979. For building up capital base and removing the inadequacies in the infrastructure there may be other schemes in operation. For example in September 1959, the new import policy, as announced, provided for "the introduction of a new licensing category in respect of capital goods (issue of licences for the import of capital equipment and machinery under this category would be liked to additional exports of a promotion nature...." Similarly to neutralise the disadvantages of freight differential formation of indigenous shipping companies was encouraged and Shipping Corpn. ofIndiawas incorporated. Railways also provided concessional tariff for carrying goods from the manufacturing centre to the port of loading. Alexander Committee devoted a full Chapter to consider tariff system. To mix up the object of these separate schemes with the rationale ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e accepted by their Lordships of the Hon'ble Calcutta High Court who observed in this connection as follows at page 455 of the report : "..... We are inclined to accept this contention of the assessee that, it must be determined on the true basis and character of the cash assistance and the true nature of the receipt. It is, therefore, necessary for us to determine what is the true character of the receipt..." 28. It will thus be seen from the above extract from the aforesaid judgment that the plea that the purpose of granting cash assistance was to compensate the exporters for their losses was not accepted as the correct interpretation of the scheme of cash assistance and that their Lordships went to consider the nature of the cash assistance de hors the above consideration on general principles regarding its character, etc. 29.1 Cash assistance and cash compensatory support are interchangeable phrases as would be clear from the clarification issued by the Ministry of commerce in their letter dated23-1-1976wherein the following observations were, inter alia, made by the Ministry : "It is clarified that the phrase 'cash compensatory support' used in the instructions, re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g that the Secretary has tried to simplify the position by referring to the difference between the F. O. B. earnings and the cost of production whereas the Bose Malik Committee refer to F. O. B. earnings and marginal cost of production. The above position of the Secretary was interpreted by the Joint Secretary to mean as follows in his letter dated11-5-1984to the CIT (A) quoted by him at page 15 of his order : "It would be correct to interpret as the commerce Secretary has already testified before the PAC, that the concept of cash Assistance was modified w.e.f. 1-4-1976 when it was delinked from the mere compensation for losses arising to the trader from exports as was the position till then and was made more broad based to subserve the development of the infrastructure for improving exports of specific products on a continuing basis." The reference to development of the infrastructure from improving exports of specified products on a continuing basis is entirely a new element which has been introduced by the Jt. Secretary in the aforesaid letter which was never one of the factors taken note of by the Bose Malik Committee as would be clear by reference to the seven criteria i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... supporting measures were introduced with a view to promoting exports. Export entitlement scheme, duty drawback, cash compensatory support are some of the export incentive measures introduced in this period. The measure of devaluation in 1966 was also to a large extent aimed at correcting the overvaluation of domestic currency thereby providing differential encouragement to exports as against imports..." While dwelling on basic issues of Export Policy, the Committee observed in paragraph 4.6 as below : "Export Policy should be designed with a long-term perspective in regard to the various aspects of the export activity. Choice of products for promotion or control should be based on the principles of long-term comparative advantage rather than short-period potentialities or problems. Export products should be such that they can sustain themselves in the export market on their own after an initial period of assistance in the form of cash support and concessions. Encouragement of wrong types of export products-those with short period potentials-may imply high assistance costs in the long period. Policies towards market development should also recognise the need for sustenance of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wide (sic) and policy factors should be fully naturalised so that the competitiveness of the product does not suffer because of the total framework of the economic environment. For example, if indirect taxes on the inputs, and poor image of the country as a capable source of supply, hinder the competitiveness of a product, there is a case for neutralising these sources of disadvantage by appropriate services and assistance..." 32. In paragraph 4.17, the Committee evolved and recommended three principles of cash assistance for exports. The said paragraph deserves to be noted in extenso for ready reference ad is accordingly, extracted here as below : "4.17 As discussed earlier, cash assistance should essentially aim at neutralising the disadvantages arising out of policy factors and also the characteristics of the firm and the product. It is also important to recognise that cash assistance (CA) should be available only for a limited period during which the relevant disadvantages, to the extent possible, could be eliminated by conscious efforts. In any case, cash assistance should not be continued for indefinite period. The Committee felt that the magnitude and pattern of cash a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erence to any of the items which might be constituting the capital cost or the cost of the infrastructure as such. The criteria are all with regard to the particular elements which go to constitute the cost of production and attempt is made to reduce the same to make the cost of the Indian exports competitive vis-a-vis the international prices. 34. In paragraphs 4.9 to 4.15, the Committee studied the costs and benefits of export promotion and while working out the cost of export promotion, it observed in paragraph 4.13, inter alia, as below : ".... The objective of the export promotion effort is to maximise the net foreign exchange earning and the benefit cost ratio should ideally consider the net foreign exchange earning on the benefit side by deducting from the gross earnings the quantum of their direct and indirect import contents. Similarly, on the cost side also there is tribute to the revenues through increase in direct taxes and also indirect taxes on the inputs induced on account of the additional export production. In fact part of cash assistance 'returns' to the exchequer in the form of tax on income including this cash assistance and taxes on inputs..." From the po....
X X X X Extracts X X X X
X X X X Extracts X X X X
....such as quality and the product profile, have adversely affected the competitiveness of our exports..." In Chapter III, the Committee considered export promotion policy and strategy to be adopted for that purpose. It pointed out in paragraph 3.1 that "over the next decade, export earning would have to finalise a larger and larger proportion of imports, if we have to keep external borrowing and the burden of debt servicing within manageable proportions." According to the Committee, "In the Indian context, export promotion policies need to perform two roles, that of providing compensation on the one hand and that of providing assistance to remove disincentives on the other." The Committee noted that the present regime of export promotion policies consisted of the following : (i) the duty drawback system; (ii) the market development assistance which is made up of the cash compensatory support and other forms of assistance for market development; (iii) fiscal concessions for exports; (iv) the import policy for export; and (v) the Free Trade Zones and 100 per cent Export-Oriented Units. While considering duty drawback system, the Committee pointed out : The object o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was being determined and observed, inter alia, as below : "3.15 The Committee was informed that CCS rates are determined after considering the incidence of unrebated indirect taxes, the disadvantages implicit in higher freight rates and interest rates as compared with competitors, and the cost of product/market development. It is exceedingly difficult to quantify each of these components of CCS across the wide range of eligible products. A rough assessment of available evidence suggests that at least two-thirds, in some cases as much as three-fourths, of the CCS disbursed in recent years was simply a compensation for unrebated indirect taxes which are not refundable through the duty drawback system. This production is probably an under-estimate inasmuch as the evidence on the incidence of unrebated indirect taxes relates to inputs at the final stage of the manufacturing process whereas, in practice, the cascaded structure of taxation implies that there is an element of unrebated indirect taxes at earlier stages of the manufacturing process. What is more, the CCS disbursed is added to the taxable income of the exporter so that a significant proportion of it is returned to the Gov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....support has been to enable exporters to meet competition in foreign markets to develop marketing competence and neutralise disadvantages inherent in the present stage of development of the economy. From this point of view, the cash compensatory support was earlier, i.e., prior to 1-4-1976 onwards instead of determining it with reference to the difference in the F. O. B. price realisation and the marginal cost of production and from 1-4-1976 onwards instead of determining it with reference to the totality of the cost of production, it is being related to some of the elements which go to form the cost as spelled out in the Bose Malik Committee Report and the Alexander Committee Report referred to above. (3) That the nature of the cash compensatory support is purely of revenue nature as it tends to provide compensation and assistance in removing disadvantages faced by the exporters of this country in the international market with a view to persuade them to sell more and more to the foreign markets. (4) The above nature of the cash compensatory support was recognised both by the Alexander Committee and by the Abid Hussain Committee who pointedly brought out that cash compensatory....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pts and the amounts, it is found that these amounts were supplementary trading receipts or were connected with the business even though they did not arise actually from any positive operation of the traders, then in our opinion, it should legitimately be considered to be 'business receipts'. After laying down the propositions as above, their Lordships referred to the facts of the given case and observed as below : "... In this case the Govt. announced cash assistance for encouraging exports; but it was the exporter who did, in fact, export, got the assistance. It was by the exportation or making favourable exports that the assessee received those amounts. This, in our opinion, is the true nature of the assistance. If that is the position then it is incidental to and supplemental to the trading receipts and should, therefore, be considered to be revenue receipts." The above principles have been followed by various Courts in a number of cases and their Lordships have given a detailed list of the cases wherein the above proposition had been laid down and followed. 38.1 A similar question regarding the nature of cash subsidy given by the Textile Committee to the various export....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the accounting period was over, the assessee had constructed a warehouse inU. S. A.There is no knowing that the said warehouse was constructed by the assessee out of the receipts by way of CCS and even if it were so, it would not make any difference to the nature of the receipt as pointed out by their Lordships above. The nature of the receipt has to be adjudged at the threshold itself and not by the subsequent user thereof. 39. I have already noted above that there is no criteria laid down either by Bose Malik Committee or by Alexander committee stating that cash compensation should be given to the assessee for acquiring some capital goods or assets. The receipts in question is purely in the course of the business carried on by the assessee and in fact the amount is being paid by the Govt. to the assessee with a view to induce him and to enable him to sell more and more in the foreign countries. Something given to boost sales has to be in the nature of revenue receipt only and it is incomprehensible to me that it would be in the nature of capital receipt. A plethora of case law has been reviewed in the judgment of the Tribunal in the case of Reliance International Corpn. Ltd., ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ject of awarding the cash assistance remaining unchanged all along. Thus, whereas prior to 1-4-1976, it was the difference between the marginal cost of production and the F. O. B. value that was taken into account for measuring the cash assistance to be given, after 1-4-1976 and up to 31-3-1979. It was the principles evolved by Bose Malik Committee with reference to the elements of cost of production that was used to ascertain the quantum of cash assistance and from 1-4-1979 onwards, it has been the three principles enunciated by the Alexander Committee Report which are more or less of the same nature as the principles enunciated by the Bose Malik Committee report which are being used to measure the quantum of cash assistance. On account of change in the measure, the nature of the item itself would not get changed. The quality of the payment, namely, cash assistance has remained all along the same. According to the Bose Malik Committee Report, the system of cash assistance, suitably revised as a means of boosting of export effort should continue. This being the essential nature of the payment and this being the rationale for its being granted by the Government to the exporter, it h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade to the ratio of the judgment of the Hon'ble Calcutta High Court in this regard in the case of Kesoram Industries & Cotton Mills Ltd. In the case of H. R. Sugar Factory (P.) Ltd. the assessee was given certain cash assistance with a view to enabling it to start early crushing w.e.f. Nov. 4, 1956 four annas per maund of cane crushed up to Nov. 12, 1956. The said amount was not specifically given to meet any cost or expenditure but only as an inducement to start early crushing of sugarcane in sugarcane industry and yet it was held by their Lordships of the Hon'ble Allahabad High Court that the above sum was taxable as it arose from the assessee's business. 41.2 Apart from which has been stated above, I am of the opinion, that when judgment of one of the Hon'ble high courts set up in this country is available on the interpretation of the nature of a certain item and there is no contrary decision of any other High Court, the income-tax authorities as well as the I. T. A. T. should follow the said decision in the interest of uniformity in the administration of an All India Taxation Statute. No Bench of the I. T. A. T. whether Single Member, or the Division Bench or the Special ben....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Special Bench despite my request to the counsel of the assessee to show authority for the proposition that prior to 1-4-1976, the rationale governing the grant of cash assistance was different from what it came to be after 1-4-1976, the said reports should be now placed on record. The Abid Hussain Committee Report was also material because it reviewed the entire history of the CCS and threw a considerable light on the nature of the receipt and was necessary in the interest of substantial justice to dispose of the present controversy which is of great import and would have far reaching consequences as is recognised by the President himself when he appointed the Special Bench, I therefore requested that it be also considered. My request was however rejected by the President and other Brothers by observing, inter alia, that the Special Bench could not look at those reports because the said reports had not been placed before the Bench by either of the two sides. I am unable to accept the correctness of the above decision because in my opinion when reference is made to a Committee's report, the Bench has every right, rather obligation and duty to look into the Committee's report suo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Abid Hussain Committee Report and its recommendations. It is a published document issued by the Govt. of India, Ministry of Commerce in December, 1984. Therefore, it was all the more reason that both the sides should have been able to address us at length on the history of cash assistance as brought out by the various Committees referred to above, instead of going by the gloss out by the Jt. Secretary of Ministry of Commerce with regard to the Bose Malik Committee Report. 43.1 Apart from the above, the rationale of setting up the Special Bench is defeated by not examining the said reports and by not letting the two sides make their submissions with reference to them. The propertied object of setting up a Special Bench is to create a precedent for other Benches of the Tribunal to follow. But when the Special Bench refuses to examine the most vital reports and yet gives its interpretation on what has been stated in the said reports, the order of the Bench will lose its value as a precedent for other appeals, where the two sides might like to place on record the three reports and develop their arguments on the basis of their texts, instead of what other said about them. In that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TAT, Madras in the case of ITO v. Bharat Skin Corpn. (15 Taxman 57) and the Board's operative instruction on this subject as quoted in the Tribunal's order, there is no justification for enhancement of the income by withdrawing the weighted deduction allowed u/s 35B on the amount of Rs. 12,10,893 paid by the assessee as commission on export sales." The above discussion would clearly show that the CIT (A) did consider the request of the IAC for enhancement and rejected the request on merits on the ground that the matter stood covered by the judgment of the Special Bench of the ITAT, Madras in the case of ITO v. Bharat Skin Corpn. [1983] 15 Taxman 57 (Trib.). 48. The Revenue's contention in respect of the above finding of the CIT (A) was that it was erroneous and that the decision of the Madras High Court in the case of Southern Sea Foods Pvt. Ltd. clearly covered the present subject-matter particularly with regard to those agents who were situated in India and who had rendered services to the assessee-company in India. On behalf of the assessee, it was submitted that no appeal would lie before the Tribunal in respect of the above issue on behalf of the Revenue for before the C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the ITO to file an appeal before the Tribunal with regard to the observations made by the CIT (A) in paragraph 14 does not appear to me to be correct. The ground of appeal No. 5 was, thus, according to me, entirely valid and could have been raised by the CIT and the Revenue cannot be thrown out right at the threshold on the ground that an appeal against refusal of IAC's request for enhancement would not lie to the Tribunal. 50. If the CIT had refused to pass an order with regard to this request, what would have happened, would be a totally hypothetical situation, and, in my opinion, it would be wrong on the part of the tribunal to answer a hypothetical question which does not arise from the facts of the given appeal. The issue must be left open for proper canvassing in case where it might arise in future. 51. The learned counsel for the assessee had urged that only the assessee had the right of appeal before the CIT (A) and the ITO was precluded from appealing against his own order, and that as such, it was not open to the ITO to request the CIT (A) to enhance the assessment at his instance. The CIT (A) could of course do it on his own but the ITO had no right to approach the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hancement with regard to the mistakes committed by the ITO, if any, it is not understood as to what prevents in law, the ITO from bringing to the attention of the CIT (A) that in his order he had committed some error which deserved to be rectified by him and for which enhancement was the remedy. The ITO has a locus stand before the CIT (A) as a respondent and in this capacity, he can brig to his attention, an issue on which enhancement is in his opinion necessary. The CIT, once such an issue is brought to his attention, is duty bound to exercise his discretion in a judicial manner as to whether or not to make the enhancement. The order which he passes on the issue raised by the ITO would be part of a judicial order against which an appeal does lie to the Tribunal as noted above. In view of this, I am unable to go along with may other Brothers on this subject namely that no appeal would lie to this Tribunal against the refusal of the CIT (A) to enhance the total income of the assessee on a point raised by the ITO but rejected by the CIT (A). In the present case, however, it has already been stressed above that the facts are slightly different. The CIT (A) did entertain the objection....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt to other countries in almost all the parts of the world. For the previous year, which ended on 30-6-1978, returned declaring income of Rs. 2,25,70,517 was filed on 27-6-1979. Total turnover of various units amounted to Rs. 18,68,94,744 and gross profit Rs. 2,11,10,995 giving a rate of 38 per cent. For the immediately preceding years the corresponding figures were Rs. 15,13,14,194, Rs. 1,78,01,411 and rate of 40 per cent. In addition various benefits under the Income-tax act, 1961 (hereinafter referred to as the Acts) like relief u/s 35 were being availed of. 3. A revised return came to be submitted on 7-1-1980 reducing the taxable income to Rs. 2,16,08,971 because commission payment of 3 per cent to selling Agents came to be proved by the Company Law Board in respect of the period under consideration. The return had to be further revised to Rs. 2,09,67,942 on10th Oct., 1980because, on the assessee's representation, the commission payable was enhanced from 3 per cent to 5 per cent. A fourth return revising income to Rs. 1,99,58,308 was furnished on 29th October, 1980, in which though the assessee reduced its interest claim under sec. 40-A (8) of the act by Rs. 1,10,240 enhanci....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 144-B of the Act on an income of Rs. 2,67,46,348. 6. The abovesaid variation arose mainly on account of : (a) lesser relief given under sec. 80-J, inasmuch as, as against the claim of Rs. 22,50,390 in respect of Unit No. 4 (Kundli Unit), the ITO's computation amounted to Rs. 14,72,014 and in respect of Unit No. 5-Aurangabad reduction of 80-J was from Rs. 24,28,623 to Rs. 7,59,218, and (b) deduction under sec. 35-B of the Act claimed at Rs. 75,34,187 was reduced to Rs. 10,68,499. In other words, the difference in relation to sec. 35-B claim itself, was of the order of Rs. 64,65,688. There were other disallowances under sec. 40-A (5) read with section 40(c) of the act with which we are not concerned. 7. The assessee had claimed tax holiday benefits under sec. 80-J of the Act in respect of Unit No. 4 (Kundli Unit) and Unit No. 5-Aurangabad on the ground that it was the gross capital employed without adjustment of liabilities on which 80-J relief was to be worked out. Reliance was placed on the decision of the Hon'ble Calcutta High Court in Century Enka Ltd.'s case. The assessee and also revised its claim taking the value of assets on actual costs instead of WDV. The claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... High Courts. The IAC will have to revise the allowances and restrict them to the amount actually allowed by him in case the Supreme Court ultimately uphold the retrospective amendment of section 80-J or the validity of rule 19-A." 9. Both the assessee and the Revenue were dissatisfied with the CIT (A)'s order on 80-J issue. The assessee's grievance being that the CIT (A) should have clarified that actual cost of assets and not the depreciated value was to be considered for 80-J deductions and the Revenue contending that valid directions could not be given, that relief be worked out by relying on the principle laid down by the Calcutta High Court in the case of Century Enka Ltd. till the final decision of the Hon'ble Supreme Court. 10. We have given above details because of the vagueness of the grounds taken both by the assessee and the Revenue. However, before us, Shri G. C. Sharma, Senior Advocate, sought the Bench's permission to withdraw 80-J dispute and conceded the Revenue's appeal on the question which was accorded in view of the Hon'ble Supreme Court judgment in the case of Lohia Machines Ltd. In such view of the matter, we reverse the order of the CIT (A) and direct ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; 2,31,591 10. Packing materials consumed for exports only 65,08,653 11. Difference in foreign receipts and remittances 10,55,379 12. Salary, etc., for head office staff for exports only 8,84,451 13. HRA exports department 22,229 14. Conveyance allowance-Export Department 22,186 15. General charges - Regarding Exports 19,612 16. Printing & Stationery - Regarding Exports 31,761 17. Postage, Telegrams & Telephone -  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; Amount 6. Interest on post-shipment export Credit Loan 4,50,983 11. Exchange rate difference 10,55,379 Inland freight on export consignments (as mentioned in para. 13 of the order) 33,90,473 7. Ocean Freight on export consignments  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., these would be entitled to weighted deduction, because it was entirely for the purpose of development of export markets that the assessee prepared beautiful and expensive plastic and colourful wrappers, which were more or less of durable nature and not wrappers, as the term is generally understood. What was exhibited in the court before us was that set of tools were neatly arranged in plastic containers, which were termed as samples for tools. Considering the type of wrappers, we direct that these should be considered as samples and if the assessee is in a position to separate its cost, the same should be given the benefit of deduction under section 35-B of the Act. The total claim is in respect of Rs. 25,02,836 but it shall be subject to bifurcation, if necessary, after it is subject to the scrutiny of the ITO." With regard to the above, Mr. Sharma submitted that in respect of assessment year 1976-77, the assessee had been in a position to bifurcate expenses in relation to the cost of wrappers and that the assessing officer has accepted the same. If such is the case, the same pattern is directed to be applied to this year also. 16. Since, for the assessee, it was given in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ifficulty in analysing the above three expenses in view of our observation above. 17. Before parting with section 35B controversy amounting both from the assessee's and revenue's appeals, it must be stated that very strong reliance was placed on the judgment of Hon'ble Madras High Court in the case of southern sea Foods (P.) Ltd. for the contention that it has greatly diluted the concept and principle enunciated by the Special Bench with regard to sates of expenditure (place where the expenditure is made) for allow ability of relief. In view of the vigour with which the revenue sought to by-pass the Special Bench decision we closely looked into the Madras High Court judgment again and fine that the Hon'ble Madras High Court was dealing with a case, where the assessee had engaged the services of another company for the propose of procuring orders from foreign years in respect of export of prawns and shrimps and though the Tribunal allowed 35-B relief in relation to commission paid to the company, whose services were engaged, the Hon'ble High Court reversed the decision by observing that the object of the provision being not fiscal but to advance the policy of the state to promote....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecision of the Madras High Court in the case of Southern seafoods Ltd. I have heard the assessee in this behalf and I am of the view that in the light of the law as explained by the Full Bench of the ITAT, Madras, in the case of ITO v. Bharath Skin Corpn. (15 Taxman 57) and the Board's operative instructions subject, as quoted in the Tribunal's order. There is no justification for enhancement of the income by withdrawing the weighted deduction allowed under section 35B on the amount of Rs. 12,10,893 paid by the assessee as commission on export sales." Before us, it was submitted that, though the total commission paid amounted to Rs. 27,76,816 but for Rs. 12,10,893 the balance commission was paid outsideIndiaand even in respect of Indian payment, the nature was the same. 21. We do not propose to deal with the question of justification of the allowance because of the considered view that the power to make enhancement vests with the first appellate authority and if he does not choose to exercise the same, the saturation cannot be remedied by way of appeal before the Tribunal. In this connection, we like to notice and analyst the provisos of section 251, which spells out the rela....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t order being only a part of such process-but, the catch is in the last lines and the last word 'appellant', reading as : "Notwithstanding that such matter was not raised before the AAC, or, as the case may be, the Commissioner (Appeals) by the appellant." The indication is clear and loud that the above provision is means for the benefit of taxpayer only. There is and should be no conflict on this score. 23. Coming to the assessee's appeal, Ground Nos. 1 & 2 concerning 80J and 35B, we have already adjudicated upon, because they were linked up with similar issues in the revenue's appeal. 24. I like to take up Ground No. 6 before dealing with Ground Nos. 3,4 and 5, in which the taxability of Rs. 7,35,191 arising out of difference in exchange rate is contested. To adjudicate upon this, we do not have to exercise much mental faculties because of the following to Supreme Court Judgments : 1. Canara Banks Ltd.'s case. 2. Sutlej Cotton Mills Ltd.'s case. 25. The above judgments ar authorities for the proposition that receipts arising on revenue account are taxable and that its precisely that happened in relation to difference in exchange rate. The order so the lower a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ta High Court judgment in Jeewanlal (1929) Ltd. v. CIT (1983) 139 ITR 865 and then it was suggested ultimately that the matter be referred back to the assessingofficer of CIT (Appeals) for examination of evidence which was yet to be collected. The all important judgment of the Hon'ble Calcutta High Court in the case of Kesoram Industries & Cotton Mills Ltd. cited as was simply not pressed into service for the Revenue, in which case also, Hon'ble Justice Sabyasachi Mukharji, as he then was (presently Hon'ble Judge of the Supreme Court of India) spoke for the Court as in the case of Jeewanlal (1929) Ltd. In Keshoram's case, the assessee as a manufacturer of textile goods was eligible for grant of import license to the extent of 66 2/3 per cent of the F. O. B. value of such exports. For the exports after1st April, 1960, additional premium at certain rates was granted. For the premium, which was due to the received for the related performance of exports, the assessee received cash payments of Rs. 5,85,701. The Income-tax authority having assessed the amount as trading receipt, the matter came up before the tribunal and submission made was that the receipt was capital in nature. The Tri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hority concerning the type of CCS, as is involved in the present appeal is that of Calcutta High Court in Jeewanal [1929] Ltd. v. CIT [1983] 139 ITR 865, which we shall be referring to. Therefore, if certain authorities do not find reference its because the same have not been considered necessary for deciding these appeals. Similarly, only those arguments are not dealt with which are considered overlapping or irrelevant and which should be considered as rejected. The same considerations are relevant and will apply with regard to submissions and arguments made by Shri G. C. Sharma and Shri Kanwal Krishan, learned advocate who appeared for the assessee at different dates. 14. Before proceeding further, we like to give some dates because at one stage it was very strongly and vehemently contended for the Revenue that the matter should be restored back to the income-tax authorities preferable at the assessment stage to investigate into the facts regarding the nature and scheme of CCS. 15. Hearing in the assessee's appeal started on31-12-1984. Second hearing took place on12-2-1985when appeals were adjourned and marked as part-heard. On14-2-1985assessee's arguments were concluded fo....