TaxTMI 
TaxTMI 
1988 (3) TMI 105
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....d 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 in respect of its claim of exemption with regard to R....
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....ent 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 35B. The assessee and the revenue have raised the following grounds : Grou....
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....l 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 post-shipment export credit loan; (2) Exchange rate difference; (3) Inland freight and Ocean frei....
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.... 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 charge regarding exports; (3) Bank charges on export; Now we come to the following three items : (1) General charges r....
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....efore, 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 Sea Foods (P) Ltd. and submitted that though the assessee was held entitled to weighted deduction on the commission paid, but in the light of said d....
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....efore, 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 Percentage No. &n....
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....nbsp; 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 the DBK is concerned, the CIT (A) held that this benefit was of the same nature as benefit by ways of cheaper export credit except that in the case of a bank finance, the cheaper rate of i....
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....see'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 issue in the earlier case of Jeewanlal (1929) Ltd. v. ITO [1981] 130 ITR 405 (Cal.). (iii) The Karnataka High Court held in Patil Vijaykumar v. Union of India [1985] 20 Taxman 363 dissenting from the judgme....
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....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 sales though it was not a part of the sale proceeds as such but was in pari materia with the same and accruing and arising at the moment the sales took place subject to the putting of the claim and its verification by the....
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....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, the decision of the Special Bench, though it does not over-rule the decision of a Division Bench, is entitled to be respected, is correct and we reiterate the same. The argument of Shri Sharma, based on the doctrine of stare decisis, is ....
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....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 their respective view points before the Special Bench regarding the ratio disdained of the various decisions of the High Courts, of the Supreme Court, the House of Lords and of the Appellate Tribunal having regard to the facts and circumst....
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....rned 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 Government and no taxation could be involved on the amount of such stimulus. The second illustration given by Shri G. C. Sharma was that supposing he was arguing a matter before a court and someone standing by, i.e., other than his client, and hea....
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....as 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 as to the products and that it was not taxable under section 41(1) as the person who imposed that duty did not grant any rebate or refund in any assessment proceedings or appeal. He also submitted that DBK was not related to any particular d....
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....e. 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 said that there was no concept of outright special grant to the exporters. He also wondered as to how the Government could have decided to give an outright grant to a few for earning foreign exchange/exports. Referring to the nature of the recei....
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....ach 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 judges did not appreciate the objects that had persuaded the Govt. to grant CCS as spelt out in Commerce Ministry's Circular dated23-10-1978. (iv) The assessment year involved in that case covered the period before the new Export Policy under which the as....
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....ining 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 is compellable to pay has no relevance the determination of the character of the receipt. It may be that the payee has no legal claim for payment and the payment is made voluntarily. Yet the receipt may be of revenue character.' [P. Krishna Menon v. CIT [1959] 35 ITR 48 (SC)] (....
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....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 business and to supplement his trading receipts. [Pontypridd & Rhondda Joint Water Board v. Ostine [1946] 14 ITR Suppl. (HL) 45, Bengal Textiles Association's case and Dhrangadhra Chemicals Works Ltd.'s case] (xv) If compensation has been paid in respect of two distinct matters, on taking the character of a capital receip....
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....ome 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 goods, effected from6-6-1966. The list of products eligible for such assistance, with the percentage of assistance (on the basis of the difference between F. O. B. price realisation and the marginal cost of production) was annexed with that letter. However, it was made clear that there would be no concessional supply of iron and st....
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....se "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 should he ? The Bose Mullick Committee appointed by the Cabinet Committee in Nov. 1975 recommended that : (a) the system of cash assistance be suitably revised as a means of boosting our effort, (b) the determination of the cash assistance be based on a balanced determination of the above-mentioned seven factors. 9.7 The Cabinet Committee on export decid....
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....ents 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 therefore been taken by the Government of India for export promotion. The package consists of CCS, DBK, IE, etc. It forms part of the export policy of the Government. No doubt, such policy is non-statutory but DBK flows from statute. In relation to any goods manufactured inIndiaand exported it means the rebate of duty chargeable on any imported materials or excisable ma....
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....able. 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 improved. The fact that the infrastructure for exports was required to be developed is again emphasised in the letter dated11-5-1984of the Joint Secretary, Ministry of Commerce addressed to the CIT (A). It is also clear that with effect from1-4-1976the CCS was delinked from mere compensation or losses arising to the trader from exports and was made more broad-based. It was ....
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.... 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 its business. It cannot also be said that though these receipts did not form part of the assessee's sale proceeds, they were linked directly with its sales or that they accrued or arose at the moment of the sales themselves. In respect of CCS receipts it cannot be said that they were received by it specifically by way of recompense or reimbursement of any specified l....
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....o 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 went into production. The CBDT vide its Circular No. 142 datedAugust 1, 1974had held that since it was intended to be a contribution towards capital outlay of the industrial unit, the subsidy was to be regarded as being in the nature of a capital receipt in the hands of the recipient. The same view was taken by a Special Bench of the Appellate Tribunal in the case of Pio....
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....is 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 company was reimbursed by the holding company to enable the former to tide over the loss of capital. It was construed as a case of discharge of another person's debt out of affection. The decision in the case of Handicrafts & Handloom Export Corpn. ofIndiawas the same. In the case of Jeewanlal (1929) Ltd. no doubt, it was held that the cash assistance received by the exporte....
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....ry 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 case of Pioneer Match Works. In Vispro foundry Engineers (P.) Ltd. v. ITO [1984] 7 ITD 721 (Mad.), it was held that where an assessee (a newly set up small scale industrial undertaking) was allowed concessional rate for current consumption under an incentive scheme offered by the State-owned industrial corporation, the refund (which related to earlier years) was not taxable under section....
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....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 or in the alternative credit the drawback received to the profit and loss account to determine its true profits and gains of trade. Having regard to the definition of DBK we do not accept the submission made on behalf of the assessee that it was not taxable u/s 41(1) as the person who imposed that duty did not grant any rebate of refund in any assessment proceedings or appeal. It cannot b....
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....) 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 ITR 28 (Mad.); (5) CIT v. Anglo India Jute Mills Co. Ltd. [1981] 129 ITR 352 (Cal.) and (6) CIT v. Modiram Laxmandas (P.) Ltd. [1982] 30 CIT (Bom.) 209. Thus, even if IE was a mere right (capital asset) its sale yielded income. The proceeds of the sale of import entitlements have also been held by the Appellate Tribunal all along to be taxable. In this connection, we may also refer to the specia....
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....y 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 dealt with the claim of the assessee in this regard vide paragraphs 3 and 3.1. I agree with his finding on this subject and, therefore, it is not necessary for me to elaborate further on this issue. 3. The second ground of appeal pertains to the assessee's claim regarding weighted deduction in terms of the following items : Amount Rs. 1. Interest on post-shipment export credit loan &n....
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....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 packing was packing and it was an element of cost of production and as such, it could not be eligible for weighted deduction in terms of the ratio of J. Hemchand & Co.'s case. According to the revenue, therefore, the order of the learned CIT (Appeals) was correct and, therefore, the Bench should not interfere with it. 7. In my opinion, the element of advertisement is discernible in the special packing that is done by the a....
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....; 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-operation was enlisted as the enterprise of export is not a free one but is State-controlled..." 10. As in my opinion, the nature of all the three items listed above is identical, all three of them had to be treated as revenue receipts, I am assigning my reasons foe holding the above view in detail in what follows. 11. First of all, I would like to deal with the aforementioned theory of "dominant object" of national benefit as if it is differe....
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....al 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. 13. Economic development of a country involves mobilisation of resources both internally from within the country and externally from foreign countries. In the monetary economy money provides the purchasing power : it is through money that the country's resources are mobilised. Internally the customers pay for the goods and services in our own currency but when the entrepreneur in our country need goods from foreign countries for their manufactu....
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....oner.....". 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 volume of output is increased and the range of export products is diversified....." 15. Thus, from the review of the above efforts at increasing exports, it would be seen that the emphasis all along has been on reducing the cost (apart from improving quality) of goods which are exported from this country, and, for this purpose, not only duty draw-back and rebate of central excise, etc., is granted in respect of the components which go in the manufacturing....
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.... 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 industry, it referred to the diversifying of industrial production and the improvement of its economic efficiency, and pointed out that in achieving the industrial growth of the country "every effort will be made to assist export-oriented units in the private and public sectors to achieve of economies scale, improve efficiency of production, reduce cost and adopt production to meet the requirements of their customers abroad. In this context the policy resolution ....
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....as 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 extent of single export content...." May it be noted that even the above communication did not indicate as to what was the basis on which cash assistance was to be awarded to the exporters of engineering goods. 21. The first inkling of the basis taken into account by the Government for granting cash assistance is to be had from the report of the Bose Malik Committee which was set up by the Government of India on 6-11-1975, with a view to undertake a review of the import policy....
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....nal 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 below : "6. Supply of inputs at international prices may provide sufficient incentive for exports of a number of products by raising profitability in the export market. However, for products where we face disadvantages that cannot be fully neutralised by supplying inputs at international prices, it would still be necessary to have a fairly wide ranging system of cash assistance to improve our competitiveness and to make export activity profitable. Thus, the committee recommended that the system of ....
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....ce 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 : "Per unit of production Total cost  ....
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....p; 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 emerged was an average figure on the basis of such information as the various production units submitted to the Costing Bureau of the Govt. of India, Ministry of Finance. Making good the losses is not necessarily the result of the aforesaid method, increasing the margin of profit, however, is. The Bose Malik Committee in terms said so, "Cash assistance..... to make export activity profitable." In the case of some units, the cost may itself be less than the F. O. B. value and there may, therefore, be a profit in such a situation and not a loss (as, indeed, it has been in the present case. Brother Gr....
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....arently 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. Item No. (a) merely indicates the criterion for selecting the product for export for awarding cash assistance. If it has export potential and if its domestic availability is proper and if its supply is elastic, namely, the production of the item can be increased indefinitely in response to the demand therefor, the item in question should be chosen for award of cash assistance. Criterion mentioned at No. (b) takes note of the well established value-added concept to which reference has been made by the Committee. Even if the components of a product have to be imported, if the value added to the imported ....
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....re 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 interpretation by adding his own gloss to the recommendations of the Bose Malik Committee. For the reasons stated above, I am unable to go by the inference drawn by the CIT (A) from the recommendations of the Bose Malik Committee's Report, nor am I able to take cognizance of the slant given by the Jt. Secretary to the report of the Bose Malik Committee. Instead of making available the Bose Malik Committee's Report an other related literature to the CIT (A), the Jt. Secretary gave him his own interpretation of the said recommendations which the learned CIT (A) took to be the recommendations of the Committee i....
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.... 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 of cash assistance would not, in my opinion, be correct. 27. In the case of Jeewanlal (1929) Ltd. the question of the nature of cash assistance came to be considered in respect of asstt. years 1967-68 and 1968-69. There the revenue's stand was that cash assistance was given to the exporters to enable them to meet their losses. M/s Jeewanlal (1929) Ltd. had also taken the cash assistance to be of the above nature as board of directors had reported to the shareholders in their report that the Govt. of India had introduced the cash assistance scheme for exporters to meet their losses. On the basis of this report, ....
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....orrect 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, referred to above is no way different from cash assistance scheme.....". Even the Bose Malik Committee in its report described cash compensatory support as cash assistance all along. It would, therefore, be erroneous to contend that cash assistance scheme which was admittedly in vogue up to31-3-1976was in any way different in character and its nature from the cases compensatory support as the scheme came to be termed later. I have already noted above that it was the Bose Malik committee Report which held the field from1-4-1976to31-3-1979and in this report the committee referred not to cash compensatory support but to cash assi....
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....ing 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 indicated by them in their report and quoted by us in extenso above. The Jt. Secretary may be high enough official to speak on behalf of the Ministry of Commerce but certainly, when it is a question of interpreting as to what the Bose Malik Committee meant to say in its report, it would be wrong in my opinion to go by merely the expression of opinion of the Jt. Secretary requiring it without taking note of the specific recommendations of the Bose Malik Committee. What the Bose Malik Committee never said cannot be put into its mouth even by the high official like Jt. Secretary and it would be wrong for a Court to stop enquiring into the re....
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....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 contacts in the long-term. The Committee suggested that this attitude in export management should inducted in the economy through proper training and services." It may be noted in the passing that the underlined principles highlighted in paragraph 4.6 supra by the Alexander Committee are more or less the same as were noted by the Boss Malik Committee through criteria (a) and (b) in its report, referred to earlier, namely, export potential and domestic availability as well as supply elasticity of the products and import content and domestic value added. 31. In paragraph 4.8 while discussing rational and scope of export promotion policies, the ....
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...."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 assistance should be identified on the basis of well defined principles. After discussing various alternatives of approaches in this regard the Committee has identified the following three basic principles for cash assistance scheme : (a) The level of cash assistance should fully competent for the various types of indirect taxes, sales taxes, etc., which the exporter has to pay on his inputs imported or domestically purchased and which are not refunded. This will enable him to be on par with foreign competitors; (b) Cash assistance should be such as to encourage him in adopting adequate marketing strategies and to neutralise the disadvantages of freight,....
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.... 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 portion underlined above, it would be clear that the Committee was regarding cash assistance given to industrial units as a revenue receipt and as such includible in the total income as indeed it was on the basis of the numerous criteria laid down by the Bose Malik Committee and the Alexander Committee referred to above. Imputing to the Committees or to the Govt. Policy, the motive that the Government intended to give cash assistance to the various industrial units to enable them to build up infrastructure for example to construct warehouses to help them export their goods would be in the face of the above facts totally contrary to the material on record. In fact, there is....
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....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 of the duty drawback system is to reimburse exporters for tariffs paid on the imported raw materials and intermediates and central excise duties paid on domestically produced inputs which enter into export production. This is a world-wide practice and the rationale is straightforward. Customs duties and excise duties on inputs raise the cost of production in export industries and thereby affect the competitiveness of exports. Therefore, exporters need to be compensated for the escalation in their costs attributable to such customs and excise duties. 36. Referring to market development assistance, the Committee pointed out in paragraph 3.10 as below : "An overwhelming production of the ex....
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....tem. 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 Govt. in the form of tax revenue. On balance, therefore, it seems to the Committee that an overwhelming proportion of CCS is a compensation for unrebated indirect taxes, and it does not constitute an incentive. Such a conclusion has two implications. First, CCS only ensures that taxes are not exported in the form of escalated costs, which is in keeping with the practice in most countries of the world. Second, in the absence of CCS, the competitiveness of Indian exports would be adversely affected, and it is plausible to suggest that without CCS our export performance would have been worse." In paragraph 3.31, the Committee made its recommendation with regard to the cash compensatory support and obser....
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....hat 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 support/cash assistance was includible in the total income and was subjected to income-tax. In the opinion of the Abid Hussain Committee, the relief given u/s 80HHC on account of export profits was not commensurate with the objective to be aimed at namely to induce the exporters to sell more and more in the foreign countries. It was, therefore, suggested by the Abid Hussain Committee that cash compensatory support should be made tax-free. If these items were already tax-free, there would have obviously been no scope for making such a recommendation. 38. Inasmuch as the essential nature of cash assistance/CCS has not changed since its inception till date, the opinion of the Hon'ble Calcutta High Court as to its....
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..... 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 exporting textile units came up for the consideration of their Lordships of the Hon'ble Calcutta High Court in the case of Kesoram Industries & Cotton Mills Ltd. There the facts as narrated in the head note, were as below : "The assessee was a manufacturer of textile goods. In order to acquire foreign exchange the Govt. of India started an export promotion scheme. Under the scheme an exporter of cotton cloth or yarn was eligible for grant of import licences to the extent specified. The amount received by the assessee under this scheme amounted to Rs. 5,85,071. The assessee contended that this amount was a capital receipt; and was not assessable.". The reasoning of the assessee in that case was more or less the same as advan....
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....he 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., to which extensive reference was made by the learned counsel of the department. Inasmuch as I am in complete agreement with the observations and analysis of the various case law made therein. I would reply on the ratio of that order in support of the present finding given by me. 40. There is in my opinion, no comparison whatsoever between the subsidy granted by the Govt. of India for setting up industries in a backward region and the CCS granted for maximising foreign sales. By its very nature, the amount given by the Govt. under the 10 per cent subsidy scheme for setting up industries in backward area is to reimburse the cost of fixed capital assets, to the industry. The user of that money is inconsequential and would not determine....
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....ge 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 has to be said that it is inseparably interlinked with the export of the export effort of the individual businessman and the purpose of granting it is to encourage him to sell more and more to the foreign countries and thereby to make the export activity more profitable. 41.1 Any payment which is of the above nature would be of revenue nature, according to the principles laid down by the House of Lords in the case of Pontypridd & Rhondda Joint Water Board 45 (HL) 47, where Viscount Simon observed as follows : "The first proposition is that, subject to the exception hereafter mentioned, payments in the nature of a subsidy from public funds made to an undertaker to assist in carrying on the undertaker's trade or business are trading receipts, tha....
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....he 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 bench has the competence and authority of sitting in judgment over that of a High Court and in my opinion, it would be a wrong precedence if a Special Bench of the Tribunal including the present one purports to override or disapprove or circumvent the judgment of the Hon'ble Calcutta High Court in the present issue as reported in Jeewanlal (1929) Ltd.'s case. The Benches of the Tribunal inCalcuttahave no option but to follow the aforesaid judgment irrespective of the Special Bench decision to the contrary because the said Benches are within the territorial jurisdiction of the Hon'ble Calcutta High Court. Delhi is, no doubt, not under the Hon'ble Calcutta High Court but the judicial propriety to follow the ratio of the judgment of a High Court when no other H....
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....y 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 motu if the reports are not placed on record by either sides because the object of the Bench is to ascertain the facts and truth and not merely to repeat what in the name of the Committees is stated before it by the two sides and out of the two versions of the report given before the Bench to pick up one as the correct one. 42.1 Anyway as I was overruled on the matter by the President and other Brothers, I could not ensure that the benefit of the three reports which are otherwise very relevant and important for the determination of the present appeal is made available to both the sides and they are heard with regard to the same and in the light of the said submissions, the present controversy is resolved. My learned Brother Shri S. Grover has, of course, expr....
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....he 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 case, the concerned Bench will be obliged to hear the parties, and may be, there would be need to set up another Special Bench of more than five Members. All these complications could have been avoided by inviting the two sides to make their submissions with reference to the texts sight at this stage. The present Special Bench could then have done all that was necessary to resolve the controversy as satisfactorily as possible. By not doing so, the Special Bench decides only this appeal, but does not create a viable precedent for other Benches to follow. 44. The other items, namely, duty drawback and sale of import entitlements have been held to be assessable even by my learned Brothers. Essentially they are also the products of business and as such their assessability c....
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.... 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 CIT (A) it was the assessee who had the right of appeal and not the ITO and it was entirely discretionary for the CIT (A) to make enhancement or not and that if the request of the Department to enhance was turned done by the CIT (A) the Revenue could not make an appealable issue out of it. The learned conceal submitted that the learned CIT (A) could as well refuse to adjudicate upon the request of the enhancement and yet dispose of the appeal which was before him and that in such a case, the Department would not get way right of appeal before the Tribunal, the best that it could do was to go for a writ to the Hon'ble High Court with the prayer to direct the CIT to adjudicate upon the request of enhancement raised by the revenue before the CIT (A). Even this was not certain as to whethe....
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....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 CIT and to tell him that his own order was wrong and that he should enhance the same. 52. It is true that u/s 246, it is only the assessee who gets the right to appeal to the CIT against an order of assessment passed by the ITO u/s 143(3). But once the appeal is filed before the learned CIT (A), the assessee loses the right the withdraw the said appeal and the matter has, thereafter, to be proceeded with in accordance with law by the learned CIT (A). For this purpose, he has to give notice of hearing both to the appellant and to the ITO and both of them have the right to be heard before him. The CIT has been given the right of considering and deciding any matter arising out of the proceedings in which the order appealed against was passed notwithstanding that such matter was not raised before....
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.... 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 of the revenue and then held against it on merits. Therefore, the matter has to be examined on merits as to whether or not the enhancement was justified. 53. As regards merits, the learned CIT (A) disposed of the Revenue's submissions on the short ground, namely, that the matter stood covered by the judgment of the Bench of the ITAT in Bharath Skin Corpn.'s case and the circular of the CBDT referred to in the said judgment. I have gone through the said judgment and I notice that there the question was as to whether weighted deduction should be given to the assessee on account of commission paid by it to the State Trading Corpn. for rendering to it, inter alia, the following services : "It obtains for the expositors (a) information regarding markets outsideIndia; (b) does advertisement and publicit....
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....rn 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 enhancing weighted deduction under sec. 35-B from Rs. 64,04,030 to Rs. 75,34,187. Final revised return was submitted on 30-10-1981 for Rs. 1,95,77,963 as depreciation claim, investment allowance, etc., on the Central Subsidy received in respect of a plant set up in industrially backward area were enhanced. It must be stated as a fact that the receipts of Rs. 1,33,82,158 as Cash Compensation Support (hereinafter referred to as the CCS), Rs. 51,93,926 as Duty draw Back (for short DDB) and Rs. 16,73,519 realized by way of sale of Import Entitlements (IE) along with Rs. 7,35,181 as a result of fluctuation in exchange rate were not claimed as exempt before the assessing officer. It was only at the first appellate stage, i.e., before the CIT on 31-1-1984 that the exemption claim from taxability of these amounts was staked by way....
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....nit 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 was, however, declined by the ITO by referring to rule 19-A (2)(a) of the Income-tax Rules, 1962. The assessing officer also mentioned that the assessee had filed a write petition before the Hon'ble Supreme Court challenging the validity of the retrospective amendment of sec. 80-J by Finance (No. 2) Act of 1980 which had been admitted. The assessee's assertion that, if, at a later stage, the Hon'ble Supreme Court upheld the retrospective amendment, the assessment could be modified accordingly came to be accepted by the assessing officer and assessment was made in accordance with the interim order issued by the Hon'ble Supreme Court restraining the department from applying the amended provisions of sec. 80-J of the Act. 8. The learned CIT (Appeals) disposed of the assessee's appeal in relation to 80-J dispute vide pars 2 and 2-A....
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....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 the assessing officer to recompute relief/deduction under section under section 80-J within the parameter laid down by the Hon'ble Supreme Court, particularly thaw tall liabilities are to be deducted for the purpose of computing capital employed. 11. Coming top ground No. 2 in each of the cross-appeals, which are interlinked, the assessee claimed weighted deduction under section 35-B to the tune of Rs. 64,04,030 in respect of expenses totalling Rs. 1,92,12,089 as flows vide its return submitted on 27th June, 1979 : Rs.....
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....p; 22,186 15. General charges - Regarding Exports 19,612 16. Printing & Stationery - Regarding Exports 31,761 17. Postage, Telegrams & Telephone - Regarding Exports 1,19,590 18. Insurance Charges - Regarding exports 2,10,618 ----------- Total expenses in respect of exports 1,92,12,089  ....
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.... 33,90,473 7. Ocean Freight on export consignments 53,60,193 8. Forwarding charges on export consignments 8,95,760" 15. The learned advocate, however, very strongly contended that in respect of packing material consumed exclusively for exports to the tune of Rs. 65,08,653 the treatment similar to the one given by the Tribunal in the assessee's own case in respect of assessment year 1976-77 be accorded and similar directions issued. As a fact, I have been the author of the orders in ITA Nos. 1143 & 1826/Delhi/79, which were cross-appeals for 1975-76 and ITA No. 696/Delhi/82 which was the assessee's second appeal for 1976-77, both orders dated29-5-1985. It was ac....
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....ar 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 writing that in addition to the relief given by the CIT (A), 35-B deduction was sought only for six more items, out of which claim for five came to be withdrawn as mentioned in para 14 above, there is no question of our dealing with the claim further, In view of directions sin relation to packing material expenses of Rs. 65,08,653 the assessee is treated as partly successful in respect of its ground No. 2. The Revenue is rejected (sic) in related agitations concerning 35-B relief in respect of Rs. 2,13,583, Rs. 2,10,618 and Rs. 2,31,591 which represented expenses on inspection fees on exports, insurance charges regarding exports and bank charges on exports respectively, because, in the earlier years, the Tribunal have upheld the allowability of such relief in the assessee's own case. The CIT (A) noted three items under section 35-B : &nbs....
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....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 exports, the conditions laid down under sec. 35-B for weighted deduction must be strictly followed and since, in that case, nothing further was required after the export order had been obtained through the medium of another company, there was no question of sub-clause (viii) coming to the assessee's rescue and as far as sub-clause (iii) was concerned, the location of payment must necessarily be outside India. The judgment, therefore, does not affect a case where there are no intermediaries or agency working inIndiaonly which procure import orders thereby requiring no further action for the exports as was the situation in Southern Sea Foods (P.) Ltd.'s case. Commission payments to agencies like State Trading Corporation ofIndiawhich maintains offices around the world and actively engages in the development of foreign markets would not, therefore, be hit by the saidMadrasjudgment. 18. Ground No. 3, in the reve....
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....th 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 related powers : "251. (1) In disposing of an appeal, the Appellate Assistant Commissioner, or as the case may be, the Commissioner (Appeals) shall have the following powers : (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annual the assessment; or he may set aside the assessment and refer the case back to the ITO for making a rich assessment in accordance with the directions given by the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) and after making such further inquiry as may be necessary, and the ITO shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment; (b) in any appeal against an order imposing a penalty, he may confirm or cancel such order or vary it, so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such order in the ap....
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.... 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 authorities, therefore, on the question are upheld. 26. This brings us to Ground Nos. 3,4 and 5 dealing with the following receipts in respect of which exemption was claimed from taxation : Rs. 1. CCS 1,33,82,158 2. Duty Drawback 51,93,926 3. Income from sale of import entitleme....
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....ash 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 Tribunal also having rejected the assessee's contention and having granted reference, the question came up before the Hon'ble High Court who opined that the fact that, in the course of carrying on of the business, an amount is received, which could be turned into capital, did not, in any way, militate against the said amount being consider the be a revenue receipt and that the cash premium received was not in the nature of subsidy or a grant from the Govt. Their Lordships then explained the position in respect of grant or subsidy from the Government by referring to the decision of the House of lords in the case of Pontypridd & Rhondda Joint Water Board where Viscount Simon speaking for the Court had observed that the first proposition is that, subject to the certain exception payments in the nature of a subside from public funds made to an undertaker to assist in carrying on the undertaker's trade or business would be trading receipts, to be brought into account in arriving at....
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..... 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 for the assessment year 1975-76 but the request of the learned D. R. the hearing was adjourned to25-2-1985to enable him to give a detailed reply. One of us (Judicial Member) being on leave on25-2-1985, the matter was posted for hearing on26-2-1985. On this date, the learned departmental Representative raised the plea for remitting the case back to the ITO/CIT (Appeals) for examination of evidence. After hearing the parties, the Bench decided to announce judgment on Departmental Representative's plea on28-2-1985. On the said day, the Bench decided to proceed with the hearing at the request of the Departmental Representative posted the case for hearing on18-3-1985. On18-3-1985, the hearing was adjourned to25-3-1985at the request of the departmental Representative. On 25th March, one of us (Accountant Member) was on leave and the matter was posted for hearing on 2nd April. 1985. The hearing was finally concluded on16th April, 1985." 30. When the case of Reliance International Corpn. Ltd.....