TaxTMI 
TaxTMI 
2012 (4) TMI 373
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....lows. "2. The CIT(A) erred in holding that addition to the 'Fixed Assets' amounting to Rs. 19,43,791/- being cost of 'Stools, Tables, Stainless Steal racks, SS cupboards, SS trolleys, SS trays etc (located in Factory premises) is not part of 'Plant and Machinery' and thereby confirming the depreciation a allowance thereon @ 10% (i.e. the rate applicable to furniture and fixtures) instead of allowing the same @ 25%(applicable to Plant & Machinery)" 4. In connection with the above ground the assessee submitted that the assessee engaged in the manufacture of the chemicals and vaccines and for this, the assessee has laboratories. Assessee purchased Stools, Tables, Stainless Steel racks, SS cupboards, SS trolleys, SS trays etc as part of the Plant and Machinery amounting to Rs. 19,43,791/- and claimed depreciation as per the rates applicable to the Plant and Machinery. During the assessment proceedings, AO held that they are not plant and Machinery and considered them as 'furniture' and granted the depreciation as per the rates applicable to the 'furniture. The CIT(A) confirmed the view point of the AO. Aggrieved with the same the assessee is ....
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....al of the orders of the revenue revealed that they have not applied the functional test to each of the disputed items. In a sweeping statement, the AO mentioned that the 'furniture items like stools, chairs, tables, racks, trolleys etc' used in the factory cannot be categorized as plant and machinery as they fail even on the 'functional test'. There is no discussion in the orders on the details of the said test. In our opinion, the functional test implies if the said items are necessary for the production of the product in the laboratory premises. In other words, if the Stools, Tables, Stainless Steel racks, SS cupboards, SS trolleys, SS trays etc are required for the laboratory purpose i.e. for the purpose of production or processing of the chemical tests in the laboratory premises leading to the production of the stocks, they must be categorized as plant and machinery. The impugned items like the case of 'fan' held as plant and machinery by the Jurisdictional High Court in the case of Park Davis (India) Ltd. (supra) have both factory and office functions depending on the place of use and the employees using them. If the scientist or lab technicians have us....
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.... TVL, the present AO of this assessee noticed that a sum of Rs. 2.4 crores was paid by the TVL to Sri Rao as non compete fee for the AY 2000-01 and the same was debited to its P & L account as an allowable expenditure. The current AO also noted that the said issue was the subject matter of the scrutiny assessment in the case of M/s TVL by the then AO at Andhra Pradesh and the said amount was held by the revenue as a 'capital expenditure' and depreciation @ 30% was allowed on the said capital asset. The matter reached finality on this issue as stated by the Ld counsel at Bar before us. This issue is relevant for the AY 2000-01 and the assessee acquired by way of amalgamation, the said TCL Company for the year under consideration i.e. AY 2001-02 as a going concern with the revenue's stand that the impugned non compete fee of Rs. 2.1 cr (non compete fee of Rs. 2.4 cr - Rs. 30 lakhs of depreciation claim thereon for that year) is the depreciable intangible asset. 10. In the factual matrix of the above, the parties in the litigation made various submissions. The then CIT DR filed written submission dated 30.7.2008 with the limited objection that the 'non compete fee&#....
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.... block, acquired during the previous year'. Thus entry of an asset into a block of assets' happens only in the year in which it is acquired. Such entry cannot be questioned in any subsequent year. In the present case the impugned intangible asset was acquired in the previous year relevant to A Y 2000-01 and has thus entered the block in that year. Secondly, in terms of 43(6)(i)(B) for the purposes of computing written down value, exist from a block of assets happens only when an asset is sold, discarded or demolished. For our said view we rely on the decision of Swati synthetics v. ITO 38 SOT 208 (MUM). Neither of this has happened in the present case so as to deny depreciation. Explanation 2 to section 43(6) provides for the manner of computing written down value of a block in case where the block is transferred by the amalgamating company to the amalgamated company. It provides that the written down value of the block in the case of the amalgamating company will be the written down value in the case of the amalgamated company. Here again there is no scope for existing from the block of assets transferred by the amalgamating company (TVL) to the amalgamat....
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.... his opinion would be the correct income of that year. Reliance is placed on the decision of the CIT v. British Paints India Ltd 188 TTR 44 sc. The AO is not barred from not allowing depreciation on any capital asset included in the block of assets on which depreciation is not allowable as per the Income Tax Rules. The expenditure on compete fees is a capital expenditure and at the same time it is neither a part of the building, furniture and plant and machinery. There is no provision in the Income tax Act and Income tax Rules for allowing depreciation on capital expenditure incurred on non-compete fees. The claim of the appellant is therefore rejected." 12. Thus, as cab be seen from above, the CIT(A) has merely mentioned that the 'non compete fee is a capital expenditure and not that type of building, furniture and plant and machinery. CIT(A) is simply ignorant of the law that that the depreciation is allowable on the capital assets of intangible nature too with effect from 1.4.1999 and the AY under consideration is AY 2001-02. It is not known as to why the cited decision of the Chennai Bench, ITAT in the case of Asstt. CIT v. Real Image Tech (P) Ltd [2009] 177 Taxman 80 (M....
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....be termed as "or any other business or commercial rights of similar nature" for construing the same as "intangible asset". Here, the doctrine of ejusdem generis would come into operation. The term "or any other business or commercial rights of similar nature" has to be interpreted in such a way that it would have some similarities as other assets mentioned in cl. (b) of Expln. 3. The other assets mentioned are knowhow, patents, copyrights, trademarks, licenses, franchises, etc. In all these cases no physical asset comes into possession of the assessee. What comes in is only a right to carry on the business smoothly and successfully and therefore even the right obtained by way of non-compete commercial rights of similar nature" because after obtaining non-compete right, the assessee can develop and run his business without bothering about the competition. The right acquired by payment of non-compete fee is definitely intangible asset. Moreover, this right (asset) will evaporate over a period of time of five years in this case because after that the protection of non-competition will not be available to the assessee. This means, this right is subject to wear and tear by the passage o....
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....ocess, the AO/CIT(A) rejected the assessee's explanation that the said refund receipt constitutes the 'operational income of the company. That is how the matter travelled to the precincts of this Tribunal. Before us, Ld Counsel for the assessee submitted that the refund of sales tax arises mainly on account of determination, at the time of sales tax assessment, of a higher amount of sales tax set off. This set off is in respect of purchase tax paid on purchases and thus reduces the incidence of such purchase tax, which tax forms part of the purchase price of raw materials etc. and has therefore gone to reduce the business profits in the first place. Recoupment of part of the purchase cost should form part of the profits of the business for the purpose of section 80HHC. Further, it was submitted that the issue under consideration was already adjudicated by this Tribunal in the assessee's own case for the earlier AYs. On the other hand, Ld DR for the revenue relied on the orders of the revenue, which were decided based on the judgment in the cases of CIT v. K K Doshi & Co [2000] 245 ITR 849/112 Taxman 503 (Bom.) for the proposition that the 'profits of business' s....
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....the AO to give effect the said judgment and decide the issue afresh after considering the arguments of the assessee. Accordingly, the ground 5(b) is set aside. 19. Ground 5(c) relates to the set off of the unabsorbed depreciation of earlier AYs of TVL. At the outset, Ld Counsel mentioned that the said ground is not pressed. Accordingly, the same is dismissed as not pressed. 20. Ground 5(d) relates to reducing from the Profit eligible for deduction u/s. 80-HHC a sum of Rs. 6,40,80,683/- being deduction u/s.80-HHC of the Act a sum of Rs. 6,40,80,683/- being deduction u/s. 80-IA of the Act. During the proceedings before us, referring to the additional ground, Ld counsel mentioned that the said additional ground inter alia raises two related issues viz. (i) that the deduction claimed by the assessee under Section 80 IA Rs. 6,44,91,533/- be not excluded from the profits of the business at the time of applying the formula and computing deduction under Section 80 HHC in the light of the judgment of jurisdictional Bombay High Court in the case of Associated Capsules (P.) Ltd. v. Dy. CIT [2011] 332 ITR 42/197 Taxman 84/9 taxmann.com 63. This issue is covered in favour of the assessee ....
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.... profits of business, Export Turnover and total Turnover of the business of the assessee for a couple of reasons, namely (i) the amendment w e f 1.4.2001 by way of substitution of section 10B of the Act containing the expressions of 'deduction' in it and (ii) the judgment of the Hon'ble High Court judgment in the case of Hindustan Unilever Ltd. v. Dy. CIT [2010] 325 ITR 102/191 Taxman 119 (Bom.) which declared that the provisions of section 10B of the Act are deduction provisions and not of exemption. 22. For the first time vide letter dated 26/02/2009, assessee modified the said ground no.5(e) (renumbered as 6 in the said letter) and the modified ground with reference of 'inclusion of the export sales of EOU unit' reads as under "CIT(A) ought to have held on facts before him that the export sales of EOU should have been included in the export turnover of the assessee company while computing the deduction u/s.80HHC." 23. Subsequently, the said additional ground was further modified vide letter dated 30/04/2011 with special reference to the 'inclusion of profit of the EOU unit' and the said ground read as under: "on the facts and c....
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....s.10B of the Act. The adjudication of the additional ground merely involves the inclusion of the export turnover & Total Turnover of the EOU unit in the export turnover & Total turnover of the assessee for the purpose of computing the deduction u/s.80HHC of the Act. The relevant revised Form No.10CCAC were already filed before the Tribunal along with the additional ground and the figures that appeared in the revised Form are mere consolidation of the figures of both EOU and DTI units of the assessee. Referring to the reasons for not raised in the ground before the authorities below the assessee mentioned that the assessee was under bona fide belief that the provisions of section u/s.10B of the Act are exemption provisions in nature and in such case, the profits of the EOU unit shall not enter the computation of income at all. However, there is now finality on the nature of the provisions of section 10B of the Act vide the binding judgment of jurisdictional High court of Bombay in the case of Hindustan Unilever Ltd. (supra) for the proposition that after the amendment by the Finance Act, 2000 and with effect from 1.4.2001, notwithstanding the fact that it continues to be located in ....
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....ued stating that the said additional ground should not be admitted for reasons - (1) It was not only never raised before the lower authorities but also not raised by filing the revised return of income; (2) Revised Form No.10CCAC with its Annexure was filed before the Tribunal for the first time; (3) There is need for investigation into the facts of this issue. Therefore, cited decision relied by assessee are inapplicable. 27. We heard both the parties on this preliminary issue of the admission of this additional ground as discussed in the preceding paragraphs. We have examined the orders and the paper available before us. Further, we have examined the binding decision of the said cited decision in the case of Hindustan Unilever Ltd. (supra) and find that there is clarity now after the said judgment dated 1/04/11 that Sec 10B is no longer an exempt provision at least for the computation in general and in matters relating to set off of loss of allowable units against the profit of the business in particular. Therefore, the assessee's timing for raising of the additional ground before us cannot be faulted for. So far as the legal nature of additional....
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....C), wherein deduction claimed by way of a letter before AO, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal" 30. In view of the above judgment of the Apex court, it is evident that the filing of the revised return is not mandatory when an additional ground is made before the ITAT and the same is sprung from the binding jurisdictional High court's judgment in the case of Hindustan Unilever Ltd. (supra). Therefore, we admit said grounds of the assessee. Adjudication of the Additional Ground on its merits: 31. The issue raised in ground no.6 erstwhile 5(e) relates to inclusion of export turnover of EOU unit in the export turnover of the assessee for the purpose of computing the allowable deduction u/s. 80HHC of the Act. In the preceding paragraphs, we have already discussed that the said issue ....
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....n Unilever Ltd 325 ITR 102 (Bom) b. Deduction u/s 10B is to be allowed 'from total income' c. Therefore, computation of profits and deduction u/s 10B becomes part of the process of computing total Income unlike when it was an exemption section. d. Under s 28 profit of each business carried on by the assessee has to be computed separately in accordance with the provisions of the Act but should thereafter be all put together and aggregated to arrive at the profits and gains taxable under the head profits and gains of business. e. Therefore, S 10B income will have to be computed under the head 'profits and gains of business' relevant provisions for which are contained in sections 30 to 43D. f. S 10B is an undertaking/unit specific deduction - Hindustan Unilever Ltd (supra) and Special Bench in the case of Scientific Atlanta 129 TTJ 273 (Chennai) g. S 80HHC is assessee specific. It does not distinguish between exports by an assessee and exports by a unit of the assessee. h. The only satisfying condition u/s 80HHC(1) is that the assessee should be engaged in the business of export of goods. i. In ter....
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....us the decision of the Special Bench on this limited aspect is contrary to the subsequent jurisdictional High Court decision w. The enactment of subsection 80A(4) supports the view that deductions under s 10A, 10B etc are of the same genre of deductions under Chapter VIA. x. Once 10B profits form part of income of the assessee computed under the head the profits and gains from business, they would have to be included as such under Explanation (baa) to s 80HHC y. S 80HHC(3) provides for computation of profits derived from export of goods to which this section applies; z. Since 10B profits would form part of profits of business in terms of Explanation baa as explained above, such profits would also qualify for deduction u/s 80HHC(1) aa. Since such profits qualify u/s 80HHC(1) the corresponding export turnover also qualifies for being included in the figure of ET under Explanation b to s 80HHC bb. Thus profits derived from export of 10B unit and DTA unit would both form part of the profits of business from export of goods referred to in S 80HHC(1). Correspondingly, since computation of deduction u/s 80HHC is to be done for the asse....
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.... Here it is important to note that Export Turnover in respect of such goods has been mentioned to limit the same only to export of such goods to which section 80HHC of the Act applies while total turnover represents the total turnover of the business as awhile. Similar wording has been used for the profit too by mentioning profit derived from such export. Thus it is clear that for the purpose of computation u/s 80HHC of the Income tax Act: (i) Profits of EOU will not be included in the profits for computation of deduction u/s80HHC... (ii) Export turnover of EOU will not be included in the export turnover for computation of deduction u/s 80HHC... (iii) Total turnover of EOU will be included in the total turnover for computation of deduction u/s80HHC ...as it denotes total turnover of the business and not only such export. For this proposition reliance is placed on the decision.... in the case of Tata BP Solar India Ltd...(139 TTJ 289) (dated 20.10.2010)......." 34. In the later paragraphs of his written submissions, Ld DR went on to mention that the in that case, the assessee did not include the profit of the EOU unit, Export and Total turnov....
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....unit cannot enter 80HHC computation 15. The basic premise of Tata BP Solar that 10B is an exemption and not a deduction is contrary to the decision of the Bombay High Court in the case of HUL which though rendered earlier was not brought to the notice of the Tribunal. 16. Conclusions that flow from TATA BP SOLAR are... no longer good law 17. The decision of the Chandigarh Bench of the Tribunal in the case of Mahavir Spinning Mills (110 ITD 211) relied upon by the learned DR relates to AY 1998-99 when the section was an exemption section and not a deduction section. There the assessee had admitted that profits of the 10B unit had not been included in the profits to claim deduction u/s 80HHC since s 10B was an exemption section. This is contrary the scheme of the new s 10B as interpreted by the decision in the case of HUL." Second Part: Our Submissions: Decision in the case of Tata BP Solar distinguished 1. The appeal before the Honourable Tribunal had arisen out of order passed u/s 263 wherein the issue raised was confined only to the inclusion of Turnover of EOU enjoying deduction u/s 10 B in the total turnover of the assessee as a whole....
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....principle' is required to be followed in matters of exclusion/inclusion in the export turn over and total turnover when allowable deduction is computed u/s 10A of the Act. In this regard, the Learned Counsel relied on various decisions i.e. CIT v. Gem Plus Jewellery India Ltd [2011] 330 ITR 175/[2010] 194 Taxman 192 (Bom). Further the Learned Counsel filed a copy of the order of this Tribunal in the case of Symantec Software India (P.) Ltd. Vide ITA No. 787/PN/09 and ITA No. 805/PN/09 in support of the said 'parity principle'. Para 29 to 31 of the said judgment of the High court of Karnataka in the case of Tata Elxsi Ltd (supra) are relevant in this regard. At the end, Learned Counsel for the assessee summed up by stating that the - "(1) The export turnover definition explanation given in Section 80HHC is broad enough to cover the export sales of EOU undertakings as it refers to the expressions of any goods or merchandise to which this Section applies. (2) The restrictions mentioned in clause (b) of Section 2 of 80HHC are not applicable to the assessee's case. Therefore, the sub-section 2(a) supports the inclusion of export sales of EOU unit for co....
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....We have also gone through the submissions made by the both the parties. We shall deal with the above issues raised in the additional ground in the following manner, namely (1) Scope of the provisions relating to (a) entry of the EOU related data into the computation of total income and (b) inclusions of profits and gains of EOU units in the profits of the business of the assessee for the purpose of Section 80HHC of the Act; (2) Scope of assessee level export turnover definitions given in Section 80HHC explanation (b); and (3) The principal of parity examining the facts of the present case in the light of the above discussed scope. All these three aspects are taken up on the succeeding paragraphs. (1) Scope of the provisions relating to (a) entry of the EOU related data into the computation of total income and (b) inclusions of profits and gains of EOU units in the profits of the business of the assessee for the purpose of Section 80HHC of the Act: 42. The provisions of section 10B of the Act are amended by the Finance Act, 2000 w e f 1.4.2001 and so are the provisions of Section 80A (4) w e f 1.4.2003. These amended provisions contains adequate expressions in them to in....
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....onsequences of such a finding are that the profits of the EOU unit shall enter the computation of total income on par with the profits of the eligible undertakings/units which are expressly covered by the provisions of various section in Chapter VIA of the Act. In this sense of the matter, both species of the provisions of sections 10B and 80HHC although located in Chapter III and VIA respectively belong to the same genus. 44. Consequences of the said scope of the provisions are (i) that profits of the EOU unit shall form part of the head of income "profits and gains of business or profession" (ii) therefore, the same is includible in the "profits of the business" of the assessee, which is defined in Explanation (baa) to section 80HHC of the Act, which reads as follows:- "(baa) profits of the business" means the profits of the business as computed under the head "profits and gains of business or profession" as reduced by,-......." 45. Once impugned profits of the EOU unit of 10B form part of the 'profits of the business', the reductions if any are to be allowed only in accordance with Clause (1) and (2) of the said Explanation (baa). That is how the profits o....
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...." means the sale proceeds received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962" 48. From the above, the legislature has used the expressions the sale proceeds received in, or brought into, India by the assessee' and the expressions 'by the assessee' deserves emphasis as it connotes that the 'export turnover' should be of assessee level. Meaning thereby, the assessee's level 'export turnover' needs to be considered. The expression is wide enough to include the export sales of the 'EOU unit'. Further, by the use of expression 'any' before 'goods and merchandise' all the goods and merchandise is covered. However, the restriction apply to such goods and merchandise, which are listed in clause (b) of Section 80HHC (2) i.e. Mineral oil and minerals and ores (other than processed minerals and ores s....
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....l turnover' for the purpose of Section 10A which lacks express definitions for total turnover. Para 9 to 11 relevant in this regard after considering the Apex Court decision in the case of CIT v. Catapharm (India) (P.) Ltd [2007] 292 ITR 641/162 Taxman 455 which was delivered in the context of exclusion of brokerage commission, interest rate etc. from the total turnover (excise duty and sales tax at par) u/s. 80HHC (3) (b) of the Act. Lakshmi machine Works (supra) and another Bombay High Court decision in the case of Gem Plus Jewellery India Ltd. (supra) which was delivered in the inclusion of freight insurance from the "total turnover" for the purpose of Section 10A, came to clear knew about principle of parity. They also discussed decision in the case of ITO v. SAK Soft Ltd. [2009] 30 SOT 55 (Chennai) (SB), before coming to the conclusion for upholding the 'principle of parity' in favour of the assessee. Para 10- 11 of the said judgment of the Karnataka High Court are relevant and the same are reproduced as under (page 59 page 63 of the judgment), - " The formula for computation of the deduction under section 10A would be as under: Profits of the bus....
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....n which it is used. When the statute prescribes a formula and in said formula, export turnover' is defined, and when the total turnover' includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the legislature, they would have expressly stated so. If they have not chose to expressly define what the total turnover means, then, when the total turnover includes export turnover, the meaning assigned by the legislature to the export turnover is to be respected and given effect to, while interpreting the total turnover which is inclusive of the export turnover. Therefore the formula for computation of the deduction under Section 10-A, would be as under: Profits of the business x Export turnover / (Export turnover + Domestic Turnover Total T....
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....owable deduction under the said section. However, the limitation provided in section 80IA(9) of the Act applies as held by another binding judgment in the case of Associated Capsules Ltd, supra. Considering the requirement of assessee level turnovers as elucidated above, there is need for including the Export sales of the EOU unit in the numerator part of the said formula discussed above. Inclusion of the export turnover in the total turnover, denominator was advocated by many decisions/judgments including the Tata BP Solar India Ltd. (supra). Further, considering the 'principle of parity', once a constituent is added to the total turnover, the denominator, the same has to be included to the 'export turnover', the numerator. This line of computation gets support not only from the judgment of the Karnataka High Court in the case of Tata Elxsi Ltd. (supra) but also by the various decisions of the Tribunal including the decision by this Pune Bench. In the case of Patni Computers Systems Ltd for the Ay 2002-03 and 2003-04, the Tribunal came across a case of exclusion of profits and turnovers of the eligible unit u/s 10A of the Act for the purpose of determining the allo....
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....d counsel mentioned that the consequential reliefs are allowed and however, he did not adjudicate the issues by passing a speaking order. Further, Ld Counsel referred to the ground 6(c) of original grounds and stated that the said ground relates to applicability of the amended provisions of section 234D of the Act to the AY 2001-02 under consideration and in this regard, the Counsel stated that this issue is covered in favour of the assessee by the special bench decision in the case of ITO v. Ekta Promoters (P) Ltd [2008] 113 ITD 719 (Delhi) Ld counsel argued that the CIT(A) erred in concluding without discussion that the amended provisions apply to the AY 2001-02 and the refunds received after the amendment brought out by the Taxation Laws (Amendment) Act, 2003 w.e.f 1st June, 2003. The Learned DR relied on the orders of the revenue. 56. We have heard the parties and perused the orders of the revenue. The CIT(A) confirmed the levy of interest u/s 234D on the ground that the refund was granted to the assessee on 19.6.2003 i.e. after the amendment became effective on 1.6.2003. In this regard, we have also perused the said special bench decision in the case of Ekta Promoters (P) L....