TaxTMI 
TaxTMI 
2016 (7) TMI 1374
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....e assessment year 1994-95. By way of the impugned orders, the Tribunal held in favour of the assessee by confirming the order of the Commissioner of Income-tax (Appeals). 2. At the time of admitting present appeals, the following questions of law were framed for our consideration : Tax Appeal No. 1085 of 2008 "A. Whether the Appellate Tribunal is right in law and on facts in holding that foreign exchange fluctuation and duty drawback is an income derived from industrial undertaking, eligible for deduction under sections 80-I and 80-IA of the Act and thereby directing the Assessing Officer to consider the claim of the assessee upon necessary material to be placed on record by the assessee ? B. Whether the Appellate Tribunal ought not to have appreciated that foreign exchange fluctuation and duty drawback cannot be stated to be derived from industrial undertaking and, therefore, not eligible for deduction under sections 80-I and 80-IA of the Act ? C. Whether the Appellate Tribunal is right in law and on facts in reversing the order of the Commissioner of Income-tax (Appeals) and holding that discount/kasar can be stated to be derived from indust....
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....550 paid to the farmers was on account of penalty for infringement of law and, therefore, not allowable under section 37 of the Act ? C. Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of Income-tax (Appeals) deleting the disallowance of Rs. 91,46,637 made in respect of contribution for effluent treatment plant ? D. Whether the Appellate Tribunal ought not to have appreciated that the amount of Rs. 91,46,637 incurred towards contribution for common effluent treatment plant was in the nature of penalty and, therefore, not allowable under section 37 of the Act and, in the alternative, was a capital outlay and, therefore also, not allowable under section 37 of the Act ? E. Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of Income-tax (Appeals) directing that only the net interest income should be excluded from eligible profit for the purpose of computation of deduction under sections 80-I and 80-IA of the Act ? F. Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of....
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....further submitted that so far as the issue with regard to netting of interest is concerned, the same will be now governed by the decision of the apex court in the case of ACG Associated Capsules Pvt. Ltd v. CIT [2012] 343 ITR 89 (SC). So far as issue with regard to rebate on job work charges is concerned, it is submitted that since the concerned company could not carry out the job work of the desired quality, the assessee claimed discount/rebate as there was no liability of payment on the assessee. So far as refund of excise duty is concerned, it is submitted that allowance of excise duty is subject to the provisions of section 43B of the Act and the Appellate Tribunal has not given any finding in respect of the provisions of section 43B of the Act. He further submitted that so far as issue regarding refund of excise duty is concerned, the same is wrongly allowed in favour of the assessee. It is also submitted that so far as laboratory sample testing charges and discount, vatav, kasar, etc., and sales tax set off is concerned, the same is wrongly framed and the same is covered by the earlier decision reported in CIT v. Meghalaya Steels Ltd. reported in [2016] 383 ITR 217 (SC) and A....
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....ent to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as expense in accordance with sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head 'Profits and gains of business or profession', ninety per cent. of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to section 80HHC. In other words, ninety per cent. of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the asses see as computed under the head 'Profits and gains of business or profession', is to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business." In view of such decision, question No. 3 raised by the Revenue gets automatically answered since the amounts referred to in the said question are to be excluded for the purpose of deduction under section 80....
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.... engaged in the local business or not. However, this distinction would not be material in so far as central question of exclusion of certain profit from the activity which is not eligible for deduction under sections 80HH and 80-I are concerned. The logic being when the profit is being excluded form the claim of deduction, not the gross profit but the net thereof, that is the gross profit minus the expenditure incurred for earning such profit should be excluded. That is precisely how this court in the case of Rajoo Engineers (supra) viewed the situation. That is how the Delhi High Court in the case of Essel Shyam Communication (supra) held refer ring to the decision in the case of ACG Associated Capsules Pvt. Ltd. (supra). It is true that in the case of Bloom Decor Ltd., a question was suggested by the assessee which may have some bearing on the controversy on hand. However, the entire focus of the order of the court was regarding applicability of the decision of the Supreme Court in the case of Topman Exports (supra) and not on the question of net ting. In any case, therein, the decision in the case of ACG Associated Capsules Pvt. Ltd. was not noticed.' ....
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....he learned counsel for the parties and having perused the documents on record, we notice that Commissioner of Income-tax (Appeals) and the Tribunal concurrently came to the conclusion that there was inter-connection, inter-lacing and inter- dependence of the management, financial and administrative control of various units of Nirma Limited. It was on this ground, the Tribunal held that the business in question is continuation of the existing business and not a new business. In this context, the decision relied on by the authorities below of this court in the case of Alembic Glass Indus tries Ltd. (supra) laid down tests for ascertaining whether a business was part of existing business or the assessee was starting a new unit. It was held that merely because the unit was coming to a distant point by itself would not mean that it was a new business. If the facts as recorded by the Commissioner of Income-tax (Appeals) and the Tribunal can be said to have achieved finality, it would emerge that the assessee through its existing administrative mechanism started a new facility for production of soda ash and had also set up facility for production of a material called 'lab'....
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....try to compete with industries in central areas. Therefore, industrial units in remote areas were extended the benefit of subsidized transportation. For industrial units in Assam and other northeastern States, the benefit was given in the form of a subsidy in respect of a percentage of the cost of transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable.' (Paras 14 and 15) The decision in Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC) ; [1997] 7 SCC 764, dealt with subsidy received from the State Government in the form of refund of sales tax paid on raw materials, machinery, and finished goods ; subsidy on power consumed by the industry ; and exemption from water rate. It was held that such subsidies were treated as assistance given for the purpose of carrying on the business of the assessee. We do not find it necessary to further encumber this judgment with the judgments which Shri Ganesh cited on the netting principle. We find it unnecessary to further substantiate the reasoning in....
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....nder (page 96) : "Before we deal with the contentions of learned counsel for the parties, we may extract Explanation (baa) to section 80HHC of the Act. 'Explanation-For the purposes of this section,-. . . (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- (1) ninety per cent. of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits ; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India.' Explanation (baa) extracted above states that '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 the receipts of the nature mentioned in clauses (1) and (2) of Explanation (baa). Thus, profits of the business of an assessee will have to be first computed under the head 'Profits ....
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....). Section 80M of the Act provided for deduction in respect of certain inter corporate dividends and it provided in sub-section (1) of section 80M that 'where the gross total income of an assessee being a company includes any income by way of dividends received by it from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends an amount equal to' a certain percentage of the income mentioned in this section. The Constitution Bench held that the court must construe section 80M on its own language and arrive at its true interpretation according to the plain natural meaning of the words used by the Legislature and so construed the words 'such income by way of dividends' in sub-section (1) of section 80M must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. Similarly, Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words 'receipts by way of broke....
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....CIT v. Asian Star Co. Ltd. (supra) were correct in law. On a perusal of the judgment of the High Court in CIT v. Asian Star Co. Ltd. (supra), we find that the reason which weighed with the High Court for taking a different view, is that rent, commission, interest and brokerage do not possess any nexus with export turnover and, therefore, the inclusion of such items in the profits of the business would result in a distortion of the figure of export profits. The High Court has relied on a decision of this court in CIT v. K. Ravindranathan Nair [2007] 295 ITR 228 (SC) in which the issue raised before this court was entirely different from the issue raised in this case. In that case, the assessee owned a factory in which he processed cashew nuts grown in his farm and he exported the cashew nuts as an exporter. At the same time, the assessee processed cashew nuts which were supplied to him by exporters on job work basis and he collected processing charges for the same. He, however, did not include such processing charges collected on job work basis in his total turnover for the purpose of computing the deduction under section 80HHC(3) of the Act and as a result this turnover of....
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.... of the quantum of any of the aforesaid receipts which are allowed as expenses and therefore not included in the pro fits of business of the assessee. In the result, we allow the appeal and set aside the impugned order of the High Court and remand the matter to the Assessing Officer to work out the deductions from rent and interest in accordance with this judgment. No costs. Civil Appeal No. 4534 of 2008 This is an appeal against the order dated January 19, 2007 of the Delhi High Court in I. T. A. No. 541 of 2006. The facts of this case very briefly are that Bharat Rasayan Limited (for short 'the assessee') filed a return of Income-tax claiming a deduction of Rs. 72,76,405 under section 80HHC of the Act. In the assessment order, the Assessing Officer held that ninety per cent. of the gross interest has to be excluded from the profits of the business of the assessee under Explanation (baa) to section 80HHC of the Act and deducted ninety per cent. of the gross interest of Rs. 50,26,284 from the profits of the business of the assessee. The assessee preferred an appeal contending that only ninety per cent. of the net interest should have been....
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....against the Revenue. 11. So far as question with regard to common effluent treatment plant is concerned, the same is covered by the decision of this court in Tax Appeal No. 1392 of 2006, wherein it is held as under : "The following questions are proposed for admission of this appeal : '(A) Whether the Appellate Tribunal is right in law and on facts in holding that sales tax and excise duty are not to be treated as part of turnover for the purpose of computation of deduction under section 80HHC ? (B) Whether the Appellate Tribunal is right in law and on facts in holding that the amount of Rs. 51 lakhs paid by the assessee towards contribution to common effluent treatment plant was an allowable revenue deduction. ?' So far as the issue raised in question No. 1 is concerned, the same is covered by the decision of the apex court in the case of CIT v. Lakshmi Machine Works [2007] 290 ITR 667 (SC), in favour of the asses see. So far as the issue raised in second question is concerned, the same has been considered by this court and the Tribunal has discussed the issue as under : '7. As regards the third ground, the Asses....
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....ll be now governed by the decision of this court in the case of CIT v. Priyanka Gems reported in [2014] 367 ITR 575 (Guj), wherein it is observed as under (page 589) : "Under the circumstances, we have no hesitation in upholding the view of the Tribunal. Quite apart, the issue is substantially covered by the decision of the CIT v. Amba Impex (supra). Consistent and at times independent trend of the judicial pronouncements of courts across the country need not be disturbed. Even independently, we are of the view that the foreign exchange gain arising out of the fluctuation in the rate of foreign exchange cannot be divested from the export business of the assessee. As noted, once export is made, due to variety of reasons, the remission of the export sale consideration may not be made immediately. Under the accounting principles, therefore, the assessee, on the basis of accrual, would record sale consideration at the prevailing exchange rate on the quoted price for the exported goods in the foreign currency rates. If during the same year of the export, the remission is also made, the difference in the rate recorded in the accounts of the assessee and that eventually received ....
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....y of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profits. The term 'foreign exchange difference' is not specified in any of the categories specifically mentioned in the said clause. The Revenue, however, contended that the same must be included by necessary implication as part of other receipts. The Legislature, however, has used the term any other receipt of similar nature. This expression similar nature would have considerable bearing on the ultimate conclusion that we arrive in this respect. What is to be excluded under the said sub-clause (1) of clause (baa) is any other receipt of a nature similar to the brokerage, commission, interest, rent or charges. The receipt by way of foreign exchange fluctuation not being similar to any of these receipts mentioned above, application of clause (baa) must be excluded. Sub-rule (1) of rule 115 only provides for adopting the rate of exchange for calculation of value of rupee of any income accruing or arising in case of an assessee and provides that the same shall be telegraphic transfer of buying rate of such currency on the specified date. The term specified date has been ....
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....mission and the precise foreign exchange rate of the foreign currency at that point of time. We would now refer to the decision cited by counsel for the Revenue. In case of Pandian Chemicals Ltd. v. CIT reported in [2003] 262 ITR 278 (SC) ; the question arose whether interest derived by the industrial undertaking from the deposit made with the Electricity Board for supply of electricity for running the industrial undertaking can be said to have been derived from its business. It was in this con text held that such income cannot be said to have been derived from the industrial undertaking and would, therefore, not be eligible for deduction under section 80HHC of the Act. In case of Liberty India v. CIT reported in [2009] 317 ITR 218 (SC), the question examined by the Supreme Court was whether duty draw back receipts and duty exemption pass book benefits form part of the net profit of eligible industrial undertaking for the purpose of deduction under section 80-I, 80-IA or 80-IB of the Act. In this context, it was held that the words 'derived from' has narrower connotation as compared to the words 'attributable to' by using the expression 'derive....
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....present case received the entire proceeds of the export transaction. The Reserve Bank of India, has granted of facility to certain categories of exporters to maintain a certain proportion of the export proceeds in an EEFC account. The proceeds of the account are to be utilized for bona fide payments by the account holder subject to the limits and the conditions prescribed. An assessee who is an exporter is not under an obligation of law to maintain the export proceeds in the EEFC account but, this is a facility which is made available by the Reserve Bank. The transaction of export is complete in all respects upon the repatriation of the proceeds. It lies within the discretion of the exporter as to whether the export proceeds should be received in a rupee equivalent in entirety or whether a portion should be maintained in convertible foreign exchange in the EEFC account. The exchange fluctuation that arises, it must be emphasized, is after the export transaction is complete and payment has been received by the exporter. Upon the completion of the export transaction, what the seller does with the proceeds, upon repatriation, is a matter of his option. The exchange fluctuation in the ....
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....rable currency rate trends. Nevertheless, the resultant gain in foreign exchange rate would still be due to the export made by the assessee. In any case, no such facts are recorded by the Assessing Officer in any of these cases. We would, therefore, not entertain such speculative contention. In the result, the question is answered in favour of the assessees and against the Revenue. All tax appeals are dismissed." 12.1 In view of above observations, this issue is answered in favour of the assessee and against the Department. 13. So far as the issue with regard to duty drawback is concerned, the same will be now governed by the decision of the apex court in the case of Liberty India v. CIT reported in [2009] 317 ITR 218 (SC), wherein it is observed as under (page 233) : "Continuing our analysis of section 80-IA/80-IB it may be mentioned that sub-section (13) of section 80-IB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA, so far as may be, applicable to the eligible business under section 80-IB. Therefore, at the outset, we stated that one needs to read sections 80-I, 80-IA and 80-IB as having a co....
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....o the category of ancillary profits of such undertakings. The next question is - what is duty drawback ? section 75 of the Customs Act, 1962 and section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or Central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported. Basically, the source of duty draw back receipt lies in section 75 of the Customs Act and section 37 of the Central Excise Act. Analysing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in th....
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....purposes of section 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking . . . In the circumstances, we hold that duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of section 80-I/80-IA/80-IB of the 1961 Act. The appeals are, accordingly, dismissed with no order as to costs." 13.1 In view of above observations, this issue is answered in favour of the assessee and against the Department. 14. In ADCI Dye Chem P. Ltd. v. Deputy CIT reported in [2015] 370 ITR 408 (Guj), it is observed as under (page 413) : "Heard the learned advocates for the respective parties at length. The question which is posed for consideration of this court is whether the learned Tribunal was right in law in confirming that appellant was not entitled to deduction under section 80-IA of the Income-tax Act, 1961 in respect of Central Excise Duty set off and sales tax set off ? At the outset, it is required to be noted that the aforesaid issue is squarely covered against the assessee in view of the de....
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....; State Insurances Act were permissible deduction under section 37(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). This court has held that whenever any statutory impost paid by an assessee by way of damage or penalty or interest, is claimed as an allowable expenditure under section 37(1) of the Act, the assessing authority is required to examine the scheme of the pro visions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal, in nature. The authority has to allow deduction under section 37(1) of the Act, wherever such examination reveals the concerned impost to be purely, compensatory in nature. Wherever such impost is found to be of a composite nature, i.e., partly of compensatory nature and partly of penal nature, the authorities are obligated to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refuse to give deduction to that component which is penal in nature. In that case this court has approved the judgment of the Andhra Pradesh High Court in CIT v. Hyder....