TaxTMI 
TaxTMI 
2002 (3) TMI 10
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....ness of the assessee?" The following facts will help us to understand the controversy. The assessee is a company carrying on business of forgings. The assessee had established three units, viz., Unit-I, Unit-II and Unit-III, in the forgings shop division and admittedly the assessee-company was an export-oriented company, exporting the forgings and the company received income under tile following heads: 1. Interest receipts, 2. Modvat credits, 3. International Price Rationalisation. It was the case of the assessee before the assessing authority that all the receipts stated above were part of the receipts relating to the industrial under taking of the assessee and, therefore, full deduction was claimed under section 80HH and section 80-I of the Income-tax Act. The assessing authority, however, did not accept the claim of the assessee on the ground that these receipts did not form part of the profits and gains. An appeal came to be filed before the Commissioner of Income-tax (Appeals) who confirmed the order of assessment and negatived the claim of the assessee. However, in the appeal filed before the Appellate Tribunal, the claim of the assessee was accepted to the extent that....
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....king. The Tribunal, therefore, granted relief under sections 80HH and 80-I of the Act for this amount also. The major issue on which the relief was granted by the Tribunal was in respect of a sum of Rs.6,84,461. This claim was made on the basis of a certificate issued by the chartered accountant in Form No. 10CCAC and the annexure thereto. The Assessing Officer while assessing for the year 1989-90 granted relief for the sum of Rs.3,49,132. Similarly, for the next assessment year also, the relief was granted by the Assessing Officer adopting the same method. The dispute related to what should be held as total turnover of the assessee. The Assessing Officer took the total turnover to be the turnover from all the sources of business as the assessee was also doing the business of selling motorcycles, spare parts thereof and television sets. The contention of the assessee was that the total turnover must be confined to the turnover of the product which the assessee was exporting. However, even the Commissioner (Appeals) confirmed the view taken by the Assessing Officer and took the view that the turnover of the whole business including the business of sale of motorcycles, motorcycle....
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....e reference of the questions mentioned above resulting in the present references. We shall consider the first question first. This pertains to the amounts received by the assessee-company under three heads, viz., (a) Interest receipts; (b) Modvat credits; and (c) International Price Rationalisation. Interest receipts: The interest receipts are also of two descriptions. Firstly interest received on account of the deposit made by the assessee-company with the banks for obtaining letters of credit and, secondly, interest earned by the assessee-company on the deposit of margin money for letters of credit. Mrs. Chitra Venkataraman, learned senior standing counsel for the Department, very heavily criticised the deduction granted to the assessee-company on account of this interest receipts. She points out that the words used in section 80HH are: "Where the gross total income of an assessee includes any profits and gains derived from the industrial undertaking... to which this section applies 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 profits and gains of an a....
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....hat the original source of the product has to be found. Thus, as a matter of plain English, when it is said that one word is derived from another, often in another language, what is meant is that the source of that word is another word, often in another language. As an illustration, the word 'democracy' is derived from the Greek word 'demos' the people, and most dictionaries will so state. That is the ordinary meaning of the words 'derived from' and there is no reason to depart from that ordinary meaning here." The apex court further observed in paragraph 12 as follows: "There must be, for the application of the words 'derived from', a direct nexus between the profits and gains and the industrial undertaking." As regards the facts of the case concerned, the apex court held in that case that the nexus was not direct but only incidental. There the apex court was considering the case of an assessee who was engaged in processing prawns and other seafood which it exported and in that it also earned some import entitlements granted by the Central Government under the Export Promotion Scheme. Such import entitlements could be used by the assessee itself or could also be sold to others.....
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....number of other decisions, the court observed as follows: "...the word 'derived' is not a term of art and its use in the definition indeed demands an enquiry into the genealogy of the product, but the enquiry should stop as soon as the effective source is discovered and the profit or gain can be said to have been 'derived' from an activity carried on by a person, if the said activity is the immediate and effective source of the said profit or gain ... there must be a direct nexus between the activity and the earning of the profit or gain and the income, profit or gain cannot be said to have been derived from an activity merely by reason of the fact that the said activity may have helped to earn the said income or profit in an indirect or remote manner." We agree with this decision, which is binding on us. The aforementioned decision has only been further strengthened by the subsequent decision of the apex court. We are, therefore, of the clear opinion that the interest which is earned by the assessee from the bank deposits would not have a direct nexus with the industrial undertaking of the assessee and would only be incidental income thereto and, therefore, such interest has to....
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....assessee had not purchased the raw material for its industrial activity and had not exported the finished forgings, the assessee would not, be entitled to the said amount of Rs. 6 per kilo. There can be, therefore, no doubt that the amount earned by the assessee under the International Price Rationalisation Scheme is held to be an allowable deduction under section 80HH of the Act. Thus, we answer the reference on these counts in favour of the assessee. That leaves us with the second question regarding the true import of the word "turnover" as used in sub-section (3) of section 80HHC. It would be better for us to quote the whole sub-section itself. "80HHC. Deduction in respect of profits retained for export business.--... (3) For the purposes of sub-section (1), profits derived from the export of goods or merchandise out of India shall be,-- (a) in a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head 'Profits and gains of business or profession'; (b) in a case where the business carried on by the assessee does not cons....
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....siness would certainly include the business of sale of motorcycles, spare parts thereof and television sets and as such, the turnover on that count would be liable to be included in the total turnover so as to increase the denominator. The Tribunal has taken into account the subsequent amendments to the section in order to arrive at the correct interpretation and on that basis has held that it was always in the mind of the Legislature that the total turnover would be restricted to the total turnover of the exportable goods. Learned counsel further submits that if a restricted meaning is given to the words then, it would be doing violence to the express language of the sub-section which will be impermissible by the established canons of interpretation. The argument is undoubtedly extremely attractive but lacks substance. Even considering the express language the sub-section would have to be not only appreciated in the light of the language of that sub-section but that sub-section will have to be read along with the other sub-sections like sub-sections (1) and (2). In the first place, considering the language of the sub-section itself, it cannot be forgotten that the sub-section it....
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.... section applies." Once we have this stage then the task of interpreting clause (b) of sub-section (3) becomes easier because even in clause (a) of sub-section (2) and clause (a) of sub-section (3) the same terminology is used in respect of the goods and merchandise. When a plain meaning has to be given to the opening part of the section, it is clear that the word "business" means the business relating to the goods to which the section applies and the thrust is on the word "exclusively". The sub-section considers a situation where the assessee's business is of exports and the assessee's business is not that of export alone. However, one thing is certain that the business has to be only in respect of the goods or merchandise to which the section applies. As has been stated earlier, the thrust is on the word "exclusively". The Legislature has rightly intended the situation where the business could be relating to the goods which would fetch the foreign exchange but there could also be the business in relation to these goods which may not be exported or which may not fetch foreign exchange. However, the whole sub-section speaks only about the goods, which are exportable, exported and f....
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....t be permissible. Once this situation is clear, there would be no scope for accepting the argument of the Revenue that the total turnover of business would include even the turnover of goods which are outside the scope of clause (a) of sub-section (2). Hence, we are of the clear opinion that the turnover from the business of sale of motorcycles, motorcycle spare parts, television sets cannot be introduced to inflate the total turnover artificially in order to reduce the benefit which the assessee is entitled to. That would be clearly going against the object of section 80HHC, which is solely to encourage the exports. The Bombay High Court in a somewhat similar situation in the decision reported in CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769, while interpreting the words "total turnover" has observed as follows: "That the total turnover cannot include the sales tax and the excise duty and total turnover should be restricted only to such receipts which have an element of profit in it and it would be only the sale price which should be the relevant figure." In that case, the total turnover which is the denominator in the prescribed formula was tried to be inflat....