TaxTMI 
TaxTMI 
2018 (10) TMI 1105
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....facts in treating the interest income from GEB as ''Business Income'' instead of Income from other sources as considered by the AO. 2. The CIT(A) erred in law and in facts by working out the eligible deduction u/s.10B after excluding the freight and insurance of Rs. 3,63,135/- and Rs. 9,610/- respectively from export turnover as well as from the total turnover. 3. The CIT(A) erred in law and in facts by granting the deduction u/s.10B without reducing the interest on capital of Rs. 66,27,065/- and remuneration to partners of Rs. 1,31,01,213/- in the profit & loss account. 4. That on the facts and in the circumstances of the case, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. 5. It is therefore prayed that the order of the Ld.CIT(A) be set aside and that of the Assessing Officer be restored. 6. That the revenue craves leave to add, amend, alter or withdraw any grounds of appeal." 3. The first issue raised by the Revenue in ground no.1 is that ld. CIT(A) erred in treating the interest income as income from business and accordingly, allowed the deduction u/s 10B of the Act. 4. Briefly stated facts are that the ....
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....ubmission of the assessee deleted the addition made by the AO by observing as under: "5.2 I have carefully considered the reasons given by the AO as well as the written submission made before me as well as the oral submission made by the AR of the appellant. Deposit to electricity unit was made by the appellant for obtaining the connection of electricity for the purposes of manufacturing activity of eligible unit. Without placing the deposit appellant would not have been able to carry on manufacturing activity, therefore the interest income arising from that is the business income of the appellant as it has direct nexus with the business of the undertaking. Therefore, same is the business income of the appellant. AO is directed to treat the interest income on deposit for Electricity connection as business income. Hence, ground no.1 of the appeal is allowed." Being aggrieved by the order of ld. CIT(A) Revenue is in appeal before us. 6. The ld DR before us vehemently supported the order of AO. 7. On the other hand, the ld AR before us filed a paper book which is running from pages 1-67 and reiterated the submissions as made before the ld CIT(A). 8. We have heard ....
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....he assessee is a 100 per cent EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law. Now the question is whether the interest received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not partake the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of income from profits and gains incorporated in sub-section (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts. [Para 8....
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....urnover. There is no definition of the total turnover given in the Section. Therefore, the amount of freight and insurance cannot be excluded from the total turnover of the assessee. 10.5 No reference can be made to the provision of Section 80HHC, 80HHE and 80HHF for working out export turnover and total turnover. It is because the legislature has intentionally given definition under the provisions of relevant section. Thus the provisions of those sections are only applicable for the deduction as specified under the relevant Section. The same cannot be incorporated by implication into Section 10B of the Act. The AO accordingly, excluded the amount of freight and insurance from the export turnover and calculated the deduction available to the assessee u/s 10B of the act. 11. Aggrieved, assessee preferred an appeal to ld CIT(A). The assessee before the ld CIT(A) submitted that there is no definition of total turnover as mentioned under the provision of Section 10B of the Act. Therefore, the meaning of total turnover would be concluded as prevailing in the commercial sense. 11.1 The provisions of Section 80HHC are similar to the provision of Section 10B of the Act. Therefore,....
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.... from the total turnover though that expression has not been defined in the section. The argument of the department that in the absence of any definition of 'total turnover' for the purpose of section 10B, there is no authority to exclude anything from the expression as understood in general parlance, could not be accepted for two reasons. Firstly, there has to be an element of turnover in the receipt if it has to be included in the total turnover. That element is missing in the case of freight, telecom charges or insurance attributable to the delivery of the goods outside India and expenses incurred in foreign exchange in connection with the providing of technical services outside India. These receipts can only be received by the assessee as reimbursement of such expenses incurred by him. Mere reimbursement of expenses have an element of turnover. It is only in recognition of this position that in the definition of 'export turnover' in section 10B, the two items have been directed to be excluded. Secondly, the definition of export turnover contemplates that the amount received by the assessee in convertible foreign exchange should represent 'consideration' ....
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....reign exchange, in providing the technical services outside India should not be included. However, the word 'total turnover' is not defined for the purpose of this section. [Para 8] The expression 'total turnover' has been the subject matter of various decisions as defined under the Act under section 80HHC. However, in the aforesaid provision, the total turnover is defined. In section 10A not only the word 'total turnover' is not defined, there is no clue regarding what is to be excluded while arriving at the total turnover. However, while interpreting the aforesaid provisions of section 80HHC, the Courts have laid down various principles, which are independent of the statutory provisions. [Para 9] The formula for computation of the deduction under section 10A would be as under: Profits of the business Ã-export turnover Total turnover From the various judgments, it emerges that there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10A is a beneficial section. It is intended to provide incentives to pr....
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....uting 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 chosen 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 10A, would be as under: Profit of the business Export turnover Of the undertaking Ã- 'Export turnover + domestic turnover' Total Turn Over [Para 10] In that view of the matter, no error was committed by the Tribunal in following the judgments rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same. Therefore, the Tribunal was correct in holding that while computing relief under section 10A the....
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....of the assessee directed the AO to work out the deduction u/s 10B of the Act without reducing the interest on capital and remuneration to the partners. The relevant extract of the order is reproduced below; "7.3I have carefully considered the reasons given by AO in the assessment order as well as written submission made by AR of the appellant and oral submission made by him. Appellant is a partnership firm carrying on the business of manufacturing activities which is eligible for deduction u/s10B and it is getting this deduction since beginning. The deduction has also been allowed to the appellant for all those years and is not in dispute. a) Appellant is a partnership firm which is reconstituted i.e wherefrom Shri Ratilal B. Dobaria retired from the firm and it was reconstituted. In the reconstituted deed there were provisions in the deed to not to pay interest and remuneration to the partner w.e.f. 01.04.2009. The relevant partnership deed is submitted by the appellant at page no 64-67 of the paper book relevant clauses at serial no.12 are as under:- "[12] that all the parties have decided to not pay any interest on the capital contributed by them. ....
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.... act that if there is flow of goods or supply between the eligible undertaking and non-eligible undertaking of the same assessee than such transaction should be recorded at arm's length and second if there is more than ordinary profit shown by any undertaking of the assessee compared to other undertaking of the assessee or other assessee than AO is empowered to adjust the profits of the undertaking which is claiming deduction u/s10B. In the present appeal it is not the case of the AO that appellant has shown more than ordinary profits compared to its own working for previous years or any other undertaking of the appellant or any other comparable undertaking of the other assessee. The section also speaks about the eligible profit which refers to the ''undertaking'' and it is correct that profits of the undertaking cannot change with the change in the status of the appellant such as partnership firm where interest and remuneration can be paid to the partners, proprietary concerns and in case of companies where this payments cannot go to reduce the profit of the undertaking. Therefore, it is rightly stated that the other things being same the profits eligible for the firm, who has pai....
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.... grant deduction u/s.10B of the Act to the appellant without reducing debiting interest on capital and remuneration to partners n P & L A/c of Rs. 66,u/s.271(1)(c) of the Act,065/- and Rs. 1,31,01,213/- respectively. Ground no.3 of the appeal is allowed." Being aggrieved by the order of ld CIT(A) revenue is in appeal before us. 17. Both the parties before us relied on the order of authorities below as favorable to them. 18. The issue in the instant case relates whether the assessee is eligible for deduction u/s 10B of the Act without reducing the interest on capital and remuneration to the partners. The AO was of the view that the assessee has not claimed the deduction on account of interest on capital and remuneration to the partners with a view to claim higher amount of deduction u/s 10B of the Act. However, we note that in the identical facts and circumstances the Hon'ble Gujarat High Court in the case of CIT vs. Mundra Packaging Industries in Tax Appeal No. 615 of 2006 to Tax appeal no.617 of 2006 vide order dated 11.10.2006 decided the issue in favour of the assessee by observing as under: "The following common questions of law are proposed for the admissi....
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....partners capital as well as their remuneration despite specific clauses in its partnership. They are of the opinion that the same had led to swelling of assessee's profits which have been claimed as section 80IB deduction. They seek to trim the deduction claim as indicated hereinabove in other words. The assessee's stand on the other hand is that these two clauses of interest on partners capital and remuneration are not mandatory. They depend on mutual agreement between the partners for the purpose of crediting the same in respective capital accounts at the end of the year subject to the maximum statutory limits. The question arises for the our adjudication therefore depends on interpretation of the above two clauses Sl. No. 6 & 15 incorporated in assessees partnership deed dated 13/20-02-2003 as under:- "The capital required for the business of the partnership firm shall be contributed by the partners as mutually agreed according to the needs of the business of the firm and according to the convenience of the partners. Interest shall be paid on the partners' capital as mutually agreed to between them which shall be credited in their respective accounts at the ....
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....he authorities below. A careful perusal of the impugned appellate order clearly reveals that the Ld. CIT(A), has considered and adjudicated the issue, in question, in greater detail, after appreciation of the evidences and material on record, as also the legal and factual position of the case. Needless to say that the impugned appellate order is well reasoned and based on the cogent and credible material and facts of the case. However, it would pertinent to reproduce the relevant part of the decision of the CIT(A), for the purpose of proper appreciation of the same: "3.4. I have considered the rival submissions carefully. An identical issue has been decided in the case of Rohit Tandon, husband of the appellant, the other partner in M/s. Dynamech holding 50% share in the partnership firm for the assessment year 2006-07. In that case also, the AO had added the interest payable on the capital of Sh. Rohit Tandon and remuneration payable to Sh. Rohit Tandon to the total income of the assessee, I have adjudicated that appeal vide order dated 14.7.2009 in appeal No.591/08-09/CIT(A)/Jal and have deleted similar additions as under: "9.5 I have considered the rival submiss....
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....erson is so arranged that more than ordinary profits arise to the assessee, the AO shall, in computing the profit and gains of such an eligible profits for the purposes of deduction under this section, take the amount of profits as may be reasonably taken to have been derived therefrom. Thus sub-section has been made applicable to section 80IB by virtue of sub-section (13) of section 80IB. However, this sub-section only enables, the AO to effect the profit of the undertaking claiming deduction u/s 80IB, which is M/s. Dynamech in this case. This does not enable the AO to alter the profits or the income of the other person referred to in this sub-section. It is a fact that the assessee has not received interest and remuneration from M/s. Dynamech. As noted earlier, the terms of partnership deed are not so worded so as to make payment of interest on capital and remuneration to partners as mandatory. It is also not rebutted by the AO that no interest or remuneration has been received by the appellant in earlier years also. This income has not accrued or arisen to the assessee. I, therefore, hold that the AO was not justified in making the addition on account of interest on capital in M....