TaxTMI 
TaxTMI 
2006 (1) TMI 176
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....it dispatched the same physically to credit Swiss (Bank) Switzerland through airlines. The said bank, after physical checking of such currency, was required to pay the assessee into their NOSTRO account with some other bank in USA or UK as the case may be. Such transfer was in the currency of that country. Assessee could use such money for meeting its requirement in these countries. Whenever it had needed the fund, it had remitted the same to India from such NOSTRO account. On these facts, assessee claimed deduction under s. 80HHC qua the convertible foreign exchange brought to India out of NOSTRO account. It may be mentioned that such claim was not made in the return of asst. yr. 1989-90 but was claimed in assessment proceedings. In all other years, the claim was made in the return of income. The AO rejected the claim of assessee on the following grounds: "(a) The transfer of funds to the foreign accounts is only one of the methods for obtaining credit. Therefore, it is merely a procedure adopted by the assessee and does not amount to export. (b) What the assessee transfers is foreign exchange and what is credited to its accounts abroad is also foreign exchange. ....
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....o sale of goods, that is to say, foreign currency outside India and therefore the assessee is entitled to weighted deduction under s. 35B. The assessee has filed details of his foreign travel which show that his travel was in connection with the said export business. The assessee, therefore, directed to be allowed weighted deduction on foreign tour expenses of Rs. 33,231". (b) The case of Imperial Tobacco Co. vs. IRC (1943) 25 Tax Cases 292 (CA) was referred for the following proposition: "We must decide this case having regard to the fact as found. In the light of those facts, the acquisition of these dollars cannot be regarded as colourless. They were an essential part of a completed commercial operation. That being so, what is the true analysis of the position? A manufacturer has provided himself with a commodity namely, dollars. I call dollars a 'commodity' not for the reason that they are not currency in this country, but they have a characteristic which is common to other commodities, and is not shared by sterling, namely, that their value from day to day varies in terms of sterling just in the same way as coal or bricks or anything else may....
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....e Bench, in the case of Confound Financial Services (I) Ltd., in which also 'dollar' has been considered as commodity. The finding of the AO that foreign currency was not a manufactured or processed item and, therefore, does not qualify for deduction under s. 80HHC does not appear to hold good in view of the provision of s. 80HHC(3)(b). Whereas s. 80HHC(3)(a) considers availability of deduction under this section of goods or merchandise manufactured (or processed) by the assessee, sub-cl. (b) of s. 80HHC(3) provides conditions in respect of export out of India of trading goods for the purpose of deduction under s. 80HHC. It is now clear that foreign currency is to be considered as 'goods' and these are 'traded goods'..... Therefore, the AO was wrong in not allowing deduction under s. 80HHC in the instant case and the CIT(A) was also in error in confirming such order when trading in foreign currency assumes the meaning of trading in goods and merchandise and is eligible for deduction under s. 80HHC(3) of the Act. In reversing the orders of the authorities below, we allow this ground taken by the assessee." (d) The case of CIT vs. Sooraj Mull Nagarmul....
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....ts found was, as I say, a first step in the carrying out of a commercial transaction, which would be completed by the purchase and delivery of the leaf and payment of the dollar purchase price for it.' We must decide this case having regard to the fact as found. In the light of those facts, the acquisition of these dollars cannot be regarded as colourless. They were an essential part of a contemplated commercial operation. That being so, what is the true analysis of the position? A manufacturer has provided himself with a commodity, namely, dollars. I call dollars a "commodity" not for the reason that they are not currency in this country, but because they have a characteristic which is common to other commodities, and is no shared by sterling, namely, that their value from day to day varies in terms of sterling, just in the same way as coal, or bricks, or anything else may do."' 6. In view of the above decisions, it was submitted that foreign exchange be considered as "goods" for claiming deduction under s. 80HHC. It was also submitted that this issue is concluded by the decision of co-ordinate Bench in the case of R.R. Sen which is binding on this Ben....
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.... has been placed on the judgment of Hon'ble Supreme Court in the case of State of Madras vs. Gannon Dunkerley & Co. (Madras) Ltd. 9 STC 353 (SC) : AIR 1958 SC 560. Accordingly, general meaning of the word cannot be applied while defining the scope of the word "goods" under s. 80HHC of the Act. It was further submitted that definition of "goods" in the Customs Act, 1962, in an enlarged definition and, therefore, has to be restricted to that Act only. According to him, a word may be defined differently in different statutes depending upon the object/purpose of the Act. Consequently, such meaning should be restricted to these enactments only. Various decisions have been referred to in support of such submission. It was further submitted that sale implies two different things, i.e., goods on one hand and the consideration in the form of price on the other hand. If foreign exchange is to be understood as "goods", then it would be case of "Barter" not amounting to sale. According to him, "sale proceeds" in s. 80HHC refers to consideration in the form of money while export of goods refers to other things. Hence, it cannot be said that foreign exchange is "goods". Lastly, it was submit....
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....this scope of the expression "sale of goods" in the Entry 48, List II, Sch. VII to Government of India Act, 1935. The contention of the appellant was that the provisions of a Constitution which confer legislative powers should receive a liberal construction, and that, accordingly, the expression "sale of goods" in Entry 48 should be interpreted not in the narrow and technical sense in which it is used in the Indian Sale of Goods Act, 1930, but in a broad sense. However, their Lordships did not accept this contention and rather endorsed the view of the earlier decision of the Constitution Bench of the apex Court in the case of STO vs. Budh Prakash Jai Prakash AIR 1954 SC 459 and then held at p. 566 "we must accordingly hold that the expression 'sale of goods' in Entry 48 cannot be construed in its popular sense, and it must be interpreted in its legal sense. What its connotation in that sense is, must now be ascertained". Further, at p. 569, their Lordships observed "We think that true legislative intent is that the expression 'sale of goods' in Entry 48 should bear the precise and definite meaning it has in law, and that, that meaning should be left to fluctuate wit....
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....legislature in using the expression in the later enactments." 16. In the case of Ahmed G.H. Ariff & Ors. vs. CWT (1970) 76 ITR 471 (SC), the Hon'ble Supreme Court had to consider the meaning of the word "annuity" with reference to the provisions of WT Act. In that connection, it was observed by their Lordships at p. 478 "it is well settled that where the legislature uses a legal term which has received judicial interpretation, the Courts must assume that the term has been used in the sense in which it has been judicially interpreted." 16. Similar view in the case of Keshavji Ravji & Co. vs. CIT (1990) 82 CTR (SC) 123 : (1990) 183 ITR 1 (SC), the Hon'ble Supreme Court observed at p. 11 "when words acquire a particular meaning or sense because of their authoritative construction by superior Courts, they are presumed to have been used in the same sense when used in a subsequent legislation in the same or similar context." 17. In view of the above authoritative judgments, it is clear that where a word or an expression has been defined in a particular enactment, then it is presumed that legislature was aware of such legal meaning of that word or expression while enactin....
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....nt in which debts and liabilities are expressed, and as a store of value or purchasing power. In a concrete sense the term money generally includes bank notes as well as coins, though it may be limited to such of each as are legal tender at the time and place in question. The term is sometimes used to include not only actual cash but also a right to receive cash, as, for example, sums standing to the credit of a bank account or invested in securities; and the term may in some cases be used in a popular sense to include all personal, or even, exceptionally, all real and personal property. The precise meaning of the term depends upon the context in which it is used so that, for example, it is usually given a wide meaning when used in a will and when that meaning gives effect to the intention of the testator, an intermediate meaning in connection with actions for money paid or for money had and received, and a narrow meaning in the criminal law and in relation to execution [27 Halsbury's Laws (3rd Edn.)]. "Money" includes a cheque, bank note, postal order or money order (Betting, Gaming and Lotteries Act, 1963, s. 55). (3) Black's Law Dictionary Spec....
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....ods" under the Customs Act, 1962. Hence, the definition under Customs Act, 1962, has to be understood for the purpose of that Act only and cannot be extended to s. 80HHC of the Act. 22. It is also well settled rule of interpretation that in case of ambiguity if two interpretations are possible, then the Court should accept the one which serves the purpose or object of the Act than the construction which defeats or frustrates such purpose or object. Sec. 80HHC is a code by itself and was enacted with the sole purpose to promote the export of goods produced in India and to augment the foreign exchange reserve in order to improve the Indian economy. The ultimate purpose was to increase the foreign exchange reserves so that the Government may discharge its foreign debts in foreign currency. If the contention of assessee that foreign exchange amounts to goods is accepted, then, in our opinion, it would frustrate and defeat the purpose or object of s. 80HHC inasmuch as it would deplete the foreign exchange reserve by sending the same to outside countries. The object of s. 80HHC would be achieved only when the word "goods" is held to exclude money including foreign exchange. Thus, we w....
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....t, 1930. 25. Coming to the decision of the Tribunal, the assessee had relied on the decision of Central Excise and Gold Appellate Tribunal, Mumbai, in its own case where the Tribunal held that the currency was within the scope of the word "goods" in terms of s. 2(22) of the Customs Act, 1962. This decision does not help the case of the assessee since the legislature has provided enlarged definition of the word "goods" under the Customs Act, 1962. Such definition has specifically included the currency and encashable instrument. In view of such enlarged meaning of the word "goods", the Tribunal held that currency was "goods". Since it has been held by us that currency forms part of money, it has to be excluded from the definition of "goods". Accordingly, the aforesaid decision of the Tribunal is quite distinguishable and cannot be applied in the present case. 26. The only decision which favours the case of assessee is the decision of the Tribunal, Calcutta Bench, in the case of R.R. Sen & Brothers vs. Jt. CIT. In this case, it has been held that the foreign exchange falls within the scope of "goods". The perusal of the said order shows that such finding is based on the dictiona....
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....stinguished the English casein the case of Imperial Tobacco Co. vs. IRC, which has also been taken into consideration by the Tribunal. In view of the above discussion, we are of the view that the decision of the Calcutta Bench cannot be considered as precedent so as to bind the other co-ordinate Bench. In view of the above discussion, it is held that foreign exchange cannot be considered as "goods" for the purpose of s. 80HHC of the Act. Since this condition is not satisfied, the assessee is not entitled to deduction under s. 80HHC. The orders of the learned CIT(A) for all the years are, therefore, upheld on this issue. 28. The next issue which is common to all the appeals relates to computation of deduction under s. 80HHD of the IT Act, 1961 (Act). 29. Briefly stated the facts are these: The facts relating to this issue are almost similar in all the appeals except the figures on various counts. Therefore, for the sake of convenience, we are narrating the facts relating to asst. yr. 1989-90. Accordingly, the facts as narrated in the orders of the lower authorities and also taken from the paper book are stated hereinafter. 30. The assessee is a well-known company engaged....
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....unds. However, in respect of dealing in foreign exchange, the AO was of the view that entire sale proceeds of foreign exchange constitute the business receipts for the purpose of applying the formula in sub-s. (3)(b) of the said section. Accordingly, he adopted the total turnover of the foreign exchange amounting to Rs. 6,50,12,99,100/- as per the figures given by the assessee and the same appears at p. 38 of the paper book. To these figures, he added the commission receipts in respect of other two items and thus the total business receipts were taken at Rs. 6,67,12,67,118/-. In the similar manner, he computed total sale to foreign tourist at Rs. 33,53,61,833/- on the basis of average rate of profit of 1.2 per cent shown by the assessee while computing exchange profit at Rs. 40,24,342/-. Thus, the receipts in convertible foreign exchange were computed at Rs. 40,15,95,358/- as against Rs. 7,02,57,867 declared by the assessee. Thus, the deduction under s. 80HHD was computed at Rs. 12,58,863/- as under: 32. The matter was carried in appeal before the learned CIT(A) for all the issues, before whom two contentions were raised. The first contention was that in the to....
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....he business unlike the turnover of business in s. 80HHC(3)". There is no dispute that assessee is dealing in the foreign currency and in the course of such business there may be profit or loss as the case may be. Such activity is akin to a trader and, therefore, the sale proceeds of currency amount to business receipts. In this connection, reference may be made to the judgment of the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC), wherein, the sale proceeds of goods sold on auction were considered to be trading receipts even though assessee was acting as an auctioneer and was entitled to commission only. If the sale proceeds in the case of an auctioneer can be considered as a business receipt, we failed to understand as to how in the present case, the assessee can contend that sale proceeds of a currency would not amount to business receipts. In view of the same, we uphold the orders of the learned CIT(A) on this issue. 35. The next issue relates to disallowance of depreciation in respect of office premises as well as residential premises purchased by the assessee. This issue pertains to asst. yrs. 198....
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....th the parties, we find that the issue is now covered in favour of the assessee by the judgment of the Hon'ble Supreme Court in the case of Bharat Earth Movers vs. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC), wherein, it has been held that if the liability is certain, then deduction must be allowed even though such liability is to be discharged at a future date. On the basis of this principle, the claim of the assessee was held to be allowable. Respectfully following the said judgment, the order of the learned CIT(A) is set aside and the AO is directed to consider the claim of the assessee in accordance with the Supreme Court judgment. 38. The next issue arising in this appeal for the asst. yr. 1989-90, relates to disallowance of Rs. 4,20,000/- being incentive payable to Taj Group of Hotels. This issue has not been pressed before us. Accordingly, the ground raised in this behalf is dismissed. 39. The next issue arising in appeal for the asst. yr. 1992-93, relates to disallowance of entertainment expenses to the extent of Rs. 12,88,230/- and club subscription amounting to Rs. 52,706/-. From the audit report under s. 44AB of the Act, it was seen that e....
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....uspense account. These amounts are Rs. 7,21.473/-, Rs. 15,06,010/- and Rs. 28,35,017/- in respect of asst. yrs. 1993-94, 1995-96 and 199798, respectively. The AO disallowed the same treating as trading receipts. The explanation of the assessee before the AO was that no addition could be made in this regard in view of the order of the learned CIT(A) for asst. yr. 1992-93. However, the AO did not accept the submission of assessee on the ground that appeal is pending before the Tribunal. Accordingly, the additions were made by the AO for the above years. On appeal, the same has been confirmed by the learned CIT(A) for the reasons given in his order. According to him, the case was covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. T.V. Sundaram Iyengar & Sons Ltd. (1996) 136 CTR (SC) 444 : (1996) 222 ITR 344 (SC). Aggrieved by the same, the assessee is in appeal before the Tribunal for all the three years. 44. After hearing both the parties, we find merit in the appeal of the assessee in view of the latest judgment of the Hon'ble Supreme Court in the case of Chief CIT vs. Kesaria Tea Co. Ltd. (2002) 173 CTR (SC) 394 : (2002) 254 ITR 434 (....
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....d the addition of Rs. 1,10,042/-. In the absence of any material on record, we sustain the order of the learned CIT(A) on this issue. DEPARTMENT'S APPEALS 47. The first issue, common to all the appeals, relates to the addition in respect of unclaimed balances and cheques suspense account. This issue has already been adjudicated by us while disposing assessee's appeals. For the reasons given by us in those appeals, we decide this issue in favour of assessee. Accordingly, the orders of the learned CIT(A) are upheld on this issue. 48. The next issue, common to appeals for asst. yrs. 1990-91 to 1992-93, relates to disallowance under r. 6B, which has been deleted by the learned CIT(A). Disallowances had been made by AO in respect of expenditure incurred on gift articles costing more than Rs. 50 each. The learned CIT(A) has deleted the disallowance following Delhi High Court decision reported as CIT vs. Associated India Exports (1992) 107 CTR (Del) 170 : (1991) 188 ITR 125 (Del). Aggrieved by the same, the Revenue is in appeal. After hearing both the parties, we find that the issue is covered by the decision of the Hon'ble Bombay High Court in the case of CIT vs. All....
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.... 437 (Bom), has disallowed such expenses. See also CIT vs. T.S. Hajee Moosa & Co. (1986) 51 CTR (Mad) 200 : (1985) 153 ITR 422 (Mad). In view of these judgments, the order of the learned CIT(A) is set aside on this issue and consequently disallowance made by the AO is restored. 52. The next issue relates to expenses incurred on software upgradation in asst. yr. 1990-91. The AO has disallowed the same being capital in nature. The learned CIT(A) has allowed the same being revenue in nature. After hearing both the parties, we are of the view that expenses on up gradation of software do not result into acquisition of any asset nor acquisition of enduring benefit as such software becomes obsolete very quickly. Accordingly, we hold the same as revenue expenditure. The order of the learned CIT(A) is, therefore, upheld on this issue. 53. The next issue in appeal for asst. yr. 1990-91 relates to disallowance of penalty and fine of Rs. 6 lacs. The learned counsel for the assessee has not objected to the ground raised by the Revenue. The fines and penalties are not allowable as expenditure. Accordingly, the order of the learned CIT(A) is set aside and the disallowance made by AO is rest....
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.... However, the AO on the basis of the disallowance of the claims has levied the penalty under s. 271(1)(c) on the ground that the appellant has concealed the particulars of income or furnished inaccurate particulars of income. The issue for consideration therefore is not the merits of the claim but whether the AO is justified in levying penalty under s. 271(1)(c) of the Act. It is seen from the penalty order itself that there is no dispute that detailed working of the claim along with Form No. 10CCAD in case of s. 80HHD or otherwise in the form of note, etc. has been given with the return of income. The claims were duly certified by the auditors and the working of the claims and the basis on which the claims were made were also provided. The fact that the claim had been made in earlier years also is not disputed as the AO has mentioned the same in the order itself. Therefore, the contention of the appellant, that only on account of legal differences on interpretation of the claims leading to rejection of the claims, it cannot be said that the same has concealed the particulars of income, has substantial force. The AO also mentions that submissions have been made during the assessmen....