1993 (10) TMI 311 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of central excise refund under section 28(iv).
2. Taxability of other duty drawbacks and incentives.
3. Eligibility for weighted deduction on export brokerage under section 35B(1)(b)(iv).

Issue-wise Detailed Analysis:

1. Taxability of Central Excise Refund under Section 28(iv):

The primary issue was whether the central excise refund of Rs. 70,649 received by the partnership firm, which succeeded the proprietary business of the deceased, was taxable under section 28(iv) of the Income-tax Act. The Commissioner of Income-tax (Appeals) held that the refund was taxable because it was received in the trade name of the concern and not in the name of the legal heirs. The Tribunal supported this view, citing the Calcutta High Court decision in Kesoram Industries and Cotton Mills Ltd.'s case, which held that amounts received under an export incentive scheme are taxable income. The dissenting Judicial Member argued that the refund was due to the deceased proprietor and could not be taxed in the hands of the partnership firm, emphasizing that the business's ownership had changed. The Third Member, resolving the difference, concluded that section 28(iv) did not apply because the refund was a cash receipt, aligning with the Gujarat High Court's decision in CIT v. Alchemic Pvt. Ltd., which held that section 28(iv) applies only to non-monetary benefits or perquisites.

2. Taxability of Other Duty Drawbacks and Incentives:

The Tribunal also addressed the taxability of other duty drawbacks and incentives, including excise duty drawback (Rs. 6,41,168), customs duty drawback (Rs. 82,402), Handloom Export Council incentives (Rs. 2,36,568), and cash incentives from the Indian Cotton Mills' Federation (Rs. 2,83,627). The Tribunal, following the reasoning applied to the central excise refund, rejected the assessee's objections and confirmed the additions made by the Commissioner of Income-tax (Appeals). The Tribunal cited a Special Bench decision and the Calcutta High Court's ruling in Kesoram Industries to support its conclusion that these amounts were taxable as they were received in the course of carrying on the business.

3. Eligibility for Weighted Deduction on Export Brokerage under Section 35B(1)(b)(iv):

The assessee also contested the disallowance of a weighted deduction on expenditure of Rs. 91,012, particularly on brokerage on export sales amounting to Rs. 53,134. The Commissioner of Income-tax (Appeals) had denied the deduction on the ground that the expenses did not fall under any sub-clauses of section 35B(1)(b). However, the Tribunal, after reviewing the papers and a previous order of the Tribunal for earlier assessment years, allowed the weighted deduction under section 35B(1)(b)(iv) for brokerage on export sales.

Conclusion:

The appeal was allowed in part. The central excise refund and other duty drawbacks and incentives were held to be taxable in the hands of the partnership firm. However, the Tribunal allowed the weighted deduction for brokerage on export sales under section 35B(1)(b)(iv). The Third Member's decision clarified that the central excise refund was not taxable under section 28(iv) as it was a cash receipt, aligning with the Gujarat High Court's interpretation.