2014 (7) TMI 563 - HC - Income Tax

Effect of amendment not considered - Sale or import to be treated as cash assistance or not u/s 28(iiib) of the Act - Premium on license purchased from outside parties Held that - The judgment delivered by Tribunal does not indicate that the Fifth proviso inserted by Taxation Law (Amendment) Act, 2005, with retrospective effect from April 1, 1992 was noticed by it thus, the matter deserves to be remitted to ITAT for its fresh consideration for the opinion in the light of the Fifth proviso as also the amendment made under the Fifth Act 2005 Decided in favour of Revenue. Business of cutting and polishing of rough diamonds - Whether the Tribunal was right in holding that for the purpose of working out deduction u/s. 80HHC, clause (a) of section 80HHC becomes applicable instead of clause (b) as the assessee was engaged in the business of cutting and polishing of rough diamonds which are imported from abroad and then selling out cut and polished diamonds in trading of polished diamonds and the percentage of trading of polished diamonds is more than 50% of the total export sales Held that - The decision in Gem Granites v. Commissioner of Income-Tax 2004 (11) TMI 13 - SUPREME Court followed - in view of the aforesaid 1984 Circular, cut and polished diamonds shall qualify for deduction under sec. 80HHC of the Income-tax Act - polished and processed granite did not fall within the meaning of word minerals in 80HHC(2)(b) as it stood before 1991- Decided against Revenue.

Summary

Issues Involved:
1. Interpretation of whether 8% premium on licenses purchased for sale or import should be treated as cash assistance against export deduction under sec. 80HHC.
2. Determination of applicable clause under sec. 80HHC for deduction in a case involving cutting and polishing of rough diamonds for export, with a majority of sales in trading polished diamonds exceeding 50% of total export sales.

Analysis:
1. The High Court considered the first issue regarding the treatment of 8% premium on licenses for sale or import against export deduction under sec. 80HHC. The Court noted that the Tribunal did not consider the Fifth proviso inserted by the Taxation Law (Amendment) Act, 2005, with retrospective effect from April 1, 1992. The Court highlighted that the Tribunal relied heavily on a previous decision without acknowledging the Fifth proviso. Consequently, the Court remitted the matter back to the ITAT for fresh consideration, emphasizing the need to review the issue in light of the Fifth proviso and the 2005 amendment.

2. Moving on to the second issue, the Court addressed the application of sec. 80HHC clauses in a scenario where an assessee is engaged in cutting and polishing rough diamonds for export, with a significant portion of sales in trading polished diamonds exceeding 50% of total export sales. The Court referred to a Supreme Court decision in the case of Gem Granites, where it was established that cut and polished diamonds qualify for deduction under sec. 80HHC. Citing a 1984 Circular, the Court emphasized that cut and polished diamonds are not considered minerals or ores, hence eligible for relief under sec. 80HHC. Consequently, the Court ruled in favor of the assessee on this issue, disposing of the reference and instructing the ITAT to complete the necessary consideration within six months.

In conclusion, the High Court's judgment addressed the intricate issues surrounding the interpretation of tax laws related to export deductions and the treatment of specific business activities under sec. 80HHC. The Court's detailed analysis and references to relevant legal provisions and precedents provided a comprehensive resolution to the matters at hand, ensuring a fair and just outcome for the parties involved.