2015 (5) TMI 621 - HC - Income Tax

Deduction under Section 80HHC - inclusion of Hire of barges - Held that - The receipts received on such hire would be in the nature of rent or similar to rent and therefore, would fall in the items specified in clause baa (1) of Explanation to Section 80HHC of the Act. Even if one accepts the submission of the appellant that the these barges continue to be in control of the appellant and they only ferry goods of others for a charge, the receipts would certainly be classified as charges or of a nature similar to it and therefore, would fall under clause baa (1) of Explanation to Section 80 HHC of the Act. The appellant has not shown that the aforesaid activity has any nexus with its export activity. Consequently, following the decision of the Supreme Court in Ravindranathan Nair (2007 (11) TMI 10 - Supreme Court of India), the aforesaid charges constitute independent income and is a receipt as rent/charges or at the very least similar in nature to it. Therefore, the impugned order of the Tribunal has correctly held these receipts are covered by clause (baa) (1) of Explanation to Section 80 HHC of the Act - Decided in favour of the Revenue Proceeds of Services and Repairs of Vessels - Held that - in view of the decision of the Apex Court in Ravindrathanan Nair (supra), the receipts of the same cannot be reduced to the extent of 90% as provided under clause baa (i) of the Explanation to Section 80HHC. In fact, the receipts having a nexus to exports would not be an independent income to be hit/covered by clause baa of Explanation to Section 80HHC of the Act. In view of the above, we find that after the impugned order has come to a finding that the aforesaid two receipts on account of proceeds of services and repairs of vessels are incidental to export activities, then the impugned order ought to have held that the proceeds of services and repairs of vessels are not covered by clause baa of the Explanation to Section 80HHC of the Act - Decided in favour of the assessee Receipts on account of sales of pig iron, vessels, engineering products, materials and coke breeze - Held that - The Tribunal by the impugned order correctly held that the aforesaid sales do not have any link with the export activities of the appellant. Thus, being independent income, the same would be hit by by clause (baa) of the Explanation to Section 80 HHC of the Act. - Decided in favour of the Revenue Extraction charges - Held that - We hold that the extraction charges per se are includable in the total turnover, However, while giving effect to this order the authorities under the Act would consider the appellant s submission that there has been inclusion of extraction charges in effect twice in the total turnover and if so, would ensure that the same is included only once. However, so far as extraction charges are concerned, the impugned order has correctly held them to be includable in total turnover as defined in clause baa of the Explanation to Section 80 HHC of the Act. - Decided in favour of the Revenue

Summary

Issues Involved:
1. Whether certain receipts (hire of barges, proceeds of services, repairs of vessels) could be considered similar to the specified receipts referred to in clause (baa) of the Explanation to Section 80HHC of the Income Tax Act, 1961.
2. Whether receipts from the sale of various items (pig iron, vessels, engineering products, materials, coke breeze) could be considered similar to the specified receipts referred to in clause (baa) of the Explanation to Section 80HHC.
3. Whether receipts under the head "extraction charges" could be considered as part of the "total turnover" as defined in clause (baa) of the Explanation to Section 80HHC for the purpose of computation of deduction under Section 80HHC.

Detailed Analysis:

Issue 1: Similarity of Receipts to Specified Receipts in Clause (baa)
- Hire of Barges: The Tribunal held that the receipts from the hire of barges are similar to rent or charges specified in clause (baa) of the Explanation to Section 80HHC. The appellant's argument that these receipts should not be considered similar due to substantial costs incurred was rejected. The court concluded that the hire of barges is independent income with no nexus to exports, thus falling within clause (baa).

- Proceeds of Services and Repairs of Vessels: The Tribunal found these receipts to be incidental to the appellant's export activities. The court agreed that since these receipts have a nexus to exports, they should not be reduced by 90% under clause (baa) of the Explanation to Section 80HHC. The court clarified that this finding is based on the specific facts of this case and does not apply universally to all similar receipts.

Issue 2: Receipts from Sale of Various Items
- The Tribunal held that receipts from the sale of pig iron, vessels, engineering products, materials, and coke breeze are independent income with no nexus to exports, thus falling within clause (baa) of the Explanation to Section 80HHC. The appellant's argument that these receipts should not be considered similar to the specified receipts was rejected. The court upheld the Tribunal's decision, emphasizing that these sales do not have any link with export activities and therefore are covered by clause (baa).

Issue 3: Extraction Charges as Part of Total Turnover
- The Tribunal included extraction charges in the total turnover as defined in clause (baa) of the Explanation to Section 80HHC. The appellant argued that these charges are merely reimbursements of expenses and should not form part of the turnover. The court held that extraction charges are part of the appellant's core activity and thus should be included in the total turnover. However, the court directed the authorities to ensure that extraction charges are not included twice in the total turnover while giving effect to this order.

Judgment Summary:
- Question A: Hire of barges is similar to specified receipts in clause (baa) (affirmative, in favor of Revenue). Proceeds of services and repairs of vessels, having a nexus to exports, are not covered by clause (baa) (negative, in favor of Assessee).
- Question B: Receipts from the sale of pig iron, vessels, engineering products, materials, and coke breeze are similar to specified receipts in clause (baa) (affirmative, in favor of Revenue).
- Question C: Extraction charges are part of the total turnover as defined in clause (baa) (affirmative, in favor of Revenue), with the condition that they are not included twice.

The appeal is disposed of in these terms with no order as to costs.