2017 (9) TMI 1889 - AT - Income Tax

Deduction u/s 10B in respect of management fee - contention of the assessee is that the management fee is part of export profit, therefore, eligible for deduction u/s 10B - whether management fee, which is in relation to export of valves, cannot be reduced from profit of the undertaking? - HELD THAT - Claim is only in respect of management fee. The management fee is in connection with export of valves, therefore, in view of the judgment of Delhi High Court in Priviera Home Furnishing 2015 (11) TMI 1139 - DELHI HIGH COURT this Tribunal is of the considered opinion that the assessee is eligible for deduction under Section 10B of the Act. The management fee for the assessment years 2009-10 and 2010-11 respectively are eligible for deduction under Section 10B of the Act. Therefore, we are unable to uphold the orders of the lower authorities. Accordingly, the orders of both the authorities below are set aside and the Assessing Officer is directed to allow the claim of the assessee in respect of management fee under Section 10B - Appeals filed by the assessee are allowed.

Summary

Issues:
1. Eligibility for deduction under Section 10B of the Income-tax Act for management fee.
2. Reopening of assessments under Section 147 of the Act without fresh material.

Issue 1: Eligibility for deduction under Section 10B of the Income-tax Act for management fee

The appellant, a 100% Export Oriented Unit, exported valves and earned a management fee incidental to the export. The appellant claimed the management fee as profits and gains from business under Section 10B of the Act. The Assessing Officer rejected this claim, stating that the management fee, sale of scrap, and interest were not derived from the industrial undertaking. The appellant argued that the entire profit of the undertaking is eligible for deduction under Section 10B, citing relevant case laws. The appellant contended that interest on fixed deposit receipts should be treated as profit of the undertaking, making them eligible for deduction. The appellant also referenced judgments from the Karnataka High Court and Delhi High Court to support their claim. The Departmental Representative argued that only profits derived from the export of articles or things are eligible for deduction under Section 10B. Relying on apex court judgments, the Departmental Representative supported the Assessing Officer's decision to reject the claim.

Issue 2: Reopening of assessments under Section 147 of the Act without fresh material

The Assessing Officer reopened assessments for the relevant years under Section 147 of the Act. The appellant contended that there was no fresh material for reopening the assessments. The appellant explained that the management fee was in the nature of rendering technical services in connection with the export of valves, thus constituting profits and gains from business. The Departmental Representative supported the Assessing Officer's decision, stating that the management fee was not derived from the business of export, as per apex court judgments cited.

The Tribunal considered the arguments from both sides and reviewed the relevant material on record. The key issue was whether the appellant was eligible for deduction under Section 10B of the Act for the management fee. Both lower authorities had rejected the claim based on apex court judgments. However, the Tribunal, referring to a judgment from the Delhi High Court, found that the management fee related to the export of valves was eligible for deduction under Section 10B. Drawing parallels with the Delhi High Court's decision in a similar case, the Tribunal concluded that the appellant was entitled to the deduction for the management fee. Consequently, the Tribunal set aside the orders of the lower authorities and directed the Assessing Officer to allow the appellant's claim for the management fee under Section 10B of the Act. As a result, both appeals filed by the appellant were allowed.