2016 (8) TMI 96 - HC - Income Tax

Computation of deduction under Section 80HHC - whether export incentive will become part of the income from business - Held that - The issue raised is covered by the Department s Circular No.564 dated 05.07.1990 wherein, it has been provided in Clause (5) under the head of Clarifications regarding calculation of deductions that cash compensatory support (CCS), duty drawback (DDK) and profit on sale of import entitlement licences (I/L) shall be taxable under the head Profits and gains of business or profession in view of the amendment of Section 28 by The Finance Act, 1990. All the three export incentives shall have to be included in the profits of business for computing the deduction u/s.80HHC. - Decided in favour of the assessee and against the Revenue. Deduction under Section 80IB - duty free import benefit inclusion - Held that - The issue is settled by the judgment of Apex Court in the case of Liberty India v. Commissioner of Income-tax, 2009 (8) TMI 63 - SUPREME COURT wherein, it has been held that duty drawback receipts / Duty Entitlement Pass Book benefits are on account of statutory provisions in Customs Act / Schemes framed by the Government and therefore, profits so derived do not form part of net profits of eligible industrial undertaking for purposes of Sections 80IB, 80I and 80IA. Learned counsel Mr. Dave could not point out any distinguishing feature, which may warrant a different view. Exclusion of sales-tax and excise duty from the total turnover for the purpose of computation of deduction under Section 80HHC - Held that - Commissioner of Income-tax, Coimbatore v. Lakshmi Machine Works, 2007 (4) TMI 202 - SUPREME Court wherein, it has been held that excise duty and sales tax cannot form part of the total turnover under Section 80HHC(3) as they do not have any element of turnover , which is the position even in the case of rent, commission, interest, etc. Further, the excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government and therefore, if they are made relatable to exports, the formula under Section 80HHC would become unworkable. Learned Standing Counsel Mrs. Bhatt could not point out any distinguishing feature, which may warrant a different view. - Decided in favour of the assessee and against the Revenue. Deduction under Section 80HHC - income from the sale of scrap - Held that - As settled by the judgment of Apex Court in the case of Commissioner of Income-taxVII, New Delhi v. Punjab Stainless Steel Industries, 2014 (5) TMI 238 - SUPREME COURT . In that case, the issue was whether turnover would mean only the amount of sale proceeds received in respect of goods in which an assessee is dealing in for computing deduction u/s.80HHC of the Act. The assessee therein was a manufacturer and exporter of stainless steel utensils and was using stainless steel sheet as raw material. The scrap of raw material, which was not capable of being used, was sold as scrap because it could not be recycled in the same form of sheets of stainless steel, as the assessee was not having a rerolling plant. On these facts, the Apex Court held that proceeds generated from sale of scrap could not be included in total turnover for the purpose of computation for deduction u/s.80HHC. - Decided in favour of the assessee and against the Revenue. Deduction under Section 80HHC - net interest received from customer - Held that - As in the case of ACG Associated Capsules (P) Ltd. v. Commissioner of Income-tax, Central-IV, Mumbai, 2012 (2) TMI 101 - SUPREME COURT OF INDIA wherein, it has been held that Explanation (baa) to section 80HHC states that profits of the business means the profits of the business as computed under the head Profits and Gains of Business or Profession as reduced by the receipts of the nature mentioned in clauses (1) and (2) of the Explanation (baa). Thus, profits of the business of an assessee will have to be first computed under the head Profits and Gains of Business or Profession in accordance with provisions of Sections 28 to 44D. In the computation of such profits of business, all receipts of income, which are chargeable as profits and gains of business under section 28, will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under sections 30 to 44D, have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the assessee computed under the head Profits and gains of business or Profession , from which deductions are to be made under clauses (1) and (2) of Explanation (baa)- Decided in favour of the assessee and against the Revenue. Deduction under Sections 80HHC and 80IB - discount / kasar and subsidy on energy audit - Held that - Revenue, states that she does not press both the issues in view of the Circular No.21/2015 dated 10.12.2015 issued by Central Board of Direct Taxes, New Delhi wherein, it has been decided that no appeals shall be preferred before High Courts in cases where the tax effect does not exceed the monetary limit of ₹ 20.00 Lacs. It is also decided that the said Circular shall apply retrospectively in pending appeals as well. Hence, both the issues are answered in favour of the assessee and against the Revenue.

Summary

Issues:
1. Computation of deduction under Section 80HHC for export incentive
2. Duty free import benefit for deduction under Section 80IB
3. Exclusion of sales tax and excise duty from total turnover for deduction under Section 80HHC
4. Deduction under Section 80HHC from income from the sale of scrap
5. Consideration of net interest received for deduction under Section 80HHC
6. Eligibility of discount/kasar for deduction under Sections 80HHC and 80IB
7. Allowance of deduction on subsidy for energy audit

Analysis:

1. The first issue pertains to the computation of deduction under Section 80HHC for export incentive. The court referred to a departmental circular stating that certain export incentives must be included in the profits of the business for computing the deduction under Section 80HHC. The court ruled in favor of the assessee based on this circular.

2. The second issue involves duty free import benefit for deduction under Section 80IB. The court cited a Supreme Court judgment establishing that duty drawback receipts do not form part of net profits for the purpose of deductions under relevant sections. The court ruled in favor of the Revenue based on this precedent.

3. The third issue concerns the exclusion of sales tax and excise duty from the total turnover for deduction under Section 80HHC. The court referred to a Supreme Court judgment stating that excise duty and sales tax cannot be considered part of the total turnover. The court ruled in favor of the assessee based on this precedent.

4. The fourth issue relates to the deduction under Section 80HHC from income from the sale of scrap. The court cited a Supreme Court judgment where it was held that proceeds from the sale of scrap cannot be included in the total turnover for computation of deductions under Section 80HHC. The court ruled in favor of the assessee.

5. The fifth issue involves the consideration of net interest received for deduction under Section 80HHC. The court referred to a Supreme Court judgment clarifying the computation of profits of the business under the relevant provisions. The court ruled in favor of the assessee based on this precedent.

6. The sixth issue pertains to the eligibility of discount/kasar for deduction under Sections 80HHC and 80IB. The Revenue did not press this issue based on a circular limiting appeals where the tax effect does not exceed a specified limit. The court ruled in favor of the assessee.

7. The seventh issue concerns the allowance of deduction on a subsidy for an energy audit. The Revenue did not press this issue based on the same circular, and the court ruled in favor of the assessee. The appeal was disposed of with no order as to costs.