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2019 (4) TMI 371 - HC - Income TaxDeduction u/s 80 HHC - export of cured coffee by assessee - distinction between the goods or merchandise manufactured or processed by the Assessee and the export of trading goods - stand of the Revenue is that the process of coffee by the sister concern on job work and the request or on behalf of the Assessee amounts to 'processing' by Assessee - contention of the Assessee is that such job work done by the third party cannot be said to be on behalf of the Asseseee and therefore even if such processing is done, cured coffee will remain trading goods , covered by clause (b) of Section 80 HHC (3) - Tribunal concluded that the Appellant engaged in export of cured coffee even though the raw coffee was cured by others with a view to re-compute the deduction under Section 80 HHC applying the statutory formula applicable to the exporter of processed goods as against the formula adopted by the Appellant applicable to the export of trading goods HELD THAT - We are unable to accept the contention raised on behalf of the Assessee. The words Manufacture or 'Processing' by the Assessee are wide enough to cover the processing of coffee undertaken by the third party on behalf of the Assessee also. The job work was assigned to the third party by the Assessee undoubtedly and therefore the same cannot be said to have purchased such cured coffee from the sister concerns. Therefore the sub clause (a) will apply and not the sub clause (b) as contended by the Assessee. Revision u/s 263 - No merit in the contention raised the Assessee, because in view of the clear definition of direct and indirect costs in the Explanation (d) (e) in Section 80HHC of the Act. The said bifurcation by Assessing authority would not bind the CIT (Administration) to invoke his revisional powers under Section 263 of the Act. The learned CIT (Administration) has clearly given reason in the Show cause notice u/s. 263 issued by him that the Assessing Authority has adopted indirect cost as per the clause (b) to the extent of ₹ 2,89,563/- only as against ₹ 9,52,932/- and therefore excess deduction u/s. 80 HHC to that extent has been allowed by the Assessing Authority. Hence, Section 263 was invoked by CIT (Administration) to revise the said assessment order. Upon the query made by the Court about the working of two figures of indirect costs i.e., sum of ₹ 2,89,563/- as taken by the Assessee and a sum of ₹ 9,52,932/- as taken by the CIT (Administration), the learned counsel for the Asssessee was unable to give the details with regard to the same, except submitting that the Assessee has maintained separate Books of Accounts for both type of goods and therefore the figures of indirect costs as disclosed by the Assessee and accepted by the Assessing Authority, ought to have been accepted by the CIT (Administration) as well. We are not impressed by the said submission made on behalf of the Assessee. Computation of exact amount of deduction under Section 80HHC is a fact finding exercise. Section 260 A enables the High Court to decide only the substantial questions of law and not return any finding of facts, which are arrived at by the Tribunal, which is the final fact finding body. Unless the finding of facts are shown to be perverse, the High Court cannot hold such findings to be erroneous , in any manner and they are binding on the High Court. We do not find any such perversity in the findings by the learned Tribunal - Decided in favour of the Revenue and against the Assessee. Computation of deduction u/s 80HHC - Whether interest income and lease income should not be reckoned in the computation of eligible profits in the ultimate quantification of deduction on the ground of no direct nexus of the said deposits and the leasing activity of the business? - HELD THAT - Though the lease rental income earned by the Assessee cannot be taxed as income from other sources under Section 56 of the Act, but the lease rent in the hands of the Assesee cannot be said to be income derived from export business of the Assessee. However, the definition of Clause (baa) under the Explanation to Section 80HHC, includes such other receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature are included in such export profits to the extent of 10% by excluding 90% thereof by the deeming fiction viz., clause (baa) of the Explanation. No reason to deprive the Assessee before us in the present case of the said benefit to the extent of 10% by applying clause (baa) as quoted above. Therefore, to that extent only the aforesaid question is answered in favour of the Assessee and against Revenue.
Issues Involved:
1. Classification of the appellant as an exporter of processed goods versus trading goods for Section 80HHC deductions. 2. Applicability of the Latin maxim "qui per alium facit per seipsum facere videtur" in the context of export of cured coffee. 3. Deductibility of bad debts in the computation of taxable total income. 4. Inclusion of interest income and lease income in the computation of eligible profits for Section 80HHC. 5. Correct quantification of 'indirect cost' in the computation of Section 80HHC deductions. 6. Maintenance of separate books of account for export of trading goods. 7. Jurisdiction under Section 263 of the Act to revise the assessment order. 8. Applicability of the decision in M/s.S.P.Textiles regarding the ascertainment of 'indirect cost.' 9. Treatment of interest income and lease income under Section 80HHC. Issue-wise Detailed Analysis: 1. Classification of Exporter (Processed vs. Trading Goods): The Tribunal confirmed the Commissioner of Income Tax (Appeals) in treating the appellant as an exporter in processed goods rather than trading goods for computing deductions under Section 80HHC. The appellant's claim that the processing done by third parties did not change the nature of the goods to 'processed goods' was rejected. The court held that the processing of coffee by third parties on behalf of the appellant amounts to 'processing' by the appellant, thus applying sub-clause (a) of Section 80HHC(3). 2. Applicability of Latin Maxim: The Tribunal concluded that the principles of the Latin maxim "qui per alium facit per seipsum facere videtur" applied, meaning that the appellant engaged in the export of cured coffee even though it was processed by others. This justified the re-computation of deductions under Section 80HHC using the formula for processed goods. 3. Deductibility of Bad Debts: The Tribunal reversed the First Appellate Authority's order that accepted the claim of bad debts deductible in the computation of taxable total income. The Tribunal found no merit in the appellant's claim. 4. Inclusion of Interest Income and Lease Income: The Tribunal concluded that interest income and lease income should not be included in the computation of eligible profits for Section 80HHC deductions due to the lack of direct nexus with the business. The court upheld this view, citing various precedents that interest income from bank deposits and lease income are not directly linked to the export business and thus should be treated as 'income from other sources.' 5. Quantification of 'Indirect Cost': The Tribunal upheld the computation of indirect costs by the Commissioner of Income Tax (Administration) under Section 263, which found that the indirect cost was incorrectly calculated by the Assessing Authority. The court agreed that the computation of exact deduction amounts is a fact-finding exercise and upheld the Tribunal's findings. 6. Maintenance of Separate Books of Account: The Tribunal concluded that no separate books of account were maintained for the export of trading goods, despite the appellant's claim of maintaining separate ledger folios. The court found no error in the Tribunal's findings that the quantification of indirect costs was inaccurate. 7. Jurisdiction Under Section 263: The Tribunal upheld the jurisdiction of the Commissioner of Income Tax (Administration) under Section 263 to revise the assessment order. The court agreed that the twin conditions of 'error' and 'prejudice to revenue' were satisfied, justifying the revision of the assessment order. 8. Applicability of M/s.S.P.Textiles Decision: The Tribunal ignored the decision in M/s.S.P.Textiles, finding no merit in the appellant's argument that the same method of ascertaining 'indirect cost' should be applied. The court upheld the Tribunal's view that the facts and circumstances differed. 9. Treatment of Interest Income and Lease Income: The Tribunal's findings that interest income and lease income should not be considered as business income were upheld. The court agreed with the Tribunal's detailed analysis and precedents, concluding that such incomes are not derived from export business and should be treated as 'income from other sources.' However, the court allowed the appellant to benefit from the definition of 'profits of the business' under Clause (baa) of the Explanation to Section 80HHC to the extent of 10%. Conclusion: The appeals in T.C.A.Nos. 2674 to 2676 of 2006 were dismissed, and the appeals in T.C.A.Nos. 2677 to 2679 were partly allowed. The court answered the questions of law in favor of the Revenue and against the appellant, except for the partial allowance regarding the inclusion of interest and lease income under Clause (baa) of the Explanation to Section 80HHC.
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