1989 (4) TMI 115 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of Cash Compensatory Support (CCS) and Duty Drawback.
2. Deductibility of Interest on Late Receipt of Export Proceeds under Section 80HHC.
3. Levy of Interest under Sections 139(8), 215, and 216 of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Taxability of Cash Compensatory Support (CCS) and Duty Drawback:

The primary issue revolved around whether CCS and duty drawback received by the assessee were chargeable to tax. The assessee argued that these were capital receipts and not taxable, relying on the Special Bench decision of the ITAT, Delhi Bench 'A' in Gedore Tools (India) (P) Ltd. vs. IAC, which held that CCS is not taxable under Section 28(iv) of the IT Act. The Tribunal noted that the Special Bench had discussed various case laws and established general principles distinguishing capital and revenue receipts. It emphasized that the burden of proof lies on the Department to establish that a subsidy received is a revenue receipt. The Tribunal agreed with the Special Bench's view that CCS is a capital receipt aimed at improving the assessee's capital base and is not taxable. However, the Tribunal upheld that duty drawback received in cash is taxable as it is considered a revenue receipt.

2. Deductibility of Interest on Late Receipt of Export Proceeds under Section 80HHC:

The second issue was whether the interest on late receipt of export proceeds qualifies for deduction under Section 80HHC of the IT Act. The assessee contended that this interest should be considered part of the export turnover. The Tribunal disagreed, stating that interest on late receipt of export proceeds is compensation for the delayed payment and not part of the turnover. It emphasized that interest is for retaining the amount beyond agreed dates and is not a price for the sale of goods.

3. Levy of Interest under Sections 139(8), 215, and 216 of the IT Act, 1961:

The third issue concerned the levy of interest under Sections 139(8), 215, and 216. The CIT(A) had upheld the IAC's decision to levy interest without giving the assessee an opportunity to be heard. The Tribunal opined that the assessee should have been heard before the interest was charged. It directed the Assessing Officer to charge interest only after hearing the assessee, thus allowing the assessee's appeal on this issue for statistical purposes.

Conclusion:

The Tribunal concluded that CCS is not taxable, aligning with the Special Bench's majority view that CCS is a capital receipt. Duty drawback, however, is taxable as a revenue receipt. Interest on late receipt of export proceeds does not qualify for deduction under Section 80HHC as it is not part of the export turnover. Finally, the Tribunal directed the Assessing Officer to charge interest under Sections 139(8), 215, and 216 only after hearing the assessee. The appeal was thus partly allowed.