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1988 (3) TMI 105 - AT - Income TaxDeduction, Export Market Development Allowance, Profit And Gains From Newly Established Undertakings
Issues Involved:
1. Section 80J Relief 2. Section 35B Deduction 3. Depreciation and Investment Allowance on Fixed Assets 4. Cash Compensatory Support (CCS) 5. Duty Drawback (DBK) 6. Import Entitlement (IE) 7. Exchange Rate Difference Issue-Wise Detailed Analysis: 1. Section 80J Relief: The assessee's claim for relief under Section 80J was reduced by the Inspecting Assistant Commissioner (Assessment) due to the application of Rule 19A. The CIT (A) directed the IAC to recompute the relief in accordance with the Calcutta High Court's decision in Century Enka Ltd. However, the Tribunal directed that the relief be recomputed within the parameters laid down by the Hon'ble Supreme Court in the case of Lohia Machines Ltd., which requires all liabilities to be deducted for the purpose of computing capital employed. This resulted in the Revenue's appeal being allowed and the assessee's appeal being rejected. 2. Section 35B Deduction: The assessee and the Revenue were in dispute over the weighted deduction under Section 35B. The Tribunal confirmed that the assessee was not entitled to weighted deduction on items such as interest on post-shipment export credit loan, exchange rate difference, inland freight, ocean freight, and forwarding charges. However, the Tribunal allowed the assessee's claim for packing material expenses, directing that the expenses on wrappers be considered as samples and allowed weighted deduction accordingly. The Revenue's appeal was rejected for items like inspection fee, insurance charges, and bank charges, as these were allowed in the previous years. 3. Depreciation and Investment Allowance on Fixed Assets: The Revenue's appeal against the CIT (A)'s decision that the assessee is entitled to depreciation and investment allowance on fixed assets without reducing their cost to the extent of Central Subsidy received was rejected. The Tribunal followed the decisions of the Special Bench in the case of Pioneer Match Works and the High Courts in Godavari Plywoods Ltd. and Bhandari Capacitors (P.) Ltd., which held that such subsidies do not reduce the cost of the asset. 4. Cash Compensatory Support (CCS): The Tribunal, by majority view, held that CCS is not taxable. The CIT (A) had apportioned the CCS receipts into capital and revenue components, but the Tribunal found that the CCS was an integrated, indivisible whole and not a revenue receipt taxable under Section 28(iv) of the Income-tax Act, 1961. The Tribunal agreed that the dominant purpose of granting CCS was to improve and build up the capital base and remove inadequacies in the export infrastructure, making it a capital receipt. 5. Duty Drawback (DBK): The Tribunal unanimously held that DBK is taxable. The CIT (A) had confirmed the addition of DBK to the assessee's income, and the Tribunal agreed, stating that DBK is a rebate of duty chargeable on imported or excisable materials used in the manufacture of exported goods, making it taxable under Section 41(1) of the Income-tax Act. 6. Import Entitlement (IE): The Tribunal unanimously held that IE is taxable. The CIT (A) had treated the proceeds from the sale of import entitlements as revenue receipts, and the Tribunal upheld this view, citing various decisions that treated such receipts as taxable income. 7. Exchange Rate Difference: The Tribunal unanimously held that the gain arising from the difference in exchange rates is taxable as a revenue receipt. The CIT (A) had relied on the Supreme Court's decision in Sutlej Cotton Mills Ltd. to hold that such gains are taxable, and the Tribunal confirmed this view. Conclusion: The Tribunal's judgment resulted in the following outcomes: - Section 80J relief to be recomputed as per the Supreme Court's guidelines, favoring the Revenue. - Section 35B deduction allowed for packing material expenses but rejected for other items, partly favoring the assessee. - Depreciation and investment allowance on fixed assets without reducing the cost by the Central Subsidy upheld, favoring the assessee. - CCS held as non-taxable, favoring the assessee. - DBK and IE held as taxable, favoring the Revenue. - Exchange rate difference held as taxable, favoring the Revenue. The appeals were partly allowed, with specific directions for recomputation and reassessment based on the Tribunal's findings.
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