1992 (11) TMI 137 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility of receipts from cash compensatory support and sale of import licenses for relief under sections 80HHA and 80-I.
2. Inclusion of duty drawback receipts in profits for deductions under sections 80HHA and 80-I.
3. Treatment of unabsorbed deductions under section 80VVA.
4. Capital versus revenue nature of boiler testing charges.
5. Personal use disallowance of rent and taxes for Delhi building.
6. Deductibility of damages for breach of contract with a foreign buyer.
7. Disallowance of foreign travel expenses of directors.
8. Computation methodology for relief under sections 80HHA and 80-I.
9. Simultaneous deductions under sections 80J and 80-I.
10. Restriction of total deductions under section 80VVA.
11. Chargeability of interest under sections 217 and 139(8).

Detailed Analysis:

1. Eligibility of Receipts from Cash Compensatory Support and Sale of Import Licenses for Relief under Sections 80HHA and 80-I:
The primary issue was whether receipts from cash compensatory support (CCS) and income from the sale of import licenses qualify as income derived from an industrial undertaking for relief under sections 80HHA and 80-I. The Tribunal held that cash compensatory support is not trading receipts and thus not taxable under the Income-tax Act. The sale of import licenses was deemed a separate activity not directly derived from the industrial undertaking. The Karnataka High Court's decision in Sterling Foods v. CIT supported this view, stating that profit from the sale of import entitlements is not profit derived from the industrial undertaking.

2. Inclusion of Duty Drawback Receipts in Profits for Deductions under Sections 80HHA and 80-I:
The Tribunal upheld the CIT (Appeals)'s order to include duty drawback receipts in the profits of the industrial undertaking for deductions under sections 80HHA and 80-I, following an earlier Tribunal order in the assessee's case.

3. Treatment of Unabsorbed Deductions under Section 80VVA:
The Tribunal noted that no argument was raised by the assessee regarding unabsorbed deductions under section 80VVA. Since there was no evidence of unabsorbed deductions in the authorities' orders, the ground was rejected.

4. Capital versus Revenue Nature of Boiler Testing Charges:
The Tribunal agreed with the CIT (Appeals) that the expenditure on boiler testing was of a revenue nature and deleted the addition. The Departmental Representative did not present any argument against this view.

5. Personal Use Disallowance of Rent and Taxes for Delhi Building:
The Tribunal upheld the CIT (Appeals)'s deletion of the disallowance of 1/4th of the expenditure on rent and taxes for personal use by directors, following the CIT (Appeals)'s order for earlier assessment years.

6. Deductibility of Damages for Breach of Contract with a Foreign Buyer:
The Tribunal found that the liability to pay damages to the foreign buyer was contingent upon the Reserve Bank of India's approval and the actual purchase of goods by the buyer. The CIT (Appeals)'s order allowing the entire amount as a deduction was set aside, and the Assessing Officer's proportionate disallowance was restored.

7. Disallowance of Foreign Travel Expenses of Directors:
The Tribunal upheld the CIT (Appeals)'s deletion of the disallowance of foreign travel expenses, as the Assessing Officer did not provide specific instances of excess expenditure.

8. Computation Methodology for Relief under Sections 80HHA and 80-I:
The Tribunal reversed the CIT (Appeals)'s direction and restored the Assessing Officer's method of computing relief under sections 80HHA and 80-I by adjusting the Head Office loss against the branch profit and considering unabsorbed losses from preceding years.

9. Simultaneous Deductions under Sections 80J and 80-I:
The Tribunal agreed with the Revenue that deductions under sections 80J and 80-I cannot be simultaneously allowed, as section 80J applies to industrial undertakings commencing production up to 31-3-1981, while section 80-I applies to those starting production after 1-4-1981.

10. Restriction of Total Deductions under Section 80VVA:
The Tribunal clarified that the Assessing Officer could restrict the total deductions to 70% of the total income per section 80VVA, although the CIT (Appeals) did not quantify the reliefs.

11. Chargeability of Interest under Sections 217 and 139(8):
The Tribunal upheld the CIT (Appeals)'s cancellation of interest under sections 217 and 139(8), as the Assessing Officer did not apply his mind to the facts and circumstances of the case.

Separate Judgments:
A separate judgment was delivered by the Accountant Member, who disagreed with the Judicial Member on the eligibility of CCS and import license sale receipts for deductions under sections 80HHA and 80-I, arguing that these should be included in eligible profits. The Third Member, President, agreed with the Accountant Member, resolving the difference in favor of the assessee.