1999 (2) TMI 55 - HC - Income Tax

Business Income, Cash Compensatory Receipts, Sale Of Import Entitlements, Weighted Deduction, Export Market Development Allowance, Inland Freight

Summary

Issues:
1. Admissibility of additional grounds of appeal
2. Taxability of cash compensatory support (CCS) receipts
3. Nature of cash compensatory support as receipt
4. Entitlement to weighted deduction on commission
5. Consideration of additional ground by Commissioner of Income-tax (Appeals)
6. Powers of enhancement by Commissioner of Income-tax (Appeals)
7. Entitlement to weighted deduction on 'Export promotion'
8. Entitlement to weighted deduction on 'Export guarantee insurance'
9. Entitlement to weighted deduction on 'Interest paid on post-shipment export credit loans'
10. Taxability of draw back of duty
11. Taxability of gains from sale of import entitlement
12. Entitlement to weighted deduction on specific items under section 35B

Admissibility of Additional Grounds of Appeal:
The court held that the Tribunal has the discretion to allow new grounds to be raised, even if the facts are on record in the assessment proceedings. This discretion extends to situations necessary for correctly assessing the tax liability of an assessee. The decision was based on the Supreme Court ruling in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383.

Taxability of Cash Compensatory Support (CCS) Receipts:
The court ruled in favor of the Revenue, stating that cash assistance received against exports is chargeable to income tax under the head "Profits and gains of business or profession." This decision was supported by amendments in the Income-tax Act, 1961, by the Finance Act, 1990, making such receipts taxable.

Nature of Cash Compensatory Support as Receipt:
The court held that cash compensatory support (CCS) receipts constitute taxable receipts in the hands of the assessee and constitute profits and gains. This decision was based on relevant amendments in the Income-tax Act, 1961.

Entitlement to Weighted Deduction on Commission:
The court ruled against the assessee, stating that the amount of commission paid in India for export sales does not qualify for weighted deduction under section 35B of the Act. This decision was supported by previous court rulings.

Consideration of Additional Ground by Commissioner of Income-tax (Appeals):
The court clarified that the power for enhancement by the Commissioner of Income-tax is subject to limitations provided in the Income-tax Act. The question of enhancement can only be considered if notice is given in that regard.

Entitlement to Weighted Deduction on Specific Items under Section 35B:
The court ruled that certain specific items, such as 'Export promotion' and 'Export guarantee insurance,' are not entitled to weighted deduction under section 35B of the Act. This decision was based on previous court judgments.

Taxability of Draw Back of Duty and Gains from Sale of Import Entitlement:
The court ruled in favor of the Revenue, stating that the draw back of duty and gains from the sale of import entitlement are taxable and not in the nature of capital receipts.

Conclusion:
The judgment addressed various issues related to taxability, admissibility of grounds of appeal, entitlement to weighted deduction, and the nature of specific receipts. The decisions were based on relevant provisions of the Income-tax Act, previous court rulings, and amendments introduced by the Finance Act, 1990.