9911796707
TMI Blog1994 (2) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... me but did not treat the other sum of Rs. 4,57,320 as its income because the assessee was under an obligation to refund the amount to the Dy. Chief Controller of Imports and Exports in case the sale proceeds were not realised. However, in the revised return it claimed exemption for even the sum of Rs. 13,14,954 on the ground that the cash compensatory support received by it cannot be included in the profit and loss accounts of business for taxing purposes in the light of the Special Bench decision of the Income-tax Appellate Tribunal in the case of Gedore Tools (India). 3. The learned Assessing Officer rejected the contentions of the assessee and brought to tax the entire sum of Rs. 17,72,275 as business income. The assessee appealed. The learned CIT (Appeals) following the decision of the Delhi High Court reported in Handicrafts & Handloom Export Corpn. of India v. CIT [1983] 140 ITR 532, upheld order of the Assessing Officer. The assessee is on further appeal. 4. There are two main grounds in the assessee's appeal in relation to the taxability of cash compensatory support received from the Government and they are to be found in ground No. 4(a), (b), (c) & (d) and ground No. 5(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that no doubt there was an obligation on the part of the assessee to refund the incentive received in case of non-realisation of the sale proceeds of the exports in foreign exchange but that doesn't mean that a liability is fastened on the assessee to make a refund the moment the assessee received the incentive. 6. Thus we have heard rival submissions and perused the records. The full details of the cash compensatory support (incentive) in relation to its exports relevant for the assessment year 1979-80 have been furnished by the assessee in its paper book No. I in pages 129 to 132. From the details, we cull out the data relevant for our consideration : -------------------------------------------------------------------------------------------------------------------------------------------------- Export Cash Date of Date of Invoice Date Invoice Incentive receipt realisation No. Amount @ 10% of Incentive of Bill -------------------------------------------------------------------------------------------------------------------------------------------------- F/107 17-6-1978 191992.76 19199 22-9-1978 30-4-1979 F/ 108 " 191992.76 19199 " " F/ 109 16-6-1978 191992.76 191 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expiry of 180 days because it can still apply to the Reserve Bank of India and obtain permission for realisation of the sale proceeds in an extended period. In short the liability to refund the amount will arise ordinarily within one month from the date of the expiry of the prescribed time limit of 180 days unless the Reserve Bank of India had extended the period for realisation of sale proceeds. Thus the liability to refund the cash incentive depends upon either of the two contingencies, viz., (a) non-realisation of sale proceeds within one month from the date of the expiry of 180 days from the date of shipment, or (b) non-realisation of sale proceeds even within the period as extended by the Reserve Bank of India. Unless either of these two contingencies arise, liability to repay the amount does not crystallise. From the details furnished before us, it has not been shown that the assessee had not obtained from the Reserve Bank of India extension of time for realisation of the sale proceeds in such cases where the initial time limit of one month from the expiry of 180 days from the date of shipment had expired. Therefore, it cannot be said that the liability is fastened on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as on the date of the balance-sheet. It may be incidentally observed that even as late as 5-5-1992 the assessee has been applying to the Reserve Bank of India (as seen from its application contained in page 175 of the Paper Book No. II) for extension of time to realise the sale proceeds in respect of the incentive amounts received on the unrealised export bills as on 31-3-1981 details of which are found in a separate sheet of paper furnished before us. Therefore, the assessee has no case to argue that it was under an obligation to refund the incentives received on such unrealised bills as on 31-3-1981. For this reason also we confirm the order of the CIT (Appeals). 10. A common ground in the appeals for the assessment years 1979-80 and 1981-82 is that weighted deduction under section 35B on inspection fees and certifying charges in connection with the assessee's exports should be allowed relying on the decision of the Calcutta High Court in the case of Union Carbide India Ltd. v CIT [1987] 165 ITR 558. 11. We have heard rival submissions and have gone through the decision cited before us. The Calcutta High Court has upheld the claim of the assessee for weighted deduction in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is file with a direction to verify the quantum and allow the same in accordance with law. This is for the assessment year 1979-80. 17. Another ground is in relation to weighted deduction under section 35B is in respect of bank charges incurred by the assessee. In the light of the decision of the Special Bench in the case of J. Hemchand & Co. the assessee is not entitled to weighted deduction on the same. The claim is rightly disallowed. 18. In the appeal for the assessment year 1979-80 the assessee is aggrieved against the disallowance of the provision made in the accounts for a sum of Rs. 4 lakhs towards the possible expenses and litigation in connection with the hijacking of the ship m.v. Twilight. The background of the claim is better explained in the explanation given by the assessee before the Assessing Officer as extracted from the assessment year : "Export expenditure of Rs. 4 lakhs, we wish to bring to your kind attention that in the earlier years, we had made exports to Sudan and one of our consignments had been hijacked and we had not realised the said amount from the parties. We have to file cases for the said consignments through the Insurance Companies and we expect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To this extent, relief is granted. 20. The second ground of appeal is as follows : "The Commissioner of Income-tax (Appeals) is not correct in confirming the disallowance of part of the provision (out of the total sum of Rs. 7,30,943) made towards the interest for the period extending beyond the previous year (i.e., 31-3-1979) in respect of exports of the year." 21. Similar ground with a difference in figures in the appeal for the assessment year 1981-82 raised by the assessee is as follows :-- "The Commissioner of Income-tax (Appeals) is not correct in confirming the disallowance of provision for interest of Rs. 10,05,508 made towards the interest for the period extending beyond the previous year (i.e., 31-3-1981) in respect of exports of the year." There are a few more allied grounds which are clarificatory in nature supporting the main ground of appeal on the question of allowability of the entire interest claimed by the assessee and as such they are not reproduced herein but are considered in the order. 22. The appellant-assessee is a regular exporter of tea to Sudan. The payments are made by the Sudan Tea Co. in the local currency on arrival of goods at Sudan Port. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 1979-80 the entire interest extending beyond the period of 31-3-1979 was charged in the accounts and claimed. For the assessment year 1981-82 only the interest referable to the previous year ending on 31-3-1981 was charged in the accounts but the claim was made also in respect of the interest falling outside the previous year before the Assessing Officer. This treatment of the interest in the books of accounts is not going to materially affect the course of our decision on the question whether the assessee can claim deduction for the interest payable to the bank in its entirety, such interest being calculated for the period extending beyond the relevant previous years. The learned authorities allowed deduction for interest incurred by the assessee during the relevant previous years and disallowed the balance of such interest which fell outside the respective previous years. The assessee is on second appeal. 23. Shri Harish, the learned counsel submitted that a similar issue came before the Tribunal in one of its earlier years and the Tribunal did not allow the deduction of interest referable to the period beyond the concerned previous year. On a reference, the High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was loaded with interest charges though on an estimate basis, there was no justification to limit the interest payable by the assessee to the period of 12 months ending on the last day of the previous year of the each of the assessment years, in the light of the decision of the Supreme Court in Calcutta Co. Ltd.'s case. This fact was not brought to the notice of the Tribunal and the High Court when the decision against the assessee was rendered in relation to the assessment year 1978-79. 24. Shri Abraham, the learned Sr. Departmental Representative, submitted that the fresh facts adverted to by Shri Harish in relation to the impugned assessment years are not so material was to alter the decision of the Tribunal as approved by the jurisdictional High Court for the assessment year 1978-79. The figures furnished by the assessee together with the invoices only show that the assessee was charging higher price in respect of its exports to Sudan. The assessee has not exported to any other country during the impugned assessment years and therefore there is no material to say that the assessee had loaded its price with the future interest charges in relation to its exports to Sudan. A co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the assessee is that considering the notorious facts that there was inordinate delay in the realisation of the sale proceeds in foreign exchange from Sudan, it had loaded its price with its future interest commitment though on an estimate basis; and in this connection he relies on certain statistical data supported by invoices. The summary of such details as found at pages 147 and 153 of the Paper Book No. II are as follows : "Shipment during the period 1978- 79 : Our associates, M/s. Mahavir Plantations Pvt. Ltd., shipped certain consignments to various countries and the prices quoted are much lower than the Sudan shipments as under:-- New York Rs. 11.83 per kg. Iraq Rs. 13.12 " Iraq Rs. 14.38 " Rottordam Rs. 16.38 " TARA AGENCIES Sudan Rs. 18.89 per kg. + CCS @ 10%" "Shipment during the period 1980-81 : Our associates, M/s. Mahavir Plantations Pvt. Ltd., shipped certain consignments to various countries and the prices quoted are much lower than the Sudan shipments is under :-- Akaba Rs. 11.99 per kg. St. Louis Rs. 10.96 " Iraq Rs. 13.84 " Syria Rs. 14.58 per kg. TARA AGENCIES Sudan Rs. 21.50 per kg. + CCS @ 10%" He submitted that as business is done on g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced in New York or Iraq did not delay the payment of foreign bills unlike Sudan. It can also be contended that Sudan was buying the tea from whatever quarters it was offered and at whatever price is was quoted as it was starved of foreign exchange resources. The data relied on by the learned counsel for the assessee only showed that the assessee's price was in the neighbourhood of the prices quoted by other exporters to Sudan. Perhaps the price quoted to Sudan is in the neighbourhood of prices quoted by other exporters to Sudan in view of contract on global tender basis. Unless a definite formula is shown to exist to take care of the interest commitment in the price of the exports offered to Sudan or unless an in-built mechanism is shown to exist to cover such contingency, we find it difficult to accept the very attractive argument of Shri Harish, the learned counsel. 26. The assessee used to negotiate the export bills with the local banks, who in turn credit the assessee with 100% of the sale proceeds. The Export Credit Guarantee Corporation reimburses the assessee's bank to the extent of 90% of the same. So what is pending at any time with the bank is only 10% of the sale procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred by the assessee on the cost of polythene bags, cartons and tea chests under the head advertisement and publicity outside India. 28. We have heard rival submissions. The CIT(A)'s finding that polythene bags, cartons and tea chests would fall for consideration under advertisement and publicity so as to be eligible for weighted deduction under section 35B is not in accordance with law. Polythene bags, cartons, and chests cannot be brought within the meaning and scope of advertisement and publicity. They are mere containers. Thus, this ground is decided in favour of the revenue and weighted deduction granted by the CIT (Appeals) in respect of these items for the assessment year 1981-82 is directed to be deleted. 29. In the appeal for the assessment year 1979-80 the department is aggrieved that the assessee is treated as a small scale exporter of tea. The Assessing Officer disallowed the claim of the assessee for weighted deduction in respect of the expenditure incurred in connection with its exports in view of the provisions of section 35B(1A) introduced by the Finance Act, 1978. The CIT (Appeals) upheld the claim of the assessee for weighted deduction on the ground that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but in the processing there is production of tea mixture. Thus, the assessee can be said to produce a tea mixture by processing different teas of different qualities and varieties. The blended tea is sold in certain brand name and are understood in such brand name. Therefore, it can be said that the assessee is engaged in the processing which results in the production of tea mixture though certainly it cannot be said to be engaged in the manufacture of tea. Section 35B was designed to boost the exports. Section 35B(1A) is a short-lived provision putting the spoke in the matter of eligibility of certain units for weighted deduction. Realising this, the Legislature has withdrawn the provision in the immediately succeeding assessment year. Therefore, a liberal construction should be placed on the short-lived provision with a view to advance the relief envisaged. For all these reasons, we uphold the order of the CIT (Appeals). 31. The only other ground in the revenue's appeal for the assessment year 1979-80 is as follows :-- "The learned Commissioner of Income-tax (A) should not have entertained the additional ground raised before him under section 250(5)." A clarificatory petition ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
