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TMI Blog1989 (4) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) Ocean freight on export consignment; (e) Forwarding charges on export consignment; (f) Inspection fee on exports; (g) Insurance charges regarding exports; (h) Bank charges on exports; (i) 50% of general charge on exports; (j) 50% of postage, telegram, telephone regarding exports; (k) 50% of printing and stationary on exports. The Appellate Tribunal, following the decision of the Special Bench in the case of J.H. Co. v. Second ITO [1982] 1 SOT 150 (Bom.) as also the following earlier orders of the Tribunal in the assessee's own case, did not accept the assessee's claims of weighted deduction in respect of the items mentioned above :--- (1) Order dated29-5-1985of Delhi Bench 'D' of the Appellate Tribunal (ITA Nos. 1143/Del/1979 and 1826/Del/1979) for A.Y. 1975-76. (2) Order dated29-5-1985of Delhi Bench 'D' of the Appellate Tribunal (ITA No. 696/Del/1982) for the A.Y. 1976-77. In this connection, paras 4 to 4.3 of the order of the Special Bench for the A.Y. 1979-80 are relevant. The same view was held for the A.Y. 1980-81. So far as the Asstt. Years 1981-82 and 1982-83 are concerned, the assesee's Reference Applications Nos. 1258 1259/Del/88 only refer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with directions to him to examine and scrutinise the expenses in respect of packing materials as in the past and to allow weighted deduction thereon accordingly. (In this connection para 4.3 of that order is relevant). The same order was followed by the Appellate Tribunal in its separate orders dated18-7-1988for the subsequent 3 assessment years 1980-81 to 1982-83. 5. The assessee had claimed for all the assessment years under reference weighted deduction on varying amounts paid by way of commission on export sales. The Income-tax Officer had accepted the claim of weighted deduction with reference thereto. However, the Inspecting Asstt. Commissioner (Assessment) sought the enhancement of the assessment following the decision of the Hon'ble Madras High Court in the case of CIT v. Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855. However, the learned Commissioner of Income-tax (Appeals) took the view that in the light of the law as explained by the Special Bench of the Tribunal in the case of ITO v. Bharath Skin Corpn. [1983]16 ITD 320 (Mad.) and the Boards' operative instructions on the subject, there was no justification for enhancement of the income by withdrawing the weighted d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prices of indigenous inputs and raw-material. 6. Cost of entry into new market. 50% (Capital) 1% 50% (Revenue) 7. A cut off point upto which Neither capital subsidy is to be allowed. nor revenue - ---------------------------------------------------------------------------------------------------------------------------------------------------- Since the precise quantification of the weightage given to the various disadvantages for determining the CCS rate was not possible, the learned Commissioner of Income-tax (Appeals) made an ad hoc apportionment in the form of percentage mentioned in the last column of the above table. He held that 55% of the entire cash receipts representing revenue receipts were taxable as income under sec. 28(iv) of the Income-tax Act, 1961. He noticed that CCS was paid to the exporter with reference to the value of exports and therefore, the payments arose directly from the business carried on by the assessee. He further held that the CCS was not a bounty and that there was a definite linkage between the activity of the export (which is the assessee's business activity) and the eligibility CCS from the Government. However, he held that receipts on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment; and that it was not a condition of the grant that the assessee should carry on the business for the export of its products and that the receipt was de hors the assessee's business. The view taken was that CCS granted under the Ministry of Commerce letter dated17-8-1976was an out-right grant as an incentive to export made without consideration and was given by an administrative Act of the Government. The Bench was also of the view that the exporter could call in aid the doctrine of promissory estoppel invoked by the Supreme Court in the case of Union of India v. Anglo Afghan Agencies AIR 1968 SC 718. It was held that the motivation of the Government was spelt out in the Export Policy Resolution of 1970. The decision of the Hon'ble Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448 was held to be not binding on the ground that it was based on the following factual infirmities :--- (i) In the judgment the letter dated17-8-1966is referred but the text of the letter dated24-8-1966from the Engineering Export Promotion Council to its members was given. (ii) Treating the nature of CCS as the same as that of IE which was in issue in the earlier c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mburse part of the assessee's cost of manufacturing the exported goods and that it was linked directly with the export business of the assessee as it was computed as a certain percentage of the FOB value. It was held that the payment of CCS was directly related to the export effort of the individual and one received it only if one was doing export business of the specified engineering goods. It was, therefore, held to by purely a trading receipt received by a trader in the course of his business for the purpose of making it more competitive in the international market. It was held that the CCS was not gratuitous but was governed by proper rules and regulations and every citizen had a right to enforce its claim under it on the principle of promissory estoppel. The nature of the CCS it was held, was the same as that of cash subsidy and that it aimed at subsidising the cost of production and to wipe out or to reduce the export losses or to increase export profits by keeping the cost of production low. It was also held that the CCS receipt was in the course of business and backed by an enforceable right and was therefore a trading receipt and not on capital account. It was also held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 966when the Rupee was devalued, had been abolished and that Cash Assistance was granted only by a letter dated17th August, 1966. (iii) The learned judges did not appreciate the objects that had persuaded the Government to grant CCS, as spelt out in Commerce Ministry's Circular date23-10-1978. (iv) The assessment year involved in that case covered the period before the new Export Policy under which the assessee is receiving such incentives, came into effect. (v) The learned judges although they noticed the judgment of the Supreme Court in the case of Shri Ambica Mills Ltd. No. 1v. Textile Labour Association AIR 1973 SC 1081 yet failed to appreciate the meaning of 'Cash Subsidy' as approved by the Supreme Court. (vi) The learned judges also did not proceed to examine other relevant aspect of the question evidently because they were not urged before them: (a) Whether the nature of receipt was in the nature of income at all? (b) Whether the receipt was in the nature of bounty? (c) Whether the recipient had any right to influence the criteria fixed by the Government in the matter of selection of product/or amount of grant in respect thereof? The Appellate Tribunal notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mports and Exports (Control) Act, 1947. After referring to a large number of decisions (mentioned in para 9.12 of the order of the Special Bench) it was held that the amounts by way of sale of import entitlements were rightly taxed by the Income-tax authorities. 13. The income arising out of difference in the exchange rate were also held to be taxable. It was held that it was an item of receipt arising on revenue account, on the basis of the principles laid down by the Supreme Court in the case of Sutlej Cotton Mills Ltd. Reference was also made to an earlier decision of the Supreme Court in the case of CIT v. Canara Bank Ltd. [1967] 63 ITR 328. 14. Another question involved for all the assessment years under reference related to the reduction of the amount of Central subsidy from the cost of fixed assets for the purposes of computation of depreciation and investment allowance. The Appellate Tribunal, in view of the earlier Special Bench decision in the case of Pioneer Match Works v. ITO [1983] 3 ITD 714 (Mad.) and in view of the following decisions, held that the subsidy in the instant case also did not relate to the cost of the asset and therefore, it could not go to reduce t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 1. "Whether on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in holding for all the assessment years under reference that the amounts of draw back of duty received by the assessee from the Central Government were not in the nature of capital receipts and were therefore, taxable'?" [In RA Nos. 707 and 1257,Del88 to 1259[Del/88] 2. "Whether on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in holding for all the assessment years under reference that the amounts of gains from the sale of import entitlements, received by the assessee were not in the nature of capital receipts and were taxable?" [RA No. '707, and RA Nos. 1257 to 1259/Del88] 3. "Whether on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in holding for the assessment years 1979-80 and 1980-81 (also for Asst. Years 1981-82 and 1982-83 in respect of the claim at (a) ) that the following items were not entitled to weighted deduction under sec. 35B: - (a) Interest on post shipment export credit loan: (b) Exchange rate difference; (c) Inland freight on export consignment; (d) Ocean freight on ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law in holding that the assessee was eligible for weighted deduction in respect of 50% of the expenses of postage, telegram, telephone, printing and stationary on exports?" [For the A.Y. 1980-81 only vide RA No. 1304/Del/88]. 7. "Whether on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in allowing weighted deduction for the A.Y. 1982-83 on expenses in respect of laboratory and quality control under rule 6AA which came into effect on 1-8-1981 during the pendency of the assessment proceedings for that year?" [For A.Y. 1982-83 only vide RA Nos. 1306 and 1309/Del/88]. 18. On the date of the hearing of these Reference Applications, on behalf of the department a Paper Book was sought to be filed which consisted, inter alia, of reports of Bose Mullick Committee, Alexander Committee and Abid Hussain Committee. We have not permitted that Paper Book to be placed on the record or to be forwarded to the Hon'ble High Court along with this Statement of the Case. Rule 45 of the Income-tax (Appellate Tribunal) Rules, 1963 only requires the Tribunal to append to the Statement of the case those documents which in its opinion form part of the case and a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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