9911796707
TMI Blog1988 (3) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground raised by the Revenue in its appeal : "On the facts and in the circumstances of the case, the learned CIT(A) has erred in : 1. Directing the IAC (A) to allow relief under s. 80-J in respect of Unit-IV (Kundli) and Unit -V. (Aurangabad) in accordance with the interpretation of the provisions of s. 80-J made by the Calcutta High Court in the case of Century Enka Ltd vs. ITO reported in (1976) CTR (Cal) 433 : (1977) 107 ITR 909 (Cal)" 3. Brief facts in the back ground of the dispute regarding relief under s. 80-J are that the assessee had claimed relief under s. 80-J in the sum of Rs.22,50,390 in respect of its Unit No. IV known as Kundli Unit which was reduced by the IAC (Asstt) to Rs.14,72,014. As in the past this difference was due to the application of the provisions of r. 19-A. Likewise the claim in respect of Unit No. V Aurangabad was also reduced from Rs.24,28,623 to Rs. 7,59,218. When the matter came up before the learned CIT(A) he gave a common direction in respect of both the Units for the disposal of the assessee's claims in the light of Calcutta High Court's decision in the case of Century Enka Ltd vs. ITO (1976) CTR (Cal) 433 : (1977) 107 ITR 909. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xports Rs. 19,612 5. Telephone regarding exports Rs. 1,19,590 6. Printing and stationery regarding exports Rs. 31,761 4.1. The facts are that the assessee had claimed weighted deduction in the sum of Rs.75,34,187 which was restricted by the IAC (Asst) only to Rs.10,68,499. The details of such disallowance are given in paragraph 3 of the order of learned CIT(A). The learned CIT(A) further allowed weighted deduction to the extent of Rs. 12,81,118. 4.2. Both the sides placed reliance on the decision of the Special Bench of the Tribunal in the case of J. Hem Chand Co vs. ITO (1982) 1 SOT 150 (Bom). They also sought torely on the other decisions of the Tribunal, for example in respect of packing material the learned counsel for the assessee submitted that though the said expense was held to be not entitled to weighted deduction by the Special Bench, but due to peculiar circumstances in the assessee's own case it was allowed by the Tribunal in the earlier assessment year. Similarly regarding the assessee's claim in respect of commission paid on exports the learned Departmental Representative relied on the decision of the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pers as the term is generally understood. What was exhibited in the Court before us was that set of tools were neatly arranged in plastic containers, which were termed as samples for tools. Considering the type of wrapers, we direct that these should be considered as samples and if the assessee is in a position to separate its cost, the same should be given the benefit of deduction under s. 35B of the Act. The total claim is in respect of Rs. 25,02,836 but it shall be subject to bifurcation, if necessary, after it is subject to the scrutiny of the ITO. 11. We like to mention here that the CIT(A) disallowed the claim by observing that packing expenses were incurred in the year. As observed above, if part of the expenses reached the customers as beautiful souvenirs alongwith goods sold, these should better be considered in the category of samples of goods for export." It was in view of the above observations that the learned counsel for the assessee prayed for an identical finding and he also stated that after verification the ITO had allowed 25 per cent of such expenses on packing material. Following the Tribunal's earlier order we similarly restore this matter to the file of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Special Bench in the case of Pioneer Match Works vs. ITO (1983) 15 TTJ (Mad) 88 (Special Bench) : (1983) 3 ITD 714 (Mad) and his attempt was to keep the matter alive. In the aforesaid decision the Special Bench had noticed that the assessee had incurred the cost first and then only the subsidy was given. The subsidy in the instant case also did not relate to the cost of the asset and it could, therefore, not to go to reduce the same. This has been the consistent view of the Tribunal and has been affirmed in the following decisions : (i) CIT vs.GodavariPlywoods (1987) 62 CTR 179 (AP) : (1987) 168 ITR 632 (AP) (ii) CIT vs. Bhandari Capacitors (1987) 65 CTR (MP) 114 : (1987) 168 ITR 647 (MP). Following with respect the said Special Bench decision we find no warrant or justification for interfering with the order of the learned CIT(A) on this point. The Revenue, therefore, fails on this ground. 6. The last ground in the Revenue's appeal, reads as under : "On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that there was no justification in the enhancement of income by withdrawing the weighted deduction under s. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 30th Oct., 1981 the assessee claimed that each of these receipts arose to it on capital account which had to be excluded from its income. The ITO however treated them as revenue receipts and, therefore, taxable. 7.1. The CIT(A) traced the history from July, 1963 when the Government of India had constituted a market Development Fund for financing schemes and projects for the development of foreign market for Indian products and commodities. He held that the following was the nature of the 7 criteria on the balanced determination of which the rate of cash assistance was based, in view of the report of Bose Mullick Committee (appointed by the Cabinet Committee in Nov., 1975), decision dt.29th Jan., 1976of the Cabinet Committee, 39th Report (1980-81) of the Seventh Lok Sabha and the letter dt. 11th May, 1984 received by the CIT(A) from the Commerce Ministry in reply to his letter dt.23rd April, 1984: S.No. Creteria Whether capital Percentage or revenue receipt 1. Export potential and domestic availability as well as supply elasticity product. Capital 2 per cent 2. Import content and domestic value added. Capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt in view of the following decisions : (1) CIT vs. Wheel Rim Co ofIndia(1977) 107 ITR 168 (Mad); (2) Agra Chain Manufacturing Co vs. CIT (1978) CTR (All) 415 : (1978) 114 ITR 840 (All) : (3) Kamani Engg. Corpn. Ltd vs. CIT (1983) 37 CTR (Bom) 204. 7.4. The gain accruing to the assessee on account of the difference in the exchange rates was held by the CIT(A) to be taxable as a revenue receipt. In this connection, he relied upon the decision of the Supreme Court in the case of Sutlaj Cotton Mills Ltd. vs. CIT (1978) CTR (SC) 155 : (1979) 116 ITR 1 (SC). 7.5. So far as the CCS is concerned, the assessee is aggrieved in so far as the learned CIT(A) treated only 45per cent of the receipt of capital account. On this point, the Department is in cross appeal. 7.6. We may point out that in the case of the assessee in ITA No. 1143 and 1826/Del/79 for the asst. yr. 1975-76 the view taken by a Division Bench (to which one of us was a party) vide its order dt. 29th May, 1985 was that the CCS was distinguishable from DBK and IE; that it was paid for the purposes of the grantor, i.e, to generate foreign exchange and to find developed export markets for the products of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1985in ITA No. 928/Del/83 for the asst. yr. 1979-80 reported in (1986) 16 ITD 43 (Del). However, in that case the only question involved was whether the cash subsidy granted by the Government vide its letter dt.17th Aug., 1966against the export of specified engineering products (as in the present case) was a trade receipt on revenue account in the hands of the recipient company. That Division Bench took the view that since the following decisions were not noticed by the earlier Bench deciding the case of the present assessee for the asst. yr. 1975-76 and 1976-77 that decision could not be followed and that no reference to Special Bench was also called for, for the same reason as also because the position was self-evident : (1) Ratna Sugar Mills Co. Ltd vs. CIT (1958) 33 ITR 644 (All); (2) H.R. Sugar Factory (P) Ltd. vs. CIT (1970) 77 ITR 614 (All); (3) Dharangadhara Chemicals Works Ltd. vs. CIT (1977) CTR (Bom) 189 : (1977) 106 ITR 473 (Bom); (4) CIT vs. Wheel Rim Co ofIndia; (5) CIT vs. Swadeshi Cotton Mills Co. Ltd (1980) 15 CTR (All) 81 : (1980) 121 ITR 747 (All); (6)UnionofIndiavs. Anglo Afgan Agencies; (7) Addl. CIT vs. Handicrafts Handlooms Exports Corpn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y objection was raised on behalf of the assessee by the learned Advocate Shri G.C. Sharme. he submitted that they finding regarding CCS was essentially a finding of fact and because in the case was essentially a finding of and because in the case of the assessee for the asst. yrs. 1975-76 and 1976-77 a view had been taken that the CCS was not taxable as a revenue receipt but was a merely bounty, the present Special Bench was bound to follow that decision on the principle of stare decisis. He also submitted in that connection that on the basis of the following decisions of the Tribunal and of the High Courts and particularly as the subsequent Division Bench, in the case of Reliance Industries Pvt. Ltd vs. ITO, had violated the principle of judicial property in not following the earlier decision of the Division Bench in the case of the assessee and in not also agreeing to the reference of that case to a Special Bench, the subsequent Division Bench order in the case of M/s Reliance Industries Pvt. Ltd could not be looked into : (1) CIT vs. S. Dev Raj (1969) 73 ITR 1 (Mad) (2) CIT vs. L.G. Ramamurthy (1977) CTR (Mad) 416 : (1977) 110 ITR 453 (Mad); (3) First ITO vs. Grah Lakshm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CCS and not in regard to DBK and IE. We are of the clear view that the doctrine of stare decisis cannot operate as a bar to the Special Bench considering the matter afresh in the light of contradictory decisions of two Benches of the Tribunal in regard to the same point. The principle of stare decisis is derived from "stare decisis et non quieta movere" to abide by and adhere, to decide and not to unsettle things which are established). This rule is not so imperative or inflexible as not to permit a departure therefrom in any case. Therefore, its application has to be determined in each case by the discretion of the Court and the previous decisions need not be followed to the extent that error may be perpetuated and grievous wrong may result (vide Maktul vs. Manbhayi AIR 1958 SC 918). Under the stare decisis rule a principle of law which has become settled by a series of decisions is generally binding on the Courts and should be followed in similar cases. This rule is based on expediency and public policy and although generally it should be strictly adhered to by the Courts, it is not universally applicable. Thus the principle of stare decisis really is that the Court must always ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court decision in the case of L.G. Ramamurthy but the other decision expressing a contrary view is equally entitled to respect. In view of the fact that two decisions taking opposite views do exist, the principle of stare decisis cannot be invoked, and this conflict in view had to be resolved. Viewed in this context, we find no force in the respective preliminary objections realised on both the sides. We hold accordingly. 9. On merits, Shri G.C. Sharama, the learned counsel for the assessee submitted that the finding was to be essentially of fact. Tracing the history of the export incentives right from 1963 he explained that the object and the source of all the three incentives were the same although they differed subtlely in their nature factually. These incentives, he pointed out, were the result of the export policy of the Government and did not flow from any statute. In particular, he pointed out that CCS did not flow from s. 3 of the import and Export (Control) Act, 1947. He submitted that whereas the earlier schemes could be said to have aimed at compensation for certain disadvantages suffered by the exporters the scheme as relevant and operative for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a free enterprise and that the right to export was not a free trade but was on the mercy of the Government. According to him, stimulii are provided in the shape of incentives, before the commencement of business as promissory payments. He argued that each transaction of export was Government controlled. According to him, the source of the receipt was not the fact of carrying on business but a promise or assurance held out by the Government to carry on business before the business (each transaction) commences. Next, he submitted that the receipt neither fell under s. (i) nor under s. 28(iv). Referring to s. 80E which uses the expression 'attributable to', he explained that that expression had the widest connotation compared to the expression "arising from business" used in s. 10(3)(ii) which was less wider and lastly the expression "profits and gains of business" used in s. (iv) which had a limited sense. Reference was also made by him to the provisions of s. 80HHC which refers to expressions like "profits retained for export business" and "profits derived by". He also explained that what was a trading receipt was not defined anywhere and that the IT Act did not use that expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was an incentive unilaterally granted by the Government in the form of licences related to the value of export. He submitted that those licences were saleable and were issued under the Import Export Policy and not under s. 3 of the Import and Export (Control) Act, 1947. He submitted that no profit was generated by the assessee. Next, he submitted that the right to export was converted into a stock-in-trade (import replenishment licence) which cost the assessee nothing. He argued that a valueless stock-in-trade was not known and, therefore, no tax was leviable. He argued that it was not a part of the assessee's original business and that IE were actually capital receipts. Shri Sharma argued that the licences came to the assessee de hors its original business. He explained that there were in fact two transactions and that income arose to the assessee only from the second transaction, i.e., of the sale of IE. He submitted that if capital was converted to stock-in-trade, it had to be valued at the market rate at which it was sold and that no income could result from a valueless stock. 9.1 Shri Pradip Dinodia, the learned counsel for the intervener M/s Aero Traders (P) Ltd.,Delhiad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He submitted that the financial support was not de hors the export business but had a direct nexus with it. Referring to the decisions in the case of assessee for the earlier asst. yrs. 1975-76 1976-77, Shri Misra submitted that the Bench deciding the cases had not examined the materials and the decisions analytically and so the CCS had been treated as an outright grant. He also pointed out that certain decisions of the High Courts had also not been considered. In this connection he placed reliance on the decision of the Tribunal in the case of M/s Reliance Industries Ltd. in which s contrary view had been taken. He also submitted that the decision of the Hon'ble Calcutta High Court in the case of Jeevan Lal (1929) Ltd. was a direct authority which should be followed. He argued that there was no contrary view of any other High Court and therefore the Tribunal was bound to follow it. 9.3 In reply, Shri G.C. Sharma submitted that the object of the scheme must influence our decision in the matter. He explained that competitiveness in the international market depended upon several factors like cost, market image, etc. He reiterated that in the instant case the grant had taken the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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? 9.4. We have carefully considered the rival submissions of both the sides based upon their respective paper books and the plethora of case law. The controversy existing between capital and revenue receipts has defied solution and Courts have found it difficult to lay down any general considerations which would conclusively determine whether a certain receipt falls under one of the other category or both. As held by the Hon'ble Supreme Court in the case of CIT vs. R.B. Jai Ram Valji (1959) 35 ITR 148 (SC) "it is not possible to lay down any single test as infallible or any single criterion as decisive. The authorities bearing on the question are valuable only as indicating the matters that have to be taken into account in reaching a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment is in the nature of a personal gift to him, it is not regarded as a payment for service but as a mere present. Krishna Menon P. (x) A voluntary payment to a lawyer by a person who was not a client but who had benefitted by the lawyer's professional services to another is taxable-In Re : Susil Sen (1941) 9 ITR 261 (Cal). (xi) General payment made by way of donation of a company out of benevolence or feeling of charity would not entail income in the hands of the receipient Seaham Harbour Dock Co. vs. Crook (1931) 16 TC 33 (HL). (xii) Payments take their colour from the receipts which are supplemented, augmented or compensated for. Thus they would not be revenue receipts if they are of the following nature: (a) Paid prior to the commencement of trading activities (for administrative expenses) CIT vs. State Trading Corporation of India Ltd. (1973) 92 ITR 294 (Del). (b) Given to discharge the losses of the business of the subsidiary company to enable it to tide over the loss of capital Handicrafts Handloom Export Corporation ofIndiavs. (1982) 29 CTR (Del) 175: (1983) 133 ITR 590 (Del). (c) Given to enable the assessee to run it business economically Siddhartha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come between the two matters in accounting principles or on acturial valuation or on reasonable estimates consonant with general and equitable principles. Even if there be difficulty in making such apportionment, it cannot be a ground for rejecting the claim either of the Revenue or of the assessee CIT vs. Best Co. (P) Ltd. (1966) 60 ITR 11 (SC). (xvi) The fact that the amount might be used as capital in the hands of the assessee is irrelevant for considering it to be not a revenue receipt Kesoram Industries Cotton Mills Limited vs. CIT. 9.5. The burden of proof lies on the Department to establish that a particular subsidy receipt bears the character of revenue receipt. Thereafter the burden shifts to the assessee to prove that it is exempt. (Parimissetti Seetharamanna vs. CIT (1965) 57 ITR 532 (SC); Addl. CIT vs. Kriashnaswamy Reddiar (1978) 115 ITR 505 (Mad)). We have therefore to first examine the true factual nature of the receipt and the circumstances under which the assessee received the amount in question and then to judge as to whether it is a capital or a revenue receipt or a receipt of a composite nature and whether it would be taxable wholly or partly or not at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Export Policy Resolution of 1970 enunciating the Governments' resolve to promote exports. It was laid on the table of the two Houses of the Parliament on30th July, 1970. The text of that resolution contains inter alia the following points (i) To achieve national reliance and to reduce dependence on external assistance, export earnings need to be expanded at a high rate. (Compound rate of expansion envisaged in the Fourth Plan being 7 per cent per annum). (ii) In pursuing that aim (generation of expanding surpluses of Industrial products) every effort will be made to assist export oriented units in the private and public sectors to achieve economies of scale, improve efficiency of production, reduce costs and adopt production to meet the requirements of their customers abroad. (iii) Every effort will also be made to secure that indigenous industrial raw material, required for export production, are made available in right quality and at far prices. (iv) To improve their competitiveness in the international market, to defend their unit value and to improve to the extent possible, their export performance. Attention will also be paid to modernising our marketing and promotio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded on29th Jan., 1976that the cash assistance from1st April, 1976in respect of different products be given on a balanced judgement with reference to the seven point criteria mentioned above. It was also said by them that the detailed cost study conducted till31st March 1976to determine the marginal cost of production had become irrelevant for subsequent years. The Ministry of Commerce had issued a Circular dt. 23rd dt. Oct., 1978 mentioning that Dr. Alexander Committee, which had been set up to review the import-export policies and procedures with special reference to the role of instruments such as CCS, Duty Draw Back etc., indentified the following three basic principles for cash compensatory support:- (a) The level of CCS should fully compensate for the various types of unrefunded indirect taxes, sales tax, etc., which the exporter has to pay. (b) CCS should be such as to encourage him in adopting adequate marketing strategies and to neutralise the disadvantages of freight, etc., so as to be competitive in the market. (c) In the case of new products in new markets the magnitude of CCS should be adequate to take care of the initial promotional costs. The Ministry explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on any imported materials or excisable materials in the manufacture of such goods inIndia. This definition occurs in r. 2(a) of the Customs and Central Excise Duties Drawback Rules 1971 framed under s. 75 of the Customs Act, 1962 and s.36 of the Central Excises and Salt Act, 1944. So far as IE is concerned, it also has a statutory basis in so far as it is given under an order made under s.3 of the Imports and Exports(Control)Act, 1947. Through the import replenishment licences, the exporters are allowed to import limited permissible items and canalised items of raw materials as well as packing materials required for export production. It is saleable. Only registered exporters are eligible to claim replenishment licences and also other export incentives such as CCS. The rate of CCS also various according to the different items and different classes of exporters. The statutory or non-statutory nature of these instruments of export promotion however does not affect their taxability. Such, incentives, for the sake of stability, were offered for the 3 year period1st April, 1976 31st March, 1979so far as the assessment year in question is concerned. There is no dispute on the point tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made more broad based. It was to be determined on a balanced judgment with reference to the seven criteria referred to in the reports of Bose Mullick Committee, Cabinet Committee on export and Dr. Alexander Committee. The Alexander Committee did say that the level of CCS should fully compensate for various types of unrefunded indirect taxes, sales tax etc. But it also said that the CCS should be such as to encourage the exporter in adopting adequate marketing strategies and to neutralise the disadvantages of freight etc. so as to be competitive in the market. In his letter dt.11th May 1984to the CIT(A) the Joint Secretary, Ministry of Commerce clearly said that the precise quantification of the weightage given to the various disadvantages separately for determining the CCS rate was not possible. This was said in reply to a specific query from CIT(A). This letter cannot be lightly brushed aside. It was a letter from a Senior Officer of the Government in the concerned Ministry and would bind the Government. We fail to understand as to how and on what basis, then the learned CIT(A) could be in a position to estimate the ad hoc apportionment as attempted by him in paras 7 10 of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osses or specific expenditure or specifically to carry on business in a commercial manner so as to yield profits. No identification can be perceived precisely between the CCS receipts and the costs or profits earned or the losses incurred or the inadequacies or hardships faced by the assessee. In fact identification undergoes a complete disfiguration by the method employed. In the case of an exporter some formula or method had to be devised to calculate the amount of the assistance. The mere fact that the assessee would not have got CCS if it did not export goods, does not lead to the irresistible inference that the receipts were revenue receipts(and not dehors the export business)or that a direct casual and taxable nexus existed between the exports and the granting of CCS. We are therefore of the view that though the CCS could not be treated as a mere bounty or gift, it was not a revenue receipt taxable under s. 28(iv)of the IT Act, 1961 but only a capital receipt given to improve and build up its capital base and to remove the inadequacies in its export apparatus or infrastructure. We agree with the submission made on behalf of the assessee that the dominant object of granting CC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Match Works vs. ITO (1983) 3 ITD 714 (Mad)(SB). In fact in the case of M/s Reliance Industries Ltd. the Division Bench of the Tribunal had also held that such subsidy was clearly of a capital nature. In CIT vs. Godawari Plywoods (1987) 62 CTR (AP) 179: (1987) 168 ITR 632 (AP), the Andhra Pradesh High Court took the same view while considering a similar scheme of Andhra Pradesh viz., Andhra Pradesh State Incentive Scheme 1976 along with the Central Subsidy Scheme 1971. The Hon'ble Andhra Pradesh High Court approved the decision of the Special Bench of the Tribunal in the case of Pioneer Match Works. Y.V.Anjaneyulu, J. held that the subsidy was granted more as a recompense for the hardships and inconveniences which the entrepreneur may encounter while setting up industries in backward areas. His Lordship observed that Infrastructural facilities were also lacking in backward areas. It is interesting to note what Jeevan Reddy, J. said in that case while concurring with Anjaneyulu J. He took the view that the matter was capable of being understood on both the hypotheses as the subsidy was granted after the industry was set up and went into regular production. His lordship made the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... former to tide over the loss of capital. It was construed as a case of discharge of another person's debt out of affection. The decision in the case of Handicrafts and Handloom Export Corpn. vs. CIT (1982) 29 CTR (Del) 185:(1983) 140 ITR 532 (Del) was the same. In the case of Jeewan Lal (1929) Ltd. vs. CIT (1982) 30 CTR (Cal) 50:(1983) 142 ITR 448 (Cal) no doubt it was held that the cash assistance received by the Exporters was inextricably connected with the act of exportation and that it was incidental to and supplemental to the trading receipts. However the following factors need to be noticed in regard thereto: (i)That decision is pending before the Supreme Court in appeal. (ii)The assessment years involved there were 1967-68 and 1968-69. (iii)The decision while intending to set out and proceed on the basis of the Ministry of Commerce letter dt.17th Aug., 1966to the Secretary EEPC reproduced a letter dt.24th Aug., 1966from the EEPC to members whose contents are not in pari materia with the aforesaid letter dt.17th Aug., 1966. (iv)The letter dt.11th May, 1978of EEPC to the Departmental representative in that case said that by the letter dt.17th Aug., 1966. Government had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in replication, development, maintenance and upkeep of rubber trees was held to be a revenue receipt. In respect of backward areas, the subsidies were held to be not deductible in determining actual cost of assets under s. 43(1) in the case of Pioneer Match Works vs. ITO (1983) 3 ITD 714 (Mad-SB). In Vispro Foundry Engineers (P) Ltd. vs. ITO (1984) 7 ITD 721 (Mad) it was held that where an assessee (a newly set up small scale industrial undertaking) was allowed concessional rate for current consumption under an incentive scheme offered by the state owned industrial corporation, the refund(which related to earlier years) was not taxable under s. 41(1). In ITO vs. Gujarat Handicrafts Handloom Dev. Corpn.(1984) 9 ITD 488 (Ahd) grants and subsidies for carrying out specified objectives were held not to constitute income. In Tirumalesa Bricks Tiles Factory vs. ITO (1986) 15 ITD 703 (Hyd), subsidy received by the assessee from the State Government for setting up new industries(not in back ward area) was held not to amount to the assessee's income. The principle laid down by these rulings and the view expressed by the CBDT with regard to taxing of subsidy given by the Government to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l position also is that the assessee had itself taken credit for the concessional interest by claiming only the actual interest expenditure and, therefore, the assessee had reduced the cost of other inputs on which DBK had been claimed and allowed or in the alternative credit the drawback received to the profit loss account to determine its true profits and gains of trade. Having regard to the definition of DBK we do not accept the submission made on behalf of the assessee that it was not taxable under s. 41(1) as the person who imposed that duty did not grant any rebate or refund in any assessment proceedings or appeal. It cannot be said that DBK was not related to any particular duty or that there was no identity between the duty levied and the rebate or the drawback allowed. The fact that the ITO had not taxed DBK under s. 41(1) but under s. 28(i) would not make any difference. The identity is established by the very definition of DBK as mentioned above. In terms of s. 41(1) the assessee definitely obtained a remission or drawback which was accordingly taxable. In the case of CIT vs. Sahney Steel Press Works Ltd., the Andhra Pradesh High Court held that refund of sales-tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. B.C. Srinivasa Setty Ors.(1981) 21 CTR (SC) 138:(1981) 128 ITR 294 (SC) that since the cost of its acquisition was nil, no capital gains tax could be levied. (The import entitlement was no doubt considered as a capital asset): (1)CIT vs. T.Kuppuswamy Pillai Co. (1977) 106 ITR 954 (Mad), (2) K.N. Daftari vs. CIT (1976) CTR (Cal) 23 : (1977) 106 ITR 998 (Cal), (3) Addl. CIT vs. K.C. Sheik Mohideen (1979) 8 CTR (Mad) 84 (FB), (4) Nonsuch Tea Estates Ltd. vs. CIT (1981) 129 ITR 28 (Mad), (5) CIT vs. Anglo India Jute Mill Co. Ltd. (1981) 129 ITR 352 (Cal), (6) CIT vs. Modiram Laxmandas (P) Ltd. (1982) 30 CTR (Bom) 209. Thus even if IE was a mere right (capital asset)its sale yielded income. The proceeds of the sale of import entitlement have also been held by the Tribunal all along to be taxable. In this connection, we may also refer to the Special Bench decision of the Tribunal in the case of Indo Asian Switchgears (P) Ltd. vs. IAC (1985) 12 ITD 65 (Del)(SB). We are, therefore, clearly of the view that the amount of Rs. 16,73,519 by way of sale of import entitlement was rightly taxed by the IT authorities. 9.13. So far as the income arising out of the difference in the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very able, detailed, sustained and persuasive arguments, paper book and case law on both the sides. 10.In the result the appeals are partly allowed. Anand Prakash, A.M. These are cross appeals pertaining to asst. yr. 1979-80 for which accounting period of the assessee commenced on1st July, 1977and ended on30th June, 1978. 2. The first ground of appeal of the assessee pertains to its claim under s. 80J of the IT Act, 1961. My brother Shri V.P. Elhence has dealt with the claim of the assessee in this regard vide paragraphs 3 and 3.1. I agree with his findings on this subject and, therefore, it is not necessary for me to elaborate further on this issue. 3.The second ground of appeal pertains to the assessee's claim regarding weighted deduction in terms of the following items. Amount Rs. 1. Interest on post-shipment export credit loan 4,50,983 2. Exchange rate difference 10,55,379 3. Inland freight on export consignments 33,90,473 4. Ocean Freight on export consignments 53,60,193 5. Forwarding charges on export consignments 8,95,760 6. Packing materials con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cost of production and as such, it could not be eligible for weighted deduction in terms of the ratio of J. Hemchand Co. According to the Revenue, therefore, the order of the learned CIT(A) was correct and, therefore, the Bench should not interfere with it. 7.In my opinion, the element of advertisement is discernable in the special packing that is done by the assessee with a view to attract attention of the potential customers. Any body who looks at the packing in a foreign shop might get attracted towards the packing and thereby the goods get advertised. In this sense, it is possible to uphold the assessee's view point and for this reason, I would express my agreement with the finding of my learned Brother Shri V.P. Elhence with regard to this item. The assessee is eligible to succeed on this in the same manner as it did for asst. yr. 1976-77. 8.The 6th ground of the assessee is with regard to the taxability of Rs. 7,35,191 arising out of difference in exchange rate. According to the assessee, it was not business income and that it represented capital receipt of the appellant. My learned Brother Shri V.P. Elhence has dealt with this ground in paragraph 9.13 of his order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more and more visible since after the great depression of 1030s when the theory of new deal based on Kyensein theory of Economic took shape and it was realised that if free rein was given to the inter play of individual initiative based on the motive power of profit alone disasters as that of 1930s may reccur. It was, therefore, felt that the national government must take a hand in the shaping of the development of the country s economic activities with a view to import to them such thrusts and directions as were desirable from the point of view of the nation as a whole. The medium of implementation of these broad policies was, of course, the individual entrepreneur and it was through his development that the economy as a whole was to be developed. There is no duality in the nation s development on the one hand and the development of individual units on the other, and, in any case, one is not at the cost of the other. It is only macro and micro view of the same process, and as such, in my opinion, it would be wrong to view the national goal as distinct from the individual unit's goal, particularly in the field of export development, especially when means adopted are not coerciere, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resources for the development of our country. 14. At the end of World War II, we had huge sterling balances at our disposal in theU.K.and so long as it lasted, our country did not have to bother much about earning foreign exchange through increasing the exports to foreign countries. This position could not, however, last long and as early as 1954, need to improve our foreign exports was fact and the Export Promotion Councils were set up for Textiles, Silk and Rayon and a scheme was devised to give draw back of import duty on raw materials and components utilised in the manufacturing of several articles which were exported such as linoleum and artificial silk. In June, 1958, the then Governor of Reserve Bank of India Shri H.V.R. Iyenger, speaking on the subject 'Foreign Exchange Situation in India' observed, inter alia, as follows: "The best method of financing an enlarged flow of imports is to maximise exports.......;World markets will remain highly competitive buyers' markets in which exporters have continuously to rely on additional incentives to exports.........." In March, 1959, " an important development in the field of import control for promoting exports was the liber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being less in the foreign market, the country restored to devaluation of the rupee on 5th June, 1966, whereby the value of the Indian goods in the foreign markets was sought to be brought at a lower competitive figure, while at the same time making imports costlier. 16.1.After the devaluation of the rupee in June, 1966, the current schemes referred to above were suspended for the time being and a hard look was given to the various schemes, which could provide effective incentive to the Indian exporters to sell goods abroad. The foreign importers will purchase Indian goods only if they have competitive prices and are of good quality, and the Indian exporter will sell goods abroad if he makes profit from their sale equal to, if not more than, in the Indian market. To create favourable conditions capable of achieving the above objective has been the underlying motive force shapingIndia's import and export trade policies right from the very beginning upto date. 16.2.The time tested policies of replacement entitlements, duty draw backs of customs, duty rebates of Central excise etc. were therefore continued even after devaluation; for these measurers went to a considerable extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eloping economy and to evaluate disadvantages arising from our domestic fiscal policies or tariff barriers in importing countries......" 17. Export policy resolution, further noted that in order to keep up the India's hold on export markets, it might be necessary sometimes to restrict the domestic consumption in case there is shortfall in overall production of a commodity in the country. The relevant observations were as below: "Exportable surpluses do not always arise automatically. Sometimes when there is a shortfall in production or indigenous production on an adequate scale is yet to be developed, there tends to be temporary conflict between domestic consumption and export. Since export markets once lost can hardly be gained, a part of the production must always be made available to earn needed foreign exchange through, if necessary, temporary restraints on home consumption..............." 18. The Export policy resolution, may it be noted did not specifically refer to individual schemes that were either in vague or which were to be introduced in future by the Government of India. It merely indicated the broad directions in which effort had to be projected. 19. Cash assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing observations to make: "The incentive to exporters provided by any import entitlement scheme would depend on the market premia on the entitlements which in turn would depend on the market premia on the importable items under the entitlement scheme. The Committee felt that a major disadvantage of an entitlement scheme was the instability and uncertainty of such a premia.........." After considering the pros and cons of introducting an import entitlement scheme, which was freely transferable and on the basis of which anything could be imported depending on the wish of the importer, the Committee came to the conclusion that: "......The schemes for import entitlements for exporters which are not in the nature of import replenishment in the products exported or in the group of products related to the products exported for strengthening the base of production of export oriented industries, but which are in the nature of freely transferable entitlements against export earning may not be introduced as effective export promotion measures, particularly in the current stage of our economic development. 22. In paragraph 5 of the report, the Committee then examined the question of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hole even when full information regarding cost and production from all the units in any industry be available. In practice, the information is available only from a few units and their cost efficiency and scale of production vary from unit to unit as well as from time to time. As a result, any attempt to determine the marginal cost of industry and comparison of such cost with the a fluctuating F.O.B. price introduces an element of ad hoc judgment even if it is concealed under the mechanical formula of marginal cost F.O.B. price comparison. Further, unless a particular export production activity has an excess capacity and the excess capacity is also only due to lack of effective demand, the determination of cash assistance on the marginal cost will not neutralise the disadvantages, sought to be removed by this assistance. The Committee, therefore, felt that it would be much better to examine the requirement of cash assistance for exports of a particular industry from a number of different angles which would require a detailed examination of the disadvantages suffered by an industry and the methods by which such disadvantages can be removed. Accordingly, the Committee felt that the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Committee itself, in practice, it was very difficult to ascertain the marginal cost of production of a certain industry. Apparently, the figure which emerged was an average figure on the basis of such information as the various production units submitted to the Costing Bureau of the Government of India, Ministry of Finance. Making good the losses is not necessarily the result of the aforesaid method increasing the margin of profit, however, is. The Bose Malik Committee in terms said so, cash assistance. to make export activity profitable." In the case some units, the cost may itself be less than the FOB value and there may, therefore, be a profit in such a situation and not a loss (as, indeed, it has been in the present case. Brother Grover has high lighted it in his order). There may be other cases where the loss might be the actual result. The scheme, therefore, envisaged not the reimbursing of the losses, but reduction of the marginal cost of the commodity, so that a favourable competitive base might be provided to the industrial unit. In the report of the Bosee Malik Committee there is no reference at any stage to the principle of reimbursement of losses as the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of high-pressure, publicity, travelling expenses to those countries, appointment of agents etc. In those countries to conveys orders and the like. Item No. (a) merely indicates the criterion for selecting the product for export for awarding cash assistance. If it has export potential and if its domestic availability is proper and if its supply is elastic, namely, the production of the item can be increased indefinitely in response to the demand therefor, the item in question should be chosen for award of cash assistance. Criterion mentioned at No. (b) takes note of the well established value-added concept to which reference has been made by the Committee. Even if the components of a product have to be imported, if the value added to the imported components is high and thereby much more foreign exchange is earned than is spent on importing the components it should be preferred for awarding cash assistance. Criterion (b) is, therefore, again relevant for selecting the item for awarding the cash assistance and does not by itself lay down a basis for computing the cash assistance. Criterion (c) is the direct result of the recommendation of the Bose Malik Committee in paragraph 5 of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bose Malik Committee Report. He was mislead by what was told to him by the Jt. Secretary of the Ministry of Commerce who have his own interpretation by adding his own gloss to the recommendations of the Bose Malik Committee. For the reasons stated above, I am unable to go by the inference drawn by the CIT(A) from the recommendations of the Bose Malik Committee's report, nor am I able to take cognizance of the slant given by the Jt. Secretary to the report of the Bose Malik Committee. Instead of making available Bost Malik Committee's Report and other related literature to the CIT(A), the Jt. Secretary gave him his own interpretation of the said recommendations which the learned CIT(A) took to be the recommendation of the Committee itself.No Courtcan go by such interpretation of a document in controversy even if the interpretation in question came from a highly positioned government Officer. Instead of accepting the Jt. Secretary's version, on its face value, the CIT(A) should have applied his own mind to the recommendations in question and to the back ground material which had lead to the appointment of the Committee and formulation of its recommendations. In so far as he did not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Alexander Committee devoted a full chapter to consider Tariff System. To mix up the object of these separate schemes with the rationale of cash assistance would not, in my opinion, be correct. 27. In the case of Jeewanlal (1929) Ltd. vs. CIT (1983) 30 CTR (Cal) 50 : (1983) 142 ITR 448 (Cal), the question of the nature of cash assistance came to be considered in respect of asst. yrs. 1967-68 and 1968-69. There the Revenue's stand was that cash assistance was given to the exporters to enable them to meet their losses. M/s. Jeewanlal (1929) Ltd. had also taken the cash assistance to be of the above nature as Board of Directors had reported to the shareholders in their Report that the Government of India had introduced the cash assistance scheme for exporters "to meet their losses". On the basis of this Report, the Revenue's plea was that cash assistance was given to meet the losses which were caused to the exporters in the Act of exports. Apart from the report of the Board of Directors to the share holders, the Revenue had also relied upon a letter dt.11th May, 1978written by the Engineering Export Promotion Council to the Authorised Representative of the Department, in which the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter dt.23rd Jan., 1976wherein the following observations were, inter alia, made by the Ministry: "It is clarified that the phrase `cash compensatory support' used in the instructions, referred to above, is no way different from cash assistance scheme........" Even the Bose Malik Committee in its report described cash compensatory support as cash assistance all along. It would therefore, be erroneous to contend that cash assistance Scheme which was admittedly in vague upto 31st March, 1976 was in any way different in character and its nature from the cash compensatory support as the scheme came to be termed latter. I have already noted above that it was the Bose Malik Committee report which held the field from1st April, 1976to31st March, 1979and in this report the Committee referred not to cash compensatory support but to cash assistance. The contention, therefore, that there was basic differences in the cash assistance scheme and the cash compensatory support scheme is devoid of factual basis and apparently has been adopted without keeping in focus the attending circumstances including the report of the Bose Malik Committee. One has merely gone by description on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entirely a new element which has been introduced by the Jt. Secretary in the aforesaid letter which was never one of the factors taken note of by the Bose Malik Committee as would be clear by reference to the seven criterian indicated by them in their report and quoted by us in extenso above. The Jt. Secretary may be a high enough official to speak on behalf of the Ministry of Commerce but certainly, when it is a question of interpreting as to what the Bose Malik Committee meant to say in its report, it would be wrong in my opinion to go by merely the expression of opinion of the Jt. Secretary regarding it without taking note of the specific recommendations of the Bose Malik Committee. What the Bose Malik Committee never said cannot be put in to its mouth even by the high official like Jt. Secretary and it would be wrong for a Court to stop enquiring into the reality merely because a certain statement was made by the Jt. Secretary of the Ministry of Commerce to the CIT(A). He was at the best giving his own interpretation and impression of what the Bose Malik Committee meant to recommend. It cannot be taken as the gospel truth. In fact it is his unwarranted and erroneous referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their own affair an initial period of assistance in the form of cash support and concessions. Encouragement of wrong types of export products-those with short-period potentials may imply high assistance costs in the long period. Policies towards market development should also recognise the need for sustenance of contacts in the long term. The Committee suggested that this attitude in export management should be inducted in the economy through proper training and services." It may be noted in the passing that the underlined principles highlighted in paragraph 4.6 by the Alexander Committee are more or less the same as were noted by the Bose Malik Committee through criteria (a) and (b) in its report, referred to earlier, namely export potential and domestic availability as well as supply elasticity of the products and import content and domestic value added. 31. In paragraph 4.8 while discussing rationale and scope of exprot promotion policies, the Committee made, inter alia, the following observations: "Export promotion effort of the country can be considered in two parts. Firstly, export incentives with a view to assisting the exporter in overcoming his disadvantages as agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to recognise that cash assistance (CA) should be available only for limited period during which the relevant disadvantages, to the extent possible, could be eliminated by conscious efforts. In any case, cash assistance should not be continued for indefinite period. The Committee felt that the magnitude and pattern of cash assistance should be identified on the basis of well defined principles. After discussing various alternatives of approaches in this regard the Committee has identified the following three basic principles for cash assistance scheme: (a) The level of cash assistance should fully compensate for the various types of indirect taxes, sales taxes etc., which the exporter has to pay on his inputs imported or domestically purchased and which are not refunded. This will enable him to be on par with foreign competitors. (b) Cash assistance should be such as to encourage him in adopting adequate marketing strategies and to neutralise the disadvantages of freight etc., so as to be competitive in the export market; and (c) In the case of new products in new markets the magnitude of cash assistance should be adequate to take care of the initial promotional costs." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earnings the quantum of their direct and indirect import contents. Similarly, on the cost side also there is tribute to the revenues through increase in direct taxes and also indirect taxes on the inputs induced on account of the additional export production. In fact part of cash assistance `returns' to the exchequer in the form of tax on income including this cash assistance and taxes on inputs......." From the portion underlined above, it would be clear that the Committee was regarding cash assistance given to industrial units as a revenue receipt and as such includible in the total income as indeed it was on the basis of the numerous criteria laid down by Bose Malik Committee and the Alexander Committee referred to above. Imputing to the Committees or to the Government policy, the motive that the Government intended to give cash assistance to the various industrial units to enable them to build up infrastructure for example to construct warehouses to help them export their goods would be in the fact of the above facts totally contrary to the material on record. In fact, there is nothing in the recommendations of the both the Bose Malik Committee and the P.C. Alexander Committ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n policies consisted of the following: (i) the duty draw back system; (ii) the market development assistance which is made up of the cash compensatory support and other forms of assistance for market development; (iii) fiscal concessions for exports; (iv) the import policy for export; and (v) the Free Trade Zones and 100 per cent Export Oriented Units. While considering duty draw back system, the Committee pointed out: the object of the duty draw back system is to reimburse exporters for tariffs paid on the imported raw materials and intermediates and central excise duties paid on domestically produced inputs which enter into export production. This is a world-wide practice and the rationale is straight forward. Custom duties and excise duties on inputs raise the cost of production in export industries and thereby affect the competitiveness of exports. Therefore exporters need to be compensated for the escalation in their costs attributable to such customs and excise duties. 36. Referring to market development assistance, the Committee pointed out in paragraph 3.10 as below "An overwhelming proportion of the expenditure on Market Development Assistance is accounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -estimate inasmuch as the evidence on the incidence of unrebated indirect taxes relates to inputs at the final stage of the manufacturing process whereas, in practice, the cascaded structure of taxation implies that there is an element of unrebated indirect taxes at earlier stages of the manufacturing process. What is more, the CCS disbursed is added to the taxable income of the exporter so that a significant proportion of it is returned to the Government in the form of tax revenue. On balance, therefore, it seems to the Committee that an overwhelming proportion of CCS is a compensation for unrebated indirect taxes, and it does not constitute an incentive. Such a conclusion has two implications. First, CCS only ensures that taxes are not exported in the form of escalated costs, which is in keeping with the practice in most countries of the world. Second, in the absence of CCS, the competitiveness of Indian exports would be adversely affected, and it is plausible to suggest that without CCS our export performance would have been worse." In paragraph 3.31, the Committee made its recommendation with regard to the cash Compensatory Support and observed, inter alia as below : "3.31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory support is purely of revenue nature as it tends to provide compensation and assistance in removing disadvantages faced by the exporters of this country in the international market with a view to pursued them to sell more and more to the foreign markets. (4) The above nature of the cash compensatory support was recognised both by the Alexander Committee and by the Abid Hussain Committee who pointedly brought out that cash compensatory support/cash assistance was includible in the total income and was subjected to income-tax. In the opinion of the Abid Hussain Committee, the relief given under s. 80HHC on account of export profits was not commensurate with the objective to be aimed at namely to induce the exporters to sell more and more and more in the foreign countries. It was, therefore, suggested by the Abid Hussain Committee that cash compensatory support should be made tax free. If these items were already tax free, there would have obviously been no scope for making such a recommendation. 38. Inasmuch as the essential nature of cash assistance/CCS has not changed since its inception till date, the opinion of the Hon'ble Calcutta High Court as to its character would ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance. If that is the position then it is incidental to and supplemental to the trading receipts and should, therefore, be considered to be revenue receipts. The above principles have been followed by various Courts in a number of cases and their Lordships have given a detailed list of the cases wherein the above proposition has been laid down and followed. 38.1 A similar question regarding the nature of cash subsidy given by the Textile Commissioner to the various exporting textile units came up for the consideration of their Lordships of the Hon'ble Calcutta High Court in the case of Kesoram Industries and Cotton Mills Ltd. vs. CIT (1978) 115 ITR 143 (Cal). There the facts, as narrated in the head note, was as below: "The assessee was a manufacturer of textile goods. In order to acquire foreign exchange the Government of India started an export promotion scheme. Under the scheme an exporter of cotton cloth or yarn was eligible for grant of import licences to the extent specified. The amount received by the assessee under this scheme amounted to Rs. 5,85,071. The assessee contended that this amount was a capital receipt; and was not assessable." The reasoning of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is purely in the course of the business carried on by the assessee and in fact the amount is being paid by the Government to the assessee with a view to induce him and the enable him to sell more and more in the foreign countries. Something given to boost sales has to be in the nature of revenue receipt only and it is incomprehensible to me that it would be in the nature of capital receipt. A plethora of case law has been reviewed in the judgment of the Tribunal in the case of Reliance International Corpn. Ltd.,Delhi, to which extensive reference was made by the learned counsel of the Department. Inasmuch as I am in complete agreement with the observations and analysis of the various case law made therein, I would rely on the ratio of that order in support of the present finding given by me. 40. There is, in my opinion, no comparison whatsoever between the subsidy granted by the Government of India for setting up industries in a backward region and the CCS granted for maximising foreign sales. By its very nature, the amount given by the government under the 10 per cent subsidy scheme for setting up industries in a backward area is to reimburse the cost of fixed capital assets, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Malik Committee report which are being used to measure the quantum of cash assistance. On account of change in the measure, the nature of the item itself would not get changed. The quality of the payment namely cash assistance has remained all along the same. According to the Bose Malik Committee Report, the system of cash assistance, suitably revised assessee a means of boosting of export effort should continue. This being the essential nature of the payment and this being the rationale for its being granted by the government to the exporter, it has to be said that it is inseparably interlinked with the export effort of the individual businessman and the purpose of granting it is to encourage him to sell more and more to the foreign countries and thereby to make the export activity more profitable. 41.1 Any payment which is of the above nature would be of revenue nature, according to the principles laid down by the House of Lords in the case of Ostime (H.M. Inspector of Taxes) vs. Pontypridd and Rohondda Joint Water Board (1946) 28 TC 261 : (1946) 14 ITR (Supp.) 45 (HL) 47, where Viscount Simon observed as follows: "The first proposition is that, subject to the exception her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by their Lordships of the Hon'ble Allahabad High Court that the above sum was taxable as it arose from the assessee's business. 41.2 Apart from which has been stated above, I am of the opinion, when judgment of one of the Hon'ble High Courts set up in this country is available on the interpretation of the nature of a certain item and there is no contrary decision of any other High Court, the IT authorities as well as the Tribunal should follow the said decision in the interest of uniformity in the administration of an All India Taxation Statute. No Bench of the Tribunal whether Single Member, or the Division Bench or the Special Bench has the competence and authority of sitting in judgment over that of a High Court and in my opinion, it would be a wrong precedence if a Special Bench of the Tribunal including the present one purports to override disapprove circumvent the judgment of the Hon'ble Calcutta High Court on the present issue as reported in Jeewan Lal (1929) Ltd., vs. CIT (1983) 30 CTR (Cal) 50 : (1983) 142 ITR 448 (Cal). The Benches of the Tribunal inCalcuttahave no option but to follow the aforesaid judgment irrespective of the Special Bench decision to the contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was necessary in the interest of substantial justice to dispose of the present controversy which is of great import and would have far reaching consequences as is recognised by the President himself when he appointed the Special Bench. I therefore requested that it be also considered. My request was rejected by the President and other Brothers by observing inter alia that the Special Bench could not look at those reports had not been placed before the Bench by either of the two sides. I am unable to accept the correctness of the above decision because in my opinion when reference is made to a Committee's report, the Bench has every right, rather obligation and duty to look into the Committee's report suo motu if the reports are not placed on record by either sides because the object of the Bench is to ascertain the facts and truth and not merely to repeat what in the name of the Committees is stated before it by the two sides and out of the two versions of the report given before the Bench to pick up one as the correct one. 42.1. Anyway as I was overruled on the matter by the President and other Brothers, I could not ensure that the benefit of the three Reports which are othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apart from the above, the rationale of setting up the Special Bench is defeated by not examining the said reports and by not letting the two sides make their submissions with reference to them. The purported object of setting up a Special Bench is to create a precedent for other Benches of the Tribunal to follow. But when the Special Bench refuses to examine the most vital reports and yet gives its interpretation of what has been stated in the said reports, the order of the Bench will lose its value as a precedent for other appeals, where the two sides might like to place on record the three reports and develop their arguments on the basis of their texts, instead of what others said about them. In that case, the concerned Bench will be obliged to hear the parties, and, may be, there would be need to set up another Special Bench of more than five Members. All these complications could have been avoided by inviting the two sides to make their submissions with reference to the texts right at this stage. The present Special Bench could then have done all that was necessary to resolve the controversy as satisfactorily as possible. By not doing so, the Special Bench decides only this ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and rejected the request on merits on the ground that the matter stood covered by the judgment of the Full Bench of the Tribunal,Madrasin the case of ITO vs. Bharat Skin Corpn. (1984) 18 TTJ (Mad) 408 (SB) : (1983) 6 ITD 320 (Mad) (SB) (15 Taxman 57 (Mad) (SB). 48. The Revenue's contention in respect of the above finding of the CIT(A) was that it was erroneous and that the decision of Madras High Court in the case of Southern Sea Foods Pvt. Ltd., clearly covered the present subject matter particularly with regard to those agents who were situated in India and who had rendered services to the assessee company in India. On behalf of the assessee, it was submitted that no appeal would lie before the Tribunal in respect of the above issue on behalf of the Revenue, for, before the CIT(A) it was the assessee who had the right of appeal and not the ITO and it was entirely discretionary for the CIT(A) to make enhancement or not and that if the request of the Department to enhancement was turned down by the CIT(A) the Revenue could not make an appealable issue out of it. The learned counsel submitted that the learned CIT(A) could as well refuse to adjudicate upon the request of the enha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the CIT had refused to pass an order with regard to this request, what would have happened, would be a totally hypothetical situation and, in my opinion, it would be wrong on the part of the Tribunal to answer a hypothetic question which does not arise from the facts of the given appeal. The issue must be left open for proper canvassing in a case where it might arise in future. 51. The learned counsel for the assessee had urged that only the assessee had the right of appeal before the CIT(A) and the ITO was precluded from appearing against his own order, and that as such, it was not open to the ITO to request the CIT(A) to enhance the assessment at his instance. The CIT(A) could of course do it on his own but the ITO had no right to approach the CIT and to tell him that his own order was wrong and that he should enhance the same. 52. It is true that under s. 246, it is only the assessee who gets the right to appeal to the CIT against an order of assessment passed by the ITO under s. 143(3). But once the appeal is filed before the learned CIT(A), the assessee loses the right to withdraw the said appeal and the matter has, thereafter, to be proceeded with in accordance with la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an issue on which enhancement is in his opinion necessary. The CIT once such an issue is brought to his attention is duty bound to exercise the discretion in a judicial manner as to whether or not to make the enhancement. The order which he passes on the issue raised by the ITO would be part of a judicial order against which an appeal does lie to the Tribunal as noted above. In view of this, I am unable to go along with my other Brothers on this subject namely that no appeal would lie to this Tribunal against the refusal of the CIT(A) to enhance the total income of the assessee on a point raised by the ITO but rejected by the CIT(A). In the present case, however, it has already been stressed above that the facts are slightly different. The CIT(A) did entertain the objection of the Revenue and then held against it on merits. Therefore, the matter has to be examined on merits as to whether or not the enhancement was justified. 53. As regards merits, the learned CIT(A) disposed of the Revenue's submissions on the short ground, namely, that the matte stood covered by the judgment of the Special Bench of the Tribunal in ITO vs. Bharat Skin Corpn. and the Circular of the CBDT referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and rate of 40 per cent. In addition various benefits under the IT Act, 1961 (hereinafter referred to as the Act) like relief under s. 35 were being availed of. 3. A revised return came to be submitted on7th Jan., 1980reducing the taxable income to Rs. 2,16,08,971 because commission payment of 3 per cent to Selling Agents came to be approved by the Company Law Board in respect of the period under consideration. The return had to be further revised to Rs. 2,09,67,942 on10th Oct., 1980, because, on the assessee's representation, the commission payable was enhanced from 3 per cent to 5 per cent. A fourth return revising income to Rs. 1,99,58,308 was furnished on 29th Oct., 1980, in which, though the assessee reduced its interest claim under s. 40-A(8) of the Act by Rs. 1,10,240, enhancing weighted deduction under s. 35B from Rs. 64,04,030 to Rs. 75,34,187. Final revised return was submitted on 30th Oct., 1981 for Rs. 1,95,77,963 as depreciation claim, investment allowance etc., on the Central Subsidy received in respect of a plant set up in industrially backward area were enhanced. It must be stated as a fact that the receipt of Rs. 1,33,82,158 as Cash Compensation Support (hereina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35-B of the Act claimed at Rs. 75,34,187 was reduced to Rs. 10,68,499. In other words, the difference in relation to s. 35-B claim itself, was of the order of the Rs. 64,65,688. There were other disallowances under s. 40-A(5) r/w s.40(c) of the Act with which we are not concerned. 7. The assessee had claimed tax holiday benefits under s.80-J of the Act in respect of Unit No. 4 (Kundli Unit) and Unit No. 5-Aurangabad on the ground, that it was the gross capital employed without adjustment of liabilities on which s. 80-J relief was to be worked out. Reliance was placed on the decision of the Hon'ble Calcutta High Court in Century Enka's case cited as (1977) 107 ITR 123 (Cal). The assessee had also revised its claim taking the value of assets on actual costs instead of WDV. The claim was, however, declined by the ITO by referring to r. 19-A(2)(a) of the IT Rules, 1962. The assessing officer also mentioned that the assessee had filed a writ petition before the Hon'ble Supreme Court challenging the validity of the retrospective amendment of s. 80-J by Finance (No. 2) Act of 1980 which had been admitted. The assessee's assertion that, if, at a later stage, the Hon'ble Supreme Court up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at actual cost of assets and not the depreciated value was to be considered for s. 80-J deductions and the Revenue contending that valid directions could not be given that relief be worked out by relying on the principle laid down by the Calcutta High Court in the case of Century Enka till the final decision of the Hon'ble Supreme Court. 10. We have given above details because of the vagueness of the grounds taken both by the assessee and the Revenue. However, before us, Shri G.C. Sharma, Senior Advocate, sought the Bench's permission to withdraw s. 80-J dispute and conceded the Revenue's appeal on the question which was accorded in view of the Hon'ble Supreme Court Judgment in the case of Lohia Machines Ltd Anr., vs. Union of India Ors., cited as (1985) 44 CTR (SC) 238 : (1985) 152 ITR 308 (SC). In such view of the matter, we reverse the order of the CIT(A) and direct the assessing officer to recompute relief/deduction under s. 80-J within the parameter laid down by the Hon'ble Supreme Court, particularly that all liabilities are to be deducted for the purpose of computing capital employed. 11. Coming to ground No. 2 in each of the cross-appeals, which are interlinked, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , since for the earlier years, the Tribunal in the assessee's own case, had not accepted the assessee's plea, it was difficult to argue that the following items of expenses would be entitled to weighted deduction relief (Serial No. as given in the assessment order). "S.No. Particulars Amount 6. Interest on Post Shipment Export Credit Loan 4,50,983 11. Exchange Rate Difference 10,55,379 . Inland freight on Export Consignment 33,90,473 . (as mentioned in para 13 of the order) . 7. Ocean Freight on Export Consignment 53,60,193 8. Forwarding Charges on Export Consignments 8,95,760" 15. The learned advocate, however, very strongly contended that in respect of packing material consumed exclusively for exports to the tune of Rs. 65,08,653 the treatment similar to the one given by the Tribunal in the assessee's own case in respect of asst. yr. 1976-77 as accorded and similar directions issued. As a fact, I have been the author of the orders in ITA Nos. 1143 1826/Del/79, which were cross-appeals for 1975-76 and ITA No. 696/Del/82 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO." With regard to the above, Mr. Sharma submitted that in respect of asst. yr. 1976-77, the assessee has been in a position to bifurcate expenses in relation to the cost of wrappers and that the assessing officer has accepted the same. If such is the case, the same pattern is directed to be applied to this year also. 16. Since for the assessee, it was given in writing that in addition to the relief given by the CIT(A), s. 35-B deduction was sought only for six more items, out of which claim for five came to be withdrawn as mentioned in para 14 above, there is no question of our dealing with the claim further. In view of directions in relation to packing material expenses of Rs. 65,08,653 the assessee is treated as partly successful in respect of its ground No. 2. The Revenue is rejected in related agitations, concerning s. 35-B relief in respect of Rs. 2,13,583, Rs. 2,10,618 and Rs. 2,31,591 which represented expenses on inspection fees on exports, insurance charges regarding exports and bank charges on exports, respectively, because, in the earlier years, the Tribunal have upheld the allowability of such relief in the assessee's own case. The CIT(A) has directed acceptance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from foreign buyers in respect of export of prawn and shrimps and though the Tribunal allowed s. 35-B relief in relation to commission paid to the company whose services were engaged, the Hon'ble High Court reversed the decision by observing that the object of the provision being not fiscal but to advance the policy of the State to promote exports, the conditions laid down under s. 35-B for weighted deduction must be strictly followed and since, in that case, nothing further was required after the export order had been obtained through the medium of another company, there was no question of sub-cl. (viii) coming to the assessee's rescue and as far as sub-cl (iii) was concerned, the location of payment must necessarily be outside India. The judgment, therefore, does not effect a case where there are no intermediaries or agency working inIndiaonly; which procure export orders thereby requiring no further action for the exports as was the situation in Southern Sea Food's case. Commission payments to agencies like State Trading Corporation ofIndiawhich maintains offices around the world and actively engaged in the development of foreign markets would not, therefore, be hit by the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not propose to deal with the question of justification of the allowance because of the considered view that the power to make enhancement vests with the first appellate authority and if he does not choose to exercise the same, the situation cannot be remedied by way of appeal before the Tribunal. In this connection, we like to notice and analyse the provisions of s. 251, which spells out the related powers: "25(1) In disposing of an appeal, the AAC, or, as the case may be, the Commissioner (A) shall have the following powers: (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annual the assessment, or he may set aside the assessment and refer the case back to the ITO for making a fresh assessment in accordance with the directions given by the AAC (or, as the case may be, the Commissioner (A) and after making such further inquiry as may be necessary, and the ITO shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment; (b) in any appeal against an order imposing a penalty, he may confirm or cancel such order or vary it, so as either to enhance or to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (1978) CTR (SC) 115 : (1979) 116 ITR, (SC). 25. The above judgments are authorities for the proposition that receipts arising on Revenue account are taxable and that is precisely what happened in relation to difference in exchange rate. The orders of the lower authorities, therefore, on the question are upheld. 26. This brings us to Ground Nos. 3, 4 5 dealing with the following receipts in respect of which exemption was claimed from taxation : 1. CCS Rs. 1,33,82,158 2. Duty Draw Back Rs. 51,93,926 3. Income fromSaleof . Import Entitlements Rs. 16,73,519 27. Before proceeding further, it must be stated that the present year's case came up for hearing before a Division Bench of the Tribunal, constituted by the Hon'ble President and Shri V.P. Elhence on 26th Oct., 1987, when Shri G.C. Sharma started that the point of taxing CCS was covered by orders of the Tribunal in the assessee's own case for the asst. yrs. 1975-76 and 1976-77. However, for the Revenue it was pointed out that a contrary view was taken by another Bench in the case of Reliance International after considering the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the said amount being considered to be a revenue receipt and that the cash premium received was not in the nature of subsidy or a grant from the Government. Their Lordships then explained the position in respect of grant or subsidy from the Government by referring to the decision of the House of Lords in the case of Ostine (HM) Inspector of Taxes cited as (1946) 14 ITR 45 (HL), where Viscount Simon speaking for the Court had observed that the first proposition is that, subject to certain exception payment in the nature of a subsidy from public funds made to an undertaken to assist in carrying on the undertaker's trade or business would be trading receipts, to be brought into account in arriving at the balance of profit or gains. Another important principle laid down by the Calcutta High Court in Kesoram's case was that recurring nature of receipt shall make all the difference, i.e., with regard to one time receipt, the position may be different, but if a trader is expecting and receiving a grant or subsidy year after year, it cannot be termed as casual in character. 29. In view of the above, it is considered expedient to reproduce paras 13.6 to 15 of the Tribunal's order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5th Feb., 1985, the matter was posted for hearing on26th Feb., 1985. On this date, the learned Departmental Representative raised the plea for remitting the case back to the ITO/ CIT(A) for examination of evidence. After hearing the parties, the Bench decided to announce judgments on Departmental Representative's plea on28th Feb., 1985. On the said day, the Bench decided to proceed with the hearing and at the request of the Departmental Representative, posted the case for hearing on18th March, 1985. On18th March, 1985, the hearing was adjourned to25th March, 1985, the hearing was adjourned to25th March, 1985at the request of the Departmental Representative. On 25th March, one of us (Accountant Member) was on leave and the matter was posted for hearing on2nd April, 1985. The hearing was finally concluded on16th April, 1985". 30. When the case of Reliance International was taken up, for both the sides, to certain extent, materials were placed and though some of the judgments on which reliance was placed were common different inferences were drawn by the two Benches. But then non-reference to the judgment in Kesoram's case greatly effected my mind. 31. After the hearing was comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. 35. The result would be that the assessee fails in relation to its claim for exemption from taxation of all the above mentioned three receipts, i.e., CCS, DDB and IE. Since in respect of other points, the parties have succeeded in parts, the appeals are treated as partly allowed. Order under s. 255(4) r/w s. 254(1) of the IT Act. There being difference of opinion between Members on some of the points involved as per orders annexed, the Special Bench Tribunal Order is as follows: (1) Sec. 80J Relief to be recomputed within the parameters laid down by the Hon'ble Supreme Court in the case of Lohia Machines Ltd., and Anr., vs Union of India and Ors., cited as (1985) 44 CTR (SC) 328 : (1985) 152 ITR 309 (SC) i.e., all liabilities are to be deducted for the purpose of computing capital employed, which shall have the effect of the Revenue's appeal on the point being allowed and the assessee rejected (Unanimous view) Ground No. 7 in both the appeals. (2) Coming to s. 35-B dispute on which both the parties were in appeal, the Revenue is rejected whereas the assessee partly succeeds, inasmuch as, in respect of packing material expenses to the tune of Rs. 65,08,653 directions h ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
