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TMI Blog2004 (9) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... ot form part of total income, since it is income derived from 100 per cent Export oriented undertaking and thus falls for consideration under section 10B of the Act. The Assessing Officer observed that the expression "derived" caries a narrow meaning when compared to the expression 'attributable to', as has been observed by the Hon'ble Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, and thus held that the income received by the assessee from the insurance Corporation is 'attributable' to the assessee's Export Oriented Unit; In other words, the immediate and effective source of earning this income has no direct nexus with the running of the Export undertaking. Therefore, the impugned income was excluded for the purpose of considering the exemption allowable under section 10B of the Act and was accordingly brought to tax. 3. Aggrieved, it was contended before the first appellate authority that out of the sum of Rs. 6,34,997, Rs. 5,09,608 is received against the insurance claim on damage of goods sold in transit. It was submitted that the finished products were sold to a German party. While they were in transit to Madras Port the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the articles so long as the income is derived by 100 per cent Export Oriented Undertaking. He further submitted that the observations of the Apex Court in the case of Cambay Electric Supply Industrial Co. Ltd. with regard to the term 'derived from' cannot be considered as obiter dictum inasmuch as the Court was not concerned with the meaning of such expression and thus it can at best be said to be a casual observation which has no binding force. At any rate the Court was neither called upon to explain the meaning of term 'derived from' nor the Court expressed a specific opinion on such issue except stating that the expression 'derived from' might carry a different meaning in the circumstances. It was submitted that the reliance placed upon the decision of Apex Court by the tax authorities is based upon incorrect understanding of the decision of Supreme Court overlooking the fact that there is no specific observation with regard to the meaning of the expression 'derived from'. Learned counsel emphasized upon the fact that section 10B speaks of income derived from 100 per cent Export Oriented Undertaking and it nowhere stated that the income should be from the export of the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on facts inasmuch as the Allahabad Bench of ITAT was concerned with a case of taxability of deemed income under section 41(2) of the Act, whereas in the assessee's case it was not a deemed income. He further submitted that the expenditure towards purchases or production was debited to Profit Loss A/c and what is reimbursed by the insurance company is only the actual cost incurred by the assessee and thus there is no accrual of income, which can be taxed. 10. We have carefully considered the rival submissions and perused the record. Section 10B(1) as it stood at the material point of time reads as under: "Subject to the provisions of this section, any profits and gains derived by an assessee from a hundred per cent export-oriented undertaking to which this section applies shall not be included in the total income of the assessee." A plain reading of provision indicate that only 'profits and gains' should be excluded while computing the total income of the assessee. It is not the case of the assessee that in settlement of the insurance claim the assessee made a profit; it merely receives the value of the goods/property lost. In our considered opinion in order to consider a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeded to consider the question as to the nature of the amount received i.e., whether it is 'income', 'profit', 'gains'. The relevant observations are reproduced for immediate reference. "It will be seen that the taxable commodity, "total income", embraces three elements, "income", "profits" and "gains". Now though these may overlap in many cases, they are nevertheless separate and severable and the simple question is whether the Rs. 14 lacs falls under any one or more of those heads. In our opinion, it is "income" and so is taxable. "It was argued on behalf of the assessee that it cannot be called profits because the money is only payable if and when there is a loss or partial loss and that something received from an outside source in circumstances like these is not money which is earned in the business and if there are no earnings and no profits there cannot be any income. But that only concentrates on the word "profits". This may not be a "profit" but it is something which represents the profits and was intended to take the place of them and is therefore just as much income as profits or gains received in the ordinary way. Section 4 is so widely worded that everything which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch no income accrues to the assessee. It may be noticed here that if expenditure is debited to the Profit Loss A/c the corresponding receipt has to be treated as income. Admittedly, in the instant case the assessee having debited the purchase cost etc., to the P L A/c the sum received from the Insurance Corporation deserves to be treated as income as per the standard accounting practice. However, the Assessing Officer cannot take into consideration the income, alone for the purpose of taxation. It is only the net receipt, which deserves to be considered for taxation. If the assessee is able to identify that the amount debited to P L A/c has a direct nexus with the Insurance claim; such expenditure has to be necessarily deducted from the income and the net income, if any, has to be brought to tax. No doubt the onus is on the assessee to prove its case. There may be a need to recast the P L A/c. It may also be noticed that if the expenditure is incurred in an earlier year which was debited to P L A/c and returns were filed accordingly, any recovery of such cost in a later year would be assessable under section 41 of the Act as the deemed income, since the expenditure is already all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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