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TMI Blog2015 (4) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... e face value of the DEPB will fall under cl. (iiib) of s. 28 of the Act, the difference between the sale value and the face value of the DEPB will fall under cl. (iiid) of s. 28 of the Act and the High Court was not right in taking the view in the impugned judgment that the entire sale proceeds of the DEPB realized on transfer of the DEPB and not just the difference between the sale value and the face value of the DEPB represent profit on transfer of the DEPB. where the export turnover of an assessee exceeds ₹ 10 crores, he does not get the benefit of addition of ninety per cent of export incentive under cl. (iiid) of s. 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit. The High Court, therefore, was not right in coming to the conclusion that as the assessee did not (sic) have the export turnover exceeding ₹ 10 crores and as the assessee did not fulfill the conditions set out in the third proviso to s. 80HHC(3), the assessee was not entitled to a deduction under s. 80HHC on the amount received on transfer of DEPB and with a view to get over this difficulty the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes. In the case of Milton Laminates Ltd. [2015 (4) TMI 804 - GUJARAT HIGH COURT], the same issue was raised whether the Income Tax Appellate Tribunal was right in law in excluding 90% of the ' Other Income' viz. Interest, Misc. Income and Insurance Claim from the profits of the Business while calculating the deduction u/s. 80HHC of the Act - it was held that Applying the law laid down by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. (supra) the aforesaid questions are held in favour of the assessee and order passed by the ITAT in ITA No.2053/Ahd/2004 for AY 1997-98 is hereby quashed and set aside. Now, the AO to recompute the deduction under Section 80HHC of the Income-tax Act considering the law laid down by the Hon’ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. Therefore, respectfully following the judgement of Hon’ble Gujarat High Court in the case of Milton Laminates Ltd. [2015 (4) TMI 804 - GUJARAT HIGH COURT], we hereby dismiss this ground of the Revenue’s appeal. In the result, appeal of the Revenue is dismissed. - Assessee appeal allowed for statistical purpose and revenue appeal dismissed. - I.T.A.No.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds and not on accrual basis. The ld.counsel for the assessee reiterated the submissions as were made in the MA Nos.9 10/Ahd/2014. The submissions are reproduced hereinbelow for the sake of clarity: 3. With regard to Ground No. 1, the Hon'ble Tribunal observed that third Proviso to Section 80HHC(3) of the Income-tax Act was introduced by the Taxation Laws (Second Amendment) Act, 2005 with retrospective effect from 1.4.1998. At para 5.2 the Hon'ble Tribunal observed that the learned CIT(A) recorded a finding that the assessee company did not fulfill the two conditions laid down in the aforesaid third Proviso. The Hon'ble Tribunal has thereafter observed that no evidence was produced by the assessee company before the Tribunal to show that the conditions of the third Proviso have been fulfilled. The Hon'ble Tribunal has also referred to the finding of the learned CIT(A) that DEPB income accruing in the year of sale of DEPB entitlement would be considered and the provision for DEPB receivables and accruals on notional basis would not be considered as income for this purpose. It is further observed that the learned AR of the assessee company did not refer to any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reconsidered and decided in consonance with the legal position in this regard laid down by the Hon'ble Supreme Court in the case of Top Man Exports v. CIT (342 ITR 49). 4.1. On the contrary, the ld.DR has fairly conceded the legal position in view of the judgement of Hon ble Apex Court rendered in the case of Topman Exports vs. CIT reported at (2012) 342 ITR 49 (SC) and the judgement of Hon ble Jurisdictional High Court rendered in the case of Avani Exports vs. CIT reported at 348 ITR 391 (Guj.). 5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The Hon ble Apex Court in the case of Topman Exports vs. CIT(supra) has held as under:- 12. It will be clear from the aforesaid provisions of s. 28 that under cl. (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India is by itself income chargeable to income-tax under the head Profits and gains of business or profession . DEPB is a kind of assistance given by the Government of India to an exporter to pay customs duty on its imports and it is receiva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t right in taking the view in the impugned judgment that the entire sale proceeds of the DEPB realized on transfer of the DEPB and not just the difference between the sale value and the face value of the DEPB represent profit on transfer of the DEPB. 15. We may now point out the errors in the impugned judgment of the High Court. The first reason given by the High Court is that cl. (iiia) of s. 28 treats profits on the sale of an import license as income chargeable to tax and when the license is sold, the entire amount is treated as profits of business under cl. (iiia) of s. 28 and thus there is no justification to treat the amount which is received by an exporter on the transfer of the DEPB any differently than the profits which are made on the sale of an import license under cl. (iiia) of s. 28 of the Act. In taking the view that when the import license is sold the entire amount is treated as profits of business, the High Court has visualized a situation where the cost of acquiring the import license is nil. The cost of acquiring DEPB, on the other hand, is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands in the year in which he makes the transfer. Accordingly, if in the same previous year the DEPB accrues to a person and he also earns profit on transfer of the DEPB, the DEPB will be business profits under cl. (iiib) and the difference between the sale value and the DEPB (face value) would be the profits on the transfer of DEPB under cl. (iiid) for the same assessment year. Where, however, the DEPB accrues to a person in one previous year and the transfer of DEPB takes place in a subsequent previous year, then the DEPB will be chargeable as income of the person for the first assessment year chargeable under cl. (iiib) of s. 28 and the difference between the DEPB credit and the sale value of the DEPB credit would be income in his hands for the subsequent assessment year chargeable under cl. (iiid) of s. 28. The interpretation suggested by us, therefore, does not lead to double taxation of the same income, which the legislature must be presumed to have avoided. 20. Explanation (baa) under s. 80HHC states that profits of the business in the aforesaid formula means the profits of the business as computed under the head Profits and gains of business or profession as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisos under sub-s. (3) are made to profits derived from exports. Under the first proviso, ninety per cent of the sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28 are added in the same proportion as export turnover bears to the total turnover of the business carried on by the assessee. In this first proviso, there is no addition of any sum referred to in cl. (iiid) or cl. (iiie). Hence, profit on transfer of DEPB or DFRC are not to be added under the first proviso. Where therefore in the previous year no DEPB or DFRC accrues to the assessee, he would not be entitled to the benefit of the first proviso to sub-s. (3) of s. 80HHC because he would not have any sum referred to in cl. (iiib) of s. 28 of the Act. The second proviso to sub-s. (3) of s. 80HHC states that in case of an assessee having export turnover not exceeding ₹ 10 crores during the previous year, after giving effect to the first proviso, the export profits are to be increased further by the amount which bears to ninety per cent of any sum referred to in cls. (iiid) and (iiie) of s. 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Expln. (baa) to s. 80HHC read with the words used in cls. (iiid) and (iiie) of s. 28, the assessee was entitled to a deduction under s. 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee. 6. The Revenue could not controvert the legal position by placing of any contrary later judgement of Hon ble Apex Court. Therefore, this ground is restored to the file of AO to decide it afresh in the light of judgement of Hon ble Gujarat High Court rendered in the case of Avani Exports vs. CIT(supra) and the judgement of Hon ble Apex Court in the case of Topman Exports vs. CIT (supra). This ground of assessee s appeal is allowed for statistical purposes. 7. Now, we take up the ground No.2 of the Assessee s appeal that reads as under:- The learned CIT(A) has erred in disallowing deduction u/s.80HHC on 90% of other income being (i) Interest income (FDR) ₹ 21,88,854 (ii) Interest income of ₹ 1,63,618 (iii) Rent income ₹ 12,70,000 (iv) other misc.income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as computed under the head Profits and gains of business or profession . Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under sections 30 to 44D of the Act and is not included in the profits of business as computed under the head Profits and gains of business or profession , ninety per cent, of such quantum of receipts cannot be reduced under clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent, of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the pro-fits of the assessee for determining profits of the business of the assessee under Explanation (baa) to section 80HHC. Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in it, the words receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits will not only refer to the nature of receipts but also the quantum of receipts includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the head profits and gains of business or profession is to be deducted under clause(1) of Explanation (baa) to section 80HHC for determining the profits of business. Therefore, respectfully following the ration laid down by the Hon ble Apex Court, we hereby restore the issue to the file of the AO for re-computation of deduction u/s.80-HHC in the light of the judgement of Hon ble Supreme Court rendered in the case of ACG Associated Capsules Pvt.Ltd.(supra). Accordingly, this ground of assessee s appeal is allowed for statistical purposes. 8. As a result, Assessee s appeal is allowed for statistical purposes. 9. Now, we take up the Revenue s appeal in ITA No.1601/Ahd/2007 for AY 2003-04. The Revenue has raised the following grounds of appeal:- 1. The Ld.CIT(A) erred in law and on the facts of the case in directing the A.O. to delete the disallowance of ₹ 2,30,067/- made out of total staff welfare expenses of ₹ 46,01,342/- for want of verification of complete bills and vouchers, etc. 2. The Ld.CIT(A) has erred in law and on the facts of the case in directing the A.O. to delete the disallowance of ₹ 41,13,604/- made out of total selling distribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Apex Court in the case of ACG Associated Capsules Pvt.Ltd. vs. CIT (343 ITR 89). This Tribunal in earlier round of litigation has held as under:- 7. As is apparent from the facts narrated in the impugned orders in the instant case, there is nothing to suggest that the aforesaid receipts on account of interest(including on FDRs), rent, other misc. income, insurance claim and interest from C F stockists have any nexus or relation with the export business or turnover of the assessee or were not independent incomes. In the light of view taken in the aforesaid decisions of Hon'ble Apex Court, especially in the case of K. Ravindranathan Nair(supra) as also by the Hon'ble Bombay High Court in Asian Star Co. Ltd. (supra) Dresser Rand India Pvt. Ltd. (supra) , we have no hesitation in upholding the findings of the Id. CIT(A) in excluding of 90% of the receipts on account of interest(including on FDRs), rent and other misc. income while computing profits of the business in terms of explanation(baa) to sec. 80HHC of the Act. Therefore, ground no. 2 in the appeal of the assessee is dismissed. 8. As regards exclusion of 90% the receipts on account of insurance and interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questions are now not res integra. In the case of ACG Associated Capsules (P.) Ltd (supra) it is held by the Hon'ble Supreme Court in the said decision that 90% of not the gross interest but only the net interest, which has been included in the profits of the business of the assessee as computed under the heads Profits and gains of business or profession is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining AT profits of business. 5. Applying the law laid down by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. (supra) the aforesaid questions are held in favour of the assessee and order passed by the ITAT in ITA No.2053/Ahd/2004 for AY 1997-98 is hereby quashed and set aside. Now, the AO to recompute the deduction under Section 80HHC of the Income-tax Act considering the law laid down by the Hon ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd (supra) which is reproduced hereinabove. 6. In the decision on merits with respect to question Nos. 2 and 3, question No.1 become academic and therefore, the same is not dealt with. 7. With this, present appeal is allowed to the aforesaid extent. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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