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TMI Blog2015 (5) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 80 HHC of the Act - Decided in favour of the Revenue Proceeds of Services and Repairs of Vessels - Held that:- in view of the decision of the Apex Court in Ravindrathanan Nair (supra), the receipts of the same cannot be reduced to the extent of 90% as provided under clause baa (i) of the Explanation to Section 80HHC. In fact, the receipts having a nexus to exports would not be an independent income to be hit/covered by clause baa of Explanation to Section 80HHC of the Act. In view of the above, we find that after the impugned order has come to a finding that the aforesaid two receipts on account of proceeds of services and repairs of vessels are incidental to export activities, then the impugned order ought to have held that the proceeds of services and repairs of vessels are not covered by clause baa of the Explanation to Section 80HHC of the Act - Decided in favour of the assessee Receipts on account of sales of pig iron, vessels, engineering products, materials and coke breeze - Held that:- The Tribunal by the impugned order correctly held that the aforesaid sales do not have any link with the export activities of the appellant. Thus, being independent income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the said clause (baa), for the purpose of computation of deduction under section 80 HHC of the Act ? 4. Briefly, the facts leading to this appeal are as under: (a) The appellant carries on business of mining and export of iron ore. This ore is not only mined by the appellant from its own mines but also from mines belonging to others. The appellant receives extraction charges from mine owners in respect of the ores mined from mines belonging to others. These ores are thereafter purchased by the appellant from the mine owners in excess of the consideration received for extraction and exported. The appellant for carrying out its mining activities uses equipments/machines, services of engineers, barges for transport and repair facility. These when not required by the appellant are given to/used by others for consideration. Besides exports of ores the appellant also sells pig iron, vessels, engineering products, material and coke breeze in local market. (b) For the Assessment year 1996-1997, the appellant had in its return of income declared a total income of ₹ 9.73 crores. In its return of Income, the appellant had inter alia claimed the benefit of ₹ 9.42 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges are concerned the same were held to be includable in total turnover as defined in clause (ba) of the Explanation to Section 80HHC of the Act. (e) Being aggrieved, both the appellant as well as the revenue filed appeals before the Tribunal. This appeal deals only with the appeal of the appellant assessee. On 4/4/2006, the Tribunal by the impugned order inter alia held : (i) receipts on hire of barges, proceeds of services, repair of vessels fell within the clause (baa) of the Explanation to Section 80HHC of the Act. Further it held expenses are incurred to earn the receipts. Thus 90% of the net receipts i.e. after deducting expenses on the above account are to be reduced for computing profit of business under Section 80HHC of the Act; (ii) receipts by way of sale proceeds i. e. sale of pig iron, of vessels, of engineering products, of materials and coke fell within the ambit of clause (baa) of Explanation of Section 80HHC of the Act. No expenses on the above are deductible. Therefore 90% of the gross receipts are deductible to compute profit of business under Section 80HHC of the Act; and (iii) the net receipts on account of extraction charges are to be included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) : Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression total turnover shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28; (baa) Profits of the business means the profits of the business as computed under the head Profits and gains of business or profession as reduced by - (1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) The profits of any branch, office, warehouse or any other establishment of the assessee situate outside India; (c ); (d); (e)...... 7. Mr. Pardiwala, learned Senior Counsel in support of the appeal submits that before the individual items involved in this appeal are considered, it would be necessary to first decide the true meaning and scope of clause (baa) of Explanation to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts similar to those specified therein and not any other income received by the appellant in carrying of its business classifiable under the head of profits or gains of business and profession. 8. In the alternative it is submitted that if this Court is not inclined to follow the decision of this Court in Pfizer Ltd.(supra), then in view of the apparent conflict in the decision rendered by this Court in Dresser Rand Ltd. (supra) and Pfizer Ltd. (supra), the matter be placed before a larger bench of this Court to resolve the apparent conflict. 9. As against the above, Ms. Asha Desai, learned counsel for the Revenue states that the issue sought to be raised by the appellant is no longer res integra. This is so as the entire issue stands concluded by the decision of the Apex Court in Ravindranathan Nair (supra). In the above case, the Apex Court has categorically held that processing charges which are received by the assessee for processing cashew nuts on job work for local sale being independent of its export income i.e. having no nexus to exports fell within clause (baa) of the Explanation to Section 80HHC of the Act. It is submitted that the decision of Ravindranathan Nair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in clause (baa) of the Explanation to Section 80HHC of the Act. In that case, the processing charges received for processing of cashews for local sales was held to be independent income i.e. independent of export and therefore of a nature similar to the receipts specified in clause (baa)(1) of the Explanation to Section 80HHC of the Act. Thus the present controversy would have to be decided keeping in view the above test laid down by the Supreme Court in Ravindranathan Nair (supra). 11. It was also contended on behalf of the appellant that the decision of the Apex Court may require reconsideration as it completely skews the formula in Section 80 HHC(3) of the Act to determine the profits on account of exports. These receipts are taken as a part of the turnover (denominator in the formula) but are excluded from the business profits (numerator in the formula) to the extent of 90% of its receipts. The correctness of the decision of the Apex Court is not for us to consider. The decision of the Apex Court is binding upon us. Therefore, the above submission is not even being considered, much less examined by us. 12. This brings us to the next submission on behalf of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in essence indemnifies assessee for the loss of the stock in trade. The indemnification that is made to the assessee must stand on the same footing as the income that would have been realized by the assessee on the sale of the stock in trade. In these circumstances, we are clearly of the view that Insurance claim on account of the stock in trade does not constitute an independent income or a receipt of a nature similar to brokerage, commission, interest, rent or charges. Hence such a receipt would not be subject to a deduction of ninety percent under clause (1) of Explanation (baa). (emphasis supplied) Further this Court in Pfizer Ltd. (supra) at para 11A observes as under: 11A. ....... Hence, the element of export turnover is a facet which has been taken care of by the legislature in the application of the formula which is referred to in sub section (3) of Section 80HHC. In determining the profits of the business for the purposes of Explanation (baa), the incomes which are susceptible to a reduction of ninety percent are those which are specifically prescribed by the legislature. These are inter alia the incomes referred to in clauses (iiia), (iiib) and (iiic) of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80HHC of the Act i.e. brokerage, commission, interest, rent, charges or any other receipts of similar nature for the purposes of reduction by ninety percent of the receipts to arrive at profits of business. The question as framed seeks to exclude all the three aforementioned receipts as not being similar to rent, charges, interest etc on the ground that substantial costs were incurred to earn these receipts and therefore they cease to be of nature similar to the receipts specified in clause (baa) of the Explanation to Section 80HHC of the Act. This classification on the basis of incurring of cost is not appropriate for more then one reason. Firstly, the Apex Court in Ravindranathan Nair (supra) has laid down the test of receipt being hit by the clause(baa) is income/receipts having no nexus to exports; Secondly, the decision of the Apex Court in ACG Associated Capsules (P) ltd. vs. CIT reported in 343 ITR 89 has held that expenses incurred to earn the receipts are allowed to be deducted and only the net amount is to be deducted to the extent of 90% takes care of situations where cost/expenses have been incurred to earn the receipts and lastly to accept the submission of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80 HHC of the Act. The appellant has not shown that the aforesaid activity has any nexus with its export activity. Consequently, following the decision of the Supreme Court in Ravindranathan Nair (supra), the aforesaid charges constitute independent income and is a receipt as rent/charges or at the very least similar in nature to it. Therefore, the impugned order of the Tribunal has correctly held these receipts are covered by clause (baa) (1) of Explanation to Section 80 HHC of the Act. (c) II III Proceeds of Services and Repairs of Vessels: So far a receipts on the aforesaid two heads are concerned, we find that the Tribunal in the impugned order has rendered a finding that the same are incidental to the appellant's export activities. We specifically asked the learned counsel for the Revenue whether the aforesaid activities are in fact incidental to export activities and she informed us that it is so as is evident from the finding in the impugned order. Once, the receipts by the appellant have nexus to export activities then, in view of the decision of the Apex Court in Ravindrathanan Nair (supra), the receipts of the same cannot be reduced to the extent of 90% as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein. Mr. Pardiwala, learned counsel for the appellant while accepting the fact that the aforesaid sales are purely local sales and have no relation to the export sales, yet according to him the same would not be covered by clause (baa) of the Explanation to Section 80 HHC of the Act. In support reliance is placed on the decision of this Court in Pfizer Ltd. (supra) where it is contented by the appellant that the amount received on account of insurance i.e. insurance receipts on account of loss by fire of stock in trade is not an independent income and would not constitute a receipt of a nature similar to the one set out in clause (baa) of the Explanation to Section 80 HHC of the Act. On the above basis it is submitted that the aforesaid sales would not be an independent income and would not fall in the nature of the receipts specified in clause (baa) of the Explanation to Section 80 HHC of the Act. We have pointed out herein above while dealing with the appellant s request to place this matter before the larger bench, that this Court in Pfizer Ltd. (supra) has come to a factual finding that the insurance amount received on account of loss of stock in trade was not an independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent of exports is only to be applied for receipts by way of brokerage, commission, rent, charges all of which form a class and that class is not exhausted by enumeration of the words as it is followed by the words of a similar nature. This test of being independent of exports has no application to specified incomes falling under Section 28 of the Act as it is separated by a disjunctive from the the other words which have been enumerated and such words form a class which is not exhausted by the receipts specified in clause (baa) of Explanation to Section 80 HHC of the Act. Thus we do not find any substance in the above distinction being sought to be drawn by Mr. Pardiwalla the learned Counsel for the Appellant. In view of the above, we find no fault with the impugned order of the Tribunal. Accordingly question B is answered in the affirmative i.e. in favour of the respondent/revenue and against the appellant. 18. Regarding Question C : The impugned order of the Tribunal has held extraction charges to be a part of the total turnover as defined in clause (ba) of Explanation to Section 80HHC of the Act. In terms of the above definition of total turnover only specific items su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the total turnover. We hold that the extraction charges per se are includable in the total turnover, However, while giving effect to this order the authorities under the Act would consider the appellant s submission that there has been inclusion of extraction charges in effect twice in the total turnover and if so, would ensure that the same is included only once. However, so far as extraction charges are concerned, the impugned order has correctly held them to be includable in total turnover as defined in clause baa of the Explanation to Section 80 HHC of the Act. Therefore, question C is answered in the affirmative i.e. in favour of the Revenue and against the Assessee/Appellant. 19. In the result: (I) Question A so far as hire of barges is concerned is answered in the affirmative i.e in favour of the Revenue and against the Appellant/Assessee. So far as Proceeds of services and repairs of vessels are concerned, impugned order records a finding of fact that they have nexus to exports, therefore the same are answered in the negative i.e in favour of the Appellant/Assessee and against the Respondent/Revenue; (II) Question B , is answered in the affirmative i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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