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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 ..... considered as similar to the specific receipts referred to it in the said clause (baa)? B) Whether on the facts and in the circumstances of the case, receipts by way of sale proceeds from (i) sale of pig iron, (ii) sale of vessels, (iii) sale of engineering products, (iv) sale of material, and (v) sale of coke breeze could be considered as similar to the specified receipts referred to in the said clause (baa) ? C) Whether on the facts and circumstances of the case, the receipts under the head "extraction charges" could be considered as part of the "total turnover" as defined 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 appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits of the business; The receipts on account of following : 6. Hire of barges; 7. Proceeds of services; 8. Repairs of vessels; and 9. Extraction charges were held to be covered by clause (baa) of Explanation to Sub Section 4B of Section 80 HHC of the Act and 90% of the gross receipts were to be reduced for computing profits of the business in respect of hire of barges and 90% of the net receipts in respect of proceeds of services, repairs of vessels and extraction charges. Moreover, so far as extraction 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic), of section 28, the same proportion as the export turnover bears to the total turnover of business carried on by the assessee. Explanation : For the purposes of this sub-section, - (a) to (f) ...... (4), (4A) & (4B) ................. Explanation : For the purposes of this section,- (a) ........ (ba) "Total turnover" shall not include freight 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, ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Vs. Joint Commissioner of Income Tax rendered on 18.10.2013 in favour of the revenue while construing clause (baa) of Explanation to Section 80 HHC of the Act. However, it is submitted that it was rendered per incurium as it was without considering the decision of this Court in Pfizer Ltd. (supra). It is therefore submitted that the nature of income which would stand included under clause (baa) of Explanation to Section 80HHC of the Act would only be items of receipts 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered what is included and the extent of its inclusion in the meaning of business profit for purpose of Section 80HHC of the Act. For that purpose the examination of clause (baa) of Explanation to Section 80HHC of the Act was imperative. Thus, the Apex Court has very much dealt with the issue and the ratio of its decision in Ravindranathan Nair (supra) is that independent income having no nexus with exports would be covered by the words other similar receipts 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 rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Ltd. (supra) as under: "6...... This Court noted that the Supreme Court had held that the processing charges though they form part of gross total income, constitute independent income like rent, commission and brokerage and that hence 90% of the same has to be reduced from gross total income." This Court in Pfizer Ltd. (supra) has further in para 11 thereof held as under: "A contract of insurance is a contract of indemnity. The insurance claim 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 fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nair (supra) as applied to the facts emerging for consideration in the context of clause (baa) and (ba) of Explanation to Section 80HHC of the Act. 16. Question "A": (a) The above question as framed challenges the inclusion of the following receipts: (I) Hire of barges, (II) Proceeds of services, (III) Repairs of vessels being considered similar to the specific receipts set out in clause (baa) of the Explanation to Section 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, would fall in the items specified in clause baa (1) of Explanation to Section 80HHC of the Act. Even if one accepts the submission of the appellant that the these barges continue to be in control of the appellant and they only ferry goods of others for a charge, the receipts would certainly be classified as charges or of a nature similar to it and therefore, would fall under clause baa (1) of Explanation to Section 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es do not have any link with the export activities of the appellant. Thus, being independent income, the same would be hit by by clause (baa) of the Explanation to Section 80 HHC of the Act. According to the appellant, the aforesaid receipts would not fall within the province of clause (baa) of the Explanation to Section 80 HHC of the Act as they are not receipts similar to the receipts specified therein. 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 woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. The words "of a similar nature" are to be read ejusdem generis only to expressions brokerage, commission, rent charges and not to specific income referred to therein as falling under specific sub-clauses of Section 28 of the Act. The Rule of ejudem generis is that where a general term follows particular expression then it takes colour from the preceding expression. Thus the test of being independent 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 Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stainless Steel (supra) would have no application in the present facts . However, it was contended by the appellant that on account of having included the amounts received on account of extraction of ore in total turnover as well as the the amounts received on sales of the ore which includes the cost of extraction of ore , the amounts on account of extraction charges is being included twice in 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 affi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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