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TMI Blog2019 (7) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... LD THAT:- We have noted that Bangalore Tribunal in case of Shamanur Kallappa Sons Vs ACIT . [ 2008 (8) TMI 455 - ITAT BANGALORE-A] held that wherein the assessee being supporting manufacture claimed deduction u/s 80HHC on the basis of disclaimer certificate issued by State Trading Corporation (STC) certifying that it has not claimed deduction on the export of trading goods. The assessee apparently complied the statutorily requirement provided under section 80HHC(1A) it was held that only condition stipulated by the legislation is that the same benefit should not be claimed by both the export house and the supporting manufacture. To ensure the same, it was made a pre-condition that export house should furnishes a certificate of disclaimer in respect of export turnover, and the amount of deduction available to the export house would be accordingly reduced in the specified manner. The decision of Tribunal was upheld by Hon ble Karnataka High Court [ 2015 (8) TMI 507 - KARNATAKA HIGH COURT] - additional grounds of appeal raised by the assessee are allowed. The assessing officer is directed to re-compute the deduction under section 80IB 80 HHC in accordance with law. - Decided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Export House but cannot affect the eligibility of the Appellant for claiming the deduction. 2.3 in not appreciating that the Export House is entitled to a deduction under Section 80HHC as amended by Taxation Laws (Amendment) Act, 2005 since loss before export Incentives can be set off against export Incentives and Its calculation of deduction under Section 80HHC as per Audit Report in Form 10CCAC showed a similar calculation. 2. Further, the assessee vide its application dated 31st January 2011 for A.Y. 2003-04 raised the following additional grounds of appeal: 2.4 in not adjudicating that the appellant would be entitled to a deduction u/s 80HHC on profits earned from exports as well as u/s 80IB for profits earned from manufacturing activity in a backward area so long as the aggregate deduction u/s 80HHC and 80IB does not exceed the profit earned by the undertaking. 3. Brief facts of the case are that the assessee-company is engaged in the manufacturing and export of frozen food stuff, filed its return of income on 10.11.2003 declaring an income of ₹ 12,12,03,830/-. The return of income was selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AR further submits that deduction under 80IB(v) is available to assessee on Profit Gain derived from an Industrial Undertaking situated in backward area/district specified in the notification, interalia, that it manufactures or produce an article of things, not being article of things specified in Eleventh Schedule. The assessee fulfilled all the condition for deduction under section 80IB. The assessee has an integrated industrial undertaking in the business of manufacturing of frozen boneless buffalo meat, frozen and dried inedible products, meat and boneless meal, tallo and gel bone chips. The products are manufactured from buffalo carcasses received at assessee s factory/establishment. The various product manufactured by assessee at different and distinct end use. Frozen chilled/mincd boneless buffalo meats and Frozen Tendons/Neck Bands are used for human consumption, frozen/dried cartilages for Pharma Industries, Meat and Bone Meal for Poultry Industry, Tallow for Soaps/Lubricants/Textiles/Industries and Gel-bone Chips for Gelatine Industry. It was explained that Veterinary Doctors check prescribed health perform prescribed health checks of Buffalo Livestock at the appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The ld. AR submits that the word manufacture or production are not defined under the Income-tax Act. However, the activities carried out by assessee are accepted as manufacturing under Excise Law. The ld. AR invited our attention on page no. 59 of Paper Book which is the photocopy of classification of Industries wherein preservation of meat except by canning and processing/canning of meat. The ld. AR further taken us to revise National Industrial Classification of all economic activities, wherein under division 20-21 manufacture of foods products includes slaughtering, preparation and preservation of meat is classified as manufacturing. The assessee is granted certificate of registration under section 22/22A of Bombay Sale Tax, 1959, wherein the nature of business of assessee is accepted as manufacturer, reseller, importer and exporter. The classes of goods in which assessee-company deals is also accepted in the said certificate, which consist of meat and marine products, raw/processed hides, finished, treated or untreated leather, bone and meat meals and Carcasses meats, crushed bones, food products, dyes, chemicals and its products, live animals and its meat etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaken at industrial unit at District-Unnao, State of U.P. does not fall in the category of manufacturing or production . The ld. CIT(A) while deciding the appeal held that in the entire process involved in converting Carcass into meat, there is no difference in between input and the output in the name, character and use. Merely deployment of considerable capital outlet, sophisticated machinery and engagement of skill labour, no significant degree of value addition to the end-product. The process carried out by assessee does not result into different marketable product. We have noted that the ld. AR of the assessee has explained that the end-use product manufactured by assessee is distinct and entirely different from the original raw-material (Buffalo s Carcasses), which has been discarded by ld. CIT(A) holding that assessee is not carrying or manufacturing or producing of articles or things. The ld. AR has also explained that in integrated industrial undertaking the assessee is manufacturing the frozen boneless buffalo meat, frozen and dried inedible products, meat and boneless meal, tallow and gel bone chips. The products are manufactured from buffalo carcasses received at ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction activities at different stage undertaken by the assessee. We have further noted that the facts brought in our notice and different activities undertaken by assessee are not disputed by ld. DR for the revenue, while replying the submission of ld. AR of the assessee. The assessee has also filed copy of the order 30 dated 22.08.2008 (for I/ Year 2003-04) passed under section 9(2) read with section of U.P. Trade Tax Act, passed by Dy Commercial Tax Unnao, U.P. wherein the assessee is recognized as manufacturer and its business is for manufacture and sale of food stuff and its by product is hides, MBM and tallow. 11. To sum up, we find that in the instant case the Classification of Industries by NSS and Revised Classification by CSO, Ministry of Planning indicating the activity of the assessee under the broad head Manufacture of food products . Also, the Central Sales Tax (CST) and Bombay Sales Tax (BST) registration certificates indicate the nature of business as manufacture . Also, the classification of meat products as excisable is shown under Excise Tariff List. The Central Excise Registration Certificate indicates that the company is registered for man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess is manufacture or not. The structure, the character, the use and the name of the product are indicia to be taken into account while deciding the question whether the process is a manufacture or not. 15. The Hon ble Apex Court in Aspinwall and Co Ltd Vs CIT (supra) held that the process is manufacturing process when it brings out a complete transformation in the original article so as to produce a commercially different article or commodity. That process itself may consist of several processes. The different processes are integrally connected which results in the production of a commercially different article. If a commercially different article or commodity results after processing, then it would be a manufacturing activity. The assessee after processing the raw berries converted them into coffee beans which is a commercially different commodity. Conversion of the raw berry into coffee beans would be a manufacturing activity. 16. The Hon ble Apex Court in CIT vs. Hindustan Petroleum Corporation Ltd. (supra) while considering the question of law whether bottling of LPG, as undertaken by the assessee, is a process which amounts to 'product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The raw-material could not be substituted for the final product. The production process resulted not only in qualitative changes but also gave the product a distinct appearance and character which was so recognized in the trade. Hence, production process resulted in a commercially different product having specific characteristic and qualities through a series of steps and process. The assessee, therefore, satisfied the requirement that it manufactured or produced an article of things for the purpose of section 80IB of the Act. 18. Considering the above referred factual and legal discussion, we are of the view that the final product produced by the assessee-company is commercially different from the raw-material (Buffalo Carcasses), the process of production involved a number of steps and processes. The rawmaterial used by the assessee cannot be substituted by the final product. The production process as explained by assessee resulted not only in qualitative changes, but also a distinct product for end-use of the consumer. Thus, in our considered view, the assessee fulfilled the requisite requirement i.e. manufacturing or producing an article of things for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate of export house. The ld. AR submits that the Assessing Officer disallowed the deduction that in case export house is not eligible for deduction and it issues a disclaimer certificate to supporting manufacturer, the supporting manufacturer is not entitled for any deduction. The ld. AR further submits that the assessee has raised additional ground of appeal that assessee is entitled to a deduction under section 80HHC on the profit earned from export as well as under section 80IB for profit earned from the manufacturing activities in the backward area so long as aggregate deduction under section 80HHC and 80IB does not exceed the profit earned by undertaking. In support of his submission, the ld. AR relied upon the decision Associated Capsules (P.) Ltd. (supra). The ld AR for the assessee also furnished a certificate dated 02/07/2003 issued by Superintendent Central Excise Range-9, Unnao, certifying that during year 2001-02 and 2002-03 the assessee has exported frozen buffalo meat through M/s Allanasons Limited. 22. On the other hand, the ld. DR for the revenue strongly supported the order of Assessing Officer and ld. CIT(A). The ld. DR also relied upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnataka High Court in Tax Appeal No. 10/2009 dated 12.01.2015. 25. The case law relied by ld. DR for the revenue in Alom Exports (India) Ltd. (supra) and in Great Eastern Exports (supra) is not helpful to the revenue as both the decisions were considered by Hon ble jurisdictional High Court in Associated Capsules (P.) Ltd. vs. DCIT (supra) wherein the Hon ble Court held as under: 21. We have carefully considered the rival submissions as also the decisions of two High Courts, wherein similar question has been answered in favour of the Revenue. However, we find it difficult to concur with the views expressed therein for the reasons enumerated hereinbelow. 22. Chapter VI-A of the Act provides for variety of deductions to be made in computing the total income. Chapter VI-A is divided into four parts viz. Part A, B, C D. Part A (sections 80A to 80B) deals with general provisions, Part B (sections 80C to 80GGC) deals with deductions in respect of certain payments, Part C (sections 80H to 80TT) provides for deductions in respect of certain incomes and Part D (sections 80U to 80VV) deals with other deductions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80- IA(9), the deduction under section 80HHC has to be computed in the manner specified under section 80HHC on the profits of the business computed under the head profits gains of business or profession as reduced by the amount set out in clause (baa) of section 80HHC/80HHC(4B) as the case may be and there is no scope for reducing the profits of business by the amount of profits allowed under section 80- IA(1) of the Act. According to the assessee, section 80-IA(9) merely affects the allowability of the deduction computed under section 80HHC so that the combined deduction under sections 80-IA(1) and 80HHC does not exceed the profits and gains of the undertaking. 26. To illustrate, if the profits and gains of the eligible undertaking is ₹ 100, the deduction allowable under section 80-IA(1) is 30 per cent and the deduction allowable under section 80HHC is 80 per cent, then accord- ing to the Revenue, deduction to be allowed under section 80-IA would be ₹ 30 (30 per cent of ₹ 100) and in view of section 80-IA(9), the deduction under section 80HHC has to be computed not on the profits of the business of ₹ 100 but on S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeks to curtail allowance of deduction and not computability of deduction under any other provisions under heading C of Chapter VI-A of the Act. 30. How to compute deduction allowable under section 80HHC(1) is set out in section 80HHC(3). In the case of a manufacturer exporter, section 80HHC(3)(a) provides that the deduction under section 80HHC(1) has to be computed as per the formula : Profits of the business Export turnover Total turnover Clause (baa) in section 80HHC defines the term profits of the business for the purposes of section 80HHC to mean the profits of the business as computed under the head profits and gains of business or profession as reduced by the amounts specified therein. Therefore, in the case of a manufacturer exporter, deduction under section 80HHC(1) is statutorily required to be computed on the profits of the business as reduced by the amounts specified in clause (baa) of section 80HHC. Unless, it is specifically provided by the statute, the profits of the business for the purpose of section 80H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her sections under heading C of Chapter VI-A of the Act. 33. Wherever the Legislature intended that the deduction allowed under one section should affect the computation of deduction under other provisions of the Act, the legislature has expressly used words to that effect. It may be noted that sections 80HHD(7) and 80-IA(9A) [presently 80-IA(9)] were introduced by Finance Act, 1998 with effect from 1-4-1999. Section 80HHD(7) provides that the deduction allowed under section 80HHD(1) shall not qualify to that extent for deduction under any other provisions of Chapter VI-A under the heading C , whereas, section 80-IA(9A) provides that the deduction allowed under section 80-IA(1) shall not be allowed under any other provisions of Chapter VI-A under heading C . Similarly, in section 80-IC(5), the words used are that notwithstanding anything contained in any other provision of the Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or section 10A or section 10B in relation to the profits and gains of the undertaking. Thus, the legislature has used specific words whenever it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Strong reliance was also placed by the Counsel for the revenue on the Special Bench decisions of the Tribunal in the case of Rogini Garments (supra) and Hindustan Mint Agro Products (P.) Ltd. (supra), which are affirmed by the Delhi High Court in the case of Great Eastern Exports (supra). Reliance is also placed on decision of the Kerala High Court in the case of Olam Exports (India) Ltd. (supra) which supports the case of the revenue. 38. We find it difficult to subscribe to the views expressed by the Delhi High Court in interpreting the provisions of section 80-IA(9). In that case, in fact, the Counsel for the revenue had argued (see para 38 of the judgment) that section 80-IA(9) applies at the stage of allowing deduction and not at the stage of computing deduction under other provisions under heading C of Chapter VI-A. It was argued that in the matter of grant of deduction, the first stage is computation of deduction and the second stage is the allowance of the deduction. Computation of deduction has to be made as provided in the respective sections and it is only at the stage of allowing deduction under section 80-IA(1) and also unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits of the business. 26. Further the ratio in case of IPCA Laboratories (supra), the case law relied by ld. DR is also not applicable on the facts of the present case as in the said case. The Hon'ble Supreme Court in IPCA's case ( supra ), held that the proviso to sub-section (1) of section 80HHC enables the disclaimer to enable the export house to pass on deductions and it in no way reduces the turnover of the export house and computing total income, the entire turnover is taken into account even though there is disclaimer. The Hon'ble Supreme Court further said that even after disclaimer, the turnover has remained the turnover of the export house. Therefore, the ratio of the Hon'ble Supreme Court is that even if an export house gives a disclaimer to the supporting manufacturer, the disclaimed turnover and the result therefrom will have to be considered for the purpose of determining the quantum of deduction under section 80HHC(3)( c ). The Hon'ble Supreme Court had to declare the aforesaid law as the assessee export house claimed that the loss arising from export of goods brought by it from the supporting manufacturer should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the following manner observing : In this case we are concerned with the wordings of sub-s. (3)( c) of s. 80HHC. As noted earlier sub-s. (3)(a) deals with the case where the export is only of self-manufactured goods. Sub-s. 3(b) deals with the case where the export is only of trading goods. Thus, when the legislature wanted to take exports from self-manufactured goods or trading goods separately, it has already so provided in sub-ss. (3)(a) and (3)(b). It would not be denied that the word 'profit' in s. 80HHC(1) and ss. 80HHC(3)(a) and (3)(b) means a positive profit. In other words, if there is a loss then no deduction would be available under s. 80HHC(1) or (3)(a) or (3)(b ). In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit then the assessee will be entitled to a deduction. If the net figure is a loss then the assessee will not be entitled to a deduction. Sub-s. (3)(c) deals with cases where the export is of both self-manufactured goods as well as trading goods. The opening part of sub-s. (3)(c) states 'profits derived from such export shall' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t : Provisions of s. 80HHC of the IT Act, 1961 : Sharing of tax benefit between the export houses/trading houses and manufacturers Regarding. Sec. 80HHC as amended by the Finance Act, 1985, provides that where an assessee, being an Indian company or a person (other than a company) resident in India exports out of India during the previous year, any goods or merchandise to which this section applies, he will be allowed a deduction of an amount not exceeding 50 per cent of the profits derived from the export of such goods or merchandise. 2. Representations have been received to the effect that the manufacturers of goods or merchandise exported through the export houses/trading houses do not derive any benefit under the amended provisions of s. 80HHC. It has further been represented that if the tax benefit derived by the export house/trading house under s. 80HHC is passed on to the concerned manufacturer, the amount so passed on should be allowed as a deduction in the computation of the total income of the export house/trading house. 3. The matter has been examined by the Board. It has been decided that if any export house/tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs exporting goods through the recognised Export House or Trading House, a new proviso to sub-s. (1) of the section has been inserted. The said proviso provides that where an Export House or Trading House issues a certificate in a prescribed form that in respect of any amount of export turnover, deduction under sub-s. (1) is to be allowed to a supporting manufacturer, the amount of deduction available to the Export House or the Trading House shall be reduced by such an amount which bears to the total profits of the export business of the Export House or the Trading House issuing the certificate, the same proportion as the amount of export turnover specified in the certificate bears to the total export turnover of the Export House or the Trading House as the case may be. 28.4 As a measure to extend the benefit provided under sub-s. (1) to the supporting manufacturers, a new sub-s. (1A) has been inserted to provide that where the supporting manufacturer has sold goods to any Export House or Trading House in respect of which the latter has issued a certificate in the prescribed form in accordance with the provisions of subs. (1) read with the proviso, deduction wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the report of an accountant certifying that the deduction has been correctly claimed on the basis of the income derived by the supporting manufacturer in respect of sale of goods or merchandise to the Export House or the Trading House. For this purpose, the accountant shall be the one as defined in the Explanation below sub-s. (2) of s. 288; and a certificate from the Export House or the Trading House that in respect of the export turnover mentioned in the certificate, the Export House or the Trading House has not claimed any deduction under this section. The certificate issued by the Export House or the Trading House shall be certified by the auditor auditing the account of the Export House or the Trading House under the provisions of this Act or under any law. 28.7 The working of the benefit under this section, as can be shared between a recognised export house or a trading house with the supporting manufacturer, has been illustrated in the example below : Total export earning in convertible foreign exchange of an Export House : 50 crores Net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The only condition stipulated by the legislation is that the same benefit should not be claimed by both the export house and the supporting manufacturer. To ensure the same, it was made a precondition that the export house should furnish a certificate of disclaimer in respect of the export turnover, and the amount of the deduction available to the export house would be accordingly reduced in the specified manner. Similarly, it was provided in sub-s. (1A), the supporting manufacturer can claim tax benefit only on the basis of the disclaimer certificate of the export house. We could not see any other conditions stipulated in these provisions. The scheme of these provisions suggests that the supporting manufacturer gets an independent right to claim deduction once he gets in his favour a disclaimer certificate from the export house. In the light of these discussions, we are of the view that the assessee would be entitled to claim deduction as per s. 80HHC(1A) of the IT Act. Further from the illustration presented in the circular clearly exhibits that benefit derived under s. 8HHC(1A) by the supporting manufacturer could be higher than the benefit available under s. 80HHC(1) to the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HC and 80IB of the Act. This by following the decision of this Court in Associated Capsules (P.) Ltd. v. Dy. CIT [2011] 332 ITR 42/197 Taxman 84/9 taxmann.com 63. ( b) Mr. Suresh Kumar, learned Counsel appearing for the Revenue does not dispute the fact that this issue is covered by the decision of this Court in Associated Capsules (P.) Ltd. (supra). However, he invites our attention to the decision of the Apex Court in Asstt. CIT v. Micro Labs Ltd. [2016] 380 ITR 1/237 Taxman 74/[2015] 64 taxmann.com 199 wherein an identical issue as arising in this question has been referred by the Apex Court to a Larger Bench. The decision of the Larger Bench is still awaited. Thus, he requests that this question be admitted for consideration. We see no reason to admit the present question. This for the reasons as the issue stands concluded by the decision of a Co-ordinate bench of this Court in the Associated Capsules (P.) Ltd.'s case (supra) which is binding upon us, as it has not been stayed. ( c) In the above view, the question of law (c) as formulated for our consideration, does not give rise to any substantial question of law. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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