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TMI Blog2010 (9) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... oprietary concerns of the assessee for the purpose of calculating the deduction u/s.80HHC. 3. At the outset, Ld. Counsel for the assessee, Shri M.K.Patel stated that this issue has been considered by Tribunal in assessee s own case in ITA No.918/Ahd/ 2005 dated 30-04-2007 for assessment year 2000-01 the immediate preceding year, wherein Tribunal has allowed the issue in favour of Revenue and against the assessee in para-4 5 as under:- 4. Therefore, the Special Bench decision of the Tribunal in the case of International Research Laboratories Ltd. Vs. ACIT [2123 ITR 1 (AT)] squarely apply. In that case, it is observed that Section 80HHC(3) of the Income-tax Act, 1961, was intended to provide incentives to promote exports to earn foreign exchange for the country. The incentive provided is exemption of the profits relatable to exports. Apportionment of profits on the basis of turnover is an accepted method of arriving at the profit. In the Excess Profits Tax Act this was the method adopted and also in the Business Profits Tax Act. There is no ambiguity in the language of section 80HHC(3) (as sit existed in the assessment year 1990-91) as to call in aid any particular rule of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness including export turnover and domestic turnover, irrespective of the source from which the domestic turnover was derived provided it is in respect of profits and gains of business. The total profits in the entire business have to be ascertained and then have to be apportioned in the proportion the export turnover bears to the total turnover to arrive at the profit derived from export of goods, on which exemption under section 80HHC is available. This view also finds support from the Kerala High Court in the case of CIT Vs. Jose Thomas [253 ITR 553] where in the assessee was engaged in various business activities such as processing and export of sea foods, construction and sale of flats, shipping agency business and also deriving income in the form interest and dividend. For the purpose of computing deduction u/s.80HHC, the total turnover was directed to be including cost of flats constructed by the assessee because in the opinion of the Lordship, turnover in respect of works contract shall be the aggregate amounts received or receivable by the dealer for the transfer of goods involved in the execution of such contract, and it was held the Tribunal an error of law in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is appellate order:- 5.3.5. On consideration of the entire set of facts of the case relating to the impugned issue, it is observed that the A.O has not doubled the genuineness of any of the transactions involved, such as, obtaining of loan from TFL for subscribing to the units of the mutual funds, allotment of units, allotment of units against dividend earned or the payments to TFL, on behalf of the appellant, on redemption of the units. Further, the A.O has not disputed the fact that the payments/receipts on these transactions were through cheques/regular banking channel. Therefore, there is considerable force in the argument of the Ld. A.R that the transactions involved were legal and genuine business transactions. Further, it is not the case of the A.O that the parties to the transactions were dummy and mere paper entities or that there was any collusion between the appellant and the concerned mutual funds or TFL. The A.O has also snot brought any material on record to indicate that any of the transactions was sham or only on paper or was in the form of an artificial inserted steps. Further, I find merit in the contention of the appellant that the tax planning within four co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we may state that we have two sets of cases before us. The lead matter covers assessment year before insertion of section 94(7) vide the Finance Act, 2001 with effect from April 1, 2002. With regard to such cases we may state that on the facts it is established that there was a sale The sale price was received by the assessee. That, the assessee did receive dividend. The fact that the dividend received was tax free is the position recognized under section 10(33) of the Act. The assessee had made use of the said provision of the Act. That such use cannot be called abuse of law . Even assuming that the transaction was pre-planned there is nothing to impeach the genuineness of the transaction. With regard to the ruling in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), it may be sated that in the later decision of this court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 it has been held that a citizen is free to carry on its business within the four corners of the law. That, mere tax planning, without any motive to evade taxes through colourable devices is not frowned upon even by the judgment of this court in McDowell and Co. Ltd. s case (supra). Hence, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erted with effect from April 1, 1962 while section 94(7) inserted by the same Finance Act as brought into force with effect from April 1, 2002. 21 The next question which we need to decide is about reconciliation of sections 14A and 94(7). In our view, the two operate in different fields. As stated above, section 124A deals with disallowance of expenditure incurred in earning tax free income against the profits of the accounting year under sections 30 to 37 of the Act. On the other hand, section 94(7) refers to disallowance of the loss on the acquisition of an asset which situation is not there incases falling under section 14A. Under section 94(7), the dividend goes to reduce the loss. It applies to cases where the loss is more than the dividend. Section 14A applies to cases where the assessee incurs expenditure to earn tax-free income but where there is no acquisition of an asset. In cases falling under section 94(7), there is acquisition of an asset and existence of the loss which arises at a point of time subsequent to the purchase of units and receipt of exempt income. It occurs only when the sale takes place. Section 14A comes in when there is a claim for deduction of an e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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