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TMI Blog1986 (1) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the claim of the assessee for initial depreciation under section 32(1)(iv) in respect of buildings whose construction commenced before March 31, 1961, but was completed after March 31, 1961, was proper ? " In Taxation Cases Nos. 205 and 206 of 1971, the Tribunal " E " Bench, Calcutta, has referred the following questions of law under section 256(2) of the Act, relating to the assessment year 1962-63 for the opinion of this court: "1. Whether, on the facts and in the circumstances of the case, the deletion of the addition made by the Income-tax Officer of Rs. 1,26,522 and Rs. 1,18,489 in respect of the estimated liability for mining lease, rent and royalty for the years 1959 and 1961 is legal and proper? 2. Whether, on the facts and in the circumstances of the case, the claim of Rs. 14,43,524 in respect of the internal development is a revenue expenditure ? 3. Whether, on the facts and in the circumstances of the case, the assessee is entitled to export profit rebate in respect of kyanite business for the assessment year in question ? " In Taxation Cases Nos. 57 and 58 of 1972, the Tribunal, " A " Bench, Calcutta, has referred the following questions of law under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 8, 1971, and referred the following question for the opinion of this court under section 256(1) of the Act and the question referred for the assessment year 1963-64 was as follows: " Whether, on the facts and in the circumstances of the case, the claim of the assessee for initial depreciation under section 32(1)(iv) of the Income-tax Act, 1961, in respect of the buildings whose construction commenced before March 31, 1961, but was completed after March 31, 1961, was proper ? " The aforesaid statement of the case was forwarded by the Tribunal in R.A. Nos. 300 and 301 of 1971-72 in I.T.A. Nos. 6973 and 6286 of 1968-69 relevant to the assessment year 1963-64. The question referred as mentioned in paragraphs 11 and 12 of the statement of the case in Taxation Cases Nos. 57 and 58 of 1972, has also been disposed of by the judgment of this Bench dated August 30, 1984, in Taxation Cases Nos. 43 and 44 of 1972 (Addl. CIT v. Indian Copper Corpn. Ltd. [1985] 155 ITR 529). The records of Taxation Cases Nos. 43 and 44 of 1972 show that the statement of the case was submitted by the Tribunal, "A" Bench, Calcutta, in the matter of the assessment of the assessee, M/s. Indian Copper C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not before us and so we have to look to the order of the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, while discussing ground Nos. 18, 19 and 20 at page 36 of the paper book, has pointed out that these grounds are against disallowance of initial depreciation under section 32(1)(iv) of the Act in respect of the buildings completed during the year. He has also pointed out that the grounds taken by the Income-tax Officer was that although the construction of the buildings was completed after March 31, 1961, the same had been started before that date and accordingly section 32(1)(iv) of the Act did not apply. The Appellate Assistant Commissioner took the view that the Income-tax Officer was not correct. He has also pointed out that the section requires that the buildings must be erected after March 31, 1961, and not that the construction should also have started only after that date. The Appellate Assistant Commissioner, therefore, held that the initial depreciation is allowable and he directed the Income-tax Officer to make necessary modification in the assessment. The Department appealed before the Tribunal for the assessment year 1962-63, vide annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act appear to refer merely to the date of completion of the buildings, unlike the language in the second proviso to section 23 of the Act, which refers to the date of commencement of the construction as well. In the assessment year 1963-64, the Department appealed before the Tribunal. The Tribunal discussed this issue in paragraph 13 at page 30 of the paper book. The Tribunal has pointed out that the same point was involved in the assessment year 1962-63 and the Tribunal had held that the date when the construction was started was not material. The Tribunal, therefore, following its order for the assessment year 1962-63, upheld the order of the Appellate Assistant Commissioner. I have already pointed out above that this matter came before this Bench in Taxation Cases Nos. 43 and 44 of 1972 which was disposed of by this Bench on August 30, 1984. This decision is also reported in [1985] 155 ITR at page 529. In view of the findings in the assessment year 1963-64 that in granting initial depreciation under section 32(1)(iv) of the Act, the date of commencement of the buildings of the assessee is entirely irrelevant and that the erection as per section 32(1)(iv) must relate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment. Part VIII, clause 2, contemplated renewal of the ease. This clause provided that if the lessee shall be desirous of taking renewal of lease of the premises for a further term of thirty years from the expiration of the said term granted and on such desire shall prior to the expiration of such last mentioned term give to the lessor six calendar months' previous notice in writing and shall pay the rents and royalties reserved and observed and perform the several covenants and agreements contained in the original lease deed and on the part of the lessee to be observed and performed up to the expiration of the said term granted in the original lease deed, the lessor will upon the request and at the expense of the lessee execute and deliver to the lessee a renewed lease of the said premises for a further term of thirty years at such rent as shall be agreed upon by the parties but not exceeding twice the rent reserved by the original lease deed and at such royalty as may then be agreed upon between the parties but it will be upon the like terms and subject to the like covenants and agreement as mentioned in the original lease deed. In exercise of this power to obtain renewal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by evicting the lessee and also for a decree for Rs. 43,78,777 odd by way of compensation. The said suit was also for a permanent injunction on the lessee from carrying on the mining operation in the said property and for injunction restraining the lessee from removing the stock of kyanite and also for costs. As the term of lease had expired on January 31, 1955, and the State of Bihar made a prayer for amendment of the plaint and the amendment was allowed by the court and in the plaint as amended, there was a prayer for declaration that upon expiry of the term of the lease, the State of Bihar was entitled to re-enter upon the property and that the possession by the assessee was that of a trespasser from February 1, 1955, the State of Bihar also claimed mesne profits to the extent of Rs. 20 lakhs odd for unauthorised occupation of the mines by the defendant from February 1, 1955, till the date of delivery of the possession. The assessee issued notice on May 6, 1954, to the State of Bihar exercising option of renewal and demanding renewal of lease for a further term of thirty years. The assessee again issued a notice on September 24, 1954, under section 60 of the Civil Procedure C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter, appeals were filed in the High Court by the State of Bihar, being First Appeals Nos. 443 and 444 of 1956. They were decided on February 14, 1959. This decision is reported in [1960] Bihar Law journal Reports at page 105. The High Court dismissed Title Suit No. 27 of 1955 brought by the assessee and decreed Title Suit No. 28 of 1955 filed by the State of Bihar and it was ordered that the State of Bihar is entitled to decree of possession of the leasehold properties after expiry of the lease on January 31, 1955, after evicting the defendant from those properties. The High Court also held that the State of Bihar is also entitled to mesne profits from February 1, 1955, to the date of recovery of the possession, which was to be ascertained in the subsequent proceedings. It was also held that the State of Bihar is entitled to the difference in royalty on the basis of Part V, clause 2 of the lease from May 18, 1948, till January 31,1956. The High Court also allowed the advocate's fee of Rs. 20,000. The assessee filed an application for leave to appeal to the Supreme Court against the aforesaid judgment and decree of the Patna High Court, which is numbered as SCA No. 119 of 1959. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 in Taxation Cases Nos. 185 and 186 of 1971, which I shall now take up. The Income-tax Officer in the assessment year 1962-63 has considered kyanite profit at pages 7 to 13 of the paper book in Taxation Cases Nos. 185 and 186 of 1971. The Income-tax Officer has pointed out that in the return, the assessee had claimed an exemption of kyanite profit from January 1, 1961, to August 31, 1961, on the same ground as per the earlier year's assessment. The profit from September 1, 1961, to December 31, 1961, was shown in the return. The Income-tax Officer found that in view of the compromise decree dated October 4, 1961, the assessee became a lessee of the kyanite mine from September 1, 1961, and as there was no other dispute pending, the assessee showed proportionate profit of kyanite for four months in the return and claimed exemption in respect of the profit for eight months up to August 31, 1961, for the same reasons as per last year. The Income-tax Officer held that the assessee's claim of exemption amounting to Rs. 31,82,809 cannot be accepted. The Income-tax Officer has given the details relating to the lease agreement and about the filing of the suits and about the compromise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease. The Income-tax Officer also held that the compromise decree does not, as Contended by the assessee, wipe out the entire profits earned and enjoyed by the company-assessee during the period of unauthorised occupation of the mine. The Income-tax Officer, therefore, disallowed the assessee's claim of exemption of kyanite profit from January 1, 1961, to August 31, 1961, amounting to Rs. 32,82,809. The assessee appealed before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner discussed the matter relating to kyanite profits at pages 26 to 33 of the paper book in Taxation Cases Nos. 185 and 186 of 1971, while dealing with grounds 1, 2, 3, and 4. The Appellate Assistant Commissioner agreed with the Income-tax Officer that the Income-tax Officer was justified in including the profits for the above period January 1, 1961, to August 31, 1961, in the assessee's hands. However, ground No. 4 was argued to the effect that the Income-tax Officer should have allowed the liability for payment to the State of Bihar in terms of the compromise decree passed in 1961. This was an alternative argument which was adduced in connection with the assessment year 1958-59 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it was argued that the liability for mesne profits created an overriding charge and so there was a diversion of the assessee's income to the extent of the liability accrued, and for this purpose reliance was placed on a decision of the Supreme Court in CIT v. Sitaldas Tirathdas [1961] 41 ITR 367. It was argued that the final decree of the High Court created an inescapable obligation or an overriding charge for the assessee, so that there was diversion of income to the extent of the liability that accrued during the year. The Appellate Assistant Commissioner accepted the position that as regards the equivalent of 60% of the kyanite net profit during the period of unauthorised occupation, there cannot be any doubt that the entire liability accrued during the year, i.e., as soon as the final decree was passed. He has also held that the mere fact that the liability could be discharged by making some periodical payments would not make any difference to the position that the entire liability accrued during the year and that under the mercantile system of accountancy, it should be accounted for during the year itself. It was also argued before the Appellate Assistant Commissioner on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of a capital nature for acquiring the new lease. On behalf of the assessee, on the other hand, it was argued that the payment arose as a consequence of the profits having been earned and taxed and that there was no capital element in the payment and that the description of the amount as mesne profits or damages did not debar its allowance. The Tribunal held that there was no capital element in the payment and that the amount was not paid as premium or salami for inducting the tenant into the property. The Tribunal also held that the liability to pay arose in the course of carrying on the business and that the assessee was working under a lease with a clause for renewal and bona fide believed that it had a right to the renewal and that the assessee's bona fides was established by the first court accepting its claim, although the claim did not succeed in the High Court. The assessee's claim was not a frivolous claim. The Tribunal also held that in compromising a bona fide dispute and as part of an arrangement for enabling the assessee to continue the business, the amount had to be paid. The Tribunal also held that if the assessee had not made the payment, the assessee would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court. In this case, the assessee-firm paid the sum of Rs. 1,53,800 to acquire lease of certain areas of land bearing mica for period of 20 years. Those areas had already been worked for 15 years by other lessees. The question was whether a proportionate part of the amount was allowable and in the relevant year as business expenditure. In those circumstances, it was held that the amount was paid for acquiring a right of an enduring nature to extract and remove the mica and bring it to the surface and that the expenditure incurred was capital expenditure and the proportionate part of the sum of Rs. 1,53,800 was not allowable as revenue expenditure. Their Lordships of the Supreme Court also held that in the case of mining leases, where minerals are part of the land and have to be won, extracted and brought to the surface, the expenditure for acquiring the right over or in the land to win the minerals would be of capital nature, but where the minerals has already been gotten and is on the surface, the expenditure incurred for obtaining the right to acquire raw materials, i.e., the mineral, would be revenue expenditure laid out for the acquisition of stock-in-trade. On thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, in this case, the matters for decision were not the same as before us. Mr. B. P. Rajgarhia has submitted that 60% of the kyanite profits payable to the State Government was a capital expenditure for renewal of the new lease and so the entire amount was taxable. On the other hand, Mr. K. N. Jain has submitted that 60% of the kyanite profit from February 1, 1955, to August 31, 1961, was allowable as deduction for the assessment year 1962-63 as the previous year for 1962-63 was 1961 in which calendar year the Compromise was entered into. Mr. K. N. Jain has submitted that the new lease was executed on September 1, 1961, and so the payment relating to the past business carried on by the assessee cannot be said to be for acquisition of the lease. It was also submitted that the assessee follows mercantile system of accounting as has been admitted by the Income-tax Officer at page 1 of the paper book in Taxation Cases Nos. 185 and 186 of 1971 and as the compromise was entered into on October 4, 1961 in the calendar year 1961, the assessee incurred liability for the period from February 1, 1955, to August 31, 1961, during the calendar year 1961, and so the claim was allowable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for payment of kyanite profits for the period February 1, 1955, to August 31, 1961, to the extent of 60% was for the purpose of acquiring the lease. Under such circumstances, the order of the Tribunal has to be upheld. In view of my above findings, I hold that the amount representing 60% of the kyanite profits for the period February 1, 1955, to August 31, 1961, due under the compromise decree was allowable as deduction in ascertaining the assessee's profits for the assessment year 1962-63. Question No. 1 is, therefore, answered in favour of the assessee and against the Revenue. In Taxation Cases Nos. 185 and 186 of 1971, only two questions were referred which have been disposed of. Now let us take up Taxation Cases Nos. 205 and 206 of 1971. Question No. 1 relates to the amount of Rs. 1,26,522 and Rs. 1,10,489, in respect of the estimated liability for mining lease, rent and royalty. The Income-tax Officer has dealt with this matter at pages 6 and 7 of the paper book. He has pointed out that a provision was made for additional royalty reserve for the year 1959 amounting to Rs. 1,26,522. This liability was being disputed by the assessee but provision was still made. He h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner, the Appellate Assistant Commissioner considered grounds Nos. 23 and 24 at page 41 of the paper book. He has also mentioned that these grounds are against the disallowance of the provision for additional copper royalty for 1959 and 1961. He, for the reasons discussed in his order for 1958-59 and for further reasons stated in his order for 1961-62, held that the disallowance was not justified. He, therefore, deleted the additions of Rs. 1,26,522 and Rs. 1,10,489. The Appellate Assistant Commissioner in the assessment year 1958-59, vide annexure B-1, at pages 59-60 of the paper book, has pointed out that ground No. 6 relates to the addition of the estimated liability in respect of the mining lease and royalty relating to the years 1952, 1953, 1954 and 1955. He has also pointed out that the assessee had been writing back to the profit of each year estimated liability relating to the 7th year preceding the year as the enforcement of the liability for such year became barred by limitation. This procedure had also been recognised by the Income-tax Officer in the subsequent years. The Appellate Assistant Commissioner also pointed out that the assessee had already written ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts are more or less uniformly taxed in one year or the other. The Tribunal, therefore, confirmed the deletion made by the Appellate Assistant Commissioner. As the Tribunal has referred to its order for the assessment year 1958-59, we have to look to the order of the Tribunal for the assessment year 1958-59, which is annexure D. The Tribunal has discussed this issue at pages 130 to 132 in paragraphs 48 to 52. The Tribunal has pointed out that since 1941, the assessee was providing in its books some estimated liability to cover the royalty payable as there was dispute between the lessor and the lessee about the method of computation of royalty. The Tribunal also found that as on December 31, 1961, the provision since 1941 totalling to Rs. 2,05,806-12-0 the yearly provision which added up to this figure is given in the letter of the assessee's business manager to the Income-tax Officer. It appears that those provisions are based on a formula adopted by a representative of the Ruler in a draft report about the royalties computation made in 1945 after looking into accrual for 1941 to 1943. The Tribunal's order also shows that the Income-tax Officer in the assessment year 1952-53, as ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. Mr. K. N. Jain referred to the provision of section 145 of the Act which lays down that income chargeable under the head " Profits and gains of business or profession " or " Income from other sources " shall be computed in accordance with the method of accounting regularly employed by the assessee. On this basis, he submitted that the assessee was following this method of accounting Since long which was also accepted by the Department and so there should not be any disturbance in this method of accounting. Mr. K. N. Jain has fairly conceded before us that after the lease deed was executed on October 4, 1961, for the calendar year 1961, the assessee cannot follow this method of accounting as the amount of royalty is now ascertained and fixed and so there will be no question of estimated liability. However, he has submitted that the method followed in the past of adding the income after expiry of six years has to be followed as regards the calendar years 1959 and 1960. For this purpose, he has relied on the case of Balapur Vibhag Jungle Kamdar Mandali Limited v. CIT [1982] 135 ITR 91 (Guj) which clearly shows that the Income-tax Officer has to act according to the settled acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Income-tax Officer at page 6 of the paper book in Taxation Cases Nos. 205 and 206 of 1971, has pointed out in the heading portion that he is dealing with the additional provision for copper royalty for the year 1950. He has pointed out that it is found that during the year under review, the assessee has debited a sum of Rs. 2,80,000 as royalty in the profit and loss account for the year 1961 whereas the assessee has actually paid a sum of Rs. 1,69,511 as royalty for the year under review. He has also pointed out that the assessee made a provision for the sum of Rs. 1,10,489 and that since 1941, the assessee is making a provision for copper royalty, according to the settlement terms or their lease, as computed by the lessor on the basis of 5% copper profits, but the assessee is paying the royalty according to its own basis. He also found that the excess provisions made in the earlier years were later on added back to the profit as the assessee was not required to pay the excess provision ultimately. On this basis, he held that there is no reason why the excess provision for royalty should be made in this year also. He, therefore, added back the excess provision for copper mini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the matters in view of the directions given above. The next question relates to the internal development expenses. Question No. 2 in Taxation Cases Nos. 205 and 206 of 1971 raises the question whether the claim of Rs. 14,43,524 in respect of internal development is a revenue expenditure. Question No. 1 in Taxation Cases Nos. 57 and 58 of 1972 is a similar question and is to the effect as to whether the Tribunal was justified in holding that the expenditure of Rs. 15,18,230 spent on account of internal development expenses is revenue expenditure. Thus, both the cases raise a question whether the internal development expenses are revenue expenditure or not. Let us first take up Taxation Cases Nos. 205 and 206 of 1971. The Income-tax Officer has discussed the internal development expenses at pages 17 to 20 in paragraph 11. The Income-tax Officer has pointed out that on a scrutiny of accounts, it was found that the assessee had debited a sum of Rs. 14,43,524 under the head " Development expenditure written off ". He had also pointed out that these mining development expenses were incurred for three mines, namely, Mosaboni, Badia and Surda for Rs. 9,05,659, Rs. 57,288 and Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stuff worked into a marketable commodity and naturally the money paid for the prime cost of the stuff so dealt with is capital as the money sunk in a machinery or in a plant. He also took the view that by making development and by incurring expenditure, the assessee will have some enduring benefits. The Income-tax Officer, therefore, held that the expenditure of Rs. 14,43,524 is a capital expenditure and he disallowed the claim of the assessee that it was revenue expenditure. The assessee appealed before the Appellate Assistant Commissioner. Unfortunately, the aforesaid matter has not been discussed anywhere in the order of the Appellate Assistant Commissioner for the assessment year 1962-63. At pages 39 and 40, different matters have been discussed while discussing grounds Nos. 16 and 17. It appears that in the copy of the judgment, a portion relating to the amount of Rs. 14,43,524 has been left out. The Tribunal's order for the assessment year 1962-63 is annexure C. The Tribunal has discussed at page 80 in paragraph 18, the details of internal development expenses amounting to Rs. 14,43,524. The Tribunal relied for holding it as revenue expenditure on its decision in the ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different types of work and tunnelling expenses were classed as internal development and given appropriate job numbers only after the work of delineating or defining the ore-body had been done. The Tribunal looked into the accounts along with the representatives of the parties also and saw the job number work-book of internal development which is classed in the job-book under reserve work and has been assigned separate job numbers. The Tribunal has pointed out that the analysis of this expenditure into further sub-head could also be had from the ledger, etc. The Tribunal also found that the expenditure is classified as " internal development " or otherwise, on the basis of job numbers allotted at the time the work is carried on and not on the basis of any subsequent adjustment by way of journal entries. The Tribunal also ascertained during the inspection whether tunnels can in appropriate contingencies be considered as part of shaft, and that the shaft is a vertical tunnel or tunnel at an incline and that at different levels, some extent of tunnelling horizontally to provide inlet and outlet into the shaft, as also to provide space to operational shaft to work the lift for givin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnal development expenses as capital in view of the assessment for the assessment year 1962-63. He, therefore, held that it cannot be allowed as revenue expenditure. The Appellate Assistant Commissioner at pages 17 and 18 in paragraph 8 considered this amount of Rs. 15,18,239 relating to the internal development expenses. The Appellate Assistant Commissioner pointed out that the Appellate Assistant Commissioner in the assessment years 1961-92 and 1962-63 treated the expenditure as revenue expenditure by order dated June 7, 1966. Following those decisions, the Appellate Assistant Commissioner held that the amount of Rs. 15,18,239 was revenue expenditure and should not have been disallowed. This clearly goes to show that in the assessment year 1962-63, the Appellate Assistant Commissioner had passed his order relating to the amount of Rs. 14,43,524 but that portion has been omitted while furnishing the copy of the order. The Tribunal also considered it at pages 28 and 29 in paragraph 10. The Tribunal has pointed out that although the amount of Rs. 15,18,239 relating to internal development expenses was treated as capital by the Income-tax Officer, the same was allowed by the Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (H. M. Inspector of Taxes) v. British Burmah Petroleum Co. Ltd., [1932].17 TC 286 (KB). In this case, the respondent company which carried on the business of oil producing and refining had for many years bought oil from an Indian oil company. By an agreement in 1928, the oil company agreed to sell to the respondent company (a) its plant, equipment, casing, tanks, pipelines, etc., and (b) all oil won on and after October 1, 1928, from its existing wells. The expressed consideration for the unwon oil was 70,000 which was stated to have been calculated by reference to the estimated production of the wells. The consideration was satisfied by the issue to the oil company of shares in the respondent company. A sum of pounds 70,000 was placed to crude oil suspense account in the books of the respondent company to represent the oil purchased, and, as oil was produced, a sum equal to two rupees per barrel was transferred from that account to the company's revenue account to represent the actual purchase of oil and at July 31, 1929, pounds 19,826 had been so transferred. The respondent company contended that in principle the sum of pounds 70,000 was an admissible deduction in computing it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Supreme Court. In this case, the question was whether the amount spent by the respondent, which carried on the business of coal mining, for stowing operations was allowable as business expenditure. The Tribunal found as a fact that stowing was an operation carried out in the process of extraction of coal and unless it was carried out, extraction of coal was not possible irrespective of whether depillaring had been done or not, and, in those circumstances, their Lordships of the Supreme Court held that the expenditure incurred by the respondent in stowing operations was a revenue expenditure allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. In this decision, their Lordships of the Supreme Court have also clearly pointed out that whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on consideration of all the facts and circumstances, and by the application of principles of commercial trading and that the question must be viewed in the larger context of business necessity or expediency. It has also been observed in this decision that if the outgoing or expenditure is so related t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Officer found that it is not possible to verify correctly the profit earned by the assessee company by export of kyanite ex-India as no separate books of account are maintained for this particular item. The Income-tax Officer found that on a total turnover of Rs. 4,67,99,947, the assessee has shown a net profit of Rs. 1,62,95,507 before charging depreciation and development rebate. The Income-tax Officer found that both the sale proceeds and the net profit includes sales and profits of kyanite. He has also pointed out that the assessee on total sale of kyanite amounting to Rs. 88,16,196 has shown net profit amounting to Rs. 45,54,354 out of which Rs. 41,16,471 has been shown as profit on account of export ex-India on sales of Rs. 62,03,214 and the balance of Rs. 4,47,883 has been shown as profit on account of sales in India. The Income-tax Officer calculated that the average profit on sale of kyanite comes to 67% while the overall profit comes roughly to 35%. The Income-tax Officer took the view that when no separate books of accounts are maintained by the assessee, it is not possible to determine the actual qualifying income on which rebate under section 2(5) of the Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which income-tax and super-tax are not payable. The Tribunal took the view that the fraction is to be determined by taking a proportion of the value of such export turnover to the total turnover. The Tribunal has also pointed out that in the present case, the Income-tax Officer computed the proportionate profits on export at Rs. 2,28,000 based on the ratio of the turnover of the exported items to the total turnover, and the assessee disputed the computation as made by the Income-tax Officer before the Appellate Assistant Commissioner, but the AAC did not accept the contention of the assessee. According to the assessee before the Tribunal, the whole business of which such exports form a part, should be taken as comprehending only kyanite business as such. According to the assessee, kyanite profits are being separately computed for the purpose of assessment and it is unreasonable to take the entire turnover as such. The departmental representative submitted before the Tribunal that there are no separate books for the kyanite activity and that the only course open to the Income-tax Officer was to take the whole turnover and compare it with the kyanite export turnover and arrive at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, re-frame question No. 3 as follows: " 3. Whether, on the facts and in the circumstances of the case, the assessee is entitled to export profit rebate in respect of the kyanite business for the assessment year 1962-63 in the manner as computed by the Income-tax Officer or in the manner as computed by the Tribunal ?" Mr. B. P. Rajgarhia has supported the order of the Income-tax Officer whereas Mr. K. N. Jain has supported the order of the Tribunal. It appears that before the Tribunal, the assessee's only contention was that the whole business of which such exports form a part should be taken as comprehending only kyanite business as such, and according to the assessee, the kyanite profits are being separately computed for the purposes of assessment and it is unreasonable to take the entire turnover as such, and that the departmental representative argued before the Tribunal that there are no separate books for the kyanite activities and that the only course open to the Income-tax Officer was to take the whole turnover and compare it with the kyanite export turnover and arrive at the proportion accordingly. The Tribunal has held that the case should be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment rebate. The Tribunal has taken the view at pages 95 to 97 of the paper book of Taxation Cases Nos. 205 and 206 of 1971 that the total sales under rule 2(3) of the Rules relate only to the total export sales and not total sales relating to other commodities as well. The Tribunal has clearly pointed out that the total sales of kyanite business and the profit relating to the total sales of kyanite business, total export sales and the total profit on export sales of kyanite business have only to be considered for application of rule 2(3) of the Rules. The Tribunal directed the Income-tax Officer to go into computation on the basis of its line of reasoning. I, therefore, hold that the Tribunal has given correct basis and that the Income-tax Officer was not justified in computing the export profit rebate in the manner as computed by him and that the computation should be in the manner as computed by the Tribunal. Question No. 3 as reframed is accordingly answered in favour of the assessee and against the Department. In view of my discussions above, both the questions referred in Taxation Cases Nos. 185 and 186 of 1971 are answered in favour of the assessee and against the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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