M/S Prism Dyes & Intermediates P Ltd, Baroda V. The Jt Cit, Baroda

ITA 1696/AHD/2002

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6516 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-04-2010
• Assessment Year: 1996-1997
• Appeal Filed On: 21-05-2002
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C
• Assessee Lawyers: SAKAR SHARMAAR
• Keywords: Business income; Depreciation
• Section: 40A(3); 80HHC; 143(1); 143(2); 192; 32; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE SHRI MUKUL SHRAWAT,JM AND SHRI A N PAHUJA,A M] ITA NO.1696/AHD/2002 (ASSESSMENT YEAR:-1996-97) PRISM DYES & INTERMEDIATES PVT. LTD., C/O SHRI CHANDRAKANTBHAI N PATEL, TB/5, VRUNDAVAN ESTATE, PASHABHAI PARK, RACE COURSE, BARODA-390007 [PAN: 31-616-CQ-5197] V/S THE JOINT COMMISSIONER OF INCOME-TAX, SPECIAL RANGE- 2, AAAYAKAR BHAVAN ,RACE COURSE CIRCLE, BARODA [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI SAKAR SHARMA,AR REVENUE BY:- SHRI M C PANDIT, DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 7-03-2002 OF THE LD. CIT(APPEALS)-III, BARODA, RAISING SEVEN G ROUNDS OF APPEAL, WAS EARLIER DISMISSED VIDE ORDER DATED 5.9.2006.SUBSEQUENTLY, T HE SAID ORDER DATED 5.9.2006 WAS RECALLED VIDE ORDER DATED 12.2.2010 IN MA NO.13 2 OF 2009. ACCORDINGLY, THE APPEAL WAS SCHEDULED FOR THE HEARING ON 27.4.2010. 2. AT THE OUTSET, THE LD. AR DID NOT PRESS GROUND N O.3 IN THE APPEAL. THEREFORE, THIS GROUND IS DISMISSED. 3. GROUND NOS.1 AND 2 IN THIS APPEAL READ AS UNDER :- 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) III, BARODA ERRED IN NOT ALLOWING PAYMENTS MADE TO THE TRANSPOR TERS, BY STATING THAT THE TRANSPORT COMPANY DO ACCEPT CHEQUE AND HEN CE CASH PAYMENT SHOULD NOT BE MADE. HE FAILED TO APPRECIATE THAT THE TRANSPORT COMPANY WAS NOT FROM VAPI WHERE THE COMPA NYS MANUFACTURING UNIT IS LOCATED BUT IT WAS FROM CHAND IGARH. THE DRIVER REFUSED TO ACCEPT THE CHEQUE AND ALSO REFUSED TO UN LOAD THE GOODS WITHOUT GETTING PAYMENT AND HENCE THE PAYMENT OF RS .10,250/- MADE TO THE DRIVER OF GREENLINE TRANSPORT, IN CASE IS OUT OF COMPULSION AND SHOULD NOT HAVE BEEN DISALLOWED U/S 40A(3). ITA NO.1696/AHD/2002 2 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ALSO FAILED TO APPRECIATE THAT PAYMENT MADE TO NATIONAL INSURANCE COMPANY ON THE LAST DAY TO COVER THE SHORTFALL IN THE INSURANC E COVERAGE WAS ALSO OUT OF COMPULSION. THE INSURANCE COVER STARTS ONLY WHEN THE CHEQUE GET CLEARED WHICH IN THIS PARTICULAR CASE WO ULD HAVE BEEN FROM THE DATE NEXT TO THE DATE OF SHIPMENT THAT COU LD HAVE DEFEATED THE PURPOSE OF THE INSURANCE AND WOULD HAVE BEEN MA DE THE ENTIRE INSURANCE POLICY TECHNICALLY DEFECTIVE AND HENCE CA SH PAYMENT WAS REQUIRED TO BE MADE FOR WHICH STAMP RECEIPT AS WELL AS POLICY ALSO IS ISSUED STATING THE FACT ABOUT CASH RECEIPT. 3.1 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS. 5,65,000/- FILED ON 26.11.1 996 BY THE ASSESSEE, MANUFACTURING DIES AND INTERMEDIATES, AFT ER BEING PROCESSED ON 6.1.1997 U/S 143(1) OF THE INCOME-TAX ACT,1961[HEREINAFTER REFERRED TO AS THE ACT] WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 14.10.1997. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE MADE FOLLOWING CASH PAYMENTS EXCEEDING RS.10,000/- EACH IN VIOLATION OF THE PROVISIONS OF SECTION 40A( 3) OF THE ACT:- (1)ON ACCOUNT OF FREIGHT PAYMENT AS ON 30-6-95 RS.10,250/- (2)ON ACCOUNT OF INSURANCE PAYMENT AS ON 23-12-95 R S.12,385/- IN RESPONSE TO A SHOWCAUSE NOTICE BY THE AO AS TO W HY 20% OF THE AFORESAID CASH PAYMENTS BE NOT DISALLOWED AS PER TH E AMENDED PROVISIONS OF SEC. 40A(3) OF THE ACT READ WITH RULE 6DD OF THE IT RULES,1962, THE ASSESSEES COUNSEL DULY CONCEDED T HE SAME AND DID NOT OFFER ANY PLAUSIBLE EXPLANATION IN THIS R EGARD. ACCORDINGLY, THE AO DISALLOWED 20 % OF THE AFORESAID AMOUNT PAI D IN CASH. 4. ON APPEAL . THE LD. CIT(A) MAINTAINED IN THE DIS ALLOWANCE IN RESPECT OF AFORESAID TWO AMOUNTS IN THE FOLLOWING T ERMS: 3.1 BEFORE ME, IT WAS SUBMITTED THAT THE FIRST PAY MENT OF RS.10,250/- WAS MADE TO GREENLINE TRANSPORT WHO HAD BROUGHT MAT ERIAL FROM CHANDIGARH TO VAPI AT NIGHT AND THE DRIVER REFUSED TO DELIVER THE MATERIAL UNLESS THE TRANSPORT CHARGES ARE PAID. SIMILARLY, I NSURANCE PREMIUM PAYMENT OF RS.12,385/- WAS MADE TO GET IMMEDIATE CO VER FOR ONE ITA NO.1696/AHD/2002 3 SHIPMENT AND THE AMOUNT WAS PAID TO NATIONALIZED IN SURANCE COMPANY ONLY. THIRD PAYMENT OF RS.12,400/- WAS MADE TO HOTE L SAGAR AT DAMAN, WHO REFUSED TO ACCEPT THE CHEQUE OR PAYMENT BY CARD AND THE VISITING OFFICERS FROM FINANCIAL INSTITUTIONS WHO HAD COME F OR INSPECTION WERE NOT ALLOWED TO LEAVE THE HOTEL PREMISES TILL THE PAYMEN TS WERE MADE. IT WAS CONTENDED THAT THE PAYMENTS WERE MADE OUT OF COMPUL SION AND GENUINE BUSINESS REQUIREMENTS WHERE PARTIES ARE IDENTIFIABL E AND AS SUCH THE SAME SHOULD BE CONSIDERED AS EXCEPTION TO SECTION 4 0A(3). 3.2 THE FACTS OF THE CASE AND SUBMISSIONS OF THE AP PELLANTS COUNSEL ARE CONSIDERED. THE PAYMENT FOR TRANSPORT IS MADE T O THE TRANSPORT COMPANY AND NOT TO THE DRIVER AND THE TRANSPORTER U SUALLY ACCEPTS CHEQUE. SIMILARLY, THE INSURANCE COMPANY ACCEPTS CHEQUE AND THERE IS NO MATERIAL BROUGHT ON RECORD TO SHOW THE NEED FOR MAKING CASH PAYMENT TO MEET IMMEDIATE COVER OF A SHIPMENT. HENCE, THE EXPLANATI ON IN RESPECT OF THESE TWO PAYMENTS ARE NOT SATISFACTORY. WITH REGARD TO T HIRD PAYMENT, THE APPELLANTS CONTENTION CAN BE CONSIDERED AS CORRECT AS THE HOTELS GENERALLY INSISTS ON CASH PAYMENT UNLESS THE PERSON IS WELL K NOWN TO THE MANAGEMENT OF THE HOTEL. IN VIEW OF THE ABOVE, ONLY THE PAYMENT OF RS.12,400/- CAN BE CONSIDERED FOR THE GENUINE NEED OF THE APPELLANT FOR MAKING CASH PAYMENT BUT OTHER TWO PAYMENTS WOULD BE COVERED BY THE PROVISIONS OF SECTION 40A(3) AND HENCE THE DISALLOW ANCE IS RESTRICTED TO RS.4,527/-. 5. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED AR ON BEHAL F OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE CIT(A). TO A QUERY BY THE BENCH, THE LD. AR COULD NOT POINT OUT ANY CLAUSE IN RULE 6DD UNDER WHICH THE AFORESAID PAYMENTS WERE EXCEPTED. THE LEA RNED DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE LD. CIT( A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT(A) IN THE IMPUGNED ORDER CONCLUDED THAT THE PAYMENT FOR TRANSPORT WAS MADE TO THE TRANSPORT COMPANY AND NOT TO THE DRIVER AND THE TRANSPORTER U SUALLY ACCEPTED CHEQUE. SIMILARLY, THE INSURANCE COMPANY ACCEPT CHEQUE AND THERE WAS NO MATERIAL BROUGHT ON RECORD TO SHOW THE NEED FOR MAKING CASH PAYMENT TO MEET IMMEDIATE COVER OF A SHIPMENT . THE LD. AR DID NOT PLACE ANY MATERIAL BEFORE US ,CONTROVERTING THESE FINDINGS OF FACTS RECORDED BY THE LD. CIT(A) NOR COULD BRING OUT THEIR CASE WITHIN ANY OF THE CLAUSES IN RULE 6D D OF THE IT RULES, 1962. IN ITA NO.1696/AHD/2002 4 THESE CIRCUMSTANCES, ESPECIALLY WHEN THERE IS NO MA TERIAL BEFORE US FOR TAKING A DIFFERENT VIEW IN THE MATTER, WE DO NOT FIND ANY IN FIRMITY AND ILLEGALITY IN THE ORDER OF THE CIT(A). WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD. THUS, GROUND NOS.1 AND 2 OF THE APPEAL ARE DISMISSED. 7. GROUND NOS.4, 5 AND 6 IN THE APPEAL READ AS UND ER:- 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN ALLOWING 100% DEPRECIATION ONLY ON PLANT AND EQUIPM ENT INSTALLED DURING THE CURRENT YEAR AND THAT ALSO AFTER BIFURCA TING BETWEEN CIVIL CONSTRUCTION AND THE EQUIPMENT AND APPLYING THE RAT E OF ONLY 5% IN THE CASE OF CIVIL CONSTRUCTION. THE LEARNED COMMISS IONER OF INCOME-TAX (APPEALS) ALSO ERRED IN NOT ALLOWING 100 % DEPRECIATION ON WRITTEN DOWN OPENING BALANCE WITHOUT HAVING ANY LEGAL BACKGROUND BUT ONLY ADHERING TO THE PRINCIPLE OF PR ECEDENT. IT HAS BEEN NOW VERY WELL ESTABLISHED BY AMENDMENT OF INCO ME TAX ITSELF FROM ASSESSMENT YEAR 2001-02 EVEN WHEN THE ASSESSEE IS NOT CLAIMING ANY DEPRECIATION IN HIS INCOME, THE INCOME TAX DEPARTMENT SHOULD CALCULATE AS PER THE INCOME TAX R ULES AND THE SAME SHOULD BE ALLOWED TO THE ASSESSEE. THE SAME RA TIO HAS NOT BEEN APPLIED BY THE COMMISSIONER (APPEALS) IN OUR C ASE BY ARTIFICIALLY BIFURCATING DIFFERENT DEPRECIATION RAT E TO BE APPLIED ON WRITTEN DOWN VALUE AS WELL AS ADDITIONS DURING THE YEAR. 5 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT CONSIDERING THE CIVIL CONSTRUCTION AS PART & PARCEL OF AND COMPULSORY REQUIREMENT OF EFFLUENT TREATMENT PLANT. IT SHOULD BE APPRECIATED THAT ANY EFFLUENT TREATMENT PLANT, WILL REQUIRE CIVIL CO NSTRUCTION FOR SHORTAGE OF EFFLUENT AND FOR TREATMENT WHICH WILL R EQUIRE TANK FARM TO BE CREATED. IT SHOULD BE ALSO APPRECIATED THAT EFFL UENTS ARE HIGHLY CORROSIVE WHICH WILL REQUIRE REGULAR MAINTENANCE IN CIVIL CONSTRUCTION ALSO. 6. WITHOUT PREJUDICE TO WHAT HAS BEEN STATED ABOVE, WE ARE AGGRIEVED BY THE DIRECTIONS AS GIVEN BY THE LEARNED COMMISSIO NER OF INCOME- TAX (APPEALS) TO ALLOW DEPRECIATION @ 5% ON BUILDIN G WHICH IS INCORRECT. CONSIDERING THE SAME TO BE PART AND PARC EL OF THE FACTORY PREMISES, THE SAME SHOULD BE ALLOWED @ 10%. WE ONCE AGAIN REITERATE THAT THE SAID CIVIL CONSTRUCTION IS IN TH E NATURE OF TANK FARM AND NOT IN A BUILDING. 7.1 THE AO NOTICED THAT DURING THE COURSE OF ASSESS MENT PROCEEDINGS THAT THE ASSESSEE CLAIMED 100% DEPRECIA TION IN RESPECT ITA NO.1696/AHD/2002 5 OF EFFLUENT TREATMENT PLANT INSTEAD OF 25% CLAIMED AS PER THE DEPRECIATION CHART FURNISHED ALONG WITH THE RETURN OF INCOME. SINCE THE ASSESSEE WAS CONSISTENTLY BEING ALLOWED DEPRECI ATION ONLY AT THE RATE OF 25% IN THE PRECEDING YEARS AND THE EFFLUENT TREATMENT PLANT CONSISTED OF CIVIL WORK I.E. BUILDING AS WELL AS TH E RELATED EQUIPMENTS, THE AO, THEREFORE, ALLOWED DEPRECIATION @ 25%. 8. ON APPEAL, THE LD. CIT(A) DEALT WITH THIS ISSUE AS UNDER:- 5.1 THE APPELLANTS COUNSEL SUBMITTED BEFORE ME TH AT AS PER SECTION 32 OF THE IT ACT READ WITH APPENDIX I TO THE INCOME-TA X RULES, THE EFFLUENT TREATMENT PLANT IS ENTITLED FOR DEPRECIATION @ 100% EFFECTIVE FROM 1.4.94 (ITEM III(2)(V) AND THE APPELLANT IS ENTITLED TO DE PRECIATION AT THIS RATE REGARDLESS OF THE FACT THAT THE APPELLANT CLAIMED T HE SAME AT LOWER RATE IN THE PAST. IT WAS ALSO CONTENDED THAT THE ASSESSING OFFICER HAS NOT CHALLENGED THE NATURE OF THE ASSETS. HE HAS SIMPLY RESTRICTED THE DEPRECIATION TO THE RATE OF 25% BECAUSE OF THE PAST RECORD OF THE APPELLANT. BUT AS THE DEPRECIATION IS ALLOWABLE @ 100%, IT HAS TO BE ALLOWED AT THAT RATE REGARDLESS OF THE PAST RECORD. IT WAS ALSO SUB MITTED THAT THE BUILDING HAS TO BE CONSIDERED AS PLANT AND IN THIS CASE EFFL UENT PLANT AS HELD IN THE CASE OF DR. B VENKAT RAO (202 ITR 203) KARNATAKA; W HEREIN THE BUILDING HOUSING NURSING HOME OF A DOCTOR WAS CONSIDERED AS A PLANT-AND NOT AN ORDINARY BUILDING. IT WAS CONTENDED THAT THE APPELL ANT BE ALLOWED DEPRECIATION @ 100%. 5.2. THE WRITTEN SUBMISSION IN THIS REGARD WAS FORW ARDED TO THE ASSESSING OFFICER WHO COMMENTED AS BELOW ON THIS ISSUE. 'THE ASSESSEE HAS CLAIMED DEPRECIATION @ 25% ON EFF LUENT TREATMENT PLANT AT RS.6,21,213/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, VIDE ITS SUBMISSIONS, THE ASSESSEE REQ UESTED TO GRANT DEPRECIATION @ 100% AS AGAINST 25% CLAIMED IN ITS D EPRECIATION CHART FILED ALONGWITH THE RETURN OF INCOME. THE ASS ESSING OFFICER REJECTED THE ASSESSEE'S SUBMISSION STATING THAT IT HAS BEEN ALLOWED .DEPRECIATION CONSISTENTLY AT 25% IN THE IMMEDIATEL Y PRECEDING ASSESSMENT YEARS. AS PET-DEPRECIATION APPLICABLE FR OM A.Y. 1988- 89 ONWARDS, THE ASSESSEE IS ELIGIBLE FOR 100% DEPRE CIATION ON THE SAID EFFLUENT TREATMENT PLANT. SINCE THE ASSESSEE I TSELF HAS CLAIMED DEPRECIATION @ 25% ' FOR THE YEAR UNDER CONSIDERATI ON IN ITS DEPRECIATION CHART FILED ALONGWITH THE RETURN OF IN COME AND FURTHER IN THE IMMEDIATELY PRECEEDING A.YS. ALSO, THE SAME WAS CLAIMED AND ALLOWED AT 25% AND THEREFORE, THE ASSESSEE'S CLAIM OF GRANTING 100% DEPRECIATION ON E.T.P. BY WAY OF ITS SUBMISSIO NS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS IS NOT FOUND T O BE TENABLE. IT IS ALSO NOT KNOWN WHAT MOTIVE BEHIND THE ASSESSEE T O CLAIM THE ITA NO.1696/AHD/2002 6 DEPRECIATION @ 25% FOR THE CURRENT YEAR AS WELL AS IMMEDIATELY PRECEDING ASSESSMENT YEARS ALTHOUGH IT IS ELIGIBLE FOR 100% DEPRECIATION ON E.T.P. WITHOUT PREJUDICE TO THE ABOVE, I HAVE TO SUBMIT HE RE THAT THE ASSESSEE BE ALLOWED DEPRECIATION @ 25% ON CARRY FORWARD AMOUNT OF RS.11,67,543/- BECAUSE OF THE FACT THAT IT HAS BEEN CLAIMED AND AL LOWED DEPRECIATION @ 25% IN THE IMMEDIATELY PRECEEDING A.YS. AND ACCEPTE D BY THE ASSESSEE ALSO, AND DEPRECIATION @ 100% BE ALLOWED ON THE ADD ITION MADE OF RS.16,53,961 (I.E. ADDITION BEFORE SEPTEMBER RS.9,8 0,656 + ADDITION AFTER SEPTEMBER RS.6,73,305/-) .' 5.3. THE FACTS OF THE CASE, SUBMISSIONS OF THE APPE LLANT'S COUNSEL AND THE REPORT OF THE ASSESSING OFFICER ARE CONSIDERED. AS PER THE APPENDIX I TO THE INCOME-TAX RULE GIVING THE RATES OF DEPRECIATIO N ON VARIOUS ITEMS, IT IS SEEN THAT THE APPELLANT IS ENTITLED TO DEPRECIATION @ 100% ON WATER POLLUTION CONTROL EQUIPMENTS (EFFLUENT TREATMENT PL ANT IN THE APPELLANT'S CASE) W.E.F. 1.4.94 I.E. A.Y.95-96. BUT THE APPELLA NT HAS BEEN CLAIMING DEPRECIATION ON THIS EQUIPMENT 8 25% EARLIER AND EV EN DURING THIS YEAR IN THE RETURN AND THE ASSESSING OFFICER ALLOWED DEPREC IATION AT THAT RATE. IN THIS YEAR, THE APPELLANT HOWEVER, CONTENDED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT IT IS ENTITLED TO DEPRECIATION @ 100% IN RESPECT OF ASSETS UNDER CONS IDERATION, WHICH WAS REJECTED BY THE ASSESSING OFFICER MAINLY ON THE GRO UND THAT THE APPELLANT HAS BEEN ALLOWED DEPRECIATION @ 25% IN THE PAST. TH IS STAND OF THE ASSESSING OFFICER DOES NOT APPEAR TO BE CORRECT AS THE ASSESSING OFFICER IS EXPECTED TO ALLOW DEPRECIATION AT THE RATE PRESC RIBED IN THE RULES EVEN IF THE APPELLANT, HAS CLAIMED FOR LESSER RATE OF DEPRE CIATION. THIS WOULD BE TRUE IN RESPECT OF THE ASSETS ACQUIRED DURING THIS YEAR AS IN RESPECT OF THE ASSETS ACQUIRED IN EARLIER YEARS, THE SAME HAD ALRE ADY BEEN SUBJECTED TO DEPRECIATION @ 25% AS CLAIMED BY THE APPELLANT. THE REFORE, THE ASSESSING OFFICER WOULD ALLOW DEPRECIATION IN RESPECT OF THE ASSETS ACQUIRED DURING THE YEAR @ 100% TAKING INTO ACCOUNT THE DATE OF INS TALLATION AND PERIOD OF USE AND CONTINUE TO GIVE DEPRECIATION @ 25% IN RESP ECT OF ASSETS ACQUIRED EARLIER SUBJECT TO THE FOLLOWING OBSERVATI ONS. IT IS SEEN THAT THE APPELLANT HAS CLAIMED DEPRECIAT ION @ 100% IN RESPECT OF THE PLANTS AS WELL AS BUILDING WHERE THE PLANT I S LOCATED. THIS IS NOT CORRECT AS THE BUILDING CANNOT BE CONSIDERED AS PLA NT & MACHINERY AS HELD BY THE SUPREME COURT IN THE CASE OF ANAND THEATRES (244 ITR 192) AND DR. B VENKAT RAO (243 ITR 81). (IN BOTH THE CASES T HE DECISIONS OF KARNATAKA HIGH COURT HAVE BEEN REVERSED). THE APPEL LANT HAS FURNISHED BEFORE ME THE CHART OF THE ADDITION MADE TO THE BUI LDING AND PLANT AND EQUIPMENT DURING THIS YEAR ACCORDING TO WHICH, ADDI TION TO THE BUILDING IS OF RS.1,74,493/- AND TO THE PLANT AND EQUIPMENT OF RS. 14,79,467/- TOTALING TO RS.16,53,961/-. THE APPELLANT WILL GET DEPRECIATION @ 100% ONLY ON RS.14,79,467/- SUBJECT TO THE PERIOD OF USE AND ON THE BUILDING @ 5%. THE AO WILL RECALCULATE THE AMOUNT OF DEPRECIATION KEEP ING IN MIND THE OBSERVATIONS MADE ABOVE. ITA NO.1696/AHD/2002 7 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LD. CIT(A) WHILE THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE L D. CIT(A).TO A QUERY BY THE BENCH, THE LD. AR ON BEHALF OF THE ASS ESSEE DID NOT INITIALLY PRESS GROUND NO.5 IN THE APPEAL WHILE CON TENDING THAT THE LD. CIT(A) SHOULD HAVE ALLOWED DEPRECIATION @100% O N WDV OF EFFLUENT TREATMENT PLANT. 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE ISSUE BEFORE US IS AS TO WHETHER DE PRECIATION @ 100% CAN BE ALLOWED ON WDV OF THE EFFLUENT TREATMEN T PLANT EVEN WHEN IN THE PRECEDING ASSESSMENT YEARS, THE ASSESSE E ITSELF CLAIMED DEPRECIATION @25% AND WHETHER THE CIVIL C ONSTRUCTION FOR EFFLUENT TREATMENT PLANT CAN BE CATEGORIZED AS PLA NT FOR THE PURPOSE OF DEPRECIATION UNDER SEC.32 OF THE ACT. A BARE PER USAL OF PROVISIONS OF SEC. 32 OF THE ACT REVEAL THAT THE SCHEME OF SE CTION 32 IS TO PROVIDE DIFFERENT RATES OF DEPRECIATION FOR BUILDING, MACHI NERY, PLANT OR FURNITURE, SHIPS, BUILDINGS USED FOR HOTELS, AEROPLANES AND OTHER ITE MS MENTIONED THEREIN . THE RATES ARE PRESCRIBED UNDER THE INCOME-TAX RULES. IN TERMS OF THE RULES, DIFFERENT RATES OF DEPRECIATION ARE PROVIDED FOR BUILDINGS US ED FOR RESIDENTIAL ACCOMMODATION AND PREMISES USED FOR OTHER PURPOSES AND FOR HOTELS. WHETHER OR NOT THE BUILDING STRUCTURE CONSTRUCTED FOR EFFL UENT TREATMENT PLANT CAN BE CATEGORISED AS A PLANT , IN THIS CONNECTION WE MAY REFER TO A DECISION OF THE HONBLE DELHI HIGH COURT IN R. C. CHEMICAL INDUSTR IES V. CIT [1982] 134 ITR 330 WHEREIN FOLLOWING PRINCIPLES HAVE BEEN LAID DOWN (AT PAGE 336) : '(1) THE DEFINITION OF 'PLANT' IN SECTION 43(3) SHO ULD BE GIVEN A WIDE MEANING AS IT IS AN INCLUSIVE DEFINITION ; (2) ALL BUILDINGS ARE NOT 'PLANT' DESPITE THE DICTI ONARY MEANING WHICH INCLUDES BUILDINGS ; BUT A BUILDING OR STRUCTURE IS NOT PER SE TO BE EXCLUDED FROM THE AMBIT OF THE EXPRESSION 'PLANT' ; ITA NO.1696/AHD/2002 8 (3) IF THE CONCRETE CONSTRUCTION OR BUILDING IS USE D AS THE PREMISES OR SETTING IN WHICH THE BUSINESS IS CARRIED ON IN CONTRADISTINCTI ON TO THE FULFILLING OF THE FUNCTION OF PLANT, THE BUILDING OR CONSTRUCTION OR PART THER EOF IS NOT CONSIDERED PLANT. THE TRUE TEST IS WHETHER IT IS THE MEANS OF 'CARRYING O N THE BUSINESS' OR THE LOCATION FOR SO DOING ; (4) IN ORDER FOR A BUILDING OR CONCRETE STRUCTURE T O QUALIFY FOR INCLUSION IN THE TERM 'PLANT', IT MUST BE ESTABLISHED THAT IT IS IMPOSSIB LE FOR THE EQUIPMENT TO FUNCTION WITHOUT THE PARTICULAR TYPE OF STRUCTURE ; AND (5) THE PARTICULAR APPARATUS OR ITEM MUST BE USED F OR CARRYING ON THE ASSESSEE'S BUSINESS AND MUST NOT BE HIS STOCK-IN-TRADE. THE MA TTER HAS TO BE CONSIDERED IN THE CONTEXT OF THE PARTICULAR BUSINESS OF THE ASSES SEE, E.G., BOOKS ARE A LAWYER'S PLANT BUT A BOOKSELLER'S STOCK-IN-TRADE.' 10.1 UNDER THE EXTANT PROVISIONS OF SECTION 43( 3), 'PLANT' HAS BEEN DEFINED AS UNDER: 'PLANT' INCLUDES SHIPS, VEHICLES, BOOKS, SCIENTIFIC APPARATUS AND SURGICAL EQUIPMENT USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION BUT DOES NOT INCLUDE TEA BUSHES OR LIVESTOCK.' BUILDINGS OR FURNITURE AND FITTINGS HAVE BEEN SPEC IFICALLY EXCLUDED W.E.F 1.4.2004.FROM THE ABOVE DEFINITION OF 'PLANT' IT I S APPARENT THAT IT IS NOT EXHAUSTIVE AND IS ILLUSTRATIVE AND HAS A WIDE MEANI NG. IT COULD BE THE APPARATUS OF A BUSINESSMAN BY WHICH HE IS CARRYING ON THE BUS INESS WHICH MAY BE TERMED AS PLANT. THE APPARATUS NEED NOT BE USED BY MECHANI CAL OPERATION OR BY ANY OTHER PROCESS. FOR THE PURPOSE OF A BUILDING, IT HA S TO BE SEEN WHETHER IT CAN BE SAID TO BE AN APPARATUS IN WHICH THE BUSINESS IS BE ING CARRIED ON. THERE MAY BE HEAVY STRUCTURES ON WHICH THE MACHINERY IS INSTALLE D WITH WHICH THE ACTIVITIES OF A MANUFACTURING CONCERN ARE CARRIED ON. THAT STRUCTUR E COULD BE COVERED WITHIN THE TERM 'PLANT'. IF THE BUILDING OR STRUCTURE OR PART THEREOF IS SUCH BY WHICH THE BUSINESS ACTIVITIES ARE CARRIED ON, THEN IT WOULD A MOUNT TO PLANT BUT WHERE THE STRUCTURE PLAYS NO PART IN CARRYING ON THE BUSINESS ACTIVITIES AND IS USED AS A SPACE FOR CARRYING ON THE BUSINESS, IT WILL FALL WI THIN THE CATEGORY OF A BUILDING THEN IT CANNOT BE CALLED PLANT. THERE MAY BE A SITUATION WHERE PART OF THE CONSTRUCTION OF THE BUILDING IS SUCH WHICH IS SPECIALLY DESIGNED AND MEANT FOR CARRYING ON THE MECHANICAL PROCESS AND PART OF IT IS USED AS A SPAC E FOR VARIOUS ACTIVITIES LIKE RESEARCH, OFFICE OR THE LIKE AND IN THAT CASE THE P ART CONSTRUCTION WOULD NOT BE ITA NO.1696/AHD/2002 9 TREATED AS A PLANT. THE FUNCTIONAL TEST IS WHETHER A STRUCTURE IS USED FOR CARRYING ON THE BUSINESS AND HENCE A TOOL OF THE TRADE OR WH ETHER IT IS ONLY THE PLACE OF BUSINESS IN WHICH THE BUSINESS IS CARRIED ON. ON TH E BASIS OF THE MEANING WHICH IS BEING GIVEN TO THE PLANT UNDER SECTION 43(3) AND IN ACCORDANCE WITH THE POPULAR MEANING IT COULD NOT BE SAID THAT ALL BUILDINGS ARE PLANT. IT WILL DEPEND ON THE FACTS OF EACH CASE AND A FUNCTIONAL TEST HAS TO BE APPLIE D WHETHER IT IS USED FOR CARRYING ON THE BUSINESS OR IS MERELY A LOCATION OR SPACE FA LLING WITHIN THE CATEGORY OF BUILDING SIMPLICITER. IF THE BUILDING HAS BEEN CONS TRUCTED IN SUCH A MANNER THAT IT WAS NOT POSSIBLE TO CARRY ON THE BUSINESS THEN IT W ILL BE CONSIDERED TO BE 'PLANT'. IT HAS ALSO TO BE SEEN THAT THE WORDS 'PLANT', 'MAC HINERY' AND 'BUILDING' HAVE SEPARATELY BEEN USED AND, THEREFORE, IF AN ITEM FAL LS WITHIN THE CATEGORY OF 'BUILDING', IT WILL NOT BE CONSIDERED TO BE PLANT A ND VICE VERSA. 10.2 SINCE THERE IS NO DISCUSSION IN THE I MPUGNED ORDERS REGARDING THE NATURE OF CONSTRUCTION NOR THE RELEVANT FACTS OR EV EN THE BLUE PRINT OF THE STRUCTURE WAS PRODUCED BEFORE US WHILE THE USE OF THE STRUC TURE MAKES THE DISTINCTION BETWEEN PLANT OR BUILDING IN WHICH IT COULD BE CATE GORISED, WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. CIT( A) SO FAR AS CLAIM OF DEPRECIATION @ 100% OF BUILDING IS CONCERNED AND RESTORE THE MAT TER TO HIS FILE WITH THE DIRECTIONS TO READJUDICATE THE CLAIM OF THE ASSES SEE FOR 100% DEPRECIATION ON BUILDING CONSTRUCTED FOR RUNNING THE EFFLUENT TREAT MENT PLANT AFTER ASCERTAINING THE NATURE AND USE OF SAID BUILDING IN THE LIGHT OF VA RIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE AFORESAID OBSERVATIONS OF THE HONBL E DELHI HIGH COURT AND THEREAFTER, PASS APPROPRIATE ORDERS IN ACCORDANCE W ITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. 10.3 AS REGARDS CLAIM OF THE ASSESSEE FOR 100% DEPRECIATION ON WDV OF EFFLUENT TREATMENT PLANT AS AT THE BEGINNING OF TH E YEAR, WE FIND THAT THE CLAIM OF THE ASSESSEE FOR DEPRECIATION WAS ALLOWED AS SUCH IN THE PRECEDING ASSESSMENT YEAR AND THE ASSESSEE HIMSELF DETERMINED WDV AS AT THE END OF THE PRECEDING ASSESSMENT YEAR. THE LD. CIT(A) HAS NO POWERS TO GIVE FINDINGS AND DIRECTIONS IN RESPECT OF THE YEAR/PERIOD WHICH IS NOT IN APPEA L BEFORE HIM. SINCE THE RELEVANT FACTS AND CIRCUMSTANCES FOR THE PRECEDING ASSESSMEN T YEAR WERE NOT BEFORE THE ITA NO.1696/AHD/2002 10 LOWER AUTHORITIES NOR WERE SUBJECT MATTER OF APPEAL BEFORE THE LD. CIT(A) AND EVEN BEFORE US, WE ARE OF THE OPINION THAT THE LD. CIT(A ) RIGHTLY DID NOT ENLARGE THE SCOPE OF APPEAL BEFORE HIM. THEREFORE , THIS GROUND OF THE ASSESSEE IS DISMISSED. 10.4 IN VIEW OF THE FOREGOING, GROUND NO. 4 IS D ISMISSED WHILE GROUND NO. 5 IS ALLOWED FOR STATISTICAL PURPOSES. IN THAT VIEW OF T HE MATTER, GROUND NO.6 DOES NOT SURVIVE FOR ADJUDICATION AT THIS STAGE. 11. GROUND NO.7 IN THE APPEAL RELATES TO DEDUCTION U/S 80HHC OF THE ACT AND READS AS UNDER:- 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DISALLOWING THE CLAIM MADE BY US U/S 80HHC BY NOT C ONSIDERING VARIOUS TRIBUNAL DECISION AS WELL AS DECISION OF CI T VS. SUDARSHAN CHEMICALS INDUSTRIES LIMITED (2002) 245-ITR-769 (BO M). 11.1 THE AO NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF THE ACT FOR AN AMOUNT OF RS.13,552/-. HOW EVER, THE ASSESSEE DID NOT REDUCE 90% OF OTHER RECEIPTS FROM THE PROFITS OF BUSINESS I.E. INTEREST ON FD-RS.48,605/- AND REFUND ON CENTRAL EXCISE DUTY- RS.1,28,07,233/- WHILE CALCULATING THE DEDUCTION U/S 80HHC IN TERMS OF THE PROVISIONS OF CLAUSE (BAA) O F EXPLANATION BELOW SECTION 80HHC OF THE ACT. TO A QUERY BY THE A O , THE ASSESSEE DID NOT FURNISH ANY REPLY. ACCORDINGLY, TH E AO DID NOT ALLOW ANY DEDUCTION U/S 80HHC OF THE ACT. 12. ON APPEAL, THE ASSESSEE OBJECTED TO THE CALCUL ATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT ON THE FOL LOWING THREE GROUNDS. 1) ADJUSTED TOTAL EXPORT TURNOVER TAKEN BY THE ASSE SSING OFFICER (ITEM 2 OF THE ANNEXURE A OF THE ORDER) IS WRONG. 2) THE PROFIT TAKEN AT ITEM NO.3 DOES NOT MATCH WIT H THE PROFIT CALCULATED BY THE ASSESSING OFFICER IN THE ORDER. 3) WRONG DEDUCTION OF 90% OF OTHER INCOME. ITA NO.1696/AHD/2002 11 THE ASSESSEE PLEADED THAT THE REFUND OF CENTRAL EX CISE DUTY IS GIVEN TO THE MANUFACTURING EXPORTER SO AS TO MAKE E XPORT INTERNATIONALLY COMPETITIVE BY REDUCING THE TOTAL I NCIDENCE OF TAX AND HENCE IT WAS NOTHING BUT EXCISE DUTY PAID ON PURCHA SES UTILIZED FOR PRODUCTION . SIMILARLY, IT WAS ARGUED THAT THE INTE REST ON FIXED DEPOSITS WAS ALSO BUSINESS RELATED INCOME AND THE F IXED DEPOSITS HAS BEEN MAINTAINED WITH THE BANK FOR PROVIDING GUA RANTEE IN FAVOUR OF CUSTOMS FOR VARIOUS IMPORT, EXPORT OF MATERIALS. THIS IS INCIDENTAL INCOME AND NOT AN INVESTMENT INCOME. RELIANCE WAS P LACED ON THE DECISION OF DELHI TRIBUNAL IN THE CASE OF GALLIUL E QUIPMENT PVT.LTD. (79 ITD 41). AFTER HAVING A REMAND REPORT FROM THE AO, THE LD. CIT(A) HELD AS UNDER:- 9.2. FACTS OF THE CASE, SUBMISSIONS OF THE APPELLAN T'S COUNSEL ALONGWITH THE REPORT OF THE ASSESSING OFFICER ARE CONSIDERED. IT IS SEEN THAT THE ADJUSTED TOTAL EXPORT TURNOVER HAS BEEN RIGHTLY TAK EN BY THE ASSESSING OFFICER AT RS.23,70,760/-. THE PROFIT OF THE BUSINE SS WOULD BE TAKEN AS THE PROFIT CALCULATED AT THE TIME OF GIVING EFFECT TO T HIS ORDER. IN RESPECT OF DEDUCTION OF 90% OF THE OTHER INCOME FROM THE PROFI TS OF THE BUSINESS, I FIND THAT THE DEDUCTION OF 90% OF SUCH INCOME BY TH E ASSESSING OFFICER IS CORRECT IN VIEW OF EXPLANATION (BAA) TO SECTION 80H HC WHICH READS AS UNDER: 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' AS REDUCED BY:- 1. 90% OF ANY SUM REFERRED TO IN CLAUSES (IIIA), ( IIIB) AND (IIIC) OF SECTION 28 OR OF ANY RECEIPTS BY WAY BROKERAGE, COMMISSION, IN TEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS'. THE CENTRAL EXCISE DUTY REFUND AND THE INTEREST ON FD ARE BOTH COVERED BY THIS EXPLANATION AND THE 90% OF THESE TWO INCOMES H AVE TO BE REDUCED FROM THE PROFIT OF THE BUSINESS. IN ANY CASE, BECAUSE OF HUGE AMOUNT OF THESE TWO IN COMES, THE PROFIT OF THE BUSINESS WOULD BE A NEGATIVE FIGURE EVEN AFTER GIVING EFFECT TO MY APPELLATE ORDER AND HENCE NO DEDUCTION UNDER SECTIO N 80HHC WILL BE ALLOWABLE IN THIS CASE. 13. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE ITA NO.1696/AHD/2002 12 MERELY PLEADED THAT THE ISSUE NEEDS TO BE RESTORED TO THE FILE OF THE AO WITHOUT DEMONSTRATING AS TO HOW THE FINDINGS OF THE LOWER AUTHORITIES WERE IN CORRECT. ON THE OTHER HAND, THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 14. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT BOTH THE AO AND THE LD. CI T(A) EXCLUDED ENTIRE INTEREST INCOME WHILE DETERMINING PROFITS OF THE BUSINESS F OR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. THERE IS NOTHING TO SUGGEST THA T THE SAID INTEREST INCOME HAD ANY RELATION WITH EXPORTS MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. A BARE PERUSAL OF PROVISIONS OF SEC . 80HHC OF THE ACT REVEALS THAT THE INCOME WHICH IS UNDERSTOOD TO BE COMPUTED UNDER THIS PROVISION MUST HAVE BEEN DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUC H GOODS OR MERCHANDISE. ADMITTEDLY THE INTEREST INCOME WAS NOT DERIVED BY E XPORT OF GOODS OR MERCHANDISE. A DIVISION BENCH OF THE HONBLE KERALA HIGH COURT IN NANJI TOPANBHAI AND CO. V. ASST. CIT [2000] 243 ITR 192 WAS CONSIDERING THE QUESTION AS TO WHETHER THE INTEREST EARNED ON FIXED DEPOSIT WAS INCOME ARISING OUT OF EXPORT OR INCOME FROM OTHER SOURCES. THE HONBLE HI GH COURT HELD (HEADNOTE): 'UNDER SECTION 80HHC OF THE INCOME-TAX ACT, 1961, T HE ASSESSEE WHO IS ENGAGED IN EXPORT BUSINESS IS ALLOWED, IN COMPUTING THE TOTAL INCOME, A DEDUCTION OUT OF THE INCOME DERIVED FROM THE EXPORT OF SUCH GOODS. UNLESS THE ASSESSEE IS ABLE TO SHOW THAT THE INCOME RECEIVED B Y WAY OF INTEREST FROM THE FIXED DEPOSIT IS DERIVED FROM THE EXPORT BUSINESS, IT WILL NOT BE ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80HHC IN RESPECT OF IT'. 14.1 IN ANOTHER JUDGMENT REPORTED IN CIT V. COCHI N REFINERIES LTD. [1985] 154 ITR 345 , HONBLE KERALA HIGH COURT HELD: 'PROFITS AND GAINS ARE WELL UNDERSTOOD TO MEAN ONLY THE BUSINESS INCOME, AND NOT ANY OTHER INCOME. SO LONG AS THE COMPANY HAS NO BUS INESS OF LENDING MONEY, AND SO LONG AS THE ADMITTED CASE OF THE COMPANY IS THAT THE INCOME DERIVED IS ONLY ON ACCOUNT OF THE PECULIAR SITUATION ARISING F ROM THE TIME SCHEDULE FOR REPAYMENT OF THE LOANS, IT CANNOT BE STATED THAT TH E INCOME YIELDED BY THE DEPOSITS OR INVESTMENTS WAS RECEIVED IN THE COURSE OF THE COMPANY'S BUSINESS SO AS TO BE TREATED AS A BUSINESS PROFIT' ITA NO.1696/AHD/2002 13 14.2. IN K. RAVINDRANATHAN NAIR [2003] 262 ITR 669 (KER), IN DEALING WITH A SIMILAR ISSUE, THE HONBLE KERALA HIGH COURT HELD: 'THE INTEREST FROM SHORT-TERM DEPOSITS RECEIVED BY THE APPELLANT IS NOT THE DIRECT RESULT OF ANY EXPORT OF ANY GOODS OR MERCHANDISE. T HE FIXED DEPOSIT WAS MADE ONLY FOR THE PURPOSE OF OPENING LETTERS OF CREDIT A ND FOR GETTING OTHER BENEFITS WHICH ARE NECESSARY REQUIREMENTS TO ENABLE THE APPE LLANT TO MAKE THE EXPORT. FROM THE ABOVE IT IS CLEAR THAT THE INTEREST INCOME RECEIVED ON THE SHORT-TERM DEPOSITS THOUGH IT CAN BE ATTRIBUTED TO THE EXPORT BUSINESS CANNOT BE TREATED AS INCOME WHICH IS DERIVED FROM THE EXPORT BUSINESS. I N THE ABOVE CIRCUMSTANCES, EVEN ASSUMING THAT THE BANK HAS INSISTED FOR MAKING SHORTTERM DEPOSITS FOR OPENING LETTERS OF CREDIT AND FOR OTHER FACILITIES, IT CANNOT BE SAID THAT THE INCOME IS DERIVED FROM THE EXPORT BUSINESS.' 14.3 THE ABOVE DECISION IN K. RAVINDRANATHAN NA IR [2003] 262 ITR 669 (KER) HAS BEEN AFFIRMED BY THE HON'BLE SUPREME COURT BY T HE DISMISSAL OF THE SPECIAL LEAVE PETITION. TO THE SAME EFFECT IS THE JUDGMENT OF THE SAME HIGH COURT IN SOUTHERN CASHEW EXPORTERS V. DEPUTY CIT [2003] 130 TAXMAN 203 (KER) WHICH HAS BEEN AFFIRMED BY THE HON'BLE SUPREME COURT ON A CCOUNT OF THE DISMISSAL OF THE SPECIAL LEAVE PETITION. THE RESULTANT POSITION IS THAT ON THREE OCCASIONS, THE HON'BLE SUPREME COURT HAVE AFFIRMED THE JUDGMENTS O F THE KERALA HIGH COURT THAT HAS CONSISTENTLY HELD THAT INTEREST EARNED ON FIXED DEPOSITS FOR THE PURPOSES OF AVAILING OF CREDIT FACILITIES FROM THE BANK, DOE S NOT HAVE AN IMMEDIATE NEXUS WITH THE EXPORT BUSINESS AND, THEREFORE HAS TO NECE SSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. IN C IT V. STERLING FOODS [1999] 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC), THE HON'BLE SUPREME COURT REITERATED THE NEXUS THEO RY AND DECLINED TO TREAT SUCH INTEREST EARNED AS BUSINESS INCOME. AN ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF EXPORTS AND INVESTS THE SURPLUS FUNDS I N FIXED DEPOSITS WILL NOT BE ABLE TO TREAT THE INTEREST EARNED THEREON AS BUSINE SS INCOME SINCE IT DOES NOT BEAR ANY DIRECT NEXUS WITH THE EXPORT BUSINESS OF T HE ASSESSEE. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GA SKETS & RADIATORS DISTRIBUTORS,296 ITR 440(GUJ) RELYING ,INTER ALIA, ON THE DECISION OF THE HONBLE SUPREME COURT IN PANDIAN CHEMICALS LTD . V. CIT [2003] 262 ITR 278 HELD THAT RECEIPTS ON ACCOUNT OF INTEREST ON DEPOS ITS ARE NOT REQUIRED TO BE CONSIDERED FOR DEDUCTION U/S 80HHC O F THE ACT. ITA NO.1696/AHD/2002 14 14.4 IN CIT VS. RAKESH RAKHEJA ,166 TAXMAN 50 (DELHI), HONBLE HIGH COURT HELD THAT THE INCOME EARNED BY THE ASSESSEE FROM FD RS IS REQUIRED TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE SAID INC OME IS THEREFORE OUTSIDE THE PURVIEW OF SECTION 80HHC OF THE ACT AND 100 PER CEN T OF THE INTEREST IS REQUIRED TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS IN TERMS OF EXPLANATION ( BAA ) TO SECTION 80HHC OF THE ACT. 14.5 IN CIT VS. KRAFT LAND INDIA, 162 TAXMAN 123 (DEL),HONBLE DELHI HIGH COURT HELD THAT INTEREST RECEIVED ON FDRS PLEDGED FOR SHI PPING LOAN/DEPOSITORY LOAN, WAS NOT BUSINESS INCOME AND THEREFORE, INTEREST PAID BY THE ASSESSEE COULD NOT BE REDUCED FROM THE INTEREST RECEIVED WHILE CALCULATIN G DEDUCTION U/S 80HHC READ WITH EXPLANATION (BAA) THERETO . 14.6 IN CIT VS. MALWA COTTON SPINNING MILLS LTD. ,166 TAXMAN 457(PB. & HARYANA) ,HONBLE HIGH COURT HELD THAT 6. CLAUSE (BAA), AS REFERRED TO ABOVE, TALKS OF PROCEDURES, AS TO HOW PROFITS OF BUSINESS ARE TO BE COMPUTED. IT PROVIDES THAT IN CA SE, INCOMES OF THE KIND INCLUDING INTEREST ARE INCLUDED IN THE PROFITS OF B USINESS, 90 PER CENT THEREOF SHALL BE REDUCED THEREFROM. IT DOES NOT MAKE ANY DISTINCT ION BETWEEN THE INTEREST EARNED FROM SOURCE 'A' OR SOURCE 'B'. INTEREST FROM WHEREVER IT IS EARNED RETAINS THE CHARACTER OF INTEREST. BE IT AN INTEREST FROM T HE CUSTOMER ON DELAYED PAYMENT OF DUES. 14.7. IN A RECENT DECISION DATED 18/19/3/ 2010 OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD. IN ITA NO. 200 OF 2009 , IT WAS HELD THAT EXPLANATION (BAA) TO S. 80HHC REQUIRES T HAT NINETY PER CENT OF RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CH ARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE HAVE TO BE REDUCED FROM THE PROFITS. THE REASON WHY ITEMS LIKE BROKERAGE ETC HAVE TO BE EXCLUDED IS BECAUSE THEY D O NOT POSSESS ANY NEXUS WITH EXPORT TURNOVER AND THEIR INCLUSION IN PROFITS WOULD RESULT IN A DISTORTION OF THE FIGURE OF EXPORT PROFITS. HOWEVER, AS SOME EXPENDIT URE MIGHT HAVE BEEN INCURRED IN EARNING THESE INCOMES, AN ADHOC DEDUCTION OF TEN PER CENT FROM SUCH INCOME IS ALLOWED. IT WAS FURTHER OBSERVED BY THE HONBLE HIGH COURT THAT ONCE PARLIAMENT HAS LEGISLATED BOTH IN REGARD TO THE NAT URE OF THE EXCLUSION AND THE ITA NO.1696/AHD/2002 15 EXTENT OF THE EXCLUSION, IT WOULD NOT BE OPEN TO TH E COURT TO ORDER OTHERWISE BY REWRITING THE LEGISLATIVE PROVISION. THE TASK OF IN TERPRETATION IS TO FIND OUT THE TRUE INTENT OF A LEGISLATIVE PROVISION AND IT IS CLEARLY NOT OPEN TO THE COURT TO LEGISLATE BY SUBSTITUTING A FORMULA OR PROVISION OTHER THAN W HAT HAS BEEN LEGISLATED BY PARLIAMENT. IT IS NOT OPEN TO SAY THAT SOMETHING MO RE THAN THE 10% STATUTORILY PROVIDED SHOULD ALSO BE ALLOWED. HONBLE HIGH COURT FURTHER HELD THAT IN SHRI RAM HONDA POWER EQUIP , 289 ITR 475 THE DELHI HIGH COURT HAS NOT ADEQUAT ELY EMPHASIZED THE ENTIRE RATIONALE FOR CONFINING THE D EDUCTION ONLY TO THE EXTENT OF NINETY PER CENT OF THE EXCLUDIBLE RECEIPTS AND IT C ANNOT BE FOLLOWED; AS REGARDS THE JUDGEMENT OF THE SPECIAL BENCH IN LALSONS ENTERPRISES , HONBLE HIGH COURT HELD THAT WE ARE AFFIRMATIVELY OF THE VIEW THAT THE TRIBUNA L HAS TRANSGRESSED THE LIMITATIONS ON THE EXERCISE OF JUDICIAL POWER AND . HAS IN EFFECT LEGISLATED BY PROVIDING A DEDUCTION ON THE GROUND OF EXPENSES OTH ER THAN IN THE TERMS WHICH HAVE BEEN ALLOWED BY PARLIAMENT. THAT IS IMPERMISSI BLE. 14.8. IN VIEW OF THE FOREGOING, ESPECIALL Y WHEN THE AFORESAID RECEIPTS ON ACCOUNT OF BANK INTEREST ARE INDEPENDENT INCOMES , WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THES E RECEIPTS HAVE NO RELATION WITH EXPORTS MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THERE IS NO MATERIAL BEFORE US THAT ANY EXPENDITURE HAS BEEN IN CURRED FOR EARNING THE AFORESAID RECEIPTS NOR SUCH AN ISSUE SEEMS TO HAVE BEEN RAISED BEFORE THE LD. CIT(A).THEREFORE, GROUND NO.7 SO FAR AS IT PERTAI NS TO DEDUCTION U/S 80HHC IN RELATION TO INTEREST INCOME IS DISMISSED. 15. AS REGARDS REFUND OF EXCISE DUTY, THERE IS NO DISCUSSION IN THE IMPUGNED ORDERS AS TO NATURE OF REFUND OR EVEN IN RESPECT OF REASONS FOR THE REFUND NOR THE LD. AR APPEARING BEF ORE US PLACED ANY ORDER, RESULTING IN THE SAID REFUND OR EVEN ELA BORATED ON THAT ASPECT. IT IS NOT KNOWN AS TO WHETHER OR NOT THESE RECEIPTS HAVE ANY RELATION WITH THE EXPORTS MADE BY THE ASSESSEE DURI NG THE YEAR UNDER CONSIDERATION. IN A RECENT DECISION ON THE INTERPR ETATION OF EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT, HONBLE SUPREME COURT IN THE CASE OF CIT V. K. RAVINDRANATHAN NAIR, 295 ITR 228(SC) HELD THAT THE FORMULA IN SECTION ITA NO.1696/AHD/2002 16 80HHC(3) PROVIDED FOR A FRACTION OF EXPORT TURNOVER DIVIDED BY THE TOTAL TURNOVER TO BE APPLIED TO BUSINESS PROFITS CALCULATED AFTER DEDUCTING 90 PER CENT OF THE SUMS MENTIONED IN CLAUSE (BAA) OF THE EXPLANATION. PROFIT INCENTIVES LIKE RENT, COMMISSION, BROKERAGE CHARGES, ETC., THOUGH THEY FO RMED PART OF THE GROSS TOTAL INCOME, HAD TO BE EXCLUDED AS THESE WERE INDEPENDE NT INCOMES WHICH HAD NO ELEMENT OF EXPORT TURNOVER. ALL THE FOUR VARIABLES IN THE SECTION ARE REQUIRED TO BE KEPT IN MIND. IF ALL THE FOUR VARIABLES ARE KEPT IN MIND, IT BECOMES CLEAR THAT EVERY RECEIPT IS NOT INCOME AND EVERY INCOME WOULD NOT NE CESSARILY INCLUDE THE ELEMENT OF EXPORT TURNOVER. CLAUSE (BAA) OF THE EXPLANATIO N STATES THAT 90 PER CENT OF THE INCENTIVE PROFITS OR RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF LIKE NATURE INCLUDE D IN BUSINESS PROFITS HAVE TO BE DEDUCTED FROM BUSINESS PROFITS COMPUTED IN TERMS OF SECTIONS 28 TO 44D. IN OTHER WORDS, RECEIPTS CONSTITUTING INDEPENDENT INCOME HAV ING NO NEXUS WITH EXPORTS WERE REQUIRED TO BE DEDUCTED FROM BUSINESS PROFITS UNDER CLAUSE (BAA). HONBLE SUPREME COURT FURTHER OBSERVED THAT A BARE READING OF CLAUSE (BAA)(1) INDICATES THAT RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTE REST, RENT CHARGES, ETC., FORMED PART OF THE GROSS TOTAL INCOME BEING BUSINES S PROFITS. BUT FOR THE PURPOSE OF WORKING OUT OF FORMULA AND IN ORDER TO AVOID DIS TORTION IN ARRIVING AT THE EXPORT PROFITS CLAUSE (BAA) STOOD INSERTED TO SAY T HAT ALTHOUGH INCENTIVE PROFITS AND INDEPENDENT INCOMES CONSTITUTED PART OF THE GROSS TOTAL INCOME, THESE HAD TO BE EXCLUDED FROM GROSS TOTAL I NCOME BECAUSE SUCH RECEIPTS HAD NO NEXUS WITH THE EXPORT TURNOVER. IT WAS CONCLUDED BY THE HONBLE SUPREME COURT THAT IN THE ABOVE FORMULA THERE EXISTED FOUR VARIABLES, NAMELY, BUSINESS PROFITS, EXPORT TURNOVER, TOTAL TURNOVER AND 90 PER CENT. OF THE SUMS REFERRED TO IN CLAUSE (BAA) TO THE SAID EXPLANATION . IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC ALL FO UR VARIABLES HAD TO BE TAKEN INTO ACCOUNT. ALL FOUR VARIABLES WERE R EQUIRED TO BE GIVEN WEIGHTAGE. THE SUBSTITUTION OF SECTION 80HHC(3) SEC URES PROFITS DERIVED FROM THE EXPORTS OF ELIGIBLE GOODS. THEREFO RE, IF ALL THE FOUR VARIABLES ARE KEPT IN MIND, IT BECOMES CLEAR THAT E VERY RECEIPT IS NOT INCOME AND EVERY INCOME WOULD NOT NECESSARILY INCLU DE ELEMENT OF EXPORT TURNOVER. THIS ASPECT NEEDS TO BE KEPT IN MI ND WHILE INTERPRETING CLAUSE (BAA) TO THE SAID EXPLANATION. THE SAID CLAUSE STATED THAT 90 PER CENT. OF INCENTIVE PROFITS OR RE CEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR A NY OTHER RECEIPT OF LIKE NATURE INCLUDED IN BUSINESS PROFITS, HAD TO BE DEDUCTED FROM ITA NO.1696/AHD/2002 17 BUSINESS PROFITS COMPUTED IN TERMS OF SECTIONS 28 T O 44D OF THE INCOME-TAX ACT. IN OTHER WORDS, RECEIPTS CONSTITUTI NG INDEPENDENT INCOME HAVING NO NEXUS WITH EXPORTS WERE REQUIRED T O BE REDUCED FROM BUSINESS PROFITS UNDER CLAUSE (BAA). A BARE RE ADING OF CLAUSE (BAA)(1) INDICATES THAT RECEIPTS BY WAY OF BROKERAG E, COMMISSION, INTEREST, RENT, CHARGES, ETC., FORMED PART OF GROSS TOTAL INCOME BEING BUSINESS PROFITS. BUT FOR THE PURPOSES OF WORKING O UT THE FORMULA AND IN ORDER TO AVOID DISTORTION OF ARRIVING AT THE EXP ORT PROFITS, CLAUSE (BAA) STOOD INSERTED TO SAY THAT ALTHOUGH INCENTIVE PROFITS AND 'INDEPENDENT INCOMES' CONSTITUTED PART OF GROSS TOT AL INCOME, THEY HAD TO BE EXCLUDED FROM GROSS TOTAL INCOME BECAUSE SUCH RECEIPTS HAD NO NEXUS WITH THE EXPORT TURNOVER. THEREFORE, I N THE ABOVE FORMULA, WE HAVE TO READ ALL THE FOUR VARIABLES. ON READING ALL THE VARIABLES IT BECOMES CLEAR THAT EVERY RECEIPT MAY N OT CONSTITUTE SALE PROCEEDS FROM EXPORTS. THAT, EVERY RECEIPT IS NOT I NCOME UNDER THE INCOME-TAX ACT AND EVERY INCOME MAY NOT BE ATTRIBUT ABLE TO EXPORTS. THIS WAS THE REASON FOR THIS COURT TO HOLD THAT IND IRECT TAXES LIKE EXCISE DUTY WHICH ARE RECOVERED BY THE TAXPAYERS FO R AND ON BEHALF OF THE GOVERNMENT, SHALL NOT BE INCLUDED IN THE TOT AL TURNOVER IN THE ABOVE FORMULA. BEFORE CONCLUDING WE STATE THAT THE NATURE OF EVER Y RECEIPT NEEDS TO BE ASCERTAINED IN ORDER TO FIND OUT WHETHER THE SAI D RECEIPT FORMS PART OF/OR THAT IT HAS AN ATTRIBUTE OF AN EXPORT TU RNOVER. WHEN AN INDIRECT TAX IS COLLECTED BY THE TAXPAYER ON BEHALF OF THE GOVERNMENT THE TAX RECOVERED IS FOR THE GOVERNMENT. IT MAY BE AN INCOME IN THE CONCEPTUAL SENSE OR EVEN UNDER THE INCOME-TAX ACT B UT WHILE WORKING OUT THE FORMULA UNDER SECTION 80HHC(3) OF T HE INCOME-TAX ACT AND WHILE APPLYING THE FOUR VARIABLES ONE HAS T O ASCERTAIN WHETHER THE RECEIPT HAS AN ATTRIBUTE OF EXPORT TURN OVER . 15.1 SINCE THERE IS NOTHING TO SUGGEST A S TO WHETHER OR NOT THE SAID EXCISE DUTY REFUND HAS ANY RELATION WITH THE EXPORTS MADE DURING THE YEAR NOR THE NATURE OF REFUND OR EVEN THE REASONS FOR REFUND HAVE BEE N PLACED BEFORE US, ACCORDINGLY, WE VACATE THE FINDINGS OF THE LD. CIT (A) AND RESTORE THE MATTER TO HIS FILE WITH THE DIRECTIONS TO ASCERTAIN AS TO WHETH ER OR NOT THE AFORESAID EXCISE DUTY REFUND HAS ANY RELATION WITH THE EXPORTS MADE DURIN G THE YEAR OR IS INDEPENDENT INCOME , KEEPING IN VIEW, INTER ALIA, THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF K. RAVINDRANATHAN NAIR(SUPRA) AND THEREAFTE R, PASS APPROPRIATE ORDERS IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPOR TUNITY TO THE ASSESSEE. WITH THESE DIRECTIONS, ESPECIALLY WHEN NO OTHER PLEA OR ARGUMENT HAS BEEN MADE BEFORE US, GROUND NO. 7 IS DISPOSED OF. ITA NO.1696/AHD/2002 18 16. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERM S OF THE RESIDUARY GROUND, ACCORDINGLY, THIS GROUND IS DISMI SSED. 17. IN THE RESULT, APPEAL IS PARTLY ALLOWED, BUT FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 30 -04 -2010 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-04-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S PRISM DYES & INTERMEDIATES PVT. LTD., C/O SH RI CHANDRAKANTBHAI N PATEL, TB/5, VRUNDAVAN ESTATE, PASHABHAI PARK, RACE COURSE, BARODA-390007 2. THE JT. CIT, SR-2, BARODA 3. CIT CONCERNED 4. CIT(A)-III, BARODA 5. THE DR, ITAT, C BENCHAHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD