The ITO, Ward-5(1), Ahmedabad V. Naval Overseas Pvt.Ltd., Ahmedabad

ITA 3005/AHD/2008

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2280 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 25-08-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: S N SOPARKARSR
• Keywords: Business income; Charitable institution; Deemed export; Competent authority; Benefit of exemption
• Section: 80HHC; 10B; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON' BLE SHRI A.N. PAHUJA, A.M. ) I.T.A. NO. 3005/AHD/2008 ASSESSMENT YEAR : 2005-2006 INCOME TAX OFFICER, WARD-5(1), -VS.- NAVAL O VERSEAS PVT. LTD., AHMEDABAD AHMEDABAD (PAN : AABCN 1085 A) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.K. DHANESTA , D.R. RESPONDENT BY : SHRI S.N. SOPARKAR, SR. A.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER DATED 16.06.2008 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XI, AHMEDABAD FOR THE ASSESSMENT YEAR 2005-06 ON THE FOLLOWING GROUNDS :- (1) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE EXEM PTION UNDER SECTION 10B ON THE SALES OF RS.1,05,90,584/- MADE T O OTHER EOUS WHICH IS NOT COVERED UNDER THE DEFINITION OF EXPOR T TURNOVER AS PROVIDED IN THE EXPLANATION 2(III) BELOW SECTION 10 B OF THE I.T. ACT, 1961. (2) THE LD. CIT(A.)-XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE EXEMPTION UNDER SECTION 10B OF THE I.T . ACT, 1961 OF RS.39,59,148/- AS AGAINST RS.29,03,031/- ALLOWED BY THE ASSESSING OFFICER. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. (4) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS)-XI, AHMEDABAD MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORTING OF BOBB INS, TUBES AND CONES, ETC. THE ASSESSEE- 2 ITA NO. 3005-AHD-2008 COMPANY IS REGISTERED AS 100% EXPORT ORIENTED UNIT, WHICH IS ENTITLED TO DEDUCTION UNDER SECTION 10B OF THE ACT. THERE IS NO DISPUTE THAT TH E ASSESSEE HAS FULFILLED ALL THE CONDITIONS FOR BECOMING 100% EOU. THE SALES OF THE ASSESSEE, IN AD DITION TO EXPORT, ARE MADE TO OTHER EOUS, WHICH ARE CLAIMED EQUIVALENT TO EXPORT SALES. HOWEV ER, THE ASSESSEE DID NOT RECEIVE CONVERTIBLE FOREIGN EXCHANGE IN RESPECT OF THE SALES MADE BY IT TO EOUS SITUATED IN INDIA. THE A.O. NOTED THAT IN ORDER TO CLAIM EXEMPTION UNDER SECTION 10B, THE SALE PROCEED SHOULD BE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE.. THE A.O. REFERRED TO THE CHANGES MADE WITH EFFECT FROM 1 ST APRIL, 2001 IN SECTION 10B, WHEREBY THE WORDS BY THE UNDE RTAKING WERE INSERTED MEANING THEREBY THAT EXPORT TURNOVER WOULD BE THAT THE CONSIDERATIO N IN RESPECT OF WHICH IS RECEIVED BY THE UNDERTAKING IN CONVERTIBLE FOREIGN EXCHANGE. THUS R ELYING ON THIS DEFINITION THE A.O. HELD THAT THE SALES MADE TO OTHER EOUS ARE NOT ENTITLED TO DE DUCTION UNDER SECTION 10B AS THE ASSESSEE HAS NOT RECEIVED CONVERTIBLE FOREIGN EXCHANGE FROM SUCH EOUS. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSES SEE AS PER PARA 2.2, 3.1 & 3.2 OF HIS ORDER. 4. BEFORE US, SHRI S.N. SOPARKAR, LD. AUTHORIZED RE PRESENTATIVE FOR THE ASSESSEE, AT THE OUTSET, FAIRLY ADMITTED THAT THE ISSUE HAS BEEN DEC IDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 538 & 850/AHD/2007 FOR THE ASSESSMENT YEARS 2002-03 & 2003-04 VIDE ORDER DATED 18.09.2009. 5. ON THE OTHER HAND, SHRI R.K. DHANESTA, LD. DEPAR TMENTAL REPRESENTATIVE APPEARING ON BEHALF OF THE REVENUE RELIED ON THE ORDER DATED 03. 04.2009 OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 3023/AHD/2004 FOR THE ASSESSMENT YE AR 2001-02 REFERRED TO BY THE LD. A.R. AND ON THE ORDER OF A.O. 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE ORDERS OF AUTHORITIES BELOW AS WELL AS THE ORDER OF TRIBUNAL DATED 18.09.2009 IN I TA NOS. 538 & 850/AHD/2007 FOR THE ASSESSMENT YEARS 2002-03 & 2003-04. WHILE PASSING T HE ORDER, THE TRIBUNAL HAS FOLLOWED ITS EARLIER DECISION IN ASSESSEES OWN CASE FOR THE ASS ESSMENT YEAR 2001-02 IN ITA NO. 3023/AHD/2004 PRONOUNCED ON 03.04.2009 AND REFERRED PARA 7 OF ITS ORDER AS UNDER :- 7 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES. WE HAVE ALSO GONE THROUGH THE CASE LAW S AS HAS BEEN 3 ITA NO. 3005-AHD-2008 RELIED ON BEFORE US. THIS IS AN UNDISPUTED FACT THA T THE ASSESSEE IS A 100% EOU REGISTERED WITH THE APPROPRIATE AUTHORIT Y. THE TOTAL SALES CARRIED OUT BY THE ASSESSEE WAS RS.4,05,25,65 9/-. THE SALES OF RS.2,06,55,951/- WERE MADE OUTSIDE INDIA AND SAL ES OF RS.1,98,69,708/- WERE MADE WITHIN THE COUNTRY TO OT HER 100% EOUS. THE ASSESSEE CLAIMED DEDUCTION U/S 10B ON THE TOTAL SALES AMOUNTING TO RS.4,05,25,659/-. THE AO ALLOWED THE E XEMPTION U/S 10B ON THE PROFIT EARNED ON THE SALES OF RS.2,06,55 ,951/- WHICH WAS CARRIED OUT OUTSIDE THE COUNTRY BUT THE EXEMPTI ON U/S 10B WAS NOT ALLOWED ON THE INCOME GENERATED ON THE SALES OF RS.1,98,69,708/- MADE TO OTHER EOUS WITHIN THE COUN TRY. THE RELEVANT PROVISIONS OF SECTION 10B AS WERE APPLICAB LE DURING THE YEAR ARE REPRODUCED AS UNDER: 10B.(1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING FROM THE EXPOR T OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS T O MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUT ER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE: PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AN D GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000, THE UNDERTAKING SHALL BE ENTITLED TO THE DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FOR THE UNEXPI RED PERIOD OF AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS. [PROVIDED [FURTHER] THAT FOR THE ASSESSMENT YEAR BE GINNING ON THE 1 ST DAY OF APRIL, 2003, THE DEDUCTION UNDER THIS SUB-S ECTION SHALL BE NINETY PER CENT OF THE PROFITS AND GAINS D ERIVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH ARTICLES OR THI NGS OR COMPUTER SOFTWARE:] PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1 ST DAY OF APRIL, [2001] AND SUBSEQUENT YEARS: PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO AN ASSESSEE WHO DOES NOT FURNISH A RETUR N OF HIS INCOME ON OR BEFORE THE DUE DATE SPECIFIED UNDER SU B-SECTION (1) OF SECTION 139.] 4 ITA NO. 3005-AHD-2008 (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH F ULFILLS ALL THE FOLLOWING CONDITIONS, NAMELY:- (I) IT MANUFACTURES OR PRODUCES ANY ARTICLES OR THINGS OR COMPUTER SOFTWARE; (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONS TRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RES PECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-E STABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BU SINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN TH AT SECTION: (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION THE PROVISIONS OF EXPLANATION 1 AND E XPLANATION 2 TO SUB-SECTION (20 OF SECTION 80-I SHALL APPLY FOR THE PURPOSES OF CLAUSE (III) OF THIS SUB-SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE (II) OF THAT SUB-SECTION. (3) THIS SECTION APPLIES TO THE UNDERTAKING, IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OU T OF INDIA ARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WITHIN A PERIOD OF SIX MONTHS FRO M THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. EXPLANATION 1 FOR THE PURPOSES OF THIS SUB-SECTIO N, THE EXPRESSION COMPETENT AUTHORITY MEANS THE RESERVE BANK OF IND IA OR SUCH OTHER AUTHORITY AS IS AUTHORIZED UNDER ANY LAW FOR THE TI ME BEING IN FORCE FOR REGULATING PAYMENTS AND DEALINGS IN FOREIGN EXC HANGE. EXPLANATION 2 THE SALE PROCEEDS REFERRED TO IN TH IS SUB-SECTION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHERE SUCH SALE PROCEEDS ARE CREDITED TO A SEPARATE ACCOUNT MAINTAINED FOR T HE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPRO VAL OF THE RESERVE BANK OF INDIA. ----------. FROM THE PERUSAL OF THIS SECTION IT IS APPARENT THA T IN ORDER TO CLAIM THE EXEMPTION U/S 10B THE ASSESSEE HAS TO SATISFY B OTH THE CONDITIONS:- (A) IT MUST EXPORT GOODS, AND (B) THE SALE PROCEEDS MUST BE RECEIVED IN CONVERTIBLE F OREIGN EXCHANGE. 5 ITA NO. 3005-AHD-2008 THE TERM CONVERTIBLE FOREIGN EXCHANGE AND TURNOV ER ARE DEFINED IN THE SECTION ITSELF AS PER EXPLANATION GIVE AFTER SECTIO N 10B(8) OF THE ACT IN THE FOLLOWING MANNER: (II) CONVERTIBLE FOREIGN EXCHANGE MEANS FOREIGN EXCHAN GE WHICH IS FOR THE TIME BEING TREATED BY THE RESERVE BANK O F INDIA AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPOSES OF TH E FOREIGN EXCHANGE REGULATION ACT, 1973, (46 OF 1973), AND AN Y RULES MADE THERE UNDER OR ANY OTHER CORRESPONDING LAW FOR THE TIME BEING IN FORCE; (III) EXPORT TURNOVER MEANS THE CONSIDERATION IN RESPEC T OF EXPORT [BY THE UNDERTAKING] OR ARTICLES OR THINGS OR COMPU TER SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB -SECTION (3), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATIO N CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTIC LES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHN ICAL SERVICES OUTSIDE INDIA; 8. THE ASSESSEE IS REGISTERED AS 100% EOU AND THER EBY GOVERNED BY THE EXIM POLICY WHICH IS ISSUED FROM TIME TO TIME U/S 5 OF T HE FOREIGN TRADE (DEVELOPMENT & REGULATION) ACT, 1991 BY THE MINISTRY OF COMMERCE A ND INDUSTRY, DEPARTMENT OF COMMERCE, GOVERNMENT OF INDIA. THE ASSESSEE FOR CON TINUING REGISTRATION UNDER THE FOREIGN TRADE (DEVELOPMENT & REGULATION) ACT, 1991, HAS TO EXPORT ITS ENTIRE PRODUCTION OF GOODS AS PER PARAGRAPH 9.1 OF THE EXI M POLICY- PARAGRAPH 9,5 OF THE SAID EXIM POLICY REQUIRES TWO MAJOR CONDITIONS MUST BE SATISFIED BY THESE UNITS (I) TO ACHIEVE THE MINIMUM NET FOREIGN EXCHANGE EARNING AS A PERCENTAGE OF EXPORT, AND (II) THE MINIMUM EXPORT PERFORMANCE. THE EXIM POLIC Y RELIED HAS NOTHING TO DO WITH THE COMPUTATION OF UNDER THE IT ACT. SECTION 10B CL EARLY STATES THAT OF SUCH PROFITS AND GAINS AS ARE DERIVED BY 100% EOU ARE ALLOWABLE WHICH FULFILLS THE CONDITIONS AS STIPULATED IN THE SAID SECTION. ONE OF THE MAIN CON DITIONS IS THAT CONVERTIBLE FOREIGN EXCHANGE MUST BE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WIT HIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF AND TH E OTHER CONDITION IS THE EXPORT OF GOODS OUTSIDE INDIA. WITHOUT COMPLYING WITH THESE C ONDITIONS, IN OUR OPINION, THE ASSESSEE CANNOT BE ENTITLED FOR THE EXEMPTION U/S 1 0B OF THE ACT. THE ASSESSEE HAS NOT EXPORTED GOODS OUTSIDE INDIA BUT SOLD TO 100% EOU I N INDIA. COMING TO THE CONDITION OF CONVERTIBLE FOREIGN EXCHANGE, THE CONV ERTIBLE FOREIGN EXCHANGE HAS BEEN DEFINED UNDER CLAUSE (II) OF SUB-SECTION (2) OF SE CTION 10B TO MEAN FOREIGN EXCHANGE WHICH IS FOR THE TIME BEING TREATED BY T HE RESERVE BANK OF INDIA AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPOSES OF FOREIGN EXCHANGE REGULATION ACT, 1973 (46 OF 1973) AND ANY RULES MAD E THERE-UNDER OR ANY CORRESPONDING LAW FOR THE TIME BEING IN FORCE. THE FOREIGN EXCHANGE REGULATION ACT, 1973 HAS BEEN REPLACED BY THE FOREIGN EXCHANGE MANA GEMENT ACT, I.E. BY FEMA. THE LEARNED AR COULD NOT DRAW OUR ATTEN TION TO ANY SPECIFIC PROVISIONS OF THE FOREIGN EXCHANGE MANAGEMENT ACT WHICH IS APPLIC ABLE DURING THE YEAR UNDER CONSIDERATION WHICH MAY TREAT THE CONSIDERATION REC EIVED ON THE SALES MADE BY 100% HOU TO THE OTHER 100% EOU AS TREATED CONSIDERATION RECEIVED IN CONVERTIBLE 6 ITA NO. 3005-AHD-2008 FOREIGN EXCHANGE, EVEN THOUGH SPECIFIC QUERY HAS BEEN RAISED FROM THE BENCH IN THIS REGARD DURING THE COURSE OF HEARING. THE OF TH E ARGUMENTS OF THE LEARNED AR IS RELIANCE ON THE HON'BLE SUPREME COURT IN THE CASE O F J B BODA & CO. PVT. LTD. VS.- CBDT (1996) 89 TAXMAN 311 (SC), THE FACTS OF THAT T HE ASSESSEE WAS ENGAGED IN THE BROKERAGE BUSINESS IS REINSURANCE BROKERS. IT RECEI VED COMMISSION AT THE RATE OF 3 TO 6 PER CENT, RELATING TO MARITIME AND OTHER INSURANC E. THE ASSESSEE ARRANGES FOR THE REINSURANCE OF A PORTION OF RISK WITH VARIOUS R EINSURANCE COMPANIES EITHER DIRECTLY OR THROUGH FOREIGN BROKERS. THE ASSESSEE IN RETURN OF ITS SERVICES, RECEIVES A PERCENTAGE OF THE PREMIUM RECEIVED BY THE FOREIGN C OMPANIES AS ITS SHARE OF BROKERAGE. AS PER THE AGREEMENT TO THE FOREIGN COMP ANY THE ASSESSEE WAS PERMITTED TO RETAIN ITS SERVICE FEES OUT OF THE GROSS PRE MIUM COLLECTED AND REMIT THE NET AMOUNT TO FOREIGN COMPANY, THE ASSESSEE INSTEAD OF SENDING THE GROSS AMOUNT AND THEN RECEIVING ITS FEES IN FOREIGN CURRENCY, WO RKED OUT THE ENTIRE PREMIA PAYABLE IN DOLLAR AND RETAINED ITS COMMISSION IN DOLLAR AND REMITTED THE BALANCE TO FOREIGN COMPANY WITH THE PERMISSION OF THE RBI. ACCORDING T O THE ASSESSEE, THE AMOUNT OF COMMISSION PAID BY IT WAS A RECEIPT OF CONVERTIBLE FOREIGN EXCHANGE WITHOUT CORRESPONDING FOREIGN EXCHANGE REMITTED WITHIN THE MEANING OF SECTION (3) OF THE FOREIGN EXCHANGE REGULATION ACT. THE ASSESSEE CLAIM ED THAT THE BROKERAGE DETERMINED IN FOREIGN EXCHANGE WAS RETAINED IN INDI A UNDER THE AGREEMENT WITH FOREIGN REINSURERS AND SO IT WOULD AMOUNT TO INCOME U/S 80-O AND SOUGHT APPROVAL OF THE CBDT. THE CBDT DID NOT APPROVE THE AGREEMENT U/S 80-O ON THE GROUND THAT THE INCOME UNDER AGREEMENT WAS GENERATED IN INDIAN RUPEE AND WAS NOT RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE AS REQUIRED U/S 80-O. THE HIGH COURT DISMISSED THE APPELLANT'S WRIT PETITION UPHOLDING THE CBDT'S VIEW . WHEN THE MATTER WENT BEFORE THE THE COURT, THE HON'BLE SUPREME COURT HAS HELD AS UN DER: CIRCULAR NO. 731, DATED 20-12-I995 SEEKS TO DECLARE AND CLARIFY THE REAL SCOPE AND IMPACT OF SECTION 80-O. ACCORDING TO IT R ECEIPT OF BROKERAGE BY A REINSURANCE AGENT IN INDIA FROM THE GROSS PREMIA BE FORE REMITTANCE TO HIS FORE PRINCIPALS WILL ALSO BE ENTITLED TO THE DEDUCT ION UNDER SECTION 80-O, THE CIRCULAR IS CERTAINLY BINDING ON THE REVENUE. THE FACTS BROUGHT OUT IN INSTANT CASE, WERE CLEAR A S TO HOW THE REMITTANCE TO THE FOREIGN REINSURANCE COMPANY WAS MADE THROUGH THE RBI IN CONFORMITY WITH THE AGREEMENT BETWEEN THE APPELLANT AND THE FOREIGN REINSURERS AGAIN THE REMITTANCE STATEMENT FILED EVI DENCED THE FACT THAT THE AMOUNT DUE TO THE FOREIGN REINSURERS AS ALSO THE BR OKERAGE DUE TO THE APPELLANT AND THE BALANCE DUE TO THE FOREIGN REINSU RERS WAS REMITTED (AND EXPRESSED SO) IN DOLLARS. IT WAS COMMON GROUND THAT THE ENTIRE TRANSACTION WAS EFFECTED THROUGH THE MEDIA OF THE RB2 BEING EXP RESSED IN FOREIGN EXCHANGE, AND IN EFFECT THE RETENTION OF THE FEE DU E TO THE APPELLANT WAS IN DOLLARS FOR THE SERVICES RENDERED. THIS WAS RECEIPT OF INCOME IN CONVERTIBLE FOREIGN EXCHANGE. IT SEEMED THAT A 'TWO WAY TRAFFIC ' WAS UNNECESSARY. TO INSIST ON A FORMAL REMITTANCE TO THE FOREIGN REINSU RERS FIRST AND THEREAFTER TO RECEIVE THE COMMISSION FROM THE FOREIGN REINSURE RS WOULD BE AN EMPTY FORMALITY AND A MEANINGLESS RITUAL. ON A PERUSAL OF THE NATURE OF THE TRANSACTION AND IN PARTICULAR THE STATEMENT OF REMI TTANCE FILED IN THE RBI REGARDING THE TRANSACTION, IT WAS IMPROPER TO SAY T HAT THE INCOME UNDER THE AGREEMENT IT IS GENERATED IN INDIA OR THAT THE AMOU NT WAS ONE NOT RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE. 7 ITA NO. 3005-AHD-2008 THE INCOME WAS RECEIVED IN INDIA IN CONVERTIBLE FOR EIGN EXCHANGE, IN A LAWFUL AND PERMISSIBLE MANNER THROUGH PREMIER INSTI TUTION CONCERNED WITH THE SUBJECT-MATTER, THE RBL IN THIS VIEW THE PROCEE DINGS OF THE CBDT DECLINING TO APPROVE THE AGREEMENTS OF THE APPELLAN T WITH FOREIGN COMPANY FOR THE PURPOSES OF SECTION 80-O WERE IMPROPER AND ILLEGAL. THE APPEAL WAS, THE REF ORE, ALLOWED' FROM THE SAID JUDGMENT IT IS APPARENT THAT SINCE TH E ASSESSEE HAS TO RECEIVE ITS SERVICE FEES IN DOLLAR I.E. IN FOREIGN EXCHANGE CONVERTIBLE INTO RUPEE, THE ASSESSEE HAS ALSO TO SEND THE AMOUNT TO THE FOREIGN REINSURERS BY WAY OF PREMIA. THE ASSESSEE INSTEAD OF SENDING THE TOTAL AMOUNT / GROSS PREMIA TO THE FORE IGN PRINCIPAL, DEDUCTED THE FEES FOR ITS SERVICES RENDERED AND ONLY SENT THE NET AMOUNT TO THE FOREIGN PRINCIPAL. THIS CLEARLY SHOWS THAT THE AMOUNT WHICH THE ASSESSEE WO ULD HAVE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE HAS BEEN DEDUCTED AND KEPT BY THE ASSESSEE OUT OF THE GROSS AMOUNT REMITTABLE IN FOREIGN EXCHANGE. THUS THE AMOUNT DED UCTED BY THE ASSESSEE WAS REGARDED TO BE THE AMOUNT RECEIVED IN CONVERTIBLE F OREIGN EXCHANGE. THIS CASE, IN OUR OPINION, WILL NOT ASSIST THE ASSESSEE AS IN THE CAS E OF THE ASSESSEE, THE ASSESSEE WAS NOT ENTERED INTO THE AGREEMENT WITH 100% BOU UNDER WHIC H THE OTHER 100% EOU TO WHOM THE ASSESSEE HAS MADE THE SALES WERE BOUND TO PAY THE SALE CONSIDERATION TO THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE. THE HUNDR ED PER CENT EOUS WERE NOT UNDER ANY OBLIGATION TO PAY THE CONSIDERATION TO THE ASSE SSEE IN CONVERTIBLE FOREIGN EXCHANGE WHILE IN THE CASE BEFORE THE SUPREME COURT THE ASSESSEE WAS BOUND TO RECEIVE FEES FOR HIS SERVICES RENDERED IN DOLLAR. W E HAVE ALSO GONE THROUGH THE DECISION OF THIS TRIBUNAL BENCH-C IN THE CASE OF IT O V ANITHA SYNTHETICS (P) LTD. 100 TTJ 277 WHICH RELATES TO EXEMPTION U/S 10B FOR AY 1 999-2000. THIS DECISION RELATES TO THE CLAIM OF EXEMPTION U/S 10B ON THE SALES MADE BY THE ASSESSEE TO 100% EOU PRIOR TO THE AMENDMENT BEING MADE WITH EFFECT FROM 01-04-2001. EARLIER THERE WAS NO REQUIREMENT U/S 10B THAT THE SALE PROCEEDS OF THE G OODS PRODUCED BY THE 100% EOU TO BE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE. THE REFORE, THIS DECISION, IN OUR OPINION, WILL NOT BE APPLICABLE FOR AY 2001-02. WE HAVE ALSO GONE THROUGH THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF C1T V BEL EMPLOYEES DEATH RELIEF FUND AND SERVICE BENEFIT FUND ASSOCIAT ION (1997) 225 ITR 270 (KAR), THE QUESTION BEFORE THE HIGH COURT W AS - 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IS RIGHT IN LAW IN HOLDING THAT THE OBJECT S OF THE ASSESSEE- SOCIETY FALL WITHIN THE PURVIEW OF SECTION 2(15) OF THE INCOME-TAX ACT AND AS SUCH ITS INCOME IS EXEMPT, UNDER SECTION S 11 AND 12 OF THE INCOME-TAX ACT ?' WHILE DECIDING THIS QUESTION, THE HON'BLE HIGH COUR T HAS HELD AS UNDER: 'HELD, THAT THE RULES UNAMBIGUOUSLY INDICATED THAT THE BENEFIT OF THE SCHEME OR THE ALLEGED CHARITABLE PURPOSE COULD BE UTILIZED ON LY BY SPECIFIED PERSONS WHO WERE REQUIRED TO BE THE SUBSCRIBERS OR THEIR DEPEND ENTS. CONTRIBUTORIES TO THE FUND ALLEGEDLY COLLECTED FOR THEIR PERSONAL BENEFIT S, COULD NOT BE HELD TO BE FORMING AN ASSOCIATION FOR CHARITABLE PURPOSE AND T HUS BEING ENTITLED TO THE BENEFIT OF EXEMPTION UNDER SECTION 11 OF THE ACT, THE OBJECTS OF THE SOCIETY DID NOT FALL WITHIN THE PURVIEW OF SECTION 2(15) OF THE ACT AND ITS INCOME WAS NOT EXEMPT UNDER SECTIONS 11 AND 12 OF THE ACT. 8 ITA NO. 3005-AHD-2008 THE DEFINITION OF THE TERM 'CHARITABLE PURPOSE' UND ER SECTION 2(15) OF THE ACT IS INCLUSIVE AND NOT EXHAUSTIVE OR EXCLUSIVE. A PERUSA L OF THE VARIOUS PROVISIONS OF THE ACT WOULD SHOW THAT THE LEGISLATURE HAD INTENDE D TO GIVE A RESTRICTED MEANING TO THE EXPRESSION 'CHARITABLE PURPOSE' WITH THE OBJECT TO SEE THAT NO COMMERCIAL ACTIVITIES ARE TREATED AS CHARITABLE OBJ ECTS AND THAT ANY ACTIVITY FOR PROFIT OR FOR PERSONAL ENJOYMENT OR FOR AVOIDING TA X, IS NOT REGARDED AS A CHARITABLE PURPOSE. A TRUST IS NOT CHARITABLE, UNLESS IT BENEFITS THE C OMMUNITY OR A SECTION OF THE COMMUNITY. A TRUST WOULD NOT BE CHARITABLE, IF IT O NLY CONFERRED PRIVATE BENEFITS.' THIS DECISION, IN OUR OPINION, SUPPORTS THE CASE OF THE REVENUE. ONCE THE LEGISLATURE HAS DEFINED THE CONVERTIBLE FOREIGN EXCHANGE U NDER EXPLANATION TO SECTION 10B BY GIVING IT RESTRICTED MEANING, ITS MEANING CANNOT BE EXTENDED BEYOND THE DEFINITION GIVEN UNDER EXPLANATION. WE HAVE ALSO GONE THROUGH THE DECISION OF THE HON'B LE RAJASTHAN HIGH COURT IN THE CASE OF LAXMI INDUSTRIES V C1T (2001) 250 ITR 616 (RAJ), TH E QUESTION BEFORE THE RAJASTHAN HIGH COURT WAS: 'WHETHER, THE TRIBUNAL WAS RIGHT IN HOLDING THAT SE CTION 80HHC WOULD NOT APPLY TO THE ASSESSEE FOR SUPPLIES MADE TO ONGC AND OIL INDIA LTD. ON THE BASIS OF GLOBAL TENDER FLOATED BY THEM WHICH IS REC OGNIZED AS DEEMED EXPORTS BY THE MINISTRY OF COMMERCE ? THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE W AS MAKING SUPPLIES TO ONGC AND OIL INDIA LTD. ON THE BASIS OF GLOBAL TENDER FLOATED BY THEM. THE MINISTRY OF COMMERCE HAS PROVIDED VIDE ITS CIRCULAR THAT DOMESTIC COMPANIES WHICH ON THE BASIS OF GLOBAL TENDER SUPPLY GOODS TO ONGC AND OIL INDIA LTD. WOULD BE ENTITLED TO ALL THE BENEFITS WHICH ARE BEING PROVIDED TO EXPORTERS. SUCH SUPPLIES WOULD BE DEEMED EXPORTS AN D ALL THE BENEFITS SUCH AS CASH SUBSIDY, IMPORT REPLACEMENT WOULD ALSO BE MADE AVAILABLE TO SUCH DOMESTIC COMPANIES. THE ASSESSEE ON THE BASIS OF THIS CIRCULAR TREATED THE SUPPLIES MADE TO ONGC AND OIL INDIA LTD, AS EXPORTS AND CLAIMED DEDUCTION U/S 80HHC. THE A.O. R EJECTED THE CLAIM BY HOLDING THAT THE ASSESSEE HAD NOT EXPORTED ANY GOODS OUTSIDE INDIA. THE AAC AGREED WITH THE FINDING OF THE ITO AND DISMISSED THE APPEAL. THE TRIBUNAL CONFIRME D THE ORDER. WHEN THE MATTER TRAVELED TO THE HIGH COURT, THE HON'BLE HIGH COURT HELD THAT A PERUSAL OF THE AFORESAID PROVISIONS MAKES IT CLEAR THAT TWO CONDITIONS MUST BE COMPLIED FOR CLAIMING THE DEDUCTION U/S 80HHC, (I) THE ASSESSEE MUST BE ENGAGED IN THE BUSINESS OF EXPORT OF GOOD OUT OF INDIA, AND (II) THE SALE PROCEED OF SUCH GOODS OR MERCHANDISE MUST BE R ECEIVABLE IN CONVERTIBLE FOREIGN EXCHANGE. THE ASSESSEE WAS NOT ENGAGED IN THE BUSIN ESS OF EXPORT. THE ASSESSEE HAS NOT RECEIVED THE SALE PROCEEDS IN CONVERTIBLE FOREIGN E XCHANGE AND HAS TO RECEIVE THE PAYMENTS IN INDIAN CURRENCY ONLY. THERE WAS NO PROVISION MAD E WHERE SUCH PAYMENT COULD BE DEEMED TO HAVE RECEIVED OR RECEIVABLE IN INDIA IN CONVERTI BLE FOREIGN EXCHANGE. NO LEGAL FICTION CAN BE ASSUMED TO BE EXISTING IN A STATUTE WHEN IT HAS NOT BEEN SO PROVIDED BY THE LEGISLATURE. SINCE BOTH THE CONDITIONS REQUIRED UNDER THE STATUT E FOR CLAIMING THE DEDUCTION U/S 80HHC ARE NON-EXISTENCE, THE ASSESSEE IS NOT ENTITLED TO CLAIM THE DEDUCTION. IN OUR OPINION, THE DECISION IS EQUALLY APPLICABLE IN THE CASE OF THE A SSESSEE. IN THE CASE OF THE ASSESSEE AS WE HAVE ALREADY POINTED OUT THAT TWO CONDITIONS MUST B E COMPLIED WITH FOR CLAIMING THE DEDUCTION U/S 10B, (I) THE ASSESSEE MUST BE ENGAGED IN THE BUSINESS OF EXPORT OF GOOD OUT OF INDIA, AND (II) THE SALE PROCEED OF SUCH GOODS OR M ERCHANDISE MUST BE RECEIVABLE IN CONVERTIBLE FOREIGN EXCHANGE. THE ASSESSEE HAS NOT EXPORTED GOODS OUTSIDE INDIA BUT HAS 9 ITA NO. 3005-AHD-2008 SIMPLY SOLD THE GOODS TO 100% EOU IN INDIA. THE SAL E PROCEEDS HAS NOT BEEN RECEIVED BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE BUT HA S BEEN RECEIVED IN INDIAN RUPEE. EVEN IF SUCH SALE IS DEEMED TO BE THE DEEMED EXPORTS UNDER THE EXIM POLICY IT CANNOT BE ELIGIBLE FOR EXEMPTION U/S 10B. MERELY THE EXIM POLICY DEEMS SU CH SALE TO BE THE EXPORTS, WE CANNOT SAY THAT A LEGAL FICTION CAN BE ASSUMED ON THE BASI S OF EXIM POLICY TO EXIST U/S 10B.- SECTION 10B NOWHERE PROVIDES SO. THE EXIM POLICY CANNOT OVE RRIDE THE PROVISIONS OF THE IT ACT. WE ARE ACCORDINGLY OF THE OPINION THAT THE ASSESSEE IS NOT ENTITLED FOR THE DEDUCTION U/S 10B IN RESPECT OF GOODS SOLD TO 100% EOU IN INDIA. ACCORDI NGLY WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER OF THE CIT(A). IN OUR OPINIO N, THE CIT(A) HAS RIGHTLY CONFIRMED THE ORDER OF THE AO ON THIS ISSUE. 7. SINCE THE FACTS AND CIRCUMSTANCES OF THE CASE AR E SAME, RESPECTFULLY FOLLOWING THE ORDER OF TRIBUNAL DATED 18.09.2009 IN ASSESSEES OWN CASE IN ITA NOS. 538 & 850/AHD/2007 FOR THE ASSESSMENT YEARS 2002-03 & 2003-04, WE DECIDE THE I SSUE IN FAVOUR OF REVENUE. ACCORDINGLY, GROUNDS NO. 1 & 2 THEREOF ARE ALLOWED. 8. GROUNDS NO. 3 & 4 ARE IN GENERAL IN NATURE AND T HEY ALSO RELATE TO GROUNDS NO. 1 & 2. ACCORDINGLY, THEY ARE ALSO ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 21.01.20 11 SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 / 01 / 2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED, (4) CIT CONCERNED, (5) D.R. , ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRA R, ITAT, AHMEDABAD LAHA/SR.P.S.