THE ACIT CC-35, MUMBAI V. M/S. BHAVANI GEMS, MUMBAI

ITA 3774/MUM/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8864 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 11-01-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 14-06-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M KHARE
• Keywords: Business income; Question of law
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NOS.4098/MUM/ 2004 A.Y 2000-01 3774/MUM/2006 A.Y 2002-03 & 957/MUM/2007 A.Y 2003-04. ASST. COMMISSIONER OF I.T., CENTRAL CIRCLE 35, MUMBAI. VS. M/S BHAVANI GEMS, 101, PRASAD CHAMBERS, M.P.MARG, OPERA HOUSE, MUMBAI 400 004. PAN: AAAFB 2302 G (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. M. KHARE. RESPONDENT BY : NONE O R D E R PER T.R.SOOD, AM: IN ALL THESE APPEALS THE MATTER HAS BEEN REMANDED BACK TO THE FILE OF THE TRIBUNAL BY THE HON'BLE BOMBAY HIGH COU RT AND, ACCORDINGLY, THE HEARING WAS FIXED FOR TODAY THE 12 TH JANUARY, 2011 AND NOTICE THROUGH RPAD WAS ISSUED. HOWEVER, NONE APPEARED ON BEHALF OF THE ASSESSEE. SINCE THE NOTICE HAS BEEN ISSUED AND MORE OVER AS POINTED OUT BY THE LD. DR THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT, WE THEREFORE, PROCEEDED TO DECIDE THESE APPEALS ON EX PARTE BASIS. 2. IN ALL THESE APPEALS ONE OF THE COMMON GROUND RA ISED BY REVENUE BEFORE US WAS AS UNDER: 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] WAS NOT CORRECT IN HOLDING THAT THE ENTIRE P ROFITS INCLUDING INTEREST ARE ENTITLED TO DEDUCTION U/S.80HHC WITHOU T APPRECIATING THE FACTS CONTAINED IN THE DECISION OF THE HON'BLE SUPR EME COURT IN THE CASE OF DR. V. P. GOPINATHAN REPORTED IN 248 ITR 44 9 AND VARIOUS OTHER HIGH COURT DECISIONS WHEREIN IT IS STATED THA T THERE WERE NO SUCH PROVISIONS IN LAW PERMITTING SUCH DIMINUTION AND TH E INTEREST ON THE LOAN TAKEN FROM THE BANK DID NOT REDUCE ITS INCOME BY WAY OF INTEREST ON THE FIXED DEPOSIT. 3. THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ALL THESE YEARS AND THE REVENUE CARRIED THE MATT ER BEFORE THE HON'BLE HIGH COURT. THE HON'BLE HIGH COURT REMITTED THE MATTER BACK TO THE FILE OF THE TRIBUNAL. FOR EXAMPLE IN A.Y 200 3-04 THE HON'BLE HIGH COURT IN I.T.A.NO.1140 OF 2008 HAS PASSED THE FOLLO WING ORDER: THE APPEAL HAS BEEN ADMITTED ON THE FOLLOWING SUBS TANTIAL QUESTION OF LAW: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE HON'BLE ITAT WAS LEGALLY CORRECT IN TRE ATING INTEREST INCOME EARNED BY THE ASSESSEE ON F.DS KEPT WITH BAN K AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOU RCES AND ALLOWING NETTING OF INTEREST FOR THE PURPOSE OF DED UCTION U/S.80HHC OF THE ACT? COUNSEL APPEARING ON BEHALF OF THE ASSESSEE AND COU NSEL APPEARING ON BEHALF OF THE REVENUE ARE AGREED IN ST ATING BEFORE THE COURT THAT IN VIEW OF THE JUDGMENTS OF THIS COURT I N COMMISSIONER OF INCOME TAX V. ASIAN STAR COMPANY LTD. (ITA 200K OF 2009 DECIDED ON 18/19 MARCH 2010) AND IN COMMISSIONER OF INCOME TAX V. SWANI SPICE MILLS PVT. LTD. (ITA 1019 OF 2007 DATED 19 AP RIL 2010) THE IMPUGNED ORDER OF THE TRIBUNAL DATED 10 MARCH 2008 MAY BE SET ASIDE AND THE APPEAL MAY BE REMITTED BACK TO THE TRIBUNAL FOR DECISION IN THE LIGHT OF THE AFORESAID JUDGMENTS. IN VIEW OF THE ST ATEMENT MADE BEFORE THE COURT, THE IMPUGNED ORDER OF THE TRIBUNAL DATED 10 MARCH 2008 TO THAT EXTENT IS SET ASIDE AND ITA 957/MUM/2007 SHALL STAND RESTORED TO THE FILE OF THE TRIBUNAL FOR DECISION OF THE AFORES AID ISSUE IN VIEW OF THE JUDGMENTS OF THIS COURT. THE APPEAL IS ACCORDINGLY DISPOSED OF. 3 4. SIMILARLY, FOR A.Y 2002-03 THE HON'BLE HIGH COUR T HAS REMITTED THE MATTER BACK TO THE FILE OF THE TRIBUNAL WITH ID ENTICAL DIRECTIONS IN I.T.A.NO.2652 OF 2009. IN A.Y 2000-01 THE MATTER HA S BEEN REMITTED BACK TO THE FILE OF THE TRIBUNAL WITH IDENTICAL DIR ECTIONS IN I.T.A.NO.1408 OF 2008. 5. THE LD. DR SUBMITTED THAT NOW THIS ISSUE STANDS COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF THE JURISD ICTIONAL HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD. [326 ITR 56]. IN ANY CASE, THE HON'BLE HIGH COURT ITSELF HAS DIRECTED TO DECID E THE ISSUE IN THE LIGHT OF THIS DECISION. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. DR AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE RAIS ED BEFORE US IS WHETHER INTEREST EARNED IS ELIGIBLE FOR DEDUCTION U /S.80HHC. THE HON'BLE HIGH COURT HAS CLEARLY HELD THAT 90% OF THE GROSS INTEREST HAS TO BE EXCLUDED FROM THE BUSINESS PROFITS UNDER EXPLA NATION (BAA) TO SECTION 80HHC FOR THE PURPOSE OF COMPUTING DEDUCTIO N U/S.80HHC. THE HON'BLE HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. [SUPRA] HELD AS UNDER: THE SPECIAL DEDUCTION UNDER SECTION 80 HHC OF THE INCOME TAX ACT, 1961, IS AVAILABLE TO AN ASSESSEE ENGAGED IN THE EX PORT OF GOODS OR MERCHANDISE OUTSIDE INDIA TO THE EXTENT OF THE PROF ITS SPECIFIED IN SUB- SECTION (1B) OF THE PROVISION. CLAUSE (A) OF SUB-SE CTION (3) OF SECTION 80 HHC PROVIDES THAT WHERE THE EXPORTED GOODS ARE M ANUFACTURED BY THE ASSESSEE, THE DEDUCTION UNDER SUB-SECTION (1) W OULD BE IN ACCORDANCE WITH THE FORMULA STATED THEREIN. THE FOR MULA IS THAT THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE AMOUN T WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN 4 RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER O F THE BUSINESS CARRIED ON BY THE ASSESSEE. EXPLANATION (BAA) WAS INSERTED BY THE FINANCE (NO.2) ACT OF 1991. UNDER EXPLANATION (BAA), THE EX PRESSION PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AS REDUCED BY NINETY PER CENT. OF (A) ANY SUMS REFERRED TO IN CLAUSES (I IIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28; OR (B) ANY RECEIPTS BY WA Y OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS. THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSE E SITUATED OUTSIDE INDIA HAVE ALSO TO BE REDUCED. SINCE RECEIPTS BY WA Y OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR OTHER SIMILA R RECEIPTS HAVE NO NEXUS WITH THE EXPORT ACTIVITY, THE LEGISLATURE THO UGHT IT FIT, FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 HHC TO EXCLUD E SUCH ITEMS FROM BUSINESS PROFITS. PARLIAMENT WAS, HOWEVER, CON SCIOUS OF THE FACT THAT THE EXPENDITURE INCURRED IN EARNING THE ITEMS WHICH WERE LIABLE TO BE EXCLUDED HAD ALREADY GONE IN TO THE COMPUTATION OF BUSINESS PROFITS. THIS WAS BECAUSE THE COMPUTATION OF BUSINESS PROFIT S UNDER CHAPTER IV IS MADE BY AMALGAMATING THE RECEIPTS AS WELL AS THE EXPENDITURE INCURRED IN CARRYING ON THE BUSINESS. SINCE THE EXP ENDITURE INCURRED IN EARNING THE INCOME BY WAY OF INTEREST, BROKERAGE, C OMMISSION RENT, CHARGES OR OTHER SIMILAR RECEIPTS HAD ALSO GONE INT O THE COMPUTATION OF BUSINESS PROFITS, PARLIAMENT THOUGHT IT FIT TO EXCL UDE ONLY NINETY PER CENT. OF THE RECEIPTS RECEIVED BY THE ASSESSEE IN O RDER TO ENSURE THAT THE EXPENDITURE WHICH IS INCURRED BY THE ASSESSEE IN EA RNING THE RECEIPTS WHICH HAS GONE INTO THE COMPUTATION OF THE BUSINESS PROFITS IS TAKEN CARE OF. IN PROVIDING A SIMPLIFIED FORMULA IN THESE TERMS, PARLIAMENT EVIDENTLY ADOPTED A FAIR AND REASONABLE STATUTORY B ASIS OF WHAT MAY BE REGARDED AS EXPENDITURE INCURRED FOR THE EARNING OF THE RECEIPTS. THE DISTORTION OF THE PROFITS THAT WOULD TAKE PLACE BY EXCLUDING THE RECEIPTS RECEIVED BY THE ASSESSEE WHICH WERE UNRELATED TO EX PORT TURNOVER AND NOT THE EXPENDITURE INCURRED BY THE ASSESSEE IN EAR NING THOSE RECEIPTS WAS FACTORED IN BY PARLIAMENT BY EXCLUDING ONLY NIN ETY PER CENT. OF THE RECEIPTS RECEIVED BY THE ASSESSEE. THE EXTENT OF TH E EXCLUSION WHICH IS STATUTORILY MANDATED BY PARLIAMENT IS NINETY PER CE NT OF THE TOTAL RECEIPTS. THIS IS BECAUSE THE EXPENDITURE WHICH IS INCURRED BY THE ASSESSEE IN EARNING THESE RECEIPTS WOULD HAVE GONE INTO THE COMPUTATION OF THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND A DISTORTION WOULD BE CAUSED IF THE ENTIRETY OF THE I NCOME GENERATED FROM THE RECEIPTS ALONE WERE TO BE EXCLUDED. IT IS IN OR DER TO OBVIATE SUCH A DISTORTION THAT PARLIAMENT MANDATED THAT NINETY PER CENT OF THE RECEIPTS WOULD BE EXCLUDED. ONCE PARLIAMENT HAS LEGISLATED B OTH IN REGARD TO THE NATURE OF THE EXCLUSION AND THE EXTENT OF THE E XCLUSION, IT WOULD NOT BE OPEN TO THE COURT TO ORDER OTHERWISE BY REWRITIN G THE LEGISLATIVE PROVISION. THE TASK OF INTERPRETATION IS TO FIND OU T THE TRUE INTENT OF A LEGISLATIVE PROVISION. HENCE FOR THE PURPOSE OF EXP LANATION (BAA) TO 5 SECTION 80 HHC THE GROSS INTEREST ON FIXED DEPOSITS IN THE BANK RECEIVED BY THE ASSESSEE SHOULD BE CONSIDERED FOR T HE PURPOSE OF WORKING OUT THE DEDUCTION UNDER SECTION 80 HHC AND NOT THE NET INTEREST. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE D ECIDE THESE APPEALS IN FAVOUR OF THE REVENUE. 7. IN THE RESULT, REVENUES APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF JANUARY, 2011. SD/- SD/- (N.V.VASUDEVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 21 ST JANUARY, 2011. P/-*