Eastman Exports Global Clothing (P) Limited, Tiruppur V. JCIT, Tiruppur

ITA 47/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9219 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 18-02-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 08-01-2016
• Court: TRIBUNAL
• Department Lawyers: MSVM PRASAD
• Assessee Lawyers: T BANUSEKAR
• Keywords: Fair market value; Capital receipt
• Section: 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . ! , ' # $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.47 & 48/MDS/2016 / ASSESSMENT YEARS : 2011-12 & 2012-13 M/S EASTMAN EXPORTS GLOBAL CLOTHING (P) LTD NO.10, 12, 2 ND STREET KUMAR NAGAR SOUTH TIRUPUR 641 603 VS. THE JT. COMMISSIONER OF INCOME-TAX TIRUPUR RANGE/DY. CIT, CIRCLE 1 TIRUPUR [PAN AACCC 0952 E ] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : SHRI T. BANUSEKAR, CA /RESPONDENT BY : SHRI MSVM PRASAD, CIT / DATE OF HEARING : 18 - 02 - 2016 ! / DATE OF PRONOUNCEMENT : 17 - 05 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AG AINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-3, COIMBATORE, DATED 27.10.2015 FOR ASSESSMENT YEARS 2 011-12 AND 2012-13. SINCE COMMON ISSUE ARISES FOR CONSIDERATIO N IN BOTH THE APPEALS, WE HEARD THEM TOGETHER AND DISPOSING OF TH E SAME BY THIS COMMON ORDER. ITA NO.47 & 48/16 :- 2 -: 2. SHRI T. BANUSEKAR, LD. REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT THE ASSESSEE RECEIVED MARKET LINKED FOCUS PRODUCT SCHEME SCRIPS ON EXPORT OF KNITTED GARMENTS. THE M ARKET LINKED FOCUS PRODUCT SCHEME WAS GIVEN @ 2% OF THE FOB VALU E FOR EXPORT TO POTENTIAL NEW MARKETS AND NOT FOR ALL THE MARKETS. ACCORDING TO THE LD. REPRESENTATIVE, THIS IS AN INCENTIVE GIVEN FOR EXPL ORING NEW MARKET ON A LONG TERM PERSPECTIVE. THE POTENTIAL MARKETS WIL L BE IDENTIFIED BY THE GOVERNMENT AND THE SAMPLES WILL BE SENT FOR EXP LORING THE MARKETS. THE ASSESSEE IS ENGAGED IN THE MANUFACTU RING OF HOSIERY GARMENTS, THEREFORE, EXPORTED HOSIERY GARMENTS TO S OUTH AMERICAN COUNTRIES. MARKET LINKED FOCUS PRODUCT SCHEME WAS GIVEN FOR GETTING DUTY FREE IMPORTS. ACCORDING TO THE LD. REPRESENTA TIVE, SALE OF SCRIPS WAS NOT CONNECTED WITH THE BUSINESS OF THE ASSESSE E. PLACING RELIANCE ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CAS E OF CIT VS EASTERN SEAFOODS EXPORTS P. LTD, 215 ITR 64, THE LD . REPRESENTATIVE SUBMITTED THAT SALE OF REPLENISHMENT LICENCES IS AN ACT WHOLLY UNCONNECTED WITH THE BUSINESS OF THE ASSESSEE. 3. THE LD. REPRESENTATIVE FOR THE ASSESSEE FURTHER SU BMITTED THAT PREMIUM ON SALE OF MARKET LINKED FOCUS PRODUCT SCHEME SCRIPS IS NOT COVERED EITHER U/S 28 OR 26 OF THE ACT. ACCOR DING TO THE LD. REPRESENTATIVE, MARKET LINKED FOCUS PRODUCT SCHEME SCRIPS IS NOT A CASH ASSISTANCE RECEIVED BY THE ASSESSEE FOR EXPOR T UNDER THE SCHEME ITA NO.47 & 48/16 :- 3 -: OF GOVERNMENT OF INDIA. REFERRING TO SEC. 28 OF TH E ACT, THE LD. REPRESENTATIVE SUBMITTED THAT DEPB IS SPECIFICALLY INCLUDED IN SEC. 28 OF THE ACT, THEREFORE, ANY AMOUNT RECEIVED ON SALE OF DEPB IS INCOME UNDER THE INCOME-TAX ACT, 1961. HOWEVER, PREMIUM O N TRANSFER OF MARKET LINKED FOCUS PRODUCT SCHEME SCRIPS IS NOT IN CLUDED IN ANY OF THE PROVISION OF THE INCOME-TAX ACT, 1961 INCLUDING SEC. 28, THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE MONEY RECE IVED ON TRANSFER OF MARKET LINKED FOCUS PRODUCT SCHEME SCRIPS IS A CAPI TAL RECEIPT. THE LD. DR FURTHER SUBMITTED THAT AN ATTEMPT WAS MADE T O INCLUDE THE CONSIDERATION RECEIVED ON TRANSFER OF A RIGHT BY WH ATEVER NAME CALLED UNDER THE SCHEME FRAMED BY GOVERNMENT OF INDIA OR T HE LOCAL AUTHORITY OR CORPORATION, IN THE PROPOSED DIRECT TA X CODE, HOWEVER, THE DIRECT TAX CODE COULD NOT SEE THE LIGHT OF THE DAY SO FAR. THE PARLIAMENT DID NOT AMEND THE INCOME-TAX ACT, 1961 S O FAR SO AS TO INCLUDE THE TRANSFER OF RIGHT OR BENEFIT IN SEC. 28 OF THE ACT. THEREFORE, THE INTENTION OF THE PARLIAMENT IS NOT TO TAX THE P REMIUM ON TRANSFER OF MARKET LINKED FOCUS PRODUCT SCHEME SCRIPS. 4. PLACING RELIANCE ON THE JUDGMENT OF THE APEX COURT IN VODAFONE INTERNATIONAL HOLDINGS B.V VS UOI & ANR [2 012] 341 ITR 1, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT REFERRING TO THE DIRECT TAX CODE BILL, 2010, THE APEX COURT OBSERVED THAT THERE WAS A PROPOSAL TO TAX INCOME FROM TRANSFER OF SHARES OF A FOREIGN COMPANY ITA NO.47 & 48/16 :- 4 -: BY A NON-RESIDENT, WHERE AT ANY TIME DURING 12 MONT HS PRECEDING THE TRANSFER, THE FAIR MARKET VALUE OF THE ASSETS IN IN DIA, OWNED DIRECTLY OR INDIRECTLY, BY THE COMPANY, REPRESENTS AT LEAST 50% OF THE FAIR MARKET VALUE OF ALL THE ASSETS OWNED BY THE COMPANY. IN TH E DIRECT TAX CODE BY VIRTUE OF DEEMING PROVISION, THERE WAS A PROPOSA L TO INCLUDE ANY CONSIDERATION ON TRANSFER OF A RIGHT OR BENEFIT BY WHATEVER NAME CALLED ACCRUED OR RECEIVED UNDER THE SCHEME AS INCOME. HO WEVER, SUCH A PROPOSAL IS NOT ATTEMPTED IN THE PRESENT INCOME-TAX ACT, 1961 AND NO AMENDMENT WAS MADE EITHER IN SEC. 28(IIIA) TO 28 (I IIE) OF THE ACT AND SEC. 2(24)(VA) TO 2(24)(VE). THE LD. REPRESENTATIV E FURTHER SUBMITTED THAT PROFIT ON SALE OF IMPORT ENTITLEMENT AND CERTA IN OTHER SPECIFIED RECEIPTS ARE SPECIFICALLY INCLUDED AS INCOME. THER E WAS AN OMISSION FOR BRINGING THE PREMIUM ON TRANSFER OF MARKET LINKED F OCUS PRODUCT SCHEME SCRIPS. THEREFORE, AS OBSERVED BY THE APEX COURT IN VODAFONE INTERNATIONAL HOLDINGS B.V (SUPRA), THE TR EATMENT OF A PARTICULAR ITEM IN DIFFERENT MANNER IN THE 1961 ACT AND DIRECT TAX CODE, 2010 INDICATES THE IMPORTANT GUIDE TO DETERMI NE THE TAXABILITY OF THE SAID ITEM. IN THE ABSENCE OF A SPECIFIC PROVIS ION IN SEC. 28(IIIA) TO 28(III2), ACCORDING TO THE LD. REPRESENTATIVE, THE PREMIUM RECEIVED ON TRANSFER OF MARKET LINKED FOCUS PRODUCT SCHEME SCR IPS CANNOT BE CONSIDERED AS REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE. AT THE BEST, THE PREMIUM RECEIVED ON TRANSFER OF MARKET LI NKED FOCUS PRODUCT ITA NO.47 & 48/16 :- 5 -: SCHEME SCRIPS CAN BE EQUATED TO TUF SUBSIDY. PLACI NG RELIANCE ON THE DECISION OF THE KOLKATA BENCH OF THIS TRIBUNAL IN D CIT VS GLOSTER JUTE MILLS LTD, 33 ITR (TRIB) 322 AND DCIT VS SUTLEJ TEX TILES AND INDUSTRIES LTD, 44 CCH 287, THE LD. REPRESENTATIVE SUBMITTED T HAT SUBSIDY RECEIVED FROM CENTRAL GOVERNMENT ON ACCOUNT OF INTE REST REFUND U/S TUF IS CAPITAL IN NATURE WHEN THE OBJECT OF SUBSIDY IS TO SUSTAIN COMPETITIVENESS IN THE DOMESTIC AS WELL AS INTERNAT IONAL MARKET. 5. PLACING RELIANCE ON THE JUDGMENT OF THE APEX COURT IN CIT VS PONNI SUGARS & CHEMICALS LTD, 306 ITR 392, THE LD. REPRESENTATIVE SUBMITTED THAT CHARACTER OF A RECEIPT IN THE HANDS OF THE ASSESSEE HAS TO BE DETERMINED WITH REFERENCE TO THE PURPOSE FOR WHICH THE SUBSIDY WAS GIVEN. IF THE OBJECT OF THE SUBSIDY WAS TO ENAB LE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY, THEN THE RECEIPT IS ON REVENUE ACCOUNT. IF THE OBJECT OF THE ASSISTANCE WAS TO EN ABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNITS, THEN THE RECEIPT WAS ON THE CAPITAL ACCOUNT. 6. REFERRING TO THE PREMIUM ON TRANSFER OF MARKET LINK ED FOCUS PRODUCT SCHEME SCRIPS, THE LD. REPRESENTATIVE SUBMI TTED THAT THE SCRIPS WERE GIVEN TO THE ASSESSEE-COMPANY AS INCENT IVE BY THE GOVERNMENT FOR EXPLORING THE NEW MARKETS SINCE TRAD ITIONAL MARKETS IN THE DEVELOPED WORLD WITNESSED A SHARP CONTRACTION I N DEMAND. ACCORDING TO THE LD. REPRESENTATIVE, THE INCENTIVE GIVEN TO THE ITA NO.47 & 48/16 :- 6 -: ASSESSEE WAS NOT TO RUN THE BUSINESS OF THE ASSESS EE MORE PROFITABLY BUT FOR EXPLORING THE NEW MARKET. THEREFORE, THE P REMIUM RECEIVED ON TRANSFER OF MARKET LINKED FOCUS PRODUCT SCHEME SCRI PS HAS TO BE TREATED AS CAPITAL RECEIPT, HENCE, IT IS NOT SUBJEC TED TO TAXATION UNDER THE SCHEME OF THE INCOME-TAX ACT, 1961. 7. ON THE CONTRARY, SHRI MSVM PRASAD, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE GOVERNMENT OF IND IA WITH AN INTENTION TO PROMOTE EXPORTS TO CERTAIN REGIONS/COU NTRIES PROVIDE INCENTIVE OF 2% ON FOB VALUE. THE MARKET LINKED FO CUS PRODUCT SCHEME IS AKIN TO SALE OF LICENCE AND ENTITLEMENTS MENTIONED IN SEC. 28 OF THE ACT. ACCORDING TO THE LD. DR, THE GOVERNMEN T OF INDIA PROVIDES FOR MARKET LINKED FOCUS PRODUCT SCHEME SCRIPS AS IN CENTIVE FOR PROMOTING EXPORTS IN THE COUNTRY, THEREFORE, MARKET LINKED FOCUS PRODUCT SCHEME IS NOTHING BUT A TRADE PROMOTING SCH EME AND RECEIPTS FROM SALE OF SCRIPS HAS TO BE TREATED AS REVENUE IN NATURE. THEREFORE, THE CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 8. PLACING RELIANCE ON THE CLARIFICATION ISSUED BY THE CBDT IN CIRCULAR NO.564 DATED 5.7.1990, THE LD. DR SUBMITTE D THAT THE EXPORT INCENTIVE NEEDS TO BE INCLUDED AS INCOME U/S 2(24) OF THE ACT. THE EXPORT INCENTIVES ARE REVENUE RECEIPTS, THEREFORE, LIABLE FOR TAXATION. THE INCENTIVE NOW GIVEN TO THE ASSESSEE @ 2% OF TH E FOB VALUE IS IN ITA NO.47 & 48/16 :- 7 -: THE NATURE OF EXPORT INCENTIVE, THEREFORE, IT WILL FORM PART OF THE REVENUE RECEIPT U/S 28 OF THE ACT. SINCE THE INCE NTIVE WAS GIVEN BASED ON THE EXPORT MADE BY THE ASSESSEE, ACCORDIN G TO THE LD. DR, WHAT WAS RECEIVED BY THE ASSESSEE IS INCOME U/S 2 (24) OF THE ACT. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY FOUND THAT THE INCENTIVE RECEIVED ON EXPORT IS LIABLE FOR TAXATION. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. TH E MARKET LINKED FOCUS PRODUCT SCHEME IS A SCHEME PROMOTED BY THE DI RECTOR GENERAL OF FOREIGN TRADE WHEREIN INCENTIVE @ 2% ON THE FOB VALUE OF THE TOTAL EXPORT WAS ALLOWED. AS PER THE SCHEME, THE I NCENTIVE WAS GIVEN TO EXPORT PRODUCTS IN A SPECIFIED MARKET. THE EXPO RT OF PRODUCTS WHICH ARE COVERED UNDER FPS LIST WOULD BE GIVEN INCENTIVE OF 2% ON FOB VALUE OF THE EXPORT. IN OTHER WORDS, IT IS AN INCE NTIVE GIVEN BY THE GOVERNMENT FOR EXPLORING THE NEW MARKETS ACROSS THE GLOBE. THE QUESTION ARISES FOR CONSIDERATION IS WHEN THE ASSE SSEE WAS GIVEN INCENTIVE FOR EXPLORING THE NEW MARKETS ACROSS THE GLOBE, WHETHER SUCH INCENTIVE WOULD BE A CAPITAL RECEIPT OR REVENU E RECEIPT? THE APEX COURT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD (SUPRA) HAD AN OCCASION TO EXAMINE AN IDENTICAL SITUATION AND OBSE RVED THAT IF THE OBJECT OF THE SUBSIDY WAS TO ENABLE THE ASSESSEE TO CARRY ON THE BUSINESS MORE PROFITABLY, THEN THE RECEIPT IS ON TH E REVENUE ACCOUNT. ITA NO.47 & 48/16 :- 8 -: ON THE OTHER HAND, IF THE OBJECT OF ASSISTANCE WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR EXPAND THE EXISTIN G UNIT, THEN THE RECEIPT IS ON THE CAPITAL ACCOUNT. IN THE CASE BEF ORE US, THE GOVERNMENT OF INDIA PROVIDED THE INCENTIVE FOR EXPL ORING THE NEW MARKETS ACROSS THE GLOBE. EXPLORING A NEW MARKET F OR A SPECIFIED AREA WOULD NATURALLY EXPAND THE MARKET AREA OF THE ASSES SEE. THE INCENTIVE GIVEN TO THE ASSESSEE IS NOT FOR RUNNING THE BUSINESS PROFITABLY BUT FOR EXPANDING THE MARKET AREA. THER EFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE INCENTIVE GIV EN BY THE GOVERNMENT TO THE ASSESSEE FOR EXPLORING THE NEW MARKET IS A CAPITAL RECEIPT, HENCE IT CANNOT BE TREATED AS INCOME EITHE R U/S 2(24) OR 28 OF THE ACT. IN VIEW OF THE ABOVE, WE ARE UNABLE TO UP HOLD THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE ORDERS OF TH E LOWER AUTHORITIES ARE SET ASIDE AND THE ADDITION MADE BY THE ASSESSIN G OFFICER IS DELETED. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE STA ND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MAY, 2016, AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) ' / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 17 TH MAY, 2016 RD ITA NO.47 & 48/16 :- 9 -: &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF