Linea Fashions (India) Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 565/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9440 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 16-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 07-03-2014
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Capital receipt
• Section: 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.565/MDS/2014 / ASSESSMENT YEAR : 2006-07 M/S LINEA FASHIONS (INDIA) P. LTD SDF-III, UNIT NOS.47-57 AND 69-79 MEPZ, TAMBARAM CHENNAI 600 045 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE II(4) CHENNAI [PAN AAACL 7616 C ] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI G.SEETHARAMAN, ADVOCATE /RESPONDENT BY : SHRI P. RADHAKRISHNAN, JCIT / DATE OF HEARING : 17 - 03 - 2016 ! / DATE OF PRONOUNCEMENT : 29 - 04 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, CHENN AI, DATED 22.11.2013 AND PERTAINS TO ASSESSMENT YEAR 2006-07 . 2. SHRI G.SEETHARAMAN, LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE ASSESSEE ITSELF ENGAGED IN THE MANUFACTUR E AND EXPORT OF TEXTILE GARMENTS. THE GOVERNMENT OF INDIA, IN ORD ER TO ENCOURAGE THE TEXTILE INDUSTRY IN THE COUNTRY, PROMOTED A SPECIAL SCHEME FOR TECHNOLOGY UPGRADATION. THE SCHEME IS KNOWN AS TE CHNOLOGY ITA NO. 565/14 :- 2 -: UPGRADATION FUND SCHEME (TUFS). BY THIS SCHEME, THE MINISTRY OF TEXTILES WILL REIMBURSE 5% OF THE INTEREST PAID BY THE ASSESSEE ON THE SPECIFIED LOAN FROM THE IDENTIFIED BANKS/FINANCIAL INSTITUTIONS FOR A PERIOD OF FIVE YEARS. DURING THE YEAR UNDER CONSIDE RATION, THE ASSESSEE RECEIVED A SUM OF ` 74,37,068/- FROM THE MINISTRY OF TEXTILES TOWARDS REIMBURSEMENT OF 5% INTEREST ON THE LOAN BO RROWED BY THE ASSESSEE FOR TECHNOLOGY UPGRADATION. THE ASSESSING OFFICER FOUND THAT THE IMMEDIATE SOURCE FOR REIMBURSEMENT OF INTEREST IS THE GOVERNMENTS SCHEME UNDER THE TUFS AND NOT THE EXPO RT OF GARMENTS. THEREFORE, THE REIMBURSEMENT MADE BY GOVERNMENT OF INDIA HAS NO NEXUS WITH THE EXPORT OF THE ASSESSEE. ACCORDINGL Y, THE CLAIM OF THE ASSESSEE U/S 10B WAS REJECTED. THE ASSESSING OFFI CER HAS TREATED THE REIMBURSEMENT OF INTEREST AS REVENUE RECEIPT AND AC CORDINGLY BROUGHT THE SAME TO TAX. THE CIT(A) HAS ALSO CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 3. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE REIMBURSEMENT OF 5% OF INTEREST UNDER THE TUFS IS A CAPITAL RECEIPT, THEREFORE, IT IS NOT LIABLE FOR TAXATION. ACCORDIN G TO THE LD. COUNSEL, AS PER THE SCHEME, THE GOVERNMENT OF INDIA WILL REIMB URSE 5% OF THE INTEREST ON THE LOAN BORROWED FOR THE PURPOSE OF UP GRADTION OF THE MACHINERY. THEREFORE, THE REIMBURSEMENT RECEIVED FROM GOVERNMENT OF INDIA WILL GO TO REDUCE THE PAYMENT OF INTEREST TO THE ITA NO. 565/14 :- 3 -: BANKS/FINANCIAL INSTITUTIONS ON THE BORROWED FUNDS, HENCE, IT IS A CAPITAL RECEIPT. EVEN OTHERWISE, ONCE THE PAYMENT OF INTER EST IS REDUCED TO THE EXTENT THE AMOUNT RECEIVED FROM GOVERNMENT OF I NDIA, THE PROFIT OF THE ASSESSEE ON EXPORT WOULD AUTOMATICALLY INCR EASE TO THE EXTENT OF THE AMOUNT RECEIVED FROM THE GOVERNMENT OF INDIA . THEREFORE, THE PROFIT OF THE ASSESSEE TO THE EXTENT INCREASED IS ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. BOTH THE AUTHORITIES BELOW MIS UNDERSTOOD THE SCHEME OF THE GOVERNMENT OF INDIA AND FOUND THAT WH AT WAS RECEIVED BY THE ASSESSEE IS NOT FROM EXPORT BUT FROM THE SC HEME OF GOVERNMENT OF INDIA. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, THOUGH THE MONEY WAS RECEIVED AS REIMBURSEMENT OF I NTEREST ON THE BORROWED LOANS, IT GOES TO REDUCE THE PAYMENT OF IN TEREST ON THE BORROWED FUNDS, HENCE, THE PROFIT OF THE ASSESSEE WOULD AUTOMATICALLY INCREASE TO THAT EXTENT. THEREFORE, THE INCREASED PROFIT IS ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. 4. ON THE CONTRARY, SHRI P. RADHAKRISHNAN, LD. DEPARTM ENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE-COMPANY BORROWED LOAN FROM ING VYSYA BANK IN THE YEAR 2003. THE ASSESSE E WAS PAYING INTEREST ON THIS LOAN. DURING THE FINANCIAL YEAR 2 005-06 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED ` 74,37,068/- AS REIMBURSEMENT OF INTEREST FROM THE M INISTRY OF TEXTILES UNDER TUFS. THIS MONEY RECEIVED BY THE ASSESSEE I S UNDER THE ITA NO. 565/14 :- 4 -: GOVERNMENTS SCHEME AND NOT FROM EXPORT OF GARMENTS BY THE ASSESSEE. THEREFORE, THE REIMBURSEMENT OF INTEREST BY GOVERNMENT OF INDIA CANNOT BE CONSTRUED AS INCOME FROM SALES OR E XPORT OF GARMENTS BY THE ASSESSEE HENCE, THE INTEREST REIMBURSEMENT MADE BY THE GOVERNMENT HAS NO NEXUS WITH THE EXPORT OF THE ASS ESSEE. THEREFORE, THE INTEREST REIMBURSEMENT HAS TO BE TRE ATED AS INDEPENDENT SOURCE FOR THE ASSESSEE AND IT LIABLE FOR TAXATION. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, IT APPEARS THAT TH E ASSESSEE HAS OBTAINED ` 6.44 CRORES AS LOAN FROM ING VYSYA BANK DURING THE YEAR 2003. THE ASSESSEE HAS RECEIVED ` 74,37,068/- AS REIMBURSEMENT OF INTEREST FROM THE MINISTRY OF TEXTILES UNDER TUFA. ADMITTEDLY, AS PER THE SCHEME, WHAT WAS REIMBURSED TO THE ASSESSEE IS 5% OF THE INTEREST PAID ON THE BORROWED FUNDS FOR THE PURPOSE OF TECHNOLOGY UPGRADATION. IT IS ALSO NOT IN DISPUTE THAT BY UTI LIZING THE LOAN, THE ASSESSEE HAS PURCHASED NEW MACHINERY TO UPGRADE THE TECHNOLOGY, THEREFORE, WHEN THE GOVERNMENT REIMBURSED 5% OF THE INTEREST ON THE BORROWED LOAN WHICH WAS USED FOR PURCHASING MACHINE RY, THE REPAYMENT OF INTEREST ON THE BORROWED LOAN WOULD AU TOMATICALLY REDUCE TO THE EXTENT OF REIMBURSEMENT MADE BY THE G OVERNMENT OF INDIA. IN OTHER WORDS, THE COST OF THE MACHINERY W ILL ALSO GET REDUCED ITA NO. 565/14 :- 5 -: TO THE EXTENT THE REIMBURSEMENT WAS MADE BY THE GOV ERNMENT OF INDIA. ONCE THE INTEREST PAYMENT IS REDUCED, THE PR OFIT OF THE ASSESSEE WOULD AUTOMATICALLY GET INCREASED TO THE E XTENT THE AMOUNT WAS REIMBURSED BY THE GOVERNMENT OF INDIA. IT IS N OBODYS CASE THAT THE ASSESSEE HAS ANY OTHER SOURCE OF INCOME OTHER THAN EXPORT OF GARMENTS. THEREFORE, THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT TO THE EXTENT OF REIMBURSEMENT OF INTEREST MADE BY GOV ERNMENT OF INDIA, THE PROFIT ON EXPORT SALES WOULD INCREASE AUTOMATIC ALLY AND THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10B ON THE INCREASED AMOUNT ALSO. IN VIEW OF THE ABOVE DISCUSSION, WE ARE UNAB LE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION U/S 10B OF THE ACT ON THE REIMBURSEMENT OF INTEREST BY GOVERNMENT UNDER TUFS TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 29 TH APRIL, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF