THE COMMISSIONER OF INCOME TAX V. M/S SILVER CREST CLOTHING PVT LTD

ITA/1140/2006

AI Insights

The case involves two appeals filed by the Commissioner of Income-Tax and the Assistant Commissioner of Income Tax against M/s. Silver Crest Clothing Pvt. Ltd., concerning the exclusion of job work receipts from the gross receipts while calculating profits from exports under Section 80HHC of the Income Tax Act. The primary legal issue was whether the gross or net amount of job work receipts should be excluded from the numerator in the formula for calculating export profits. The Income Tax Appellate Tribunal had previously held that the exclusion of the receipts was bad in law, which was contested by the revenue in these appeals. The High Court of Karnataka, referencing decisions from the Supreme Court, concluded that only the net amount should be excluded and remanded the matter for reassessment accordingly.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 702878 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 16-07-2012
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax Vs. K.Ravindranath (295 ITR 228), M/s.Maini Precision Products Pvt. Ltd. Vs. Joint Commissioner of Income Tax, Spl. Range-I, Bangalore, ACG Associated Capsules Pvt. Ltd., Vs. Commissioner of Income Tax (2012) 343 ITR 89 (SC), Commissioner of Income Tax and another Vs. M/s.Resonace Laboratories, M/s.Miani Precision Products Pvt. Ltd. Vs. The Joint Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: R MURTHY
• Assessee Lawyers: M THIRUMALESH; K V ARAVIND
• Keywords: Assessment Year; Export Profits; Gross receipts; Income Tax; Job Works; Net receipts
• Section: 80HHC; 260-A

Judgement Text

"1 IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 16TH DAY OF JULY, 2012 PRESENT THE HON'BLE MR. JUSTICE K.SREEDHAR RAO AND THE HON'BLE MR. JUSTICE B.MANOHAR I.T.A. No. 1140 OF 2006 C/W. I.T.A. No. 903 OF 2007 I.T.A. No. 1140 OF 2006:- BETWEEN:- 1. The Commissioner of Income-Tax, Central Circle, C.R.Building, Queens Road, Bangalore. 2. The Assistant Commissioner of Income Tax, Circle 12-(2), C.R. Building, Queens Road, Bangalore. Appellants (By Sri M. Thirumalesh, Advocate) AND:- M/s. Silver Crest Clothing Pvt. Ltd., Plot No.4-E2, KIADB Industrial Area, Attibele, Bangalore. Respondent (By Sri R. Rama Murthy, Advocate) 2 This I.T.A. is filed u/s.260-A of I.T. Act, 1961 arising out of order dated 07-04-2006 passed in ITA No.2066/Bang/2004, for the Assessment Year 2002-2003, praying that Hon’ble Court may be pleased to: (i) formulate the substantial questions of law stated therein and (ii) allow the appeal and set aside the order passed by the ITAT in ITA No.2066/Bang/2004 dated 07-04-2006 confirming the order of the Appellate Commissioner & confirm the order passed by the Assistant Commissioner of Income Tax, Circle 12(2), Bangalore, in the interest of justice and equity. I.T.A. No. 903 OF 2007: BETWEEN:- 1. The Commissioner of Income-Tax, C.R.Building, Queens Road, Bangalore. 2. The Assistant Commissioner of Income Tax, Circle 12-(3), C.R. Building, Queens Road, Bangalore. Appellants (By Sri K.V. Aravind, Advocate) AND:- M/s. Silver Crest Clothing Pvt. Ltd., Plot No.4-E, 1-2, KIADB Industrial Area, Attibele, Anekal Taluk, Bangalore - 17. Respondent (By Sri Rama Murthy, Advocate) This I.T.A. is filed u/s.260-A of I.T. Act, 1961 arising out of order dated 06-07-2007 passed in ITA No.670/Bang/2006, for the Assessment Year 2003-2004, 3 praying that Hon’ble Court may be pleased to: (i) formulate the substantial questions of law stated therein and (ii) allow the appeal and set aside the order passed by the ITAT in ITA No.670/Bang/2006 dated 06-07-2007 confirm the orders of the Appellate Commissioner confirming the order passed by the Assistant Commissioner of Income Tax, Circle 12(3), Bangalore. These appeals are coming on for hearing this day, SREEDHAR RAO, J., delivered the following: J U D G M E N T These two appeals are filed in which one pertains to the assessment year 2002-03, the other pertains to assessment year 2003-04. Both the appeals involve common question of law. 2. The assessee is an exporter of fabrics and some of the items of the fabrics carry job works. In the return filed by the assessee, in view of the provisions contained in Section 80HHC, the Assessing Officer excluded the gross receipts from job works by applying explanation to (baa) of Section 80HHC while computing the profits from export by applying explanation (baa) of Section 88HHC. 4 3. The Commissioner of Income Tax in appeal has held that exclusion was bad in law. The assessee filed appeal to the Commissioner of Income Tax who set aside the order of Assessing Authority and directed that exclusion of job works is bad in law. 4. The revenue filed appeal before the Appellate Tribunal. It was held that the order of Commissioner of Income Tax is sound and proper. The revenue aggrieved by the said order filed ITA No.1140/2006. 5. With regard to the quantum that requires to be excluded is as to whether this gross value or the net value was also in dispute. The Appellate Tribunal held that exclusion of the receipts is bad in law and it does not constitute parameters of numerator according to formula. The revenue aggrieved by the said order filed ITA No.903/2007. 6. In both the cases, this court admitted the appeals and framed the following question of law: 5 “Whether the order of the Commissioner of Income Tax Appeals and the order passed by the Income Tax Appellate Tribunal are contrary to the law laid down by the Hon’ble Supreme Court in Commissioner of Income Tax Vs. K.Ravindranath (295 ITR 228).” 7. This court in the case of M/s.Maini Precision Products Pvt. Ltd. Vs. Joint Commissioner of Income Tax, Spl. Range-I, Bangalore in ITA No.s.52/2009 & 182-185/2009, dated 18.08.2009 following the decision of the Supreme Court in Ravindrnathan Nair’s case has held that the entire amount of receipts towards job work is to be excluded from the numerator as per the formula. 8. The Supreme Court in the case of ACG Associated Capsules Pvt. Ltd., Vs. Commissioner of Income Tax, reported in (2012) 343 ITR 89 (SC) has held that while interpreting clause (1) of Explanation (baa) to Section 80HHC of the Act has held that “it is only net amount that should be excluded and not the gross amount.” It is the contention of the appellant in the said decision, question involved was gross rent and gross interest or net rent and net interest and not gross or net job work receipts. 6 Therefore, the decision has no application. This court in the case of Commissioner of Income Tax and another Vs. M/s.Resonace Laboratories in ITA Nos.793, 794, 795 & 796/2006, dated 06.06.2012 has taken into consideration the decision of the Supreme Court in the case of M/s.Miani Precision Products Pvt. Ltd. Vs. The Joint Commissioner of Income Tax and has held that what is to be excluded is net receipts and net gross receipts. In view of the afore said decisions, the question of law is answered in favour of the revenue and the matter is remanded back to the Assessing Authority to redo the assessment as per the law laid down by the Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. & Commissioner of Income Tax. Accordingly, the appeals are disposed of. Sd/- JUDGE Sd/- JUDGE NM* "