TMI Blog1988 (3) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been given that section 35B deduction should be allowed in respect of bifurcated expenses on wrappers. The directions are similar to the one given in the assessee's own case in respect of assessment year 1976-77 (Unanimous view) - Ground No. 2. 3. Ground No. 3 of the Revenue's appeal against the CIT (A)'s decision that the assessee is entitled to depreciation and investment allowance on fixed assets without reducing their cost to the extent of Central Subsidy received from the Government for moving into or setting up plants in industrially backward areas, is rejected (Unanimous view). 4. The Revenue also falls on its last ground agitating that the learned CIT (Appeals) had erred in holding that there was no justification for endorsement of income by withdrawing the weighted deduction under section 35B on Rs. 27,76,816. It is held that the power to make enhancement vests in the first appellate authority and if he does (sic). 5. Cash Compensatory Support held to be not taxable (Majority view)-Ground No. 3. 6. Draw-back of Duty is held to be taxable (Unanimous view) - Ground No. 4. 7. Import Entitlement is held to be taxable (Unanimous view) - Ground No. 5. 8. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 909. However, he also observed that in the case the retrospective amendment of section 80J and the validity of rule 19A were upheld by the Supreme Court the Inspecting Assistant Commissioner (Assessment) should revise the allowances and restrict them to the amount actually allowed. 3.1 After hearing the learned counsel on both the sides we find that the issue regarding the validity of the retrospective amendment of section 80J has since been laid to rest by the Supreme Court in the case of Lohia Machines Ltd. An identical issue was before the Tribunal in the assessee's own case for the assessment year 1976-77 in ITA No. 696 (Delhi) of 1982 when vide its order dated 29th May, 1985 the appellate Tribunal had the matter restored back to the file of the assessing officer with the direction that section 80J relief be recomputed in the light of Supreme Court's decision in the case of Lohia Machines Ltd. The Inspecting Asstt. Commissioner (Assessment) is accordingly direction to recompute the relief under section 80J in accordance with the amended provisions as applicable for the assessment year in question. 4. The next ground relates to the claim of weighted deduction under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission paid on exports the learned Departmental Representative relied on the decision of the Hon'ble Madras High Court in the case of CIT v Southern Sea Foods (P) Ltd. [1983] 140 ITR 855. We have considered the rival submissions and the nature of the assessee's trade as also the earlier orders of the Tribunal in the assessee's own case. Following with respect the aforesaid Special Bench decision and the earlier decision of the Tribunal in the assessee's own case we are of the view that the assessee is not entitled to any weighted deduction on the following items : (1) Interest on post-shipment export credit loan; (2) Exchange rate difference; (3) Inland freight and Ocean freight on export consignment; (4) Ocean freight on export consignment; and (5) Forwarding charges on export consignment. Identical issues had come up before the Special Bench, as also before the Division Bench of the Tribunal in the assessee's own book I. Therefore, the order of the learned CIT (A) in respect of the above 5 items is confirmed. 4.3 So far as packing material is concerned, though the Special Bench had adjudicated the issue against the assessee in the case of J. Hem Chand Co. the Div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r had allowed 25 per cent of such expenses on packing material. Following the Tribunal's earlier order we similarly restore this matter to the file of the IAC (Assessment) with directions to him to examine and screens the expenses in respect of packing material as in the past and to allow weighted deduction thereon accordingly. In respect of Revenue's appeals again following the decisions of the Special Bench, we are unable to confirm the findings of the Commissioner of Income-tax (Appeals) in respect of the following items : (1) Inspection fee no export; (2) Insurance charge regarding exports; (3) Bank charges on export; Now we come to the following three items : (1) General charges regarding exports; (2) Telephone regarding exports; and (3) Printing and stationery regarding exports. We find that the Commissioner of Income-tax (Appeals) had allowed the total claim of the assessee in respect of the above three items though even if the assessee were a hundred per cent exporter, it could be entitled to weighted deduction on 50 per cent of the amounts only. The Special Bench observed as follows in paragraph 25 of its order : "....... though a major part of the work don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast ground in the Revenue's appeal, reads as under : "On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in holding that there was no justification in the enhancement of income by withdrawing the weight ed deduction under section 35B on Rs. 27,76,816 already allowed to the assessee. The CIT (Appeals) had wrongly given the figures at Rs. 12,10,893 in the order." In respect of this ground, the learned Departmental Representative relied on the decision of the Madras High Court in the case of Southern Sea Foods (P) Ltd. and submitted that though the assessee was held entitled to weighted deduction on the commission paid, but in the light of said decision the payment of inland commissioner could not be held to be held to be entitled to weighted deduction and therefore, the request of the Inspecting Assistant Commissioner (Assessment) at the stage of first appeals was in order and that the Commissioner of Income-tax (Appeals) should have enhanced the income by withdrawing the relief granted by the Inspecting Assistant Commissioner (Assessment) in respect of the allowance of weighted deduction on commissioner. Shri G. C. Sharm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75), decision dated 29-1-1976 of the Cabinet Committee, 39th Report (1980-81) of the Seventh Lok Sabha and the latter dated 11-5-1984 received by the CIT (A) from the Commerce Ministry in reply to his letter dated 23-4-1984 :. ----------------------------------------------------------------------------------- Sl. Criteria Whether capital or Percentage No. revenue receipt ----------------------------------------------------------------------------------- 1. Export potential and domestic Capital 2% availability as well as supply elasticity of the product 2. Import content and domestic value Capital 2% added 3. Approximate implicit subsidy under Revenue 2% the Import Replenishment Scheme 4. Compensation for unrefunded taxes Revenue 1% and levies 5. Difference between domestic cost and Revenue 2% international prices of indigenous in- puts and raw material 6. Cost of entry into new market. 50% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of the deference in the exchange rates was held by the CIT (A) to be taxable as a revenue receipt. In this connection he relied upon the decision of the Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1. 7.5 So far as the CCS is concerned, the assessee is aggrieved in so far as the learned CIT (A) treated only 45 per cent of the receipt of capital account. On this point, the department is in cross appeal. 7.6 We may point out that in the case of the assessee in ITA Nos. 1143 and 1826/Del/79 for the A. Y. 1975-76 the view taken by a Division Bench (to which one of us was a party) vide its order dated 29-5-1985 was that the CCS was distinguishable from DBK and IE; that it was paid for the purposes of the grantor, i.e., to generate foreign exchange and to find developed export markets for the products of Indian manufacturers; that it was neither to assist the assessee in carrying on its trade nor for any services assist the assessee in carrying on its trade nor for any services rendered as was the case in Bengal Textiles Association v. CIT [1960] 39 ITR 723 (SC); that it was given as a bounty or a gift; that there was no trading relationship as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the case of the present assessee for the assessment years 1975-76 and 1976-77 that decision could not be followed and that no reference to Special Bench was also called for, for the same reason as also because the position was self- evident : (1) Ratna Sugar Mills Co. Ltd. v. CIT [1958] 33 ITR 644 (All.); (2) H. R. Sugar Factory (P.) Ltd. v. CIT [1970] 77 ITR 614 (All.); (3) Dhrangadhra Chemical Works Ltd. v. CIT [1977] 106 ITR 473 (Bom.); (4) Wheel Rim Co. ofIndia's case; (5) CIT v. Swadeshi Cotton Mills Co. Ltd. [1980] 121 ITR 747 (All.); (6) Anglo Afghan Agencies' case; (7) Addl. CIT v. Handicrafts Handloom Export Corpn. [1982] 133 ITR 590 (Delhi); and (8) Ahmedabad Mfg. Calico Co. Printing (P.) Ltd. v. CIT [1982] 137 ITR 616 (Guj.). The subsequent Division Bench took the view that the decision of the Hon'ble Calcutta High Court in the case of Jeewanlal (1929) Ltd.'s case was binding as canvassed by the department in view of the decision of the Hon'ble Delhi High Court in the case of All India Lakshmi Commercial Bank Officers' Union v. Union of India [1984] 150 ITR 1. It was held that the purpose of the CCS was to reimburse part of the assessee's cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co., had violated the principle of judicial propriety in not following the earlier decision of the Division bench of the case of the assessee and in not also agreeing to the reference of that case to a Special Bench, the subsequent Division Bench order in the case of Reliance International Corpn,. Ltd. could not be looked into : (1) CIT v. s. Devaraj [1969] 73 ITR 1(Mad.); (2) CIT v. L. G. Ramamurthi [1977] 110 ITR 453 (Mad.); (3) First ITO v. Grahalakshmi Co., [1985] 11 ITD 711 (Mad.)(TM); (4) Export House v. ITO [1985] 13 ITD 687 (Asr.)(TM). (5) CIT v. Hari Nath Co. [1987] 168 ITR 440 (All.); and (6) Ujagar Prints v.UnionofIndia[1987] 167 ITR 904 (SC). On the other hand a counter preliminary objection was sought to be raised behalf of the department by Shri P. N. Misra, Advocate that the present Special Bench was bound to follow the decision of the Hon'ble Calcutta High Court in the case of Jeewanlal (1929) Ltd., in view of the decision of the Hon'ble Delhi High Court in All Lakshmi Commercial Bank Officer's Union's case and of the Hon'ble Bombay High Court in the case of Godavaridevi Saraf. We have considered the rival submissions as also the decisions referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisis rule a principle of law which has become settled by a series of decisions is generally binding on the Courts and should be followed in similar cases. This rule is based on expediency and public policy and although generally it should be strictly adhered to by the Courts, it is not universally applicable. Thus the principle of stare decisis really is that the Court must always hesitate to over-rule decisions which are not manifestly erroneous or mischievous and which have stood for many years unchallenged and which from their nature, may reasonably be supposed to have affected the conduct of a large portion of the community in matters relating to rights of property. Having regard to the nature of the principle of stare decisis, we are of the view that it will not come in the way of the Special Bench in considering the matter afresh specially when the conflicts between 2 decisions of the Division Benches against which references are pending decision before the high Court. Even against the decision of the Hon'ble Calcutta High Court in the case of Jeewanlal (1929) Ltd. special leave to appeal to the Supreme Court has been granted and the matter is pending before the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncentives, he pointed out, were the result of the export policy of the Government and did not flow from any statute. In particular, he pointed out that CCS did not flow from section 3 of the Import and Export (Control) Act, 1947. He submitted that whereas the earlier schemes could be said to have aimed at compensation for certain disadvantages suffered by the exporters the scheme as relevant and operative of the assessment year in question had the sole idea to improve and build up the export earning apparatus so as to earn 'foreign exchange' and that the benefit resulting to the assessee was only incidental. He submitted that the CCS was a part of a package of incentives offered by the Government but after1-4-1976the position had materially changed. He explained that the amount of the CCS was determined not by any profit earned or loss incurred by an exporter but was connected only with the net amount of 'foreign exchange realised', which proves the object namely earning of foreign exchange for the country. Thus, one had to look at the dominant purpose and object of the Government behind the incentives, Shri Sharma said. According to him it could not be intended to levy tax on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... widest connotation compared to the expression 'arising from business' used in section 10(3)(ii) which was less wider and lastly the expression 'profits and gains of business' used in section 28(iv) which had a limited sense. Reference was also made by him to the provisions of section 28(iv) which refers to expressions like 'profits retained for export business' and 'profits derived by. He also explained that what was a trading receipt was not defined anywhere and that the Income-tax Act did not use that expression. Next, he submitted that profits and gains of business had to arise from a business transaction, i.e., of purchase/sale/rendition of service between two parties and that they could not arise in vacuo. He explained that unless there were two parties, the profits and gains of business do not arise as there cannot be a unilateral business transaction. Next Shri G. C Sharma submitted that all receipts of a person who is carrying on business, are not profits and gains of business though they may be attributable to or be incidental to it. He submitted that a reward for greater export could not be taxed under section 28 read with section 145. Next, he pointed out that the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the licences came to the assessee de hors its original business. He explained that there were in fact two transactions and that income arose to the assessee only from the second transaction, i.e., of the sale of IE He submitted that if capital was converted into stock-in-trade, it had to be valued at the market rate at which it was sold and that no income could result from a valueless stock. 9.1 Shri Pradip Dinodia, the learned counsel for the intervener, M/s Aero Traders (P.) Ltd.,Delhiadopted the submissions made by Shri G. C Sharma. Additionally he submitted that whether it was a backward area or other area, the incentive schemes were for achieving the national objective and purpose, i.e., for a self-reliant and balanced growth. He submitted that the varied nature of the measure of the incentives could not affect the true nature and purpose for which these incentives were given. He also emphasised the dominant purpose test and submitted that the fact that incidental gain resulted to the assessee, could not change the nature of the receipt. 9.2 Shri P. N. Misra, Advocate, the learned Special Counsel for the department took us through the various papers relating to these i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutta High Court in the case of Jeewanlal (1929) Ltd. was a direct authority which should be followed. He argued that there was no contrary view of any other High Court and therefore the Appellate Tribunal was bound to follow it. 9.3 In reply Shri G. C. Sharma submitted that the object of the scheme must influence our decision in the matter. He explained that competitiveness in the international market depended upon several factors like cost, market image, etc. He reiterated that in the instant case the grant had taken the national difficulty in view and not merely the difficulties of an individual. He submitted that no identification with the losses, etc., was perceivable and that rather the identification had undergone a disfiguration by the method employed for the determination of the amount. He submitted that a grant-in-aid meant a grant to aid something which was specific and identifiable and that the CCS in the present case was not a grant-in-aid but only a stimulus or incentive. He said that the expression "supplementary trading receipt" presumed the existence of a primary trading receipt which it sought to supplement, which was absent in the present case. Summing up his a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution and courts have found it difficult to lay down any general considerations which would conclusively determine whether a certain receipt falls under one or the other category or both. As held by the Hon'ble Supreme Court in the case of CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 "it is not possible to lay down any single test as infallible or any single criterion as decisive... the authorities bearing on the question are valuable only as indicating the matters that have to be taken into account in reaching a decision". In the final analysis, the controversy has to be resolved in the light of the facts and circumstances of each individual case. The distinction between a capital and revenue receipt though fine, is real. The dividing line may be thin, and often at first sight imperceptible. The decision of the question is however not left to the application of any arbitrary standards. There are certain broad principles which guide the determination of the character of the receipt. Some of those broad principles applicable with reference to the present case as deduced from the decisions of the Supreme Court, etc., are the following : (i) The nature of the receipt is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are supplemented, augmented or compensated for. Thus, they would not be revenue receipts if they are of the following nature : (a) Paid prior to the commencement of trading activities (for administrative expenses). [CIT v. State Trading Corpn. ofIndia[1973] 92 ITR 294 (Delhi)] (b) Given to discharge the losses of the business of the subsidiary company to enable it to tide over the loss of capital. [Handicrafts Handloom Export Corpn. of India v. CIT [1983] 140 ITR 532 (Delhi) and Handicrafts Handloom Export Corpn.'s case (c) Given to enable the assessee to run its business economically. [Siddhartha Publications (P.) Ltd. v. CIT [1981] 129 ITR 603 (Delhi)] (d) Given with the idea that men might be kept in employment. [Seahem Harbour Dock Co.'s case] (e) Given to meet the cost of construction of one's capital works. [Seahem Harbour Dock Co.'s case] (f) When the receipt is in connection with an activity which does not constitute business. [Senairam Doongarmall's case] (g) When the payment has nothing to do with the conduct of the assessee's business. [CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC)] (h) If the activity may have helped to earn the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1978] 115 ITR 505 (Mad.)]. We have therefore to first examine the true factual nature of they receipt and the circumstances under which the assessee received the amount in question and then to judge as to whether it is a capital or a revenue receipt or a receipt of a composite nature and whether it would be taxable wholly or partly or not at all. As we observed earlier, reference against the contrary decisions of the Division Benches in the case of the assessee for the assessment years 1975-76 and 1976-77 and in the case of Reliance International Corpn. Ltd. for the assessment year 1979-80 are already pending before the Hon'ble Delhi High Court. The decision of the Hon'ble Calcutta High Court in the case of Jeewanlal (1929) Ltd. in which it was held that CCS was taxable as revenue receipt, is pending decision before the Supreme Court in appeal. 9.6 We must now revert to the history of these payments to find out as to what occasioned these payments to the assessee. A Special Export Promotion Scheme of cash assistance was devised by the Govt. in 1963 known as the Scheme of Market Development Assistance. It provided, inter alia, for supply of the raw materials of iron and steel at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction are made available in right quality and quantity and at fair prices. (iv) To improve their competitiveness in the international market, to defend their unit value and to improve to the extent possible, their export performance. Attention will also be paid to modernising our marketing and promotional techniques and improving the efficiency of exporting firms engaged in this sector. (v) Govt. will strengthen, expand and intensify its policy of compulsory quality control and pre-shipment inspection. (vi) A part of the production must always be made available to earn needed foreign exchange through, if necessary, temporary restraints on home consumption. (vii) A new organisation is being set up in the public sector to provide package assistance to individual enterprises to build up export potential and to earn and sustain the confidence of overseas customers. (viii) The aim will be to induce entrepreneurs to expand and adopt their production with a view to entering into enduring relationships with overseas importers.... (ix) Among the inadequacies of existing infrastructure, for exports, that of shipping facilities needs to be emphasised. (x) A steady growth of expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and to neutralise the disadvantages of freight, etc., so as to be competitive in the market. (c) In the case of new products in new markets the magnitude of CCS should be adequate to take care of the initial promotional costs. The Ministry explained that the main object of CCS should be to neutralise the handicaps faced by the Indian exporters in the shape of (i) indirect sales tax, etc., on inputs imported or domestically purchased, (ii) higher rate of interest payable on working capital employed on export production, and (iii) higher cost of domestic capital goods used in export production. It appears that regarding the nature of the CCS the learned CIT (A) had addressed a letter dated 23-4-1984 (copy not filed but the substance mentioned in para 7.11 of the CIT (A) order) to the concerned Joint Secretary in the Commerce Ministry and had discussions in that Ministry on 4-5-1984 and as a result, the position as emerged as summed up by the Joint Secretary in the Ministry of Commerce in his letter dated 11-5-1984 was as follows : [Copy on the file and also quoted in para 7.11 of the impugned order of the CIT (A)] (i) The concept of Cash Assistance was modified w.e.f. 1-4-197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of export promotion however does not affect their-taxability. Such incentives, for the sake of stability, were offered for the 3-year period-1-4-1976-31-3-1979-so far as the assessment year in question is concerned. There is no dispute on the point that the claims in regard to these incentives can be founded in courts of law on the principle of promissory estoppel. The fact that the right to claim these incentives can be legally enforced, also does not affect their taxability. No doubt, the Government can revoke or withdraw the incentives but not retrospectively perhaps and as we said earlier, they would be normally stable for 3 years. However, we do not accept the argument sought to be raised on behalf of the department that the power to enhance/withdraw CCS showed that it is only a recompense. The Government's discretion regarding revision / reduction / withdrawal of the incentives is therefore not an aspect which would affect the nature of the receipt under the laws in question. There are certain salient aspects which are common to all these incentives. It is not a payment under any mutual or commercial arrangement or contract nor for any services rendered nor can it be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r officer of the Government in the concerned Ministry and would bind the Government. We fail to understand as to how and on what basis, then the learned CIT (A) could be in a position to estimate the ad hoc apportionment as attempted by him in paras 7 and 10 of his order to say that 55 per cent of the CCS receipts represented revenue receipts. The decision of the Supreme Court in Best Co. (P.) Ltd.'s case would not assist the department in such a situation. In fact even the finding of the divisions bench which decided the case of Reliance international Corpn. Ltd. was that the CCS was "not an aggregation of various computations but an integrated, indivisible whole whose assessability will depend on its nature and character and not how its measure was determined". The learned CIT (A) has rightly mentioned in para 8 of his order that the CCS receipts were the result not of equalising the domestic cost of the product with the FOB value realised but to encourage the firm (the assessee) and the product and undertaking the disadvantages arising out of Government's policies. While dealing with the "cost of entry into new market", the learned CIT (A) observed in para 8 of the impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt taxable under section 28(iv) of the Income-tax Act, 1961 but only a capital receipt given to improve and build up its capital base and to remove the inadequacies in its export apparatus or infrastructure. We agree with the submission made on behalf of the assessee that the dominant object of granting CCS was the targeted expansion of its export earnings as a national goal of a very high priority to fulfil which even the domestic sales were to be restricted for increasing exports. The dominant purpose was also to gear up and improve the foreign exchange earning set up of the Government in which the assessee's contribution and co-operation was enlisted as the enterprise of export is not a free on but is State controlled. The benefit resulting to the assessee as an exporter was incidental and that too in the capital filed. We are inclined to agree that the expression "profits and gains of business" has a limited sense under section 28(iv) and that the expressions "arising from business" used in section 10(3)(ii), or "derived from" or "attributable to" or "arising from the exercise of business or profession" are wider. In this connection the decision of the Supreme Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J. He took the view that the matter was capable of being understood on both the hypotheses as the subsidy was granted after the industry was set up and went into regular production. His Lordship made the following observations : "It is for this reason that I said that both the views, canvassed respectively by the Revenue and the assessee, are plausible. It cannot be said that the interpretation placed by the Revenue is the only plausible interpretation and that the other interpretation is not plausible or reasonable. In such a situation, I am of the opinion that the interpretation favourable to the assessee must be adopted. For the above reasons I agree with the answer proposed by my learned brother." In Bhandari Capacitors (P.) Ltd.'s case, the Hon'ble M. P. High Court took the same view of the Central Subsidy Scheme, 1971 as taken by the Hon'ble A. P. High Court in the case of Godavari Plywoods Ltd. In the case of CIT v. Dusad Industries [1986] 162 ITR 784 (MP) sales tax subsidies in backward areas were held to be only by way of incentive of capital investment. Two inferences are deductible from these cases. The first is that if subsidy is granted more as recompense of the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first time and was not in replacement of any existing scheme in operation. (v) The scheme of the grant of CCS underwent a structural change, with the change in the policy of the Govt. w.e.f.1-4-1976. It is more to promote the infrastructure to develop exports than to compensate for losses. In the case of Shri Ambica Mills Ltd. No. 1 the question involved was whether a subsidy could be taken into consideration for the purposes of the Payment of Bonus Act. It held that the grant of subsidy could not be included in the competition of profit out of which bonus was payable to the workers. It was observed that these schemes were intended by the Govt. for the benefit of the country and that the subsidy payments were not for services rendered. In the case of Seahem Harbour Dock Co. the Unemployment grants Committee sanctioned from time to time for the extension of the dock of the dock co. The House of Lords held that the grants did not constitute trade receipts as they were made with the idea that by its use men might be kept in employment. Their Lordships observed that they were paid to and received by the dock co. without any special allocation to any particular part of their propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the amount, of CCS the other disadvantages are also taken into consideration. But that by itself will not make it a receipt on revenue account, as we have to see the policy behind the grant of it, and the predominant object. If the various factors that went into the computation of the CCS are identifiable, then a view can be taken to apportion it is proportion to the factors identified. But, when Govt. themselves (by the letter of Joint Secretary) say that such identification is not possible, we should not attempt to make one, as it would be not only not legitimate but also irrational and arbitrary. Thus, to our mind, the dominant object of the Govt. in granting CCS had undergone a change. Since the decision of the Tribunal in Reliance International Corpn. Ltd.'s case, that change in policy has to be kept in view in deciding the issue, we therefore hold that the CCS received by the assessee was on capital account and not on revenue account and not to compensate for any loss incurred by the assessee in its export trade. This view incidentally accords with the view taken in the assessee's own case for an earlier year though for other reasons. 9.11 We now take up the question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smuch as it has a statutory basis as it is given under an order made u/s 3 of the Imports Exports (Control) Act, 1947. Therefore, the assessee is not right in arguing that IE is secured under the Import-Export Policy and that it is not statutory. Even if it be accepted that IE is secured by the assessee without any cost, that fact is not material for the purposes of taxation of the proceeds of the sale of IE. A valueless stock-in-trade is not unknown as there may be cases where the stock-in-trade does not cost the assessee anything though his business consists of the same. An example of the same would be that of an assessee dealing in the sale of animals like cows, buffaloes, horses, etc. When the assessee acquires the off-springs of cows, buffaloes, horses, etc., and sells them in the market, it cannot be said that the sale receipts would be exempt from income tax. It can also not be successfully argued on behalf of the assessee that the IE is received by the assessee de hors its original business. In the following decisions the proceeds of the sale of import entitlements have been held to be taxable as revenue receipts and there are decisions to the contrary : (1) Wheel Rim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt under sec. 10(17B). However, sec 10(17B), in terms, refers to payments (whether in cash or in kind) as a reward by the Govt. for such purposes as may be approved by the Central Government in this behalf in the public interest. The export policy/scheme negatives the case of any such reward. There is also no declaration made by the Central Govt. regarding the purposes approved under sec. 10(17B). This contention of the assessee is, therefore, not sustainable. 9.15 To sum up, our finding is that though in terms of the export policy of the Government for the assessment year in question the three incentives (CCS, DBK and IE) were offered as a package to the exporters like the assessee, their basis, nature and incidents were not the same. Whereas in respect of DBK and sale of IE the exact identification with reference to the specific rebate/drawback of duty and income receipts respectively is duly established, no such pinpointed or specific identification is discoverable, presumable or established in respect of the CCS with reference to any particular recompense, loss or assistance, the cash compensatory support extended being for making up the deficiencies, inadequacies and hards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's claim in respect of the above items, I disallow the assessee's claim. In regard to the packing materials consumed, it was pleaded by the assessee before the Tribunal in the course of appeal hearing for assessment year 1976-77 (vide paragraph 10 of the Tribunal's order) that the expenditure in question was not entirely for the packing material but the special and attractive plastic wrappers used should be taken as samples for goods, and that this special wrapping was used entirely for the purpose of development of export markets. The wrappers in question were, it was explained to the Tribunal made up of beautiful expensive plastic and were colourful and were meant to be of durable nature and they were more or less like beautiful souvenirs to the customers who purchased the assessee's goods. In view of this, it was observed by the Tribunal that "if the assessee is in a position to separate its cost from the total packing expenses, the same (special wrapping) should be given the benefit of section 35B of the Act...." At the time of hearing, the assessee submitted that the ITO had since given effect to the above order and had bifurcated the expenses and allowed weighted ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,33,82,158 2. Draw-back of duty 51,93,926 3. Income from sale of import entitlement 16,73,519 My learned brothers Sh. V. P. Elhence has held that whereas the items at 2 and 3 above are taxable being revenue receipts and item No. 1 is not taxable as it is a capital receipt. He has also held that "the benefit resulting to the assessee as an exporter (in the form of cash compensatory support) was incidental". It was so because, according to him "the dominant object of granting CCS was the targeted expansion of its export earnings as a nation a goal of a very high priority to fulfil which even the domestic sales were to be restricted for increasing exports. The dominant purpose was also to gear up and improve the foreign exchange earning set up of the Government in which the assessee's contribution and co-operation was enlisted as the enterprise of export is not a free one but is State-controlled..." 10. As in my opinion, the nature of all the three items listed above is identical, all three of them had to be treated as revenue receipts, I am assigning my reasons foe holding the above view in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market, as opposed to the sales of the goods of the same individual in the internal market. The exports are in fact as good sales as the sales in the internal market. There is no difference in the nature of the two at all. Therefore when Government endeavours to increase the exports of our country what it does is to ensure that the individual units are encouraged to sell their goods more and more in the foreign market. To view exports as a category apart, and as if it is something different from the sakes in the internal market may not be correct. Its essential nature, as emphasised earlier, is nothing but that of sale on one's goods. It is true that in the case of sale to the foreign markets, there are more restrictions than in the case of sales so goods in the internal market, but the intervention of these restrictions does not transform the nature of the exports which remains that of sales. 13. Economic development of a country involves mobilisation of resources both internally from within the country and externally from foreign countries. In the monetary economy money provides the purchasing power : it is through money that the country's resources are mobilised. Internally th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed to retain only 10 per cent for their own use as against 15 per cent allowed under the Old Scheme; the balance being made available to the Textile Commissioner.....". In September 1959 a new Scheme for the promotion of exports of engineering goods was announced. According to the Scheme, "it was open both to established and to prospective exporters. Manufactures could obtain their requirements of raw materials, indigenous steel and pig iron, tools, components, etc., for fulfilling the export targets agreed to by them....". In their report for the period1-7-1960to30-6-1961, the Central Board of Directors of the Reserve Bank ofIndia, reported, inter alia, as below : ".... The relatively poor export performance reflected the severe competition that all major exporters had to face abroad and emphasized the imperative necessity to reduce costs and improve quality at the same time as the volume of output is increased and the range of export products is diversified....." 15. Thus, from the review of the above efforts at increasing exports, it would be seen that the emphasis all along has been on reducing the cost (apart from improving quality) of goods which are exported from this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cies and on account of which the cost of production of the said goods was at a higher level. Export policy resolution of 1970 of the Govt. of India took note of the various disadvantages faced by the Indian exporters in expanding their exports in the foreign markets. It noted the crucial role of the export earnings for financing the ongoing plans for the country's economic development in the form of placing at its disposal the foreign resources and it pointed out that "to achieve national self-reliance and to reduce dependence on external assistance export earnings needs to be expanded at a high rate....". It then identified the various field of the country's economy which would provide fruitful domain for augmenting export efforts. After referring to the agricultural sector, horticultural sector, export of sea foods, Indian forest products, mineral produce of the country and textile industry, it referred to the diversifying of industrial production and the improvement of its economic efficiency, and pointed out that in achieving the industrial growth of the country "every effort will be made to assist export-oriented units in the private and public sectors to achieve of economies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for such assistance with the percentage of assistance in annexed. There will be no concessional supply of iron and steel in addition....". The cash assistance was to be given as a percentage of FOB value. The above communication may it be noted did not indicate the basis on which cash assistance was to be given. 20. The said Engineering Export Promotion Council to whom the aforesaid communication dated17-8-1966was addressed wrote in its turn to its Members on24 August, 1966stating, inter alia, as below : ".... As Members are aware, the special export promotion scheme for engineering goods was abolished by the Government w.e.f.6-6-1966, the Government has since announced a new scheme under which exporters will get cash assistance against exports effected from6-6-1966. In addition, exporters would also be eligible for replenishment for the exported material to the extent of single export content...." May it be noted that even the above communication did not indicate as to what was the basis on which cash assistance was to be awarded to the exporters of engineering goods. 21. The first inkling of the basis taken into account by the Government for granting cash assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l prices, if necessary through imports provided value added is reasonable.... In such cases, where the import replenishment is pushed up to order to accommodate inputs at international prices which the exporter has at present to procure from the high cost domestic market, the rates of cash assistance should be suitably adjusted downwards." 23. In paragraph 6, the Committee went on to discuss the present basis of determining cash assistance, the inadequacy thereof and laying down the criteria for begin adopted in future while determining case assistance for individual industries. It is important to note the content of paragraph 6 in entirety to appreciate the background which weighed with the Members of the Committee when they recommended the 7 criteria to which reference has been made by my learned Brothers Sh. V. P. Elhence in his order. It reads, inter alia, as below : "6. Supply of inputs at international prices may provide sufficient incentive for exports of a number of products by raising profitability in the export market. However, for products where we face disadvantages that cannot be fully neutralised by supplying inputs at international prices, it would still be neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (f) costs of entry into new market; and (g) a cut off point up to which subsidy is to be allowed." 23.1 From the above, it will be seen that up to31-3-1976, the rates of cash assistance were determined with reference to the difference between the F. O. B. price realization and the marginal cost of production. Marginal cost of production is equal to the cost of raw material plus conversion cost plus variable product expenses and the fixed overhead expenses. Marginal cost has not been defined. But as can be seen from the circular issued by the ministry of Commerce, Civil Supplies and Co-operation dated23rd October, 1978addressed to all Export Promotion Councils, the formula for determining the marginal cost and F. O. B. value was as below : "Per unit of production Total cost Rs. (1) Raw Materials :- 1. 2. 3. (2) Conversion charges : (i) Direct salaries wages. (ii) Indirect salaries wages. (iii) Power. (iv) Fuel. (v) Repairs Maintenance. (vi) Consumable stores. (vii) Other overheads : (a) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is a gloss, which has been provided by the Joint Secretary, Ministry of Commerce in his letter to the CIT (Appeals) dated 11-5-1984, referred to at page 15 of CIT (Appeals)'s order. 24. It may be a simplified way of saying that one was trying to reduce losses, when in fact one was trying to reduce cost. The end result may be reduction of loss or increase of profit; but what was being sought to be achieved was the reduction of cost of production by eliminating as far as possible certain identifiable factors which escalated cost of production of the Indian exporters. 24.1 While interpreting the recommendations of the Bose Malik Committee, it would in my opinion be wrong to go by the gloss of the Jt. Secretary in his letter to the CIT (A) referred to above. It is trite law that the appellate authorities have to infer the meaning of the document in controversy by applying their own mind. The Bose Malik Committee never stated that prior1-4-1976cash assistance was given to make up the losses of the exporters and that from1-4-1976the focus shifted to criteria which had nothing to do with the cost of production. Seeing the difficulty in ascertaining marginal cost, the Bose Malik Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely, that where import content is allowed to be more on account of value-added content being more and import replenishment scheme provides for import of such components, the subsidy, which is already provided to the exporter in the form of getting components at international prices in India, should be taken into account while determining the quantum of cash assistance and the cash assistance to be granted should be decreased correspondingly. Criteria mentioned at (c), (d), (e) and (f), therefore, are alone relevant to determine the case assistance and all of them refer to nothing but the elements of costs, e.g., the levy of sales tax or higher domestic price than the international price, etc. None of them is on capital account. 24.2 The change-over recommended by the Bose Malik Committee Report thus shifts the focus from the earlier principle of determining cash assistance with reference to difference between the F. O. B. value and marginal cost of production to identifying some of the elements of cost of production which were causing the disadvantages to the Indian exporters and trying to remove them by paying cash assistance. The rationale for the change-over has been expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... my opinion erred. 26. The report of Bose Malik Committee has also unfortunately has been looked into by my learned Brother Sh. V. P. Elhence and the other two Brothers namely the Hon'ble President and the Hon'ble J. M. Sh. F. C. Rustagi even though they have discussed its presumed contents at length in their order taking their cue from the Jt. Secretary's report referred to above and have drawn on the basis thereof an inference that the Bose Malik Committee had recommended awarding of cash assistance for providing infrastructure to the individual units of the industry. The following observations at page 43 of the order of my learned Brothers is the result of such presumption : "We are, therefore, of the view that though the CCS could not be treated as mere bounty or gift, it was not a revenue receipt taxable u/s 28(iv) of the Income-tax Act, 1961 but only a capital receipt given to improve and build up its capital base and to remove the inadequacies in its export apparatus or infrastructure." It would not be out of place to re-emphasise that none of the six criteria laid down by Bose Malik Committee refer to building up of capital base or to removal of inadequacies in the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which took place on6th June, 1966, Government announced cash assistance scheme for compensation loss to the exporters for exports of engineering goods from the country in the above letter. This scheme was announced for the first time and it was not in replacement of any existing scheme in operation." On behalf of the assessee, the above plea was opposed and it was urged before the Hon'ble High Court, on behalf of the assessee by the assessee's counsel that : "as to how a party had treated the amount was not determinative to ascertain the character of a particular sum. It must be determined by the true character on legal principle and not merely, by the conduct of the party, in whichever way the party might have treated the sum". It was further submitted by the assessee that : "One assessee might have treated it as a compensation for losses suffered and another might have treated it differently", and therefore, it was submitted that whether the sum was given as cash assistance to the exporters to meet their losses or whether it was given to promote export industries or not, must be determined on the general nature and not by what the parties had treated them to be or by what the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Public Accounts Committee of Parliament, the Secretary, Ministry of commerce did not say that whereas earlier to1-4-1976, the cash assistance was based on the principle of reimbursing the losses to the exporter after1-4-1976, the aforesaid basis was given up. What he had stated was as below : "As you will notice, in the efforts made to develop exports, cash assistance has been an important component and the concept of cash assistance has changed over the times. From April 1976, there was a total consideration of seven factors which went to determine the quantum of cash assistance. Prior to that, there was the concept of differential between the cost of production and that of F. O. B. earnings. Gradually, as domestic requirements increased and the installed capacity did not keep pace, there is the problem of 'pull' of the domestic market. One has to take into account all these factors to see that there is sufficient increase in export earnings also. Plan document talks of 10 per cent growth unless there is some motivation for a fellow to export, why should he ? In that background, there was a distinct change in the concept of cash assistance w.e.f.1-4-1976." This submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bose Malik Committee and as such it is necessary to take precaution on this count and it would in my opinion be wrong to be misled by the impressions of the Jt. Secretary when the report itself can be examined for ascertaining as to what it had said; and the Jt. Secretary's statement is demonstrably based on what the Committee had never said. 30. Even the Alexander Committee which was appointed by the Govt. of India on 1st November, 1977 "to review the present structure of import and export policies and their formulation with special reference to the role of policy instruments such as licensing, quotas, tariffs, taxes, duty drawbacks and cash assistance and to suggest improvements in the structure and use of the instruments of policy and rationalisation" did not link up cash assistance with the development of infrastructure. Its report to the Govt. of India on31-1-1978. Chapter IV of this report deals with Export Policy. In paragraph 1 of the said Chapter, the Committee noted as follows : "Export Policy as conscious effort in influencing the volume and commodity composition of export trade was explicitly recognised in the trade policy system from the year 1962. Along with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat some of the disadvantages of the exporter arising on account of various factors could be internal to the exporter himself and others referring to the economy as a whole. Exports are the final effect of the interactions of product characteristics, firm characteristics, national factors and the international features. The product and firm characteristics include the technology of production, management, conversion costs of production, packaging and marketing. A firm which has identified the right export product with all its specifications for the external market, has adopted the right kind of technology comparable with the producer in the competing country and has identified the effective packaging and marketing techniques would be subjected to the lowest level of disadvantages arising out of its own making. The disadvantages arising out of the economy-wide factors include the effect of domestic policies of indirect taxation, import and industrial licensing, price control, as also other national endowment factors such as availability of skilled labour, capital, natural resources, power supply, infrastructural facilities such as transport and communications and smooth labour manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of disadvantages are taken care of. These principles also imply that even if the export industry is supplied all its inputs at competitive international prices, its disadvantages in regard to marketing and promotional efforts need to be compensated until the export of the particular product becomes a stable feature in the trade flows...." It was recommended by the Committee that the above principles of cash assistance be adopted w.e.f.1-4-1979. It will be seen from the above recommendations of the Committee that it was laying more emphasis on criteria (d), (e) and (f) of Bose Malik Committee's recommendations. Criteria (a) and (b) of Bose Malik Committee were in fact the guidelines for selecting the product for awarding cash assistance and they did not affect the quantum of cash assistance or the computation thereof. Criteria (a) and (b) have already been endorsed by the Alexander Committee in paragraph 4.6 of their report while indicating as to how the products for supporting export effort therefore should be selected. The essential nature of the cash assistance scheme as visualised by Alexander Committee thus continues to be the same as was visualised by the Bose Malik Committ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Govt. on31st December, 1984. The said Committee emphasised the Macro-Economic Overview approach and pointed out that : "Foreign trade cannot and should not be separated from the national economy, just as trade policies cannot and should not be separated from economic policies. Such a macro-economic perspective is essential because developments in the foreign trade sector and developments in the economy as a whole are inter-dependent. Exports are a means of transforming domestic resources into foreign resources which are necessary to finance the process of development. Imports are essential to sustain desired levels of consumption, investment and production in the economy. At the same time, the level of both exports and imports depends on the performance of the economy." After providing the above basis of their approach, the Committee examined in detail the various policies of the Government not only having a bearing on foreign trade but also other economic policies. In Chapter II, in paragraph 2.12 the Committee observed that : ".... the domestic factors which have constrainedIndia's export performance are the costs of production, the pressure of domestic demand, the supply c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition in foreign markets, to develop marketing competence and to neutralise disadvantages inherent in the present stage of development of the economy. Over a period that spans almost two decades, there has been no substantive change in the rationale of this export promotion measure although its scope and operation has evolved from experience over time. The Alexander Committee set out three basic principles underlying the CCS regime : (i) CCS should fully compensate for unrebated indirect taxes paid by exporters on inputs which enter into export production; (ii) CCS should neutralise disadvantages such as those implicit in freight rates which may be discriminatory or higher; (iii) CCS should provide assistance to finance the initial promotion costs in the case of new products and new markets. In the perception of this Committee, CCS is designed to perform two basic roles : first, it is a facility is so far as it seeks to compensate for unrebated indirect taxes which are not reimbursed through the duty drawback system, and second, it is an assistance insofar as it attempts to provide resources for product/market development. In paragraph 3.15, the Committee considered the position o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present practice of including CCS as a part of taxable income is not logical inasmuch as it implies taxing the compensation for unrebated indirect taxes. The Committee would, therefore, urge the Govt. to consider exempting CCS from income-tax." 37. From what has been stated above, with regard to the observations of the Abid Hussain Committee Report, the following points would be explicit : (1) That cash compensatory support or cash assistance has had the same rational all along from 1956 to 1984 over a period of almost two decades and as such it would be wrong to proceed on the presumption as made by my learned Brother Sh. V. P. Elhence that the rationale of the cash assistance scheme has been changing and that what was the nature and character of cash assistance prior to 1-4-1976 was not there after 1-4-1976. The observations of the Jt. Secretary, Ministry of Commerce in his letter to the CIT (A), referred to above notwithstanding, the Secretary of the Ministry of Commerce, Sh. Abid Hussain is on record to emphasise that over a period that stands almost two decades there has been no substantial change in the rationale of this Export Promotion measure (i.e., cash compensatory s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as being given to the assessee by the Central Govt. to make up their losses of export business. Their Lordships made it clear that they would like to determine the true character of the receipt de hors the aforesaid presumption of loss compensation. The plea of the assessee before their Lordships was that the dominant purpose for grant of amounts by way of cash compensatory support was promotion of exports, that it was irrespective of the profit or loss and that it was not made by the Government in order to meet any trading obligation. (May it be noted at this stage that the theory of dominant purpose as expounded before their Lordships has been expounded before us also and it has found favour with my learned Brother Sh. V. P. Elhence and the Hon'ble President and the Hon'ble J. M. Sh. F. C. Rustagi.) Their Lordships had, however, rejected the above theory by pointing out that the above tests were not decisive at all of the issue as to the character of the receipt and that what was, according to their Lordships decisive in these matter was 'the nature of the business, the nature of the income and the nature of the right to receive and also the relationship inter se...'. According t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a scheme formulated by the Government for bringing in foreign exchange was relied upon as showing that the assessee got it outside his trade. Mr. Balai Pal, the learned counsel for the department, submitted that the assessee earned the amount in the course of its business and as a result of the sale of its manufactured goods, and that the receipt was nothing but business profit." The above submission of the assessee which was repeated before their Lordships also was rejected by them by observing, inter alia, as follows : "It appear that the amount was received in the course of carrying on of the business. The amount was received in cash. The fact that in the course of carrying on of the business an amount is received which could be turned into capital, does not, in our opinion, in any way militate against the said amount being considered to be revenue receipt...." 38.2 From the portion underlined above, it will be seen that the nature of an item would not get transformed into capital receipt merely because the amount received by the assessee might have been utilised by the assessee in acquiring a capital asset. Therefore, nothing turns on the fact as made out by the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in various ways noted above. The nature of this payment can, therefore, never be capital for neither it is in lieu of a capital asset nor is it for the purpose of acquiring a capital asset. It is for the purpose of maximising the sales of an exporter to the foreign countries and is directly connected with the F. O. B. realisation price, i.e., the sales made outside the country. 41. To sum up, therefore, it may be stated : (1) that cash assistance is given by the Central Government to an exporter of stipulated goods including the engineering goods for the purpose of selling the goods to the foreign powers to the maximum extent possible; (2) that the amount is given to a businessman for the purpose of enabling him to carry on his business more profitably. According to Bose Malik Committee report, the object of having a fairly wide ranging system of cash assistance was "to improve our competitiveness and to make export activity profitable"; (3) that the above rationale of providing cash assistance has remained unchanged from 1966 to-date as per the finding of Abid Hussain Committee Report, referred to above; (4) that what has changed from time to time is the measure and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y principle which has been laid down by their Lordships for the above proposition is that if a payment is in the nature of a subsidy and if it is from public funds made to a businessman to assist him in carrying on his trade or business, the payments in question are trading receipts and as such they have to be brought to assessment as business income. The payments made as such may be either to compensate for losses or to reimburse the cost or they may be either to compensate for losses or to reimburse the cost or they may be related to nothing in particular but generally to encourage him to produce more or to sell more and thereby maximise the profits and the production in that particular line. It is not the law that a payment would be revenue receipt only if it is towards making up the losses of the businessman. Even when the amount is given just to encourage exports, for example of cotton textiles and other textiles, the amount paid to the businessman would be of revenue nature as it is being given to him in the course of his business and for the purpose of his business and even if the said assessee had converted the amount received into a capital asset, it would not change the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not follow the judgment of another High Court when there was no contrary judgment of any other High Court. In fact the Division Bench which dealt with the appeal of Reliance International Corpn. Ltd.'s case dealt with this line of reasoning in their order as follows : "The reference to the income-tax authorities in the above decision has been made because it were they who had acted against the above principle. But the said principle is equally valid for the appellate authorities including the Tribunal, for it is a wholesome principle of guidance, while interpreting an All India Statute. We are, therefore, bound to follow the above decision of the Hon'ble Calcutta High Court." I have found no reasons whatsoever to change the aforesaid view. 42. Before I conclude I must place on record the fact that I had made a request to the President of the I. T. A. T. who presided over the Special Bench and the other companion Brothers that the reports of Bose Malik Committee and Alexander Committee to which extensive references had been made both by the CIT (A) and by my learned Brother Shri V. P. Elhence, should be gone into and inasmuch as the two reports, though referred to in the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following extract appearing at page II. 38 : "It is for the information of the Member Exporters, when any claim is sanctioned by the Reserve Bank of India whether against quality or otherwise and the waiver given in absence of non-re-protrusion of foreign exchange, exporters are required to surrender proportionate CCS/REP, etc., for the aims of waiver authorised by the R. B. I. It is in the interest of the exporters that all such amounts should be immediately surrendered by depositing the amount in the Central Bank ofIndiaunder challan and inform the Licensing Authority in this respect. Kindly ensure to send this original challan to CLA under proper receipt. It is advised that the adjustment should not be made against the future CCS/REP applications. The proper record of such surrenders should be maintained which can be furnished to the Licensing Authorities on demand at a later date." Just at the beginning of this Chapter at page II. 1, the learned author takes note of the Circular No. 12/58/86-EAC dated25th July, 1986, which had been issued on the basis of the Abid Hussain Committee Report. The assistance from this book could not have been taken by the assessee's learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to give inasmuch as I agree with the findings of my learned Brothers on these grounds as incorporated in the order written by Shri V. P. Elhence. 46. Regarding ground No. 4, I have already given my opinion above and according to me there was no justification whatsoever with the CIT (A) in holding that 45 per cent of the CCS as received by the assessee was a capital receipt. No. part of it was capital receipt. It was revenue receipt in its totality and was liable to be subjected to tax as indicated above. 47. The fifth ground of appeal in the Revenue's appeal is regarding the refusal of the Commissioner of Income-tax to accept the request of the Inspecting Asstt. Commissioner (Asst.) to make enhancement in respect of a sum of Rs. 27,76,816 in respect of which the ITO had allowed weighted deduction. The relevant discussion in the Commissioner's order is in paragraph 14 at page 19. This is what the observed on the subject : "14. The IAC had sought an enhancement of the assessment in this year following the decision of the Madras High Court in the case of Southern Sea Foods Ltd. I have heard the assassin this behalf and I am of the view that in the light of the law as explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is concerned, the power to file appeal before it is given to the CIT by sub-section (2) of sec. 253 and it reads, inter alia, as below : "The Commissioner may if he objects to any order passed by an AAC/CIT (A) u/s 154 or sec. 250, direct the ITO to appeal to the Appellate Tribunal against the order." A bare reading would suggest that a valid appeal would lie before the Tribunal by the Commissioner, if the said Commissioner objects to any order passed by the CIT (A). If no order is passed by the CIT (A) disposing of an appeal, apparently filing of an appeal would be premature, but, if an appeal has been dispose of by the CIT (A), and, if his order gives rise to an objection, either on account of an act of commission or omission, a valid appeal may be filed by the CIT before the Tribunal under sub-section (2) of sec. 253. In the present case, as we have noted above, the CIT did adjudicate upon the request of enhancement by the IAC (Asstt.) vide paragraph 14 of his order referred to above. It is to this part of the order of the CIT (A) that the CIT objects. Because of such objection the CIT has a right to come in appeal before the Tribunal. To say, therefore, that the CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondas Manordass v. CIT [1957]31 ITR 909, 917, inter alia, in the following words : "... The Legislature has conferred very wide powers upon the AAC once an appeal is preferred to him by the assessee. If the assessee chooses to remain content with the order of the ITO there is nothing that the AAC can do, however erroneous the assessment may be. But if the assessment is opened up by the action of the assessee himself, then the powers conferred upon the AAC are much wider than the powers of an ordinary court of appeal. The statute provides that once an assessment comes before the AAC, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee; his competence ranges over the while assessment and it is open to him to correct the ITO not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the ITO and determined in the course of the assessment." The Hon'ble Supreme Court approved of the above approach of the Hon'ble Bombay High Court in CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443, 449. When this is the position in law and the CIT (A) can go into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the commission paid to state Trading Corpn. was eligible for weighted deduction. 54. In the present appeal, it is not known as to what are the exact facts and who are the persons to whom the commission has been paid and what are specific services rendered by them. Without the information on the above subject, it would not be possible to adjudicate upon the ground of appeal of the Revenue at this stage. I will, therefore, set aside the order of the learned CIT (A) on the ground that it is a non-speaking order and would direct him that he would retirement the issue de novo in accordance with law. 55. In view of the above observations, the appeals of both the sides are allowed in part. Per Shri S. Grover, Judicial Member - These cross-appeals are directed against the order dated28-5-1984 passed by the CIT (Appeals),New Delhi [herein after referred to as the CIT (A)] in respect of assessment year 1979-80. In respect of certain reliefs, the parties have joined issues and, therefore, it is considered expedient to state, first, briefly, the facts before dealing with them. 2. The assessee is a Private Ltd. Company and the business is that of manufacture and sale of hand-tools i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... highlight the inclusion in the total income of Cash Compensatory Support, Duty Drawback, Income from Sale of Import Entitlement and Difference in Exchange Rates. In the remand report submitted by the IAC in pureness of my order dated31-1-1984, the IAC has, relying on several decided cases, reported that each one of these claims is misconceived and untenable in law. He has reported that the assessment on the basis of assessee's own return were perfectly correct, reasonable and in accordance it the law." 4. The Revenue, however, is not contesting that the CIT (A) was not justified in considering such aspects for the first time, the earlier pattern being different. For the assessment years 1975-76 and 1976-77, it was before the Tribunal for the first time that the equation regarding exemption of CCS, DDB and IE was raised. The Tribunal admitted the on controversy and decided that CCS was not taxable. For the assessment years 1977-78 and 1978-79, however, the CIT (A) refused to admit additional grounds on the question and the Tribunal upheld such decisions. 5. Against to finally declared income of Rs. 1,95,77,963 the assessment came to the framed on 16-2-1982 under sec. 143(3) read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of assessment year 1978-79. In this year too, as in the earlier year, the difference between the claim and the actual allowance arises only because of the application of the provisions of rule 19-A. For the reasons given by my predecessor in pars 29-33 of his order referred to, with which I agree, I direct the IAC to work out the relief under sec. 80-J in respect of this unit in accordance with the interpretation of the provisions by the Calcutta High Court in Century Enka Ltd. (107 ITR 909) case. As observed by my producer in case the retrospective amendment of sec. 80-J is ultimately upheld by the Supreme Court, the assessee's ground which stands rejected, the IAC will then again compute the relief on the basis followed by him in the assessment order. 2-A. The next ground is against similar reduction of the claim of the assessee under section 80-J in respect of its Unit V-Aurangabad from Rs. 24,28,623 to Rs. 7,59,218. In respect of this ground also, for the same reasons as given by my predecessor in his order dated21-3-1983, the IAC is directed to verify the figures furnished by the assessee and allow admissible relief in accordance with theCalcutta,Madras,Punjaband Allaha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,31,591 10. Packing materials consumed for exports only 65,08,653 11. Difference in foreign receipts and remittances 10,55,379 12. Salary, etc., for head office staff for exports only 8,84,451 13. HRA exports department 22,229 14. Conveyance allowance-Export Department 22,186 15. General charges - Regarding Exports 19,612 16. Printing Stationery - Regarding Exports 31,761 17. Postage, Telegrams Telephone - Regarding Exports 1,19,590 18. Insurance Charges - Regarding exports 2,10,618 ----------- Total expenses in respect of exports 1,92,12,089 ----------- 12. Such claim, however, came to be enhanced to Rs. 75,34,187 vide return filed on 20th October 1980 by stating that inland freight on export consignment to the true of Rs. 33,90,473 also was eligible for relief. The ITO allowed section 35-B claim in respect of expenses to Serial Nos. 1, 2, 3 4 only and thereby comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exports with wrappers and by making para 10 of the order for the year as the basis give the same direction, i.e., as in that year, i.e., wrappers should be considered was export samples and precise related bifurcated expenses should be given 35-B relief : "10. However, in respect of packing materials, we are inclined to take a different view. In the court before us, the assessee pleaded that it was not entirely the packing material but the goods were exported in attractive plastic wrappers which are more taken as samples of goods. It was explained to us that the tools with wrappers are packed in boxes and if, at all, the box packing material would be disentitled for weighted deduction relief, rather the wrappers, which appealed to us also as attractive samples. The case before us is a peculiar one and own for the Revenue it was not disputed that the assessee was introducing fresh evidence, we are inclined to direct the ITO that, to the extent the assessee spent money for preparing wrappers for putting the tools for the purpose of exporting them, these would be entitled to weighted deduction, because it was entirely for the purpose of development of export markets that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned that the claims are respected to only exports after making necessary adjustments of domestic expenses. In view of insufficient data, we direct that if necessary adjustments were already made, i.e., the claim put forward was not in relation to all the expenses but only for exports, then there will be no justification as to why the claim should be allowed in part, but if the relief is for the entire expenses on the ground that the assessee was hundred per cent export house, then adjustments shall be necessary because general charges, telephone, telegram and printing stationery expenses in relation to manufacturing activities certainly cannot be allowed. Since, as per the directions of the Tribunal in relation to wrappers' expenses in respect of assessment year 1976-77 amicable arrangement has been reached, we see no reason or apprehension as to why there should be any difficulty in analysing the above three expenses in view of our observation above. 17. Before parting with section 35B controversy amounting both from the assessee's and revenue's appeals, it must be stated that very strong reliance was placed on the judgment of Hon'ble Madras High Court in the case of southern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locating industries in backward areas cannot go to reduce the cost of the fixed assets : (i) Godavari Plywoods Ltd.'s case and (ii) Bhandari Capacitors (P.) Ltd.'s case For the revenue, no contrary view, expressed by any High Court, was pointed out. In such view of the matter, we find no occasion to interferes with the CIT (A) order. 19. The last ground in the revenue's appeal reads as follows : "On the facts and in the circumstances of the case, the learned CIT (A) has erred in holding that there was no justification in the enhancement of income by withdraw in the weighted deduction under section 35B on Rs. 27,76,816 already allowed to the assessee. The CIT had wrongly given the figure at Rs. 12,10,893 in the order." 20. The related order of the CIT (A) reds as follows : "The IAC had sought an enhancement of the assessment in this year following the decision of the Madras High Court in the case of Southern seafoods Ltd. I have heard the assessee in this behalf and I am of the view that in the light of the law as explained by the Full Bench of the ITAT, Madras, in the case of ITO v. Bharath Skin Corpn. (15 Taxman 57) and the Board's operative instructions subject, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er was not raised before the appellate Assistant Commissioner, or as the case may be, the Commissioner (Appeals) by the appellant." 22. The above provision has various limbs. From clauses (a), (b) and (c) of sub-sec. (1) pure power is drawn. In the instant case, we are concern with primarily clause (a) because it was the assessment order which was involved. Sub-section. (2) place contents and obligations inasmuch as if assessment or a penalty order is to be modified adverse against a taxpayer, he must be given reasonable opportunity of showing cause that section contemplated is not proper. Explanation to the section must be closely seen because, though, on a casual look, one may initially form an impression that while disposing of an appeal, the first appellate authority can consider and decide any matter arising out of the proceedings-the assessment order being only a part of such process-but, the catch is in the last lines and the last word 'appellant', reading as : "Notwithstanding that such matter was not raised before the AAC, or, as the case may be, the Commissioner (Appeals) by the appellant." The indication is clear and loud that the above provision is means for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1975-76, in spite of various opportunities, the Revenue instead of bringing on record related evidence and the relevant judicial authorities, in the first place, submitted that the only direct authority concerning the type of CCS as was involved, was the Calcutta High Court judgment in Jeewanlal (1929) Ltd. v. CIT (1983) 139 ITR 865 and then it was suggested ultimately that the matter be referred back to the assessingofficer of CIT (Appeals) for examination of evidence which was yet to be collected. The all important judgment of the Hon'ble Calcutta High Court in the case of Kesoram Industries Cotton Mills Ltd. cited as was simply not pressed into service for the Revenue, in which case also, Hon'ble Justice Sabyasachi Mukharji, as he then was (presently Hon'ble Judge of the Supreme Court of India) spoke for the Court as in the case of Jeewanlal (1929) Ltd. In Keshoram's case, the assessee as a manufacturer of textile goods was eligible for grant of import license to the extent of 66 2/3 per cent of the F. O. B. value of such exports. For the exports after1st April, 1960, additional premium at certain rates was granted. For the premium, which was due to the received for the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly against he assessee's claim concerning I.E. and D. D. which aspect is being decided in favour of the Revenue. Similar is the case with regard to judicial authorities, though several cases were cited, it was emphasised for the Revenue that the only direct authority concerning the type of CCS, as is involved in the present appeal is that of Calcutta High Court in Jeewanal [1929] Ltd. v. CIT [1983] 139 ITR 865, which we shall be referring to. Therefore, if certain authorities do not find reference its because the same have not been considered necessary for deciding these appeals. Similarly, only those arguments are not dealt with which are considered overlapping or irrelevant and which should be considered as rejected. The same considerations are relevant and will apply with regard to submissions and arguments made by Shri G. C. Sharma and Shri Kanwal Krishan, learned advocate who appeared for the assessee at different dates. 14. Before proceeding further, we like to give some dates because at one stage it was very strongly and vehemently contended for the Revenue that the matter should be restored back to the income-tax authorities preferable at the assessment stage to investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raft back with a note appending my view that there could be no question of offering my comments. 32. Therefore, on5-2-1988. Brother Elhence sent me the order signs by him and Brother F. C. Rustagi on4-2-1988and also the Hon'ble President. In such order, all the issues had been dealt with. 33. At that time, my own order was more or less complete but I had to make certain changes to avoid overlapping and repetitions of certain aspects but as far as the issues other than CCS taxability was concerned, I found no occasion to make any alteration because of the detailed facts given. 34. On 23-2-1988, I handed over the order authorised by Brother Elhence as also my order to Brother Anand Prakash on the thinking that, but for CCS taxability controversy, there were no substantial divergence of views. Brother Anand Prakash, however, chose to express different opinion on certain other issues and wrote his orders on all the issues, copy of which was given to me yesterday. After going through the same, I thought that it would be unnecessary avoidable multiplication of the orders with regard to the taxability of CCS, DDB and IE. Since I had changed my approach and thinking on basis of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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