9911796707
TMI Blog1988 (3) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... eciated value as appearing in the books." Ground raised by the Revenue in its appeal : - "On the facts and in the circumstances of the case, the learned CIT(A) has erred in : 1. Directing the IAC (A) to allow relief under s. 80-J in respect of Unit-IV (Kundli) and Unit -V. (Aurangabad) in accordance with the interpretation of the provisions of s. 80-J made by the Calcutta High Court in the case of Century Enka Ltd vs. ITO reported in (1976) CTR (Cal) 433 : (1977) 107 ITR 909 (Cal)" 3. Brief facts in the back ground of the dispute regarding relief under s. 80-J are that the assessee had claimed relief under s. 80-J in the sum of Rs.22,50,390 in respect of its Unit No. IV known as Kundli Unit which was reduced by the IAC (Asstt) to Rs.14,72,014. As in the past this difference was due to the application of the provisions of r. 19-A. Likewise the claim in respect of Unit No. V Aurangabad was also reduced from Rs.24,28,623 to Rs. 7,59,218. When the matter came up before the learned CIT(A) he gave a common direction in respect of both the Units for the disposal of the assessee's claims in the light of Calcutta High Court's decision in the case of Century Enka Ltd vs. ITO (1976) CTR ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding exports Rs. 1,19,590 6. Printing and stationery regarding exports Rs. 31,761 4.1. The facts are that the assessee had claimed weighted deduction in the sum of Rs.75,34,187 which was restricted by the IAC (Asst) only to Rs.10,68,499. The details of such disallowance are given in paragraph 3 of the order of learned CIT(A). The learned CIT(A) further allowed weighted deduction to the extent of Rs. 12,81,118. 4.2. Both the sides placed reliance on the decision of the Special Bench of the Tribunal in the case of J. Hem Chand & Co vs. ITO (1982) 1 SOT 150 (Bom). They also sought torely on the other decisions of the Tribunal, for example in respect of packing material the learned counsel for the assessee submitted that though the said expense was held to be not entitled to weighted deduction by the Special Bench, but due to peculiar circumstances in the assessee's own case it was allowed by the Tribunal in the earlier assessment year. Similarly regarding the assessee's claim in respect of commission paid on exports the learned Departmental Representative relied on the decision of the Hon'ble Madras High Court in the case of CIT vs. Southern Sea Foods (P) Ltd. (1982) 31 CTR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set of tools were neatly arranged in plastic containers, which were termed as samples for tools. Considering the type of wrapers, we direct that these should be considered as samples and if the assessee is in a position to separate its cost, the same should be given the benefit of deduction under s. 35B of the Act. The total claim is in respect of Rs. 25,02,836 but it shall be subject to bifurcation, if necessary, after it is subject to the scrutiny of the ITO. 11. We like to mention here that the CIT(A) disallowed the claim by observing that packing expenses were incurred in the year. As observed above, if part of the expenses reached the customers as beautiful souvenirs alongwith goods sold, these should better be considered in the category of samples of goods for export." It was in view of the above observations that the learned counsel for the assessee prayed for an identical finding and he also stated that after verification the ITO 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 (Asst.) with directions to him to examine and scrutinise the expenses in respect of pack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Bench) : (1983) 3 ITD 714 (Mad) and his attempt was to keep the matter alive. In the aforesaid decision the Special Bench had noticed that the assessee had incurred the cost first and then only the subsidy was given. The subsidy in the instant case also did not relate to the cost of the asset and it could, therefore, not to go to reduce the same. This has been the consistent view of the Tribunal and has been affirmed in the following decisions : - (i) CIT vs.GodavariPlywoods (1987) 62 CTR 179 (AP) : (1987) 168 ITR 632 (AP) & (ii) CIT vs. Bhandari Capacitors (1987) 65 CTR (MP) 114 : (1987) 168 ITR 647 (MP). Following with respect the said Special Bench decision we find no warrant or justification for interfering with the order of the learned CIT(A) on this point. The Revenue, therefore, fails on this ground. 6. The last ground in the Revenue's appeal, reads as under : - "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 withdrawing the weighted deduction under s. 35B on Rs. 27,76,816 already allowed to the assessee. The CIT(A) had wrongly given the figures at Rs. 12,10,893 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be excluded from its income. The ITO however treated them as revenue receipts and, therefore, taxable. 7.1. The CIT(A) traced the history from July, 1963 when the Government of India had constituted a market Development Fund for financing schemes and projects for the development of foreign market for Indian products and commodities. He held that the following was the nature of the 7 criteria on the balanced determination of which the rate of cash assistance was based, in view of the report of Bose Mullick Committee (appointed by the Cabinet Committee in Nov., 1975), decision dt.29th Jan., 1976of the Cabinet Committee, 39th Report (1980-81) of the Seventh Lok Sabha and the letter dt. 11th May, 1984 received by the CIT(A) from the Commerce Ministry in reply to his letter dt.23rd April, 1984:-- S.No. Creteria Whether capital Percentage or revenue receipt 1. Export potential and domestic availability as well as supply elasticity product. Capital 2 per cent 2. Import content and domestic value added. Capital 2 per cent 3. Approximate implicity subsidy under the Import Replenishment Scheme Revenue 2 per cent 4. Compensation for unrefunded taxes and levies Revenue 1 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Sutlaj Cotton Mills Ltd. vs. CIT (1978) CTR (SC) 155 : (1979) 116 ITR 1 (SC). 7.5. So far as the CCS is concerned, the assessee is aggrieved in so far as the learned CIT(A) treated only 45per 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 No. 1143 and 1826/Del/79 for the asst. yr. 1975-76 the view taken by a Division Bench (to which one of us was a party) vide its order dt. 29th May, 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 rendered as was the case in Bengal Textile Assn. vs. CIT (1960) 39 ITR 723 (SC); that it was given as a bounty or a gift; that there was no trading relationship as between the assessee and the Government; and that it was not a condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the hands of the recipient company. That Division Bench took the view that since the following decisions were not noticed by the earlier Bench deciding the case of the present assessee for the asst. yr. 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 vs. CIT (1958) 33 ITR 644 (All); (2) H.R. Sugar Factory (P) Ltd. vs. CIT (1970) 77 ITR 614 (All); (3) Dharangadhara Chemicals Works Ltd. vs. CIT (1977) CTR (Bom) 189 : (1977) 106 ITR 473 (Bom); (4) CIT vs. Wheel & Rim Co ofIndia; (5) CIT vs. Swadeshi Cotton Mills Co. Ltd (1980) 15 CTR (All) 81 : (1980) 121 ITR 747 (All); (6)UnionofIndiavs. Anglo Afgan Agencies; (7) Addl. CIT vs. Handicrafts & Handlooms Exports Corpn. (1982) 26 CTR (Del) 175 : (1982) 133 ITR 590 (Del) : & (8) Ahmedabad Manufacturing and Calico Co. Pvt. Ltd vs. CIT (1981) 25 CTR (Guj) 263 : (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 Jeevan Lal (1929) Ltd vs. CIT (1982) 30 CTR (Cal) 50; (1983) 142 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a revenue receipt but was a merely bounty, the present Special Bench was bound to follow that decision on the principle of stare decisis. He also submitted in that connection that on the basis of the following decisions of the Tribunal and of the High Courts and particularly as the subsequent Division Bench, in the case of Reliance Industries Pvt. Ltd vs. ITO, had violated the principle of judicial property in not following the earlier decision of the Division Bench in 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 M/s Reliance Industries Pvt. Ltd could not be looked into : -- (1) CIT vs. S. Dev Raj (1969) 73 ITR 1 (Mad) (2) CIT vs. L.G. Ramamurthy (1977) CTR (Mad) 416 : (1977) 110 ITR 453 (Mad); (3) First ITO vs. Grah Lakshmi & Co (1985) 22 TTJ (Mad) 69 (TM); (1985) 11 ITD 711 (TM) (Mad) (4) Export House vs. ITO (1985) 23 TTJ (Asr) 263 (TM); (1985) 13 ITD 687 (TM) (Asr) (5) CIT vs. Harinath & Co (1987) 60 CTR (All) 52 : (1987) 168 ITR 440 (All); (6) Ujaagar Prints vs.UnionofIndia(1987) 167 ITR 904 (SC). On the other hand a counter preliminary objection was sought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abide by and adhere, to decide and not to unsettle things which are established). This rule is not so imperative or inflexible as not to permit a departure therefrom in any case. Therefore, its application has to be determined in each case by the discretion of the Court and the previous decisions need not be followed to the extent that error may be perpetuated and grievous wrong may result (vide Maktul vs. Manbhayi AIR 1958 SC 918). Under the stare 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 mischievious 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preliminary objections realised on both the sides. We hold accordingly. 9. On merits, Shri G.C. Sharama, the learned counsel for the assessee submitted that the finding was to be essentially of fact. Tracing the history of the export incentives right from 1963 he explained that the object and the source of all the three incentives were the same although they differed subtlely in their nature factually. These incentives, 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 s. 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 for 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 after1st April, 1976the position had materially changed. He explained that amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact of carrying on business but a promise or assurance held out by the Government to carry on business before the business (each transaction) commences. Next, he submitted that the receipt neither fell under s. (i) nor under s. 28(iv). Referring to s. 80E which uses the expression 'attributable to', he explained that that expression had the widest connotation compared to the expression "arising from business" used in s. 10(3)(ii) which was less wider and lastly the expression "profits and gains of business" used in s. (iv) which had a limited sense. Reference was also made by him to the provisions of s. 80HHC 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 IT 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to export was converted into a stock-in-trade (import replenishment licence) which cost the assessee nothing. He argued that a valueless stock-in-trade was not known and, therefore, no tax was leviable. He argued that it was not a part of the assessee's original business and that IE were actually capital receipts. Shri Sharma argued that 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 to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utright grant. He also pointed out that certain decisions of the High Courts had also not been considered. In this connection he placed reliance on the decision of the Tribunal in the case of M/s Reliance Industries Ltd. in which s contrary view had been taken. He also submitted that the decision of the Hon'ble Calcutta High Court in the case of Jeevan Lal (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 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 loses, 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 grant-in-aid meant a grant to aid something which specific and ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in the matter of selection /of product/ or amount of grant in respect thereof? 9.4. We have carefully considered the rival submissions of both the sides based upon their respective paper books and the plethora of case law. The controversy existing between capital and revenue receipts has defied solution and Courts have found it difficult to lay down any general considerations which would conclusively determine whether a certain receipt falls under one of the other category or both. As held by the Hon'ble Supreme Court in the case of CIT vs. R.B. Jai Ram Valji (1959) 35 ITR 148 (SC) "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 stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a company out of benevolence or feeling of charity would not entail income in the hands of the receipient--Seaham Harbour Dock Co. vs. Crook (1931) 16 TC 33 (HL). (xii) Payments take their colour from the receipts which 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 vs. State Trading Corporation of India Ltd. (1973) 92 ITR 294 (Del). (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 Corporation ofIndiavs. (1982) 29 CTR (Del) 175: (1983) 133 ITR 590 (Del). (c) Given to enable the assessee to run it business economically--Siddhartha Publications (P) Ltd. vs. CIT (1981) 129 ITR 603 (Del) (d) Given with the idea that men might be kept in employment--Seaham Harbour Dock Co. (f) When the receipt is in connection with an activity which does not constitute business--Senai Ram Doongarmall vs. CIT (g) When the payment has nothing to do with the conduct of the assessee's business--CIT vs. Malayalam Plantations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t might be used as capital in the hands of the assessee is irrelevant for considering it to be not a revenue receipt--Kesoram Industries & Cotton Mills Limited vs. CIT. 9.5. The burden of proof lies on the Department to establish that a particular subsidy receipt bears the character of revenue receipt. Thereafter the burden shifts to the assessee to prove that it is exempt. (Parimissetti Seetharamanna vs. CIT (1965) 57 ITR 532 (SC); Addl. CIT vs. Kriashnaswamy Reddiar (1978) 115 ITR 505 (Mad)). We have therefore to first examine the true factual nature of the 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, references against the contrary decisions of the division benches in the case of the assessee for the asst. yr. 1975-76 and 1976-77 and in the case of M/s Reliance Industries Private Limited. for the asst. yr. 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 Jeewan Lal (1929 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und rate of expansion envisaged in the Fourth Plan being 7 per cent per annum). (ii) In pursuing that aim (generation of expanding surpluses of Industrial products) every effort will be made to assist export oriented units in the private and public sectors to achieve economies of scale, improve efficiency of production, reduce costs and adopt production to meet the requirements of their customers abroad. (iii) Every effort will also be made to secure that indigenous industrial raw material, required for export production, are made available in right quality and at far 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) Government 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 orga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued a Circular dt. 23rd dt. Oct., 1978 mentioning that Dr. Alexander Committee, which had been set up to review the import-export policies and procedures with special reference to the role of instruments such as CCS, Duty Draw Back etc., indentified the following three basic principles for cash compensatory support:- (a) The level of CCS should fully compensate for the various types of unrefunded indirect taxes, sales tax, etc., which the exporter has to pay. (b) CCS should be such as to encourage him in adopting adequate marketing strategies 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 on export production. It appears that regarding the nature of the CCS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Imports and Exports(Control)Act, 1947. Through the import replenishment licences, the exporters are allowed to import limited permissible items and canalised items of raw materials as well as packing materials required for export production. It is saleable. Only registered exporters are eligible to claim replenishment licences and also other export incentives such as CCS. The rate of CCS also various according to the different items and different classes of exporters. The statutory or non-statutory nature of these instruments of export promotion however does not affect their taxability. Such, incentives, for the sake of stability, were offered for the 3 year period1st April, 1976--31st March, 1979so 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. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be such as to encourage the exporter in adopting adequate marketing strategies and to neutralise the disadvantages of freight etc. so as to be competitive in the market. In his letter dt.11th May 1984to the CIT(A) the Joint Secretary, Ministry of Commerce clearly said that the precise quantification of the weightage given to the various disadvantages separately for determining the CCS rate was not possible. This was said in reply to a specific query from CIT(A). This letter cannot be lightly brushed aside. It was a letter from a Senior 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 & 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. would not assist the Department in such a situation. In fact even the finding of the division bench which decided the case of M/s Reliance Industries Pvt. Ltd. was that the CCS was "not an aggregation of various computations but an integrated, indivisible whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orter some formula or method had to be devised to calculate the amount of the assistance. The mere fact that the assessee would not have got CCS if it did not export goods, does not lead to the irresistible inference that the receipts were revenue receipts(and not dehors the export business)or that a direct casual and taxable nexus existed between the exports and the granting of CCS. We are therefore of the view that though the CCS could not be treated as a mere bounty or gift, it was not a revenue receipt taxable under s. 28(iv)of the IT 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 earning 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 cooperation was enlisted as the enterprise of export is not a free one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh State Incentive Scheme 1976 along with the Central Subsidy Scheme 1971. The Hon'ble Andhra Pradesh High Court approved the decision of the Special Bench of the Tribunal in the case of Pioneer Match Works. Y.V.Anjaneyulu, J. held that the subsidy was granted more as a recompense for the hardships and inconveniences which the entrepreneur may encounter while setting up industries in backward areas. His Lordship observed that Infrastructural facilities were also lacking in backward areas. It is interesting to note what Jeevan Reddy, J. said in that case while concurring with Anjaneyulu 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 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the Exporters was inextricably connected with the act of exportation and that it was incidental to and supplemental to the trading receipts. However the following factors need to be noticed in regard thereto: (i)That decision is pending before the Supreme Court in appeal. (ii)The assessment years involved there were 1967-68 and 1968-69. (iii)The decision while intending to set out and proceed on the basis of the Ministry of Commerce letter dt.17th Aug., 1966to the Secretary EEPC reproduced a letter dt.24th Aug., 1966from the EEPC to members whose contents are not in pari materia with the aforesaid letter dt.17th Aug., 1966. (iv)The letter dt.11th May, 1978of EEPC to the Departmental representative in that case said that by the letter dt.17th Aug., 1966. Government had announced cash assistance scheme for compensating loss to the exporters for exports of engineering goods and that that scheme was announced for the 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 Government w.e.f.1st April, 1976. It is more to promote the infrastructure to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wly set up small scale industrial undertaking) was allowed concessional rate for current consumption under an incentive scheme offered by the state owned industrial corporation, the refund(which related to earlier years) was not taxable under s. 41(1). In ITO vs. Gujarat Handicrafts & Handloom Dev. Corpn.(1984) 9 ITD 488 (Ahd) grants and subsidies for carrying out specified objectives were held not to constitute income. In Tirumalesa Bricks & Tiles Factory vs. ITO (1986) 15 ITD 703 (Hyd), subsidy received by the assessee from the State Government for setting up new industries(not in back ward area) was held not to amount to the assessee's income. The principle laid down by these rulings and the view expressed by the CBDT with regard to taxing of subsidy given by the Government to promote industries in backward areas, lead us to believe that CCS or subsidy by whatever name it is called, is to encourage the establishment of capital assets, be it to promote exports or industrialise backward areas, and therefore, the receipt is of capital nature on capital account, and not of Revenue nature and on revenue account. May be in arriving at the amount, of CCS the other disadvantages are als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of DBK we do not accept the submission made on behalf of the assessee that it was not taxable under s. 41(1) as the person who imposed that duty did not grant any rebate or refund in any assessment proceedings or appeal. It cannot be said that DBK was not related to any particular duty or that there was no identity between the duty levied and the rebate or the drawback allowed. The fact that the ITO had not taxed DBK under s. 41(1) but under s. 28(i) would not make any difference. The identity is established by the very definition of DBK as mentioned above. In terms of s. 41(1) the assessee definitely obtained a remission or drawback which was accordingly taxable. In the case of CIT vs. Sahney Steel & Press Works Ltd., the Andhra Pradesh High Court held that refund of sales-tax on the purchase of raw materials and on the sale of finished goods was assessable under s. 28 r/w s. 41(1) of the IT Act, 1961. DBK has all along been taxed in the hands of the assessee. Accordingly, we find no force in this ground. 9.12.The next point relates to IE. We have already noticed that the nature of IE is also different from CCS in as much as it has a statutory basis as it is given under an orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1979) 8 CTR (Mad) 84 (FB), (4) Nonsuch Tea Estates Ltd. vs. CIT (1981) 129 ITR 28 (Mad), (5) CIT vs. Anglo India Jute Mill Co. Ltd. (1981) 129 ITR 352 (Cal), & (6) CIT vs. Modiram Laxmandas (P) Ltd. (1982) 30 CTR (Bom) 209. Thus even if IE was a mere right (capital asset)its sale yielded income. The proceeds of the sale of import entitlement have also been held by the Tribunal all along to be taxable. In this connection, we may also refer to the Special Bench decision of the Tribunal in the case of Indo Asian Switchgears (P) Ltd. vs. IAC (1985) 12 ITD 65 (Del)(SB). We are, therefore, clearly of the view that the amount of Rs. 16,73,519 by way of sale of import entitlement was rightly taxed by the IT authorities. 9.13. So far as the income arising out of the difference in the exchange rate is concerned, the same is also taxable. It is an item of receipt arising on revenue account, on the basis of the principles laid down by the Supreme Court in the case of Sutlej Cotton Mills Ltd. vs. CIT (1978) CTR (SC) 155 : (1979) 116 ITR 1 (SC). In this connection, reference may also be made to an earlier decision of the Supreme Court in the case of CIT vs. Canara Bank Ltd. (1967) 63 ITR 328 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Act, 1961. My brother Shri V.P. Elhence has dealt with the claim of the assessee in this regard vide paragraphs 3 and 3.1. I agree with his findings on this subject and, therefore, it is not necessary for me to elaborate further on this issue. 3.The second ground of appeal pertains to the assessee's claim regarding weighted deduction in terms of the following items. Amount Rs. 1. Interest on post-shipment export credit loan 4,50,983 2. Exchange rate difference 10,55,379 3. Inland freight on export consignments 33,90,473 4. Ocean Freight on export consignments 53,60,193 5. Forwarding charges on export consignments 8,95,760 6. Packing materials consumed exclusively for exports 65,08,653 4. So far as items No. 1 to 5 are concerned, they came for consideration of the Income-tax Tribunal in the assessee's own case for asst. yr. 1975-76 vide ITA.No.1143/Del/79 and 1826/79 and in respect of asst. yr. 1976-77 being ITA. No. 696/Del/82. In the note submitted by the assessee, it has been conceded and rightly that the Tribunal had rejected the assessee's claim for weighted deduction in respect of the above items. Respectfully, following the reasoning given by the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the goods get advertised. In this sense, it is possible to uphold the assessee's view point and for this reason, I would express my agreement with the finding of my learned Brother Shri V.P. Elhence with regard to this item. The assessee is eligible to succeed on this in the same manner as it did for asst. yr. 1976-77. 8.The 6th ground of the assessee is with regard to the taxability of Rs. 7,35,191 arising out of difference in exchange rate. According to the assessee, it was not business income and that it represented capital receipt of the appellant. My learned Brother Shri V.P. Elhence has dealt with this ground in paragraph 9.13 of his order. Inasmuch as, I am in entire agreement with the finding given by him there, that the receipt in question is business receipt. I do not consider it expedient to elaborate further on this issue. 9. That leaves grounds No. 3, 4 & 5. They deal with the following receipts in respect of which the assessee has claimed exemption from taxation: Description of the receipt Quantum of receipt Rs. 1.Cash compensatory support 1,33,82,158 2.Draw back of duty 51,93,926 3.Income from sale of import entitlement 16,73,519 My learned Brother Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policies was, of course, the individual entrepreneur and it was through his development that the economy as a whole was to be developed. There is no duality in the nation's development on the one hand and the development of individual units on the other, and, in any case, one is not at the cost of the other. It is only macro and micro view of the same process, and as such, in my opinion, it would be wrong to view the national goal as distinct from the individual unit's goal, particularly in the field of export development, especially when means adopted are not coerciere, but with form of provision of incentives and removal of disadvantages from the path of individual entrepreneurs. The underlying principle is that the benefits of individual will add upto the benefit of the nation in this regard. 12.The next point which deserves to be emphasised at the outset is that export means nothing more than sales of the goods of an individual in the foreign market, as opposed to the sales of the goods of the same individual in the internal market. The exports are in fax as good sales as the sales in the internal market. There is not difference in the nature of the two at all. Therefore, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exported such as linoleum and artificial silk. In June, 1958, the then Governor of Reserve Bank of India Shri H.V.R. Iyenger, speaking on the subject 'Foreign Exchange Situation in India' observed, inter alia, as follows: "The best method of financing an enlarged flow of imports is to maximise exports.......;World markets will remain highly competitive buyers' markets in which exporters have continuously to rely on additional incentives to exports.........." In March, 1959, " an important development in the field of import control for promoting exports was the liberalisation by the government of the policy for import of cotton by Mills under the Cotton Textile Export Incentive Scheme. Under the announcement all exporting Mills would be granted w.e.f. the quarter ended March, 1959 import quotas for raw cotton equal to 60per cent of the F.O.B. value of their exports. Under the Modified Scheme of the imports the eligible Mills will be allowed to retain only 10per cent for their own use as against 15per 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f good quality, and the Indian exporter will sell goods abroad if he makes profit from their sale equal to, if not more than, in the Indian market. To create favourable conditions capable of achieving the above objective has been the underlying motive force shapingIndia's import and export trade policies right from the very beginning upto date. 16.2.The time tested policies of replacement entitlements, duty draw backs of customs, duty rebates of Central excise etc. were therefore continued even after devaluation; for these measurers went to a considerable extent in setting off certain disadvantages, which were otherwise keeping the cost of the Indian exportable goods at a higher pitch. In addition to these policies, it was realised that further steps will have to be taken to provide cash assistance to the exporters with a view to provide them incentive and also to neutralise some of the disadvantages which they were still facing and which were not removed by the above-mentioned policies 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 Government of India took note of these various disadvantages fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mporary conflict between domestic consumption and export. Since export markets once lost can hardly be gained, a part of the production must always be made available to earn needed foreign exchange through, if necessary, temporary restraints on home consumption..............." 18. The Export policy resolution, may it be noted did not specifically refer to individual schemes that were either in vague or which were to be introduced in future by the Government of India. It merely indicated the broad directions in which effort had to be projected. 19. Cash assistance came to be given by the Government of India for the first time from Aug., 1966. The communication conveying the government's decision to grant cash assistance to the engineering industries was dt.17th Aug., 1966and was addressed to the Engineering Promotion Council. It read, Inter alia, as below: "(1)(i)The Government has decided to grant cash assistance against exports effected from6th June, 1966of specified engineering products. A list of products eligible for such assistance with the percentage of assistance is annexed. There will be no concessional supply of iron and steel in addition........" The cash assistance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..The schemes for import entitlements for exporters which are not in the nature of import replenishment in the products exported or in the group of products related to the products exported for strengthening the base of production of export oriented industries, but which are in the nature of freely transferable entitlements against export earning may not be introduced as effective export promotion measures, particularly in the current stage of our economic development. 22. In paragraph 5 of the report, the Committee then examined the question of allowing import of raw materials to remove the disadvantages to our exporters with regard to the quality and cost of the raw materials and stated, inter alia, as below: "In many export products, the profitability from exports is low and our indigenous costs are high mainly because of the high cost of domestic raw material and intermediates. In such cases, it is much better to remove the disadvantages to our exporters at the source by making available inputs at international prices, if necessary through imports, provided value added is reasonable.........In such cases, where the import replenishment is pushed up in order to accommodate inp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also only due to lack of effective demand, the determination of cash assistance on the marginal cost will not neutralise the disadvantages, sought to be removed by this assistance. The Committee, therefore, felt that it would be much better to examine the requirement of cash assistance for exports of a particular industry from a number of different angles which would require a detailed examination of the disadvantages suffered by an industry and the methods by which such disadvantages can be removed. Accordingly, the Committee felt that the rates of cash assistance should be determined by a balanced judgment of several criteria such as: (a) Export potential and domestic availability as well as supply elasticity of the products; (b) import content and domestic value added; (c) approximate implicit subsidy, if available under the import replenishment scheme; (d) compensation for irrecoverable taxes and levies; (e) difference between the domestic cost and international price of indigenous inputs and raw materials; (f) costs of entry into new market and, (g) a cut off point upto which subsidy is to be allowed." 23.2 From the above, it will be seen that upto31st March, 1976, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. Brother Grover has high lighted it in his order). There may be other cases where the loss might be the actual result. The scheme, therefore, envisaged not the reimbursing of the losses, but reduction of the marginal cost of the commodity, so that a favourable competitive base might be provided to the industrial unit. In the report of the Bosee Malik Committee there is no reference at any stage to the principle of reimbursement of losses as the basis of cash assistance. Apparently, it is a gloss, which has been provided by the Joint Secretary, Ministry of Commerce in his letter to the CIT(A) dt.11th May, 1984, referred to at page 15 of CIT(A)'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 elimination as far as possible certain identifiable factors which escalated cost of production of the Indian exporter. 24.1 While interpreting the recommendations of Bose Malik Committee, it would in my opinion be wrong to go by the gloss of the Jt. Secretary in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the imported components is high and thereby much more foreign exchange is earned than is spent on importing the components it should be preferred for awarding cash assistance. Criterion (b) is, therefore, again relevant for selecting the item for awarding the cash assistance and does not by itself lay down a basis for computing the cash assistance. Criterion (c) is the direct result of the recommendation of the Bose Malik Committee in paragraph 5 of its report, referred to earlier, 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 cash 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf.No Courtcan go by such interpretation of a document in controversy even if the interpretation in question came from a highly positioned government Officer. Instead of accepting the Jt. Secretary's version, on its face value, the CIT(A) should have applied his own mind to the recommendations in question and to the back ground material which had lead to the appointment of the Committee and formulation of its recommendations. In so far as he did not do so, be in my opinion, erred. 26. The Report of Bose Malik Committee has also unfortunately not been looked into by my learned Brother Shri V.P. Elhence and the other two Brothers namely the Hon'ble President and the Hon'ble J.M. Shri 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme for exporters "to meet their losses". On the basis of this Report, the Revenue's plea was that cash assistance was given to meet the losses which were caused to the exporters in the Act of exports. Apart from the report of the Board of Directors to the share holders, the Revenue had also relied upon a letter dt.11th May, 1978written by the Engineering Export Promotion Council to the Authorised Representative of the Department, in which the following was inter alia, stated: "We would confirm that after devaluation of the rupee, 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9and in this report the Committee referred not to cash compensatory support but to cash assistance. The contention, therefore, that there was basic differences in the cash assistance scheme and the cash compensatory support scheme is devoid of factual basis and apparently has been adopted without keeping in focus the attending circumstances including the report of the Bose Malik Committee. One has merely gone by description on the basis of the gloss put on the scheme of cash assistance by the Jt. Secretary letter. 29.2 In his deposition before the Public Accounts Committee of Parliament, the Secretary, Ministry of Commerce did not say that whereas earlier to 1st April, 1976, the cash assistance was based on the principle of reimbursing the losses to the exporter, after 1st April, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mouth even by the high official like Jt. Secretary and it would be wrong for a Court to stop enquiring into the reality merely because a certain statement was made by the Jt. Secretary of the Ministry of Commerce to the CIT(A). He was at the best giving his own interpretation and impression of what the Bose Malik Committee meant to recommend. It cannot be taken as the gospel truth. In fact it is his unwarranted and erroneous reference to the development of the infrastructure which has given a totally uncalled for twist to the nature and the recommendations of the Bose Malik Committee and as such it is necessary to take precaution on this Court and it would in my opinion be wrong to be mislead 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 Government of India on 1st Nov., 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic availability as well as supply elasticity of the products and import content and domestic value added. 31. In paragraph 4.8 while discussing rationale and scope of exprot promotion policies, the Committee made, inter alia, the following observations: "Export promotion effort of the country can be considered in two parts. Firstly, export incentives with a view to assisting the exporter in overcoming his disadvantages as against his competitors in the world market. Secondly, export services which enable him to reduce the degree and dimension of the disadvantages themselves...........In regard to the export incentives, one should recognise that 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not refunded. This will enable him to be on par with foreign competitors. (b) Cash assistance should be such as to encourage him in adopting adequate marketing strategies and to neutralise the disadvantages of freight etc., so as to be competitive in the export market; and (c) In the case of new products in new markets the magnitude of cash assistance should be adequate to take care of the initial promotional costs." 33. In paragraph 4.18, the Committee stated, inter alia as below: "These principles highlight the importance of the fact that export industry should make it production activity competitive on its own, after these three categories 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.1st April, 1978. It will be seen from the above recommendations of the Committee that it was l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment policy, the motive that the Government intended to give cash assistance to the various industrial units to enable them to build up infrastructure for example to construct warehouses to help them export their goods would be in the fact of the above facts totally contrary to the material on record. In fact, there is nothing in the recommendations of the both the Bose Malik Committee and the P.C. Alexander Committee to suggest that cash assistance was intended to be given to the various industrial units to enable them to develop their fixed capital infrastructure. 35. In 1984, the Government of India again appointed a Committee on trade policies under the Chairmanship of the then Commerce Secretary Shri Abid Hussain. The Committee presented its report to the Central Government on31st Dec., 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of production in export industries and thereby affect the competitiveness of exports. Therefore exporters need to be compensated for the escalation in their costs attributable to such customs and excise duties. 36. Referring to market development assistance, the Committee pointed out in paragraph 3.10 as below "An overwhelming proportion of the expenditure on Market Development Assistance is accounted for by the cash compensatory support regime........" In paragraph 3.11, the Committee traced the history of cash assistance, cash compensatory support by observing, inter alia, as follows: "3.11 Cash assistance for exports, which has subsequently been termed as cash compensatory support, was introduced in 1966. The stated objective was to enable exporters to meet competition in foreign markets, to develop marketing competence and to neutralise disadvantages inherent in the present stage of development of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in keeping with the practice in most countries of the world. Second, in the absence of CCS, the competitiveness of Indian exports would be adversely affected, and it is plausible to suggest that without CCS our export performance would have been worse." In paragraph 3.31, the Committee made its recommendation with regard to the cash Compensatory Support and observed, inter alia as below : "3.31 Second, the regime of cash compensatory support must be maintained in its present form as a facility, so that the export sector is not at a disadvantage in world markets on account of either unrebated indirect taxes or the cascaded structure of taxation. The CCS regime would have to continue so long as these disadvantages are implicit in the structure of domestic fiscal levies. The 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 Government 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, suggested by the Abid Hussain Committee that cash compensatory support should be made tax free. If these items were already tax free, there would have obviously been no scope for making such a recommendation. 38. Inasmuch as the essential nature of cash assistance/CCS has not changed since its inception till date, the opinion of the Hon'ble Calcutta High Court as to its character would have as much validity in regard to the period commencing on1st April, 1976onwards as it would with regard to the period preceding that. The reasoning that the ratio of the said judgment was not applicable to CCS after1st April, 1976is not in my opinion valid. As noted earlier, the Hon'ble High Court had proceeded on the footing that there was no merit in the departmental contention that the cash assistance was being given to the assessees by the Central Government 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 horse 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e foreign exchange the Government of India started an export promotion scheme. Under the scheme an exporter of cotton cloth or yarn was eligible for grant of import licences to the extent specified. The amount received by the assessee under this scheme amounted to Rs. 5,85,071. The assessee contended that this amount was a capital receipt; and was not assessable." The reasoning of the assessee in that case was more or less the same as advanced by the assessee's learned counsel in the present case. At page 145, the following arguments put forward on behalf of the assessee before the learned AAC have been noted by their Lordships: "For the assessee, the submission before us in this appeal was that it was a capital receipt. The exemption is no longer rested as a casual receipt as it recours year after year. The fact that it was granted under 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is, in my opinion, no comparison whatsoever between the subsidy granted by the Government of India for setting up industries in a backward region and the CCS granted for maximising foreign sales. By its very nature, the amount given by the government under the 10 per cent subsidy scheme for setting up industries in a backward area is to reimburse the cost of fixed capital assets, to the industry. The user of that money is in consequential and would not determine the nature of the receipt. At the threshold the money was given for setting up industries and was thus on capital account. In the present case, cash compensatory support is given for enabling the Indian exporter to sell more and more to the foreign countries and is aimed at neutralising disadvantages faced by him in the present state of the country's economy which go to increase the cost of production 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 it for the purpose of acquiring a capital asset. It is for the purposes of maximising the sales of an exporter to the foreign countries and is directly connected with the F.O.B. realisa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 Any payment which is of the above nature would be of revenue nature, according to the principles laid down by the House of Lords in the case of Ostime (H.M. Inspector of Taxes) vs. Pontypridd and Rohondda Joint Water Board (1946) 28 TC 261 : (1946) 14 ITR (Supp.) 45 (HL) 47, where Viscount Simon observed as follows: "The first proposition is that, subject to the exception hereafter mentioned, payments in the nature of a subsidy from public funds made to an undertaker to assist in carrying on the undertaker's trade or business are trading receipts, that, is, are to be brought into account in arriving at the balance of profits or gains......... The second proposition constitutes an exception. If the undertaker is a rating authority and the subsidy is the proceeds of rates imposed by it or comes from a fund belonging to the authority, the identity of the source with the recipient prevents any question of profits arising;.........." The elementary 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the present one purports to override disapprove circumvent the judgment of the Hon'ble Calcutta High Court on the present issue as reported in Jeewan Lal (1929) Ltd., vs. CIT (1983) 30 CTR (Cal) 50 : (1983) 142 ITR 448 (Cal). The Benches of the Tribunal inCalcuttahave no option but to follow the aforesaid judgment irrespective of the Special Bench decision to the contrary because the said Benches are within the territorial jurisdiction of the Hon'ble Calcutta High Court. Delhi is no doubt not under the Hon'ble Calcutta High Court but the judicial propriety to follow the ratio of the judgment of a High Court when no other High Court decision is in existence to the contrary has been recognised even by the Hon'ble Delhi High Court and it would not do to brush aside the observations of the Hon'ble Delhi High Court in the case of All India Laxshmi Commercial Bank Officers' Union and Anr., vs. Union of India & Ors. (1984) 150 ITR 1 (Del) by saying that their Lordships were referring to IT authorities and that they did not mean to suggest that the Tribunal need not follow the judgment of another High Court when there was no contrary judgment of any other High Court. In fact the Divisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the facts and truth and not merely to repeat what in the name of the Committees is stated before it by the two sides and out of the two versions of the report given before the Bench to pick up one as the correct one. 42.1. Anyway as I was overruled on the matter by the President and other Brothers, I could not ensure that the benefit of the three Reports which are otherwise very relevant and important for the determination of the present appeal is made available to both the sides and they are heard with regard to the same and in the light of the said submissions, the present controversy is resolved. My learned Brother Shri. S. Grover has, of course, expressed the opinion that the Reports can be referred to while disposing of the present appeals and that for this purpose, it was not necessary to refix the hearing of the appeals. 43. It is interesting in this connection to observe that the assessee's learned counsel was relying in support of his submissions on Nabhi's Hand-book of export Promotion 1986-87 and had referred therein to 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 Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial Bench of more than five Members. All these complications could have been avoided by inviting the two sides to make their submissions with reference to the texts right at this stage. The present Special Bench could then have done all that was necessary to resolve the controversy as satisfactorily as possible. By not doing so, the Special Bench decides only this appeal, but does not create a viable precedent for other Benches to follow. 44. The other items, namely, duty draw back and sale of import entitlements have been held to be assessable even by my learned Brothers. Essentially they are also the products of business and as such their accessibility cannot be assailed. Duty draw back is intended to reduce the cost whereas import entitlement is an incident of business and comes to the assessee by way of supplemental trading receipt. I am in entire agreement with my learned Brothers with regard to their finding in respect of these two items. 45. In the departmental appeal with regard to grounds Nos. 1 to 3, I have no separate opinion 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal and not the ITO and it was entirely discretionary for the CIT(A) to make enhancement or not and that if the request of the Department to enhancement was turned down by the CIT(A) the Revenue could not make an appealable issue out of it. The learned counsel submitted that the learned CIT(A) could as well refuse to adjudicate upon the request of the enhancement and yet dispose of the appeal which was before him and that in such a case, the Department would not get any right of appeal before the Tribunal, the best that it could do was to go for a writ to the Hon'ble High Court with the prayer to direct the CIT to adjudicate upon the request of enhancement raised by the Revenue before the CIT(A). Even this was not certain as to whether such a writ would at all lie because if there was no duty on the part of the CIT(A) to adjudicate upon the issue of enhancement raised by the IAC(Asst.) before him, no amendments could prima facie be issued to High Court for doing something which was not his duty to do. 49. I have given careful consideration to the facts of the case and the rival submissions. So far as the Tribunal is concerned, the power to file appeal before it is given to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. 52. It is true that under s. 246, it is only the assessee who gets the right to appeal to the CIT against an order of assessment passed by the ITO under s. 143(3). But once the appeal is filed before the learned CIT(A), the assessee loses the right to withdraw the said appeal and the matter has, thereafter, to be proceeded with in accordance with law by the learned CIT(A). For this purpose, he has to give notice of hearing both to the appellant and to the ITO and both of them have the right to be heard before him. The CIT has been given the right of considering and deciding any matter arising out of the proceedings in which the order appealed against was passed notwithstanding that such matter was not raised before the CIT(A) by the appellant. The issues which have not been raised by the appellant in his appeal but which have been determined by the ITO can thus be gone into by the CIT(A) while deciding the assessee's appeal. He can, of course, do so suo motu. The purpose of vesting this power in the CIT(A) has been explained by the Hon'ble Bombay High Court in the case of Narrondas Manordass vs. CIT (1957) 31 ITR 909 (Bom), 917, inter alia, in the following words: ...."the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the matter has to be examined on merits as to whether or not the enhancement was justified. 53. As regards merits, the learned CIT(A) disposed of the Revenue's submissions on the short ground, namely, that the matte stood covered by the judgment of the Special Bench of the Tribunal in ITO vs. Bharat Skin Corpn. and the Circular of the CBDT referred to in the said judgment. I have gone through the said judgment and I notice that there the question was as to whether weighted deduction should be given to the assessee on account of commission paid by it to the State Trading Corpn., for rendering to it, inter alia, the following services: "It obtains for the exporters (a) information regarding markets outsideIndia; (b) does advertisement and publicity outsideIndia: (c) prepares and submits tenders for supply of the goods to be exported; (d) furnishes samples and other technical information for the promotion of exports; and (e) maintains branches outsideIndiaand sends the executives outsideIndiafor negotiating export contracts". On the basis of these services it was held by the Special Bench of the Tribunal that the commission paid to State Trading Corpn. was eligible for weighted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,34,187. Final revised return was submitted on 30th Oct., 1981 for Rs. 1,95,77,963 as depreciation claim, investment allowance etc., on the Central Subsidy received in respect of a plant set up in industrially backward area were enhanced. It must be stated as a fact that the receipt of Rs. 1,33,82,158 as Cash Compensation Support (hereinafter referred to as the CCS), Rs. 51,93,926 as Duty Draw Back (for short DDB) and Rs. 16,73,519 realised by way of sale of Import Entitlements (IE) along with Rs. 7,35,181 as a result of fluctuation in exchange rate were not claimed as exempt before the assessing officer. It was only at the first appellate stage, i.e., before the CIT on 31st Jan., 1984 that the exemption claim from taxability of these amounts was stated by way of additional grounds, which were admitted and a report obtained from the IAC(A). This aspect is borne out in para 7 which is noted below: "7. While this order disposes of the original grounds of appeal filed by the assessee, the assessee had raised certain additional grounds, which were admitted through my order dt.31st Jan., 1984. These additional grounds highlight the inclusion in the total income of Cash Compensatory Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Rules, 1962. The assessing officer also mentioned that the assessee had filed a writ petition before the Hon'ble Supreme Court challenging the validity of the retrospective amendment of s. 80-J by Finance (No. 2) Act of 1980 which had been admitted. The assessee's assertion that, if, at a later stage, the Hon'ble Supreme Court upheld the retrospective amendment, the assessment could be modified accordingly came to be accepted by the assessing officer and assessment was made in accordance with the interim order issued by the Hon'ble Supreme Court restraining the Department from applying the amended provisions of s. 80-J of the Act. 8. The learned CIT(A) disposed of the assessee's appeal in relation to s. 80-J dispute vide paras 2 and 2-A of his order, which are reproduced below: "2. The first ground of appeal is against reduction of the claim of the appellant to relief under s. 80-J from Rs. 22,50,390 made by the assessee to Rs. 14,72,014 in respect of Unit No. IV of the company (Kundli Unit). An identical claim was considered by my predecessor in his order dt.21st March, 1983in respect of asst. yr. 1978-79. In this year too, as in the earlier year, the difference between the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) and direct the assessing officer to recompute relief/deduction under s. 80-J within the parameter laid down by the Hon'ble Supreme Court, particularly that all liabilities are to be deducted for the purpose of computing capital employed. 11. Coming to ground No. 2 in each of the cross-appeals, which are interlinked, the assessee claimed weighted deduction under s. 35-B to the tune of Rs. 64,04,030 in respect of expenses totalling Rs. 1,92,12,089 as follows, vide its return submitted on 27th June, 1979: "1. Directors Foreign Tour expenses for export purposes 2,76,710 2. Travelling for Export Promotion (Staff) 64,960 3. Foreign Publicity 87,014 4. Commission on Export Sales 27,76,816 5. Inspection Fee on exports 2,13,583 6. Interest on post-shipment export credit loan 4,50,983 7. Ocean freight on exports 53,60,193 8. Forwarding charges on exports 8,95,760 9. Bank charges on exports 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 allowances-Exports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses. No fresh arguments were sought to be addressed, but for short additional submission of Shri G.C. Sharma that the wrappers could be considered either as samples as done for 1976-77 assessment year or in the nature of advertisement expenditure. I however like to follow order for 1976-77 because advertisement is a preceding factor vis-a-vis the exports with wrappers and by making para 10 of the order for that year as the basis given the same direction, i.e., as in that year, i.e., wrappers should be considered as export samples and precise related bifurcated expenses should be given s. 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 whom for the Revenue it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery 31,761 We do not find much discussion in the CIT(A)'s order as to how the claims are worked out, though the assessee's assertion was recorded the quantification of the above three expenses were in accordance with the guide-lines given in the Special Bench decision of the Tribunal in J. Hemchand & Co.'s case. In the figure given in the paper book, it is mentioned that the claims are restricted 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 asst. yr. 1976-77, amicable arrangement has been reached, we see no reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Subsidy received from the Government for moving into or setting up plants in industrially backward areas. We do not propose to go to the figures because it was accepted by the parties that the question is of principle. There are now two judgments, one that of Hon'ble Andhra Pradesh and the other of the Hon'ble Madhya Pradesh High Courts, as noted below, which have taken the view that the Central Subsidy for locating industries in backward areas cannot go to reduce the cost of fixed assets: (i) CIT vs. Godawari Plywoods (1987) 62 CTR (AP) 179 : (1987) 168 ITR 632 (AP) and (ii) CIT vs. Bhandari Capacitors (1987) 65 CTR (MP) 114 : (1987) 168 ITR 647 (MP). 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 interfere with the CIT(A)'s 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 withdrawing the weighted deduction under s. 35-B on Rs. 27,76,816 already allowed to the assessee. The CIT had wrongly given the figures at R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation: In disposing of an appeal, the AAC (or, as the case may be, the Commissioner (A) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the AAC (or, as case may be, the Commissioner (A) by the appellant". 22. The above provision has various limbs. From cls. (a), (b) and (c) of sub-s. (1), pure power is drawn. In the instant case, we are concerned with primarily cl. (a) because it was the assessment order which was involved. Sub-s. (2) places constraints and obligations in as much as if assessment or a penalty order is to be modified adversely against a tax payer, he must be given reasonable opportunity of showing cause that action 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders in respect of asst. yrs. 1975-76 and 1976-77, I have to offer personal explanation as to why I am departing from the view taken, that the assessee is not entitled to exemption in respect even CCS. 28. For the asst. yr. 1975-76, in spite of various opportunities, the Revenue instead on bringing on record related evidence and the relevant judicial authorities, in the firs place, submitted that the only direct authority concerning the type of CCS as was involved, was the Calcutta High Court judgment in Jeevan Lal's case, cited as Jeevan Lal (1929) Ltd., vs. CIT (1982) 26 CTR (Cal) 60 : (1983) 139 ITR 865 (Cal) and then it was suggested ultimately that the matter be referred back to the assessing officer or CIT(A) 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 Kesho Ram Industries and Cotton Mills vs CIT cited as (1978) 115 ITR 143 (Cal), 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 Jeevan Lal vs. (1929) Ltd. vs. CIT. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for consideration is, whether such payment can be hold to possess any attribute of income. 13.7. At this stage, we would like to observe and make it clear that if we are not referring to each and every argument and the authorities cited by Shri R.K. Sharma, Senior Departmental Representative, it is because the related contentions are primarily against the assessee's claim concerning IE and DD which aspect is being decided in favour of the Revenue. Similar is the case with regard to judicial authorities, thought 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 Jeevan Lal (1929) Ltd. vs. CIT (1982) 26 CTR (Cal) 60 : (1983) 139 ITR 865 (Cal), which we shall be referring to. Therefore, if certain authorities do not find reference it is because the same have not been considered necessary for deciding those appeals. Similarly, only these arguments are not dealt with which are considered over-lapping or irrelevant and which should be considered as rejected. The same considerations are relevant and will apply with regard to submissions and argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggested writing of separate judgments, by Brother Elhence and myself. I was proceeding with my judgment on all aspects when some time in January, a draft was sent by Brother Elhence only in respect of non-taxability of CCS. By that time, my own judgment on all the issues was half way. Since I had already expressed my view that my earlier approach was apparently not correct in view of certain revelations emerging from Reliance International, I sent the draft back with a note appending my view that there could be no question of offering my comments. 32. Thereafter, on 5th Feb., 1988, Brother Elhence sent me the order signed by him and Brother F.C. Rustagi on 4th Feb., 1988 and 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 in 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 23rd Feb., 1988, I handed over the order authored by Brother Elhence as also my order to brother Anand Prakash on the thinking th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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