TMI Blog2010 (6) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the disallowance made by the Assessing Officer must follow. - exemption u/s. 10A to be granted on foreign exchange gain earned (due to fluctuation of foreign exchange) on realization of export receipts in the year of export - IT Appeal No. 2426 of 2009 - - - Dated:- 23-6-2010 - Ms Suchitra Kamble for the Appellant. Ms Arti Vissanji with Mr. S.J. Mehta for the Respondent. CORAM: DR.D.Y.CHANDRACHUD J.P.DEVADHAR, JJ. ORAL JUDGMENT (Per. DR.D.Y.CHANDRACHUD, J.): 1. Admit. On the request of counsel for the Revenue and counsel for the assessee, the appeal is taken up for final hearing. 2. This appeal by the Revenue under Section 260A of the Income Tax Act, 1961 pertains to Assessment Year 200304 and the following questions of law have been formulated in support of the appeal: "a. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the exemption u/s.10A of the Act should be computed after excluding freight and insurance from the total turnover; b. Whether on the facts and in the circumstances of the case, the Tribunal was justified in directing the Assessing Officer to grant the exemption u/s.10A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal. 4. Under sub section (1) of Section 10A a deduction is allowed from the total income of the assessee of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years commencing from the assessment year relevant to the previous year in which the undertaking begins manufacture or production. Sub section (4) of Section 10A provides the manner in which the profits derived from the export of articles or things or computer software shall be computed. Sub section (4) provides as follows : "For the purposes of sub sections (1) and (1A), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking." 5. Under sub section (4) the proportion between the export turnover in respect of the articles or things, or as the case may be, computer software exported, to the total turnover of the business carried over by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression "export turnover" cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a provision to the contrary. However, no such provision having been made, the principle which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation would lead to an absurdity. If the contention of the Revenue were to be accepted, the same expression viz. 'export turnover' would have a different connotation in the application of the same formula. The submission of the Revenue would lead to a situation where freight and insurance, though it has been specifically excluded from "export turnover" for the purposes of the numerator would be brought in as part of the "export turnover" when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided. 8. The view which we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h does not have any element of profit cannot be included in the total turnover. In Lakshmi Machine Works (supra) the Supreme Court held that excise duty and sales tax did not possess any element of turnover since they are merely recoverable by the assessee on behalf of the Government. 10. Freight and insurance do not have an element of turnover. For this reason in addition, these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary. The first question of law would therefore have to be answered against the Revenue and in favour of the assessee. Re Question b: 11. For the purposes of the appeal it is necessary to refer to the admitted position which is that the assessee had deposited both the employer's and the employees' contribution towards Provident Fund and ESIC, though beyond the due date including the grace period. The Assessing Officer added these payments to the total income of the assessee and made an addition in the amount of Rs. 71.59 lacs. However, for the deduction under Section 10A, the addition made on account of the employees' contribution was ignored in calculating the profits el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered against the Revenue and in favour of the assessee. Re Questions c and d: 13. Counsel appearing on behalf of the Revenue and counsel appearing on behalf of the assessee are agreed in stating that these two questions of law will stand covered in favour of the Revenue and against the assessee by the judgment of this Court dated 18/19 March 2010 in Commissioner of Income Tax v. Asian Star Company Limited (ITA 200 of 2009). Both these questions of law are accordingly answered in the negative in favour of the Revenue and against the assessee. Re Question e: 14. The Tribunal has followed a decision of its Special Bench in coming to the conclusion that foreign exchange earned on the realization of export receipts in a year other than the year in which the goods were exported would have to be considered in the year of export for the purpose of exemption under Section 80HHC. The Tribunal has, however, directed the Assessing Officer, while granting a deduction to the assessee under Section 10A in the year of export to exclude the amount from the profits of the year under consideration simultaneously. This is to ensure that the assessee does not obtain a deduction twice over. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
