TMI Blog2005 (11) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 80HHC. It is not correct to hold that the amount received falls within the term in consideration for the use of any patent, invention, design or registered trade mark used in section 80-O of the Act. The amount received is not for use of but for sale of the drawing, design and technology as such. After the transfer of design and technology, the same is the property of purchaser and no longer remains with the assessee. Thus, the amount received is not for merely allowing use of such drawing, design or technology but for sale of such product, which falls within the definition of goods or merchandise within the meaning of section 80HHC of the Act. We accordingly hold that since the amount is received inconvertible foreign exchange as specified under section 80HHC, the assessee is entitled to deduction under section 80HHC of the Act. In view of our above answer, it is not necessary to deal whether the amount received is eligible for deduction under section 80-O also or not. Whether the assessee is entitled deduction u/s 80HHC as well as 80-IB and the implication of sub-section 9 of section 80-IA or sub-section 13 of section 80-IB - In view of the decision of this Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e name and style M/s. ANZ Tyres International. The appellant had for the assessment year 2001-02 filed the return of income on 31-10-2001 declaring nil income after claiming the benefit of deduction under sections 80HHC and 80-IB of the Act. An agreement for payment of design, development and manufacture fees was entered into between Segmax LLC and ANZ Tyres International on 9-6-2000. As per Article 2 of the said agreement, ANZ will perform the following acts : ( a ) ANZ will provide and maintain such facilities, procedures and competent trained personnel as are required to manufacture and/or source and supply Laminated Tyres and other engineering products from India to Segmax. ( b ) ANZ will provide all design, development and manufacturing assistance and supervision and oversight from India to Segmax s efforts in selling laminated tyres in the United States. ( c ) ANZ shall supply tyres to Segmax against advance payment or against a prime bank letter of credit for the products supplied by ANZ from India. ( d ) ANZ shall expand and set up design, development and manufacturing facilities in India to facilitate complete designing, development and manufacture of laminated tyres and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in reducing 90 per cent of such receipts by resorting to the Explanation ( baa ) to section 80HHC was also upheld. The CIT(A) had also upheld the action of the assessing authority in reducing 90 per cent of the export incentives by invoking the provisions of the Explanation ( baa ) to section 80HHC. Also, the deduction under section 80-O as granted by the assessing authority in the assessment order came to be withdrawn by the CIT(A) whereby the assessment also came to be enhanced. The CIT(A) was of the opinion that the payment received by the appellant was not in consideration of the use outside India of any patent, invention or registered trade mark but had been received for the design, development and manufacturing support rendered by the appellant in connection with the supply of laminated tyres and other related products to the client of the appellant s customers. This is evident from para 4.4 of the CIT(A) order. 1.2 Aggrieved by the order of the CIT(A), the appellant is now in appeal before us. The following questions arise for our consideration : ( i ) Whether the technical know-how drawings, designs, technology in regard to the manufacture of segmented tyres transferred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the provisions of the Explanation ( baa ) to section 80HHC did not apply in the case of the sale consideration of the design and technology in so far as sub-clause (1) of Explanation ( baa ) is to be read harmoniously and the sale consideration of the design and technology of the laminated tyres did not fall within any of the terms mentioned in sub-clause (1) of Explanation ( baa ) to section 80HHC, nor was any other receipt of similar nature. It was further argued that the term any other receipt of similar nature should be read ejusdem generis . 2.2 Shri George Mathan further submitted that the sale consideration of DEPB licence was also not hit by the provisions of Explanation ( baa ) to section 80HHC as the same fell within clause ( iv ) of section 28 and not under clause ( iiia ), ( iiib ) or ( iiic ) of section 28. For this view, the representative also relied upon the decision of the ITAT, Delhi Bench in P G Enterprises (P.) Ltd. v. Dy. CIT [2005] 93 ITD 138 . Without prejudice to the above argument, the representative has also submitted that if Explanation ( baa ) to section 80HHC was held applicable to the receipts on sale of DEPB licence being export incentive, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esign development and manufacturing support cost. No merchandise or goods have been exported out of India relating to development charges received. The invoice prepared clearly shows that the amount received under development charges is towards design development and manufacturing support cost and does not form part of export sale of laminated tyres. On a plain reading of provisions of section 80HHC, it is very clear that the provisions of section 80HHC applies only where an appellant is engaged in the business of export out of India of any goods or merchandise. In the case of the appellant no goods or merchandise have been exported out of India. The design and development charges received by the assessee from a foreign enterprise in consideration for the use of designs would not result in export of any goods or merchandise as specified in section under section 80HHC of the Act. Considering the above position, it is very clear that the appellant has not exported any goods or merchandise when the appellant received moneys in foreign exchanges by raising invoices for design, development and manufacturing support. In the circumstances, the appellant s contention that the design and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1957. The word import is defined in the Copy Right Act as well as in the Customs Act. In an action against copyright infringement, the appellant tried to import the definition of the word import as appearing in the Customs Act in disregard of the definition of the word import contained in the Copy Right Act. Hon ble Supreme Court, rejecting the argument, held as under : The word import in sections 51 and 53 of the Copy Right Act means bringing into India from outside India . It is not limited to importation for commerce only, but includes importation for transit across the country. Shri Bhatnagar further submitted that Hon ble Supreme Court in the case of Jagatram Ahuja v. CGT [2000] 246 ITR 609 held thus : The words and expressions defined in one statute as judicially interpreted do not afford a guide to the construction of the same words or expressions in another statute unless both the statutes are pari materia legislations or it is specifically provided in one statute to give the same meaning to the words as defined in another statute. The aim and object of the two legislations, namely, the Gift Tax Act and the Estate Duty Act, are not similar . 3.2 Summarising the case laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stom duty on the import content of the export product. The neutralization is provided by way of grant of duty credit and accordingly as stated in the letter issued by the CBDT, the elaborate scheme of computation of the deduction provided under section 80HHC( iii ) of the IT Act, does not cover profit on sale of DEPB credits, as clear from the wordings of 80HHC(1) a deduction allowable only to the extent of profit, which must be derived by the appellant from the export of goods or merchandise. In this case of DEPB credits, this basic condition is not fulfilled. Since the receipt in the nature of sale of DEPB credit have no nexus with the sale processes and export activity, such receipts are to be excluded to the extent of 90 per cent thereof as in clause ( baa ) of Explanation to section 80HHC. For this purpose he relied upon the following decisions : * CIT v. Eastern Chemicals and Minerals (P.) Ltd. [1991] 192 ITR 423 (Mad.) * Hindustan Lever Ltd. v. CIT [1980] 121 ITR 951 (Bom.) * CIT v. Kantilal Chotalal [2000] 246 ITR 439 (Bom.) * CIT v. K.K. Doshi Co. [2000] 245 ITR 849 (Bom.) * CIT v. S.G. Jhaveri Consultancy Ltd. [2000] 245 ITR 854 (Bom.) * CIT v. Jameel Leathers Uppers [200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht by the Act of 1998 and made effective from April 1, 1999. Prior to the amendment, section 80-IA did not provide that if deduction under section 80HHC has been allowed on the gross total income, deduction under section 80-IA should be allowed only on the balance income i.e. the amount remaining after deduction under section 80HHC. When there is no such provision or intention of the Legislature to allow deduction under section 80-IA on the balance amount, there is no justification to allow deduction under section 80-IA only on the balance amount, i.e. the amount which remained after deduction under section 80HHC. The object of inserting the aforesaid sub-section has been explained in Circular No. 772, dated 23-12-1998 extracted herein : 35.1 Under the provisions of Chapter VI-A of the Income-tax Act, various deductions from the profits and gains are allowed to specified appellants, subject to fulfilling certain requirements specified under the relevant sections. The total deductions under Chapter VIA of the IT Act are restricted to the gross total income in respect of the appellant as a whole. 35.2 However, it was noticed that certain assessees claimed more than 100 per cent deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase has complied with the provisions of section 80HHC as such entitled to claim deduction under the said section i.e. exported beta-cam tapes containing the film as certified under Cinematography Act, 1952. . . . The Custom s Department has treated the beta-cam tapes as goods for imposition of duty. The assessee has contended that it is well settled that two wings of the Govt. cannot take two views of the same transaction. Keeping in view of the above circumstances, the Hon ble High Court that the beta-cam tapes are goods and merchandise for the purposes of section 80HHC. It was held by the Hon ble High Court at page 516 - that the Custom Authorities have granted the custom clearance when the articles or goods were physically exported, there must have been the subject of custom clearance. No material or things or goods can cross custom borders unless they go through the gamut of custom clearance. There is no dispute, rather any dispute, so far as this aspect of the matter is concerned. . . . It is thus, not in dispute that the export of beta-cam tapes was subjected to custom clearance. The condition precedent for claiming deduction under section 80HHC is that the transaction must r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80HHC in respect of amount realized on sale of design, development and manufacturing technology of the laminated tyres. It is the contention of the assessee that what is exported is goods and hence eligible for deduction under section 80HHC. The Assessing Officer has treated the receipt as eligible for deduction under section 80-O. Learned CIT(A) has refused both the deductions and treated the amount as other receipts falling within clause ( baa ) of Explanation to section 80HHC. 4.1 As per section 80HHC, where an assessee is engaged in the business of export out of India of any goods or merchandise to which this section applies, deduction to the extent of profits derived from the export of such goods or merchandise is deductible while computing the total income. As per sub-section 2( a ) of section 80HHC, this section applies to all goods or merchandise other than those specified in clause ( b ). As per sub-section 2( b ) of section 80HHC, this section does not apply to ( i ) mineral oil and ( ii ) minerals and ores, other than processed minerals and ores. Thus section 80HHC will apply to all the goods and merchandise other than mineral oil and minerals and ores. The word goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of that term in section 2( n ) of the Andhra Pradesh General Sales Tax Act, 1957. The term all materials, articles and commodities in section 2( h ) of the Act includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. The software programmes have all these attributes . Hon ble Supreme Court in the case of Scientific Engineering House (P.) Ltd. v. CIT [1986] 157 ITR 86 Held: that the various documents such as drawings, designs, charts, plans, processing data and other literature included in documentation service, the supply whereof was undertaken by the foreign collaborator, more or less formed the tools by using which the business of manufacturing the instruments was to be done by the appellant and for acquiring such technical know-how through these documents, a lump sum payment was made. This expenditure was incurred by the appellant as and by way of purchase price of the drawings, designs, charts, plans, processing data and other literature, etc., comprised in documentation service and was of a capital nature as a result whereof a capital asset of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under : A term of a very extended meaning, converting all articles of commerce; the objects of commerce; the subjects of commerce and traffic; any article which is the object of commerce; or which may be bought or sold in trade; all kinds of personal property which is bought and sold in the market . In the present case, it is seen that the assessee received the consideration for providing design, development and manufacturing assistance and for defining tooling design and production process. This was done by transferring various design documents and connected papers therewith. The conjoint and harmonious reading of various definitions as well the ratio laid down by Hon ble Supreme Court leads us in no doubt that the amount received by assessee for sale of design, development and manufacturing technology of laminated tyres amounts to sale of goods or merchandise and hence eligible for deduction under section 80HHC. It is not correct to hold that the amount received falls within the term in consideration for the use of any patent, invention, design or registered trade mark used in section 80-O of the Act. The amount received is not for use of but for sale of the drawing, design and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be allowed, the provisions of section 80-IA(9) is quoted below : 80-IA(9) : Where any amount of profits and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading C-Deductions in respect of certain incomes , and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be . Further, we find that section 80-IA(9), which was inserted by the Finance No. 2 Act of 1998 with effect from 1-4-1999 was originally sub-section (9A) of the old section 80-IA of the Act. In the Finance Bill (No. 2) of 1998, placed at page 25 of the assessee s paper book, sub-section (9A) to section 80-IA sought to be inserted with effect from 1-4-1990 is referred. The notes on clause explaining the provisions of the Bill placed at page 28 of the assessee s paper book, is reproduced below : It is proposed to insert a new sub-section (9A) in section 80-IA so as to provide that where an amount of profits and gains of an industrial undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of insertion of section 80-IA(9A), which later became 80-IA(9) in the present section, was to prevent deduction of more than 100 per cent of profits and gains of the undertaking by claiming multiple deduction. The object of insertion of section 80-IA(9A) was not to prevent claim of deduction under more than one section, under Chapter VI-A, where the assessee satisfies conditions of these sections, but, only to ensure that the sum total of the deductions so claimed by the assessee does not exceed the profits and gains of the undertaking in respect of which deductions are allowable. When one peruses the second limb of section 80-IA(9) which reads shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be . The second limb of section 80-IA(9) conveys the meaning that the sum total deduction allowed under section 80-IA/80-IB and other incentive provisions of Chapter VI-A should not exceed the profits and gains of such eligible business. Otherwise, the second limp need not be there at all. Further, if one looks into the provisions of section 80-IC(5) of the Act, which is relied upon by the learned CIT in the order under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been provided by amending the sections so that such unintended benefits are not passed on to the assessees. (35.3) These amendments will take effect from April 1, 1999 and will accordingly, apply in relation to the assessment year 1999-2000 and subsequent years . Therefore, even the Board has understood the amendment effected by the Finance Act, 1998 to provide a safeguard and ensure that, repeated deductions are not claimed where it even exceeds the eligible profits of the undertaking. We are of the view that the provisions of section 80-IA(9) only regulate the deductions allowable under Chapter VI-A and there is no restriction contained therein to regulate other deductions. The provisions of Chapter VIA are meant to encourage various objects and these incentive provisions must be construed for the benefit of the taxpayer. For these reasons, we hold that since the assessee has not claimed more than 100 per cent deduction in respect of the profits of the undertaking and since the Assessing Officer has also not allowed more than 100 per cent deduction of the profits under both sections 80-IB and 80HHC there is no need to interfere with the order of the Assessing Officer . In view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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