TMI Blog2005 (2) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the judgment of the Kerala High Court in the case of CAIT v. Midland Rubber Produce Co. Ltd. [1990] 182 ITR 493 allowed the claim of the assessee. Since the facts are identical and similar to one which was decided by this Tribunal for the Assessment years 1991-92 and 1992-93, by following the reasoning of this Tribunal for the earlier Assessment Years, we uphold the claim of the assessee. Accordingly we set aside the order of the lower authorities on this issue and direct the Assessing Officer to delete the addition of Rs. 20,983. 3. The next ground of appeal arises for consideration is regarding claim of the assessee with respect to filing fee for increasing the authorized capital of the company paid to the Registrar of Companies as revenue expenditure. During the course of hearing, it was fairly conceded by both the representatives of the assessee and the Revenue that this issue has been settled by the Supreme Court in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798 . By respectfully following the judgment of the Supreme Court, we uphold the order of the CIT(A). Accordingly this ground of appeal is rejected. 4. The next ground of appeal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The next ground of appeal is regarding exclusion of income from sale of securities for the purpose of computing relief under section 80HHC. Shri Santhanakrishnan, the learned counsel for the assessee submitted that the assessee was dealing in shares and earned profit. According to the learned counsel, trading in share is also one of the business of the assessee. The learned counsel submitted that the eligible profit for the purpose of deduction under section 80HHC has to be computed in accordance with the provisions of section 80HHC(3) read with Explanation ( baa ) . The learned counsel further submitted that the Assessing Officer has misconceived or misconstrued the provisions of sub-section (3) of section 80HHC which provides for method of computation. The learned counsel submitted that section 80HHC refers to profit of the business and not the profit of the export. The learned counsel further submitted that sub-section (3)( a ) of the section 80HHC provides for method of computation of profit when the assessee exports goods or merchandise manufactured or processed by them. According to this provision, the profit derived from the export shall be the amount which bears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular No. 621 dated 19-12-1991 (reported in 195 ITR 154 (ST) and submitted that section 80HHC was amended since there were some doubts in the existing provisions of section 80HHC. The CBDT, according to the learned counsel, clarified the method of computing eligible profit for the purpose of deduction under section 80HHC. The learned counsel further submitted that the Assessing Officer included the transaction of securities in the total turnover, therefore, it cannot be excluded from the business profit for the purpose of deduction under section 80HHC. 10. On the contrary, Mr. Rangarajan, the learned D.R. submitted that section 80HHC provides for deduction in respect of income derived from export. According to the learned D.R., since the provisions of section 80HHC is very clear with regard to computation of the eligible profit, the profit earned by the assessee in the transaction of securities cannot be included for the purpose of eligible profit under section 80HHC. The learned D.R. further invited our attention to sub-clause (2) of section 80HHC and submitted that section 80HHC would be applicable in respect of goods or merchandise which are exported out of India and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 80HHC, held that in arriving at profit earned from export of both self manufactured goods and trading goods, the profit and losses in both trades have to be taken into consideration. If after such adjustments, there is a positive profit, the assessee would be entitled to deduction under section 80HHC(1). If there is a loss, the assessee will not be entitled to say deduction. The Supreme Court further held that profit means a positive profit after taking into consideration of losses, if any. The issue arises for consideration before us is not regarding ignoring of any loss suffered by the assessee. On the contrary, the issue arises for consideration in this appeal is whether the business of the assessee with regard to trading in securities would form part of eligible profit for the purpose of deduction under section 80HHC. 12. We find that the Madras High Court in the case of CIT v. Madras Motors Ltd. [2002] 257 ITR 60 had an occasion to consider a similar issue. One of the questions, which was referred for the consideration of the Madras High Court, is whether on the facts and in the circumstances of the case the Tribunal was right in its conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a ) of sub-section (2). Once we read sub-section (1) of section 80HHC, clause ( a ) of sub-section (2) and clauses ( a ) and ( b ) of sub-section (3), there remains no doubt that the total turnover of the business would contemplate only the business regarding such goods part of which are exported and the others are not so exported. There is just no scope to include the turnover of the business of the goods which are not contemplated by the section." In view of the above, it is very clear that the turnover of the goods which was not exported or it has no relation to the export of the assessee, cannot be included in the total turnover. The total turnover of the assessee would contemplate only with regard to part of the goods which are exported and the other part which are not so exported. Therefore, the transaction of securities has nothing to do with the provisions of section 80HHC. As found by the Madras High Court, if the transaction of securities is included it would amount to violence to the language of the provisions of section 80HHC. Therefore, in our considered opinion, the transaction of securities cannot be included in the total turnover of the assessee for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80HHC. The Madras High Court, while interpreting the sub-clause (2), categorically held that the business has to be only in respect of goods or merchandise to which section 80HHC applies. Therefore, the profit of the business shall be restricted to in relation to goods which are exported. In other words, the profit accrued to the assessee which has a relationship with the export of goods or merchandise alone is eligible for including in the profit of the business. In this case, the transaction on securities has nothing to do with the export of goods or merchandise. As rightly submitted by the learned D.R., the transaction in securities is an independent business, therefore, the profit arising out of such transaction of securities cannot be included in the profit of business for the purpose of computing deduction under section 80HHC. In view of the above, we are unable to uphold the claim of the assessee. Accordingly we reject the same. 16. Now coming to the Department appeal. The first ground of appeal is regarding expenditure incurred by the assessee for repairing machineries. Mr. Rangarajan, the learned D.R. submitted that the assessee replaced 30HP Motor, Stabilizer, Turbo C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could perform indepen-dent function, therefore, when the assessee replaced a machinery which could perform independent function, has to be treated as capital expen-diture. 20. On the contrary, Shri Santhanakrishnan, the learned counsel submit-ted that admittedly the assessee replaced the machinery in the textile mills. The learned counsel submitted that the entire machineries were not replaced. A part of the machinery as extracted by the first Appellate authority at page 10 of his order was replaced. Even though some of the machineries may perform independent function but it cannot perform independently when it is installed in the textile mills. When a machinery is installed in a textile mills, it has to perform its function in coordination with other machineries which are installed in the textile mills. Therefore, the learned counsel for the assessee submitted that when the machinery is installed in a textile mills, it cannot perform independently in the manufacturing of textile mills even though it may function independently elsewhere. The learned counsel further submitted that the existing elec-trical items were replaced just to maintain the existing system in a running cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above discussion, we do not find any infirmity in the order of the lower authority in directing the Assessing Officer to exclude the excise duty and sales tax from the total turnover. 24. The next ground of appeal is regarding inclusion of processing charges in the total turnover for the purpose of section 80HHC. During the course of hearing, it was submitted by both the representatives of the assessee and the Revenue that a similar issue was considered by the Bombay High Court in the case of CIT v. Bangalore Clothing Co. [2003] 260 ITR 371 . It appears that the processing charges are received for job work done by the assessee by using the spare capacity of the machine by utilizing the goods supplied by others. Therefore, it is very clear that the job processing activity was linked to the manufacturing activity of the assessee. Therefore, the income earned by the assessee as job work charges or processing charges accrues by way of operational income. Therefore, it has to be included in the total turnover in view of the judgment of the Bombay High Court in the case of Bangalore Clothing Co. ( supra ). In view of the above, we confirm the order of the lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as capital in nature. The learned counsel for the assessee further submitted that the first Appellate authority by placing his reliance on the judgment of the Supreme Court in the case of CIT v. Sirpur Paper Mills Ltd. [1978] 112 ITR 776 held that the amount received by the assessee has to be treated as capital in nature. Therefore, according to the learned counsel, there was no error in the order of the lower authority. 27. We have considered the rival submissions on either side, and also perused the material available on record. Admittedly the assessee has received a sum of Rs. 17,79,919 as compensation by waiving the insurance contract for reinstatement of the machinery. The assessee has installed a manually operated machine in the place of automatic operated machine. The Assessing Officer treated the receipt as revenue in nature since it was received for repairing the damage in the machinery. The first Appellate authority allowed the claim of the assessee by following the judgment of the Supreme Court in the case of Sirpur Paper Mills Ltd. ( supra ). We have also carefully gone through the management of the Supreme Court in the case of Sirpur Paper Mills Ltd. ( su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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