TMI Blog2015 (5) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. However, when the income derived from the sale of spare parts is held to be ineligible for the benefit under section 10B, the entire amount representing the value of spare parts is to be excluded and the profits and gains derived from sale of such spare parts alone is liable for tax. That is the exercise to be undertaken by the assessing authority and the said amount is to be excluded. - Decided against revenue. Incidental income derived by the assessee from the sale of scrap - whether would be entitled to exemption under section 10B of the Act despite the same having been not derived from the export of articles or things - Held that:- Keeping in mind principle laid down in CIT v. Sterling Foods [1999 (4) TMI 1 - SUPREME Court] no doubt the assessee is not in the business of export of scrap but is in the business of export of X-ray equipment, high voltage tanks and detectors used in CT scanners and after manufacturing these products, they are exported. In the process of manufacturing, the unutilised raw materials forms part of scrap and that scrap also has value. But it is not exported and, hence, they are eligible for the benefit under section 10B of the Act. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,83,454 under section 10B of the Act. The assessee admitted the turnover from manufacturing activity at ₹ 354.13 crores. The assessee also declared the turnover of 24.33 lakhs on the export of spares/ components. The assessee's case was selected for scrutiny and an assessment order under section 143(3) of the Act came to be passed on March 27, 2006. The Assessing Officer restricted the deduction under section 10B of the Act at ₹ 72,68,33,060 on the ground that the turnover on account of export of spares/components was not to be included in the eligible profits to determine the deduction under section 10B of the Act. An amount of ₹ 24.33 lakhs was deducted in order to arrive at the profit of the business for the purpose of section 10B. The assessee claimed for inclusion of ₹ 66,17,795 representing the sale of scrap in the company's profits for calculating the deduction under section 10B of the Act. The Assessing Officer disallowed the claim of the assessee. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals)-I, Bangalore (hereinafter referred to as the first appellate authority ). The appellate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parts were to be excluded while computing the export profit eligible for exemption under section 10B of the Act ? (iii) Whether the Tribunal was correct in holding that incidental income derived by the assessee from the sale of scrap would be entitled to exemption under section 10B of the Act despite the same having been not derived from the export of articles or things ? 7. Questions Nos. 1 and 2 Learned counsel for the assessee assailing the impugned order con tended that having regard to the total turnover of the export business, the turnover in respect of the import and export of spare parts is negligible. However, it forms part of export business of the assessee. It is incidental to the export business and, therefore, the profit derived from the export of spare parts is also eligible for deduction under section 10B of the Act. Per contra, the learned counsel appearing for the Revenue submitted that for the application of section 10B of the Act, the conditions stipulated in sub-section (2) of section 10B, namely, the article which is exported should have been manufactured or produced must be complied with, apart from other conditions stipulated in the said provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the assessee. However, when the income derived from the sale of spare parts is held to be ineligible for the benefit under section 10B, the entire amount representing the value of spare parts is to be excluded and the profits and gains derived from sale of such spare parts alone is liable for tax. That is the exercise to be undertaken by the assessing authority and the said amount is to be excluded. 9. Question No. 3 Learned counsel for the Revenue assailing the aforesaid finding contended that scrap is not derived from producing the articles of export. Having regard to the language in section 10B of the Act only for such pro fits and gains which are derived by the assessee from the export of articles or things, section 10B is attracted. Admittedly, the scrap is not exported and, therefore, he submits that the Tribunal was not justified in holding that the assessee is entitled to the benefit of section 10B even in respect of the scrap. Per contra, the learned counsel appearing for the assessee submitted that the profit earned by sale of scrap constitutes profits and gains of the assessee and, therefore, section 10B is attracted and the Tribunal was justified in ext ..... X X X X Extracts X X X X X X X X Extracts X X X X
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