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Sesa Goa Ltd. Versus Commissioner of Income Tax, Panaji-Goa

2015 (5) TMI 621 - BOMBAY HIGH COURT

Deduction under Section 80HHC - inclusion of Hire of barges - Held that:- The receipts received on such hire would be in the nature of rent or similar to rent and therefore, would fall in the items specified in clause baa (1) of Explanation to Section 80HHC of the Act. Even if one accepts the submission of the appellant that the these barges continue to be in control of the appellant and they only ferry goods of others for a charge, the receipts would certainly be classified as charges or of a n .....

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e Tribunal has correctly held these receipts are covered by clause (baa) (1) of Explanation to Section 80 HHC of the Act - Decided in favour of the Revenue

Proceeds of Services and Repairs of Vessels - Held that:- in view of the decision of the Apex Court in Ravindrathanan Nair (supra), the receipts of the same cannot be reduced to the extent of 90% as provided under clause baa (i) of the Explanation to Section 80HHC. In fact, the receipts having a nexus to exports would not be an in .....

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e assessee

Receipts on account of sales of pig iron, vessels, engineering products, materials and coke breeze - Held that:- The Tribunal by the impugned order correctly held that the aforesaid sales do not have any link with the export activities of the appellant. Thus, being independent income, the same would be hit by by clause (baa) of the Explanation to Section 80 HHC of the Act. - Decided in favour of the Revenue

Extraction charges - Held that:- We hold that the ex .....

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on to Section 80 HHC of the Act. - Decided in favour of the Revenue - Tax Appeal No. 53 of 2006 - Dated:- 7-5-2015 - F. M. Reis And M. S. Sanklecha,JJ. For the Appellants : Mr P J Pardiwalla, Sr. Adv. & Mr R G Ramani, Adv. For the Respondent : Mrs Asha Dessai, Adv. JUDGMENT (Per M. S. Sanklecha, J.) This appeal under Section 260A of the Income Tax Act, 1961 (the Act) challenges the order dated 4/4/2006 passed by the Income Tax Appellate Tribunal (Tribunal). 2. This appeal relates to the A .....

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ceipts have substantial costs, and arise from the main business activity of the Appellant, could be considered as similar to the specific receipts referred to it in the said clause (baa)? B) Whether on the facts and in the circumstances of the case, receipts by way of sale proceeds from (i) sale of pig iron, (ii) sale of vessels, (iii) sale of engineering products, (iv) sale of material, and (v) sale of coke breeze could be considered as similar to the specified receipts referred to in the said .....

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but also from mines belonging to others. The appellant receives extraction charges from mine owners in respect of the ores mined from mines belonging to others. These ores are thereafter purchased by the appellant from the mine owners in excess of the consideration received for extraction and exported. The appellant for carrying out its mining activities uses equipments/machines, services of engineers, barges for transport and repair facility. These when not required by the appellant are given t .....

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n 143(3) read with Section 147 of the Act determined the appellant's income at ₹ 19.43crores. However while determining the appellant s claim for deduction under Section 80HHC of the Act inter alia held that the following receipts : (1) Sale of pig iron; (2) Sale of vessels; (3) Sale of engineering products; (4) Sale of material; (5) Sale of coke breeze; (6) Hire of barges; (7) Proceeds of services; and (8) Extraction charges are receipts similar to the receipts specified in clause (ba .....

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he Assessment Order arrived at figure of negative deduction under Section 80HHC of the Act. Therefore no deduction in respect of its exports under Section 80HHC of the Act was granted to the appellant. (d) Being aggrieved by the order dated 29/3/2001 of Assessment inter alia denying deduction under Section 80HHC of the Act, the appellant filed an appeal to the Commissioner (Appeals) (C.I.T. (A)). By an order dated 2/1/2002, the C.I.T. (A) held: 1. Sale of pig iron; 2. Sale of vessels; 3. Sale of .....

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eipts were to be reduced for computing profits of the business in respect of hire of barges and 90% of the net receipts in respect of proceeds of services, repairs of vessels and extraction charges. Moreover, so far as extraction charges are concerned the same were held to be includable in total turnover as defined in clause (ba) of the Explanation to Section 80HHC of the Act. (e) Being aggrieved, both the appellant as well as the revenue filed appeals before the Tribunal. This appeal deals only .....

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ay of sale proceeds i. e. sale of pig iron, of vessels, of engineering products, of materials and coke fell within the ambit of clause (baa) of Explanation of Section 80HHC of the Act. No expenses on the above are deductible. Therefore 90% of the gross receipts are deductible to compute profit of business under Section 80HHC of the Act; and (iii) the net receipts on account of extraction charges are to be included in profits of business and therefore not hit by clause (baa) of the Explanation to .....

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uld be necessary to reproduce the relevant provisions of Section 80HHC of the Act which would require consideration as under: Section 80HHC- Deduction in respect of profits retained for export business. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allow .....

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export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) (c)….......: Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic), of section 28, the same proportion as the expo .....

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to any assessment year commencing on or after the 1st day of April, 1991, the expression "total turnover" shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28; (baa) "Profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by - (1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 o .....

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of clause (baa) of Explanation to Section 80HHC of the Act. It is submitted that the aforesaid provision i.e. clause (baa) of the Explanation to Section 80HHC of the Act has to be read strictly as only covering receipts which are specified therein i.e. 90% of the receipts by way of brokerage, commission, interest, rent, charges or any other receipts of a similar nature included in such profits. It is submitted that this Court in CIT vs. Pfizer Ltd. reported in 330 ITR 62 has construed clause (ba .....

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e to be decided on the touchstone of the decision of this Court in Pfizer Ltd. (supra). This is more so as in Pfizer Ltd. (supra) the decision of this Court in Dresser Rand Ltd. (supra) was considered along with the Supreme Court decision in CIT Vs. K. Ravindranathan Nair reported in 295 ITR 228 which was the basis of the decision in Dresser Rand Ltd. (supra). Thus the decision of this Court in Pfizer Ltd. (supra) not being per incuriam its conclusion that only receipts of nature similar to that .....

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Income Tax rendered on 18.10.2013 in favour of the revenue while construing clause (baa) of Explanation to Section 80 HHC of the Act. However, it is submitted that it was rendered per incurium as it was without considering the decision of this Court in Pfizer Ltd. (supra). It is therefore submitted that the nature of income which would stand included under clause (baa) of Explanation to Section 80HHC of the Act would only be items of receipts similar to those specified therein and not any other .....

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gainst the above, Ms. Asha Desai, learned counsel for the Revenue states that the issue sought to be raised by the appellant is no longer res integra. This is so as the entire issue stands concluded by the decision of the Apex Court in Ravindranathan Nair (supra). In the above case, the Apex Court has categorically held that processing charges which are received by the assessee for processing cashew nuts on job work for local sale being independent of its export income i.e. having no nexus to ex .....

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ion to Section 80HHC of the Act. 10. We have considered the rival submissions. Mr. Pardiwalla, learned Senior Counsel for the appellant submitted that the decision of the Supreme Court in Ravindranathan Nair (supra) was decision rendered on a question that did not arise for its consideration. The issue before the Supreme Court according to him was whether or not processing charges are to be included in the total turnover for the purpose of computing profits attributable to the export business in .....

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before the Supreme Court in Ravidranathan Nair (supra) it may be considered as only an observation and of no binding effect. This according to us is not correct. In fact in paragraph 21 of the Supreme Court decision in Ravindranathan Nair (supra), the Apex Court records the submission of the assessee therein in respect of computation of business profits as under: "21................According to the assessee, the profits derived from local sales were includable in business profits but not in .....

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red by the words other similar receipts in clause (baa) of the Explanation to Section 80HHC of the Act. In that case, the processing charges received for processing of cashews for local sales was held to be independent income i.e. independent of export and therefore of a nature similar to the receipts specified in clause (baa)(1) of the Explanation to Section 80HHC of the Act. Thus the present controversy would have to be decided keeping in view the above test laid down by the Supreme Court in R .....

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not for us to consider. The decision of the Apex Court is binding upon us. Therefore, the above submission is not even being considered, much less examined by us. 12. This brings us to the next submission on behalf of the appellant that the Apex Court decision in Ravindranathan Nair (supra) along with the earlier decision of this Court in Dresser Rand Ltd. (supra) was a subject matter of consideration in Pfizer Ltd. (supra). It is submitted that it is after consideration of the above decisions .....

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n as explained by this Court in Pfizer Ltd. (supra). It is also submitted that the view of this Court in Dresser Rand Ltd.(supra) was different i.e. independent income not having nexus with exports were included in sub clause (baa) of the Explanation to Section 80HHC of the Act. In any case, it is submitted that the decisions of this Court in Pfizer Ltd. (supra) and Dresser Rand Ltd. (supra) are inconsistent to each other and in case we are not inclined to follow Pfizer Ltd. (supra) then this co .....

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r (supra) and does not detract from its own decision in Dresser Rand Ltd. (supra). In fact in para 6 of Pfizer Ltd. (supra) this Court records its finding in Dresser Rand Ltd. (supra) as under: "6...... This Court noted that the Supreme Court had held that the processing charges though they form part of gross total income, constitute independent income like rent, commission and brokerage and that hence 90% of the same has to be reduced from gross total income." This Court in Pfizer Ltd .....

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e an independent income or a receipt of a nature similar to brokerage, commission, interest, rent or charges. Hence such a receipt would not be subject to a deduction of ninety percent under clause (1) of Explanation (baa)." (emphasis supplied) Further this Court in Pfizer Ltd. (supra) at para 11A observes as under: "11A. ....... Hence, the element of export turnover is a facet which has been taken care of by the legislature in the application of the formula which is referred to in sub .....

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iable to be excluded to the extent of ninety, it must be a receipt of a nature similar to brokerage, commission, interest, rent or charges. For the reasons which were have already indicated, we have come to the conclusion that the claim on account of insurance for the stock in trade did not constitute a receipt of similar nature within the meaning of Explanation (baa) and was therefore not liable to be reduced to the extent of ninety percent. The first question will therefore not raise any subst .....

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above decisions In fact both the decisions of this Court in Pfizer Ltd. (supra) and Dresser Rand Ltd. (supra) are not at variance with each other in fact both of them are in line with the decision of the Apex Court in Ravindranathan Nair (supra). Thus in the above facts there appears to be no reason to refer this matter to the Hon'ble Chief Justice for the purpose of constituting a Larger bench to consider what appears to be at first blush inconsistency in the decisions of this Court in Dres .....

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allenges the inclusion of the following receipts: (I) Hire of barges, (II) Proceeds of services, (III) Repairs of vessels being considered similar to the specific receipts set out in clause (baa) of the Explanation to Section 80HHC of the Act i.e. brokerage, commission, interest, rent, charges or any other receipts of similar nature for the purposes of reduction by ninety percent of the receipts to arrive at profits of business. The question as framed seeks to exclude all the three aforementione .....

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me/receipts having no nexus to exports; Secondly, the decision of the Apex Court in ACG Associated Capsules (P) ltd. vs. CIT reported in 343 ITR 89 has held that expenses incurred to earn the receipts are allowed to be deducted and only the net amount is to be deducted to the extent of 90% takes care of situations where cost/expenses have been incurred to earn the receipts and lastly to accept the submission of the appellant-assessee would require adding words not found in clause (baa) of the Ex .....

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xplanation to Section 80HHC of the Act. Thus this classification of receipts on the basis of costs incurred as canvassed by the appellant is not acceptable. (b) (I) Hire of barges: The Tribunal by the impugned order held that the barges are given on hire by the appellant/assessee when the same are not required by the assessee for its own activities. The receipts received on hire of barges do not have any nexus with the exports of the appellant. These receipts on hire charges are admittedly a par .....

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planation to Section 80HHC of the Act nor is it similar to them. This submission on the part of Mr. Pardiwala is contrary to the submission made before the Assessing Officer wherein the appellant has specifically stated that "whenever barges are idle, we hire them out to third parties." Therefore, the receipts received on such hire would be in the nature of rent or similar to rent and therefore, would fall in the items specified in clause baa (1) of Explanation to Section 80HHC of the .....

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in Ravindranathan Nair (supra), the aforesaid charges constitute independent income and is a receipt as rent/charges or at the very least similar in nature to it. Therefore, the impugned order of the Tribunal has correctly held these receipts are covered by clause (baa) (1) of Explanation to Section 80 HHC of the Act. (c) II & III Proceeds of Services and Repairs of Vessels: So far a receipts on the aforesaid two heads are concerned, we find that the Tribunal in the impugned order has rende .....

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o the extent of 90% as provided under clause baa (i) of the Explanation to Section 80HHC. In fact, the receipts having a nexus to exports would not be an independent income to be hit/covered by clause baa of Explanation to Section 80HHC of the Act. In view of the above, we find that after the impugned order has come to a finding that the aforesaid two receipts on account of proceeds of services and repairs of vessels are incidental to export activities, then the impugned order ought to have held .....

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ed and it must not be construed that in every case that Proceeds of Services and Repairs of Vessels would be covered by this decision. It is needless to state that it would depend upon the fact situation existing in each case. To summarize, the answer to question "A" is as under; (I) Hire of barges is similar to specified receipts referred to clause (baa)(1) of the Explanation to Section 80HHC of the Act; (II) Proceeds of services and; (III) Repairs of vessels, the impugned order havin .....

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that the aforesaid sales do not have any link with the export activities of the appellant. Thus, being independent income, the same would be hit by by clause (baa) of the Explanation to Section 80 HHC of the Act. According to the appellant, the aforesaid receipts would not fall within the province of clause (baa) of the Explanation to Section 80 HHC of the Act as they are not receipts similar to the receipts specified therein. Mr. Pardiwala, learned counsel for the appellant while accepting the .....

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itute a receipt of a nature similar to the one set out in clause (baa) of the Explanation to Section 80 HHC of the Act. On the above basis it is submitted that the aforesaid sales would not be an independent income and would not fall in the nature of the receipts specified in clause (baa) of the Explanation to Section 80 HHC of the Act. We have pointed out herein above while dealing with the appellant s request to place this matter before the larger bench, that this Court in Pfizer Ltd. (supra) .....

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for which insurance amount was received was in respect of stock in trade to be sold in the local market. Therefore, by following the decision of the Apex Court decision in Ravindranathan Nair (supra) wherein it has been has categorically stated whether or not a particular income constitutes an independent income would depend upon whether or not it has nexus with export. In case the income/receipts has nexus with export then such receipts are not hit by clause (baa) of the explanation to Section .....

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ipts of sums referred to in Section 28(iiia), (iiib), (iiic),(iiid) and (iiie) of the Act which are specifically included in clause (baa)(1) of the Explanation to Section 80 HHC of the Act as all the above income as specified do have nexus with exports. In this case, clause (baa) of the Explanation to Section 80 HHC of the Act refers to specific clauses of Section 28 of the Act as one class of receipts which have to be reduced by ninety percent of the receipts and thereafter refer in the alterna .....

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ion. Thus the test of being independent of exports is only to be applied for receipts by way of brokerage, commission, rent, charges all of which form a class and that class is not exhausted by enumeration of the words as it is followed by the words of a similar nature. This test of being independent of exports has no application to specified incomes falling under Section 28 of the Act as it is separated by a disjunctive from the the other words which have been enumerated and such words form a c .....

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": The impugned order of the Tribunal has held extraction charges to be a part of the total turnover as defined in clause (ba) of Explanation to Section 80HHC of the Act. In terms of the above definition of total turnover only specific items such as freight and insurance which are attributable to transportation of goods beyond the custom station as well as any sums referred to in Section 28(iiia), (iiib), (iiic), (iiid) and (iiie) thereof are excluded. Extraction charges admittedly do not f .....

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e mine owners was only reimbursement of the expenditure incurred by the appellant and did not have any profit and therefore, did not form part of the assessee's turn over nor of its profits. Mr. Pardiwala, learned counsel for the appellant placed reliance upon the decision of the Apex Court in CIT Vs. Punjab Stainless Steel Industries reported in 307 ELT 214, wherein the Supreme Court held that the word "turnover" would only mean the sales proceeds received in respect of goods in w .....

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unlike Punjab Stainless Steel (supra) extraction of ore is an activity in which the appellant is engaged and therefore, any amount received for extraction would certainly be included in the turnover of the appellant and the decision of the Apex Court in Punjab Stainless Steel (supra) would have no application in the present facts . However, it was contended by the appellant that on account of having included the amounts received on account of extraction of ore in total turnover as well as the t .....

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