TMI Blog2010 (8) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years. In that view of the matter, we decline to answer the aforesaid substantial question of law But, affirm the order of remand to the AO to consider the claim for bad debts, in the light of the observations made by the Tribunal and in the light of the judgments in the case of Vijaya Bank Vs CIT and Another [ 2010 (4) TMI 46 - SUPREME COURT] and T.R.F. Ltd. V/s CIT and Another [ 2010 (2) TMI 211 - SUPREME COURT] . Computation of deduction u/s 90HHC - whether excise duty should form part of the total turnover and the computation provided in section 90HHC r.w.s 80AB? - HELD THAT:- In the case of CIT Vs Laxmi Machine Tools [ 2007 (4) TMI 202 - SUPREME COURT] held that It is important to bear in mind that excise duty and sales-tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula u/s 90HHC would become unworkable. Accordingly we hold that the excise duty cannot form part of the turnover for computing deduction u/s. 90HHC. Deduction u/s 80HH and 80-I - ITAT allowing notional/hypothetical cost for ascertainment of purchase price of raw material for deduction - ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded before the Computation of deduction under section 90HHC of the Act - HELD THAT:- As both the appellate authorities that for the current assessment year when the said amount is not claimed as a deduction u/s. 90HHC and deduction was claimed u/s.10A of the Act, the question whether the assessee could claim deduction of the said amount in addition to the income derived out of the sale of goods and merchandise which had been produced and manufactured in India and exported would not arise for consideration. Therefore, the aforesaid substantial question of law is wrongly framed and there is no need to answer the said question as it would not arise for consideration in the facts of this case. Exemption u/s.10A - corporate overheads remaining unallocated under section 10(A) including interest can be notionally attributed to the units claiming exemption under section 10(A) - tribunal on appreciation of the admitted facts of the case held, in the absence of any specific finding by the authorities below that the expenditure is incurred by various units claiming exemption/deduction, artificial way of allocating is not justifiable. The profits of undertaking under Section 10A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes profits and gains derived by the assessee from the industrial undertaking under Section 10A of the Act and is eligible for exemption. In that view of the matter, we do not see any justification to interfere with the well considered order passed by the Tribunal. Accordingly, this question is held in favour of the assessee and against the revenue. Deduction u/s 10A - Income from sale of old newspapers deemed to be held as income derived from eligible export oriented units - HELD THAT:- While calculating the profit of the eligible business the expenses and the income of the same unit are required to be netted out. The expenses and the income are relatable to the same nature. Therefore, they directed the computation should be made after netting out expenditure by reducing the income in dispute. Without properly understanding the case put forth by the assessee, the authorities have proceeded on the basis that it is an income derived from the business which has no nexus and, therefore the assessee is not entitled to claim exemption u/s 10A. Therefore, the Tribunal was justified in setting aside those findings and granting the deduction sought for by the assessee. In that view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erine, Lighting products. Mini Computers, microprocessor based systems, Serial Printers, Toiletries, Reagent Kits, spares of Analytical Instruments, Spares and Components for Tippers/Cylinders, software Products, Software Services, Agency commission, processing and Service charges and Micelllaneous. The assessee was duly represented in the assessment proceedings. After examination of all the books and materials produced, the assessment was completed. The assessing officer held deductions under chapter VIA not allowable as profits and gains of business works to loss and held that the assessee has concealed particulars of income/furnished inaccurate particulars of such income. Hence, he proceeded to issue a notice a under Section 271 (c). Aggrieved by the said order of assessment, the asessee preferred an appeal to the Commissioner of Appeals. The first Appellate Authority framed 30 issues and allowed the appeal in part upholding the contention of the assessee on certain issues and rejecting in respect of other issues. Aggrieved by the said order of the first Appellate Authority, Both the revenue as well as the assessee preferred appeals before the Tribunal. The Tribunal by a conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -94, this Court by judgment in ITA No. 509 of 2002 delivered on 17-12-2008 and ITA Nos.499 of 2002 and connected matters delivered on 25-06-2008 upheld the order of Tribunal in so far as remanding the matter to consider the question of bad debts. 7. In that view of the matter, we decline to answer the aforesaid substantial question of law But, affirm the order of remand to the Assessing Officer to consider the claim for bad debts, in the light of the observations made by the Tribunal and in the light of the judgments of the Apex Court in the case of Vijaya Bank Vs Commissioner of Income Tax and Another reported in (2010) 323 ITR 166 and T.R.F. Ltd. V/s Commissioner of Income Tax and Another reported in (2010) 230 CTR (SC) 14. 8. The Second substantial question of law framed is as under:- 25. Whether the appellate authorities were correct in holding that for the purpose of computation of deduction under section 90HHC of the Act excise duty should from part of the total turnover by ignoring the various judgments and the computation provided in section 90HHC read with section 80AB of the Act. 9. The Apex Court had an occasion to consider this question in the case of Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sufficient. This is because the very basis for computing S.90HHC deduction was business profits as computed under S.28 a portion of which has to be apportioned in terms of the above ratio of export turnover to total turnover. Sec.80HCC(3) was a beneficial section. It was intended to provide incentives to promote exports. The incentive was to exempt profits relatable to exports. In the case of combined business of an assessee having export business and domestic business the legislature intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under Excess profits Tax Act, it existed in the business Profits Tax Act. Therefore, just as commission received by an assessee is relatable to export and yet it cannot from part of turnover exports and yet it cannot from part of turnover , excise duty and sales tax also cannot from part of the turnover . Just as interest commission, etc. did not emanate from the turnover , so also excise duty and sales-tax did not emanate from such tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and glycerin. It used to pay transport charges for transportation of raw materials from Amalner to Mumbai and from Mumbai to Amalner for transportation of finished goods i.e., fatty acid and glycerin During the year 1987-88, the asessee set p its own unit to manufacture fatty acid and glycerin. For the purpose of claiming deduction under Section 88HH and 801 of the Act, the assessee submitted a calculation of profit in respect of Fatty Acid and Glycerin Plant (FAGP) and soap unit. The assessee gave a working of the cost of fatty acid which was certified by its Cost Accountant. The Assessing Officer noted that the working of the interim transfer price fatty acid was scrutinized for the preceding assessment year. It was found that the assessee company was working out such transfer price by including inter alia the Mumbai octroi, the Amalaneroctroi and the transportation of fatty acids from Mumbai to Amalner to the cost of raw material and conversion charges of the raw materials into fatty acids. After examining the issue in detail, it was held, that the octroi at Mumbai Municipality, freight from Mumbai to Amalner and Amalneroctroi should be excluded for computing the transfer price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstantial question of law is framed on the assumption that the assessee had claimed deduction u/s. 90HHC of the Act. 90% of the receipts received being in the nature of service charges is liable to be reduced from the profit of business in accordance with the explanation (baa) of Section 90HHC of the Act. It is not in dispute that the assessee has claimed deduction u/s.90HHC of the Act in respect of the goods and merchandise which has been produced and manufactured in India and exported in addition to the income from sale of goods and merchandise. The assessee also received income from export of software service. In the earlier year it has claimed exemption. However for the current year, it did not claim any exemption u/s 90HHC of the Act. It claimed exemption u/s.10A of the Act and has been granted. This is very clear from the appellate order which is purely a question of fact. Ignoring this factual aspect, the Assessing Officer has reduced a sum of ₹ 8,29,32,396/- towards other income and Software income of ₹ 2,72,36,79,000/- from the profits and gainst of the business while computing the business profits for the claim under Section 90HHC. Therefore, it was held by b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried out through its various divisions. The assessee maintains separate accounts for each of its divisions and sub divisions and the units set-up under EHTP/STP are also eligible for exemption under Section 10A of the Act. Some other divisions are either eligible for deduction u/s. 90HHC, S.80-I and S.80-IA of the Act. Some of these are not eligible for any sort of exemptions/deduction. The assessee, as it is maintaining separate accounts for its divisions, is claiming exemptions and deductions under the Act. The accounts are audited and no defects have been pointed out by the Assessing Officer. The units claiming exemption u/s.10A of the Act are having substantial profits. 25. There is also a surplus fund with the eligible units under Section 10A of the Act. The actual interest paid for such unit on its turnover is calculated on its profits. The assessee is also required to maintain its corporate office and employ various persons. Insofar as the administration expenses are concerned, the assessee has allocated the same for various units and even in respect of the software units the expenses were allocated. However, when the claim of interest is made u/s.36(1)(iii) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less: Recoveries from software exports sub-division 3,70,00,000 A Excess recoveries (1,25,50,642) B Interest outgo to intra business and external agencies 20,11,34,657 Less: Interest earned from deployment of funds intra-business and with external agencies 9,38,24,255 B Net Interest outgo 10,73,10,402 Net Loss (A+B) 9,47,59,760 27. A perusal of the aforesaid statement shows the Corporate Office has spent a sum of ₹ 7,37,98,774/- towards the expenses consisted of salaries etc. excluding interest less revenues. They allocated a sum of ₹ 4,93,49,416/- to the various sub-divisions other than the software export sub-division similarly they have recovered a sum of ₹ 3,70,00,000/- from software exports sub-division in the process the excess recoveries is 1,25,50,64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e eligible under Section 10A has to be profits and gains of the business in a strict sense. Any other income even remotely connected with profits and gains of business cannot quantify for exemption under Section 10A. Accordingly, the said amount was excluded from Section 10A. Aggrieved by the said order, the assessee preferred an appeal which came to be dismissed upholding the said exclusion. However, the Tribunal by a considered order held the root of the income from sale of such import entitlements received lies in the industrial undertaking and not the scheme of the Act. The export benefits by way of import entitlements partakes the character of sale proceeds of the goods manufactured by the undertaking. The intention of the legislature behind introduction of Section 10A is clear to the extent that it requires earning of precious foreign exchange by setting up 100% eligible industrial units. Having undertaken the exports by setting up an eligible unit the assessee is eligible for the various export benefits. To deny exemption of such profit arising out of export benefits, therefore, amounts to defeating the purpose of the relevant section. After referring to the various judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this behalf. 34. This provision applies to the assessee which is not in dispute. It is in pursuance of this entitlement the assessee has been granted the special import licence. As is clear from the aforesaid provision, the said import licences are granted to these EOU s only when they achieve the performance as prescribed therein. It is not the licence which they can purchase by paying the price. They can secure this licence only if they perform in the manner specified, i.e., manufacture and export goods for which that industrial undertaking is set up. The assessee do not need any import licence to import any of the products for the manufacturing activity of which the said unit is set up. Therefore, the only object of granting this incentive is to sale such import licence in the local market and the consideration released from such sale proceeds could be utilized in their activities so as to make their products competitive in the international market. In fact, the Finance Minister in his Budget Speech has categorically stated that there is imperative need to promote exports in lieu of our difficult balance of payments situation. To encourage establishment of export oriented i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing and export activity of the assessee and this special import licence is a special incentive given to improve the importing of goods. Therefore, the income derived from sale of licence constitutes profits and gains derived by the assessee from the industrial undertaking under Section 10A of the Act and is eligible for exemption. In that view of the matter, we do not see any justification to interfere with the well considered order passed by the Tribunal. Accordingly, this question is held in favour of the assessee and against the revenue. 35. The 10 th substantial question of law which is framed for consideration is as under:- Whether the Tribunal is correct in holding that income from sale of old newspapers, etc., can deemed to be held as income derived from eligible export oriented units for claiming deduction under Section 10A of the Act? 36. This question of law arises in the context of the assessing officer holding that income earned from the sale of old newspapers, diesel drum, wooden racks, etc., aggregating to ₹ 21,144/- is not in the nature of income derived from the eligible unit. The Commissioner of Appeals held that the assessee does not req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilitate certain functions or operate their computers. It is not a copyright which meant for commercial exploitation of the copyright under a licence. The copy right which is imported are goods sold in the market place as goods or as an integral part of the computers manufactured and sold by the company and, therefore, they are entitled to deductions of the entire consideration paid for acquiring this copyrighted article. Thought the assessing officer accepted the case of the assessee in so far as the software in house to the tune of ₹ 4,29,99,061/- the consideration pad is treated as a royalty and as the assessee had not deducted tax at source he disallowed deduction of the aforesaid amount under Section 195 read with Section 40(a)(i) of the Act. Aggrieved by the same, the assessee preferred an appeal. The commissioner of Appeals held the expenditure on import of software is of revenue nature. If it is pertaining to business the profit from which is not exempt under Section 10A and, therefore, it is to be allowed as deduction. He held the expenditure cannot be disallowed under Section 40(a)(i). In appeal by the revenue, the Tribunal held they cannot go into the question whet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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