TMI Blog2006 (3) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... he margin money, constituting encashment of export incentive, therefore, should have been exempted as export incentive receipt under s. 28 r/w ss. 2(24) and 80HHC of the IT Act, 1961. 4. The facts leading to the dispute, briefly, are as under: The assessee filed the return an 30th Nov., 1990 declaring Nil income. Assessee is an exporter of silk sarees and materials and claimed to be a 100 per cent export-oriented unit before the AO. On going through the assessment papers, AO noticed, assessee has shown branch sales at Rs. 5,75,29,284 (goods transferred to actual users and manufacturers). This, assessee treated as export turnover. The Form 10CCAC report of the chartered accountant was referred to, wherein it is stated that the receipt is Rs. 14,50,53,466 including goods transferred to actual users against duty-free import licence of Rs. 5,75,29,284 and export turnover at Rs. 8,75,24,182. Assessee was asked why the branch sales should not be treated as local sales. It was submitted, the branch sales are goods transferred to the actual users. It was further stated, as per the Government policy of import and export of sales, assessee treated this transfer to actual user as exempt f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name and therefore must make available the goods to the actual user. The only mode and manner in which the exporter, who is involved in the business of items to which the scheme is applicable, is that he can encash the incentive by getting the goods and selling the same in the open market. It was submitted that the only manner in which the incentive could be converted into cash form is the manner in which the assessee operated. The assistance desired by the Government of India stood converted into the form of cash through the import effected by the assessee. The margin earned by the assessee by this method is nothing but cash assistance, which is expressly permitted by the policy of the Government. 7. The assessee alternatively contended, export incentive is not a taxable item and it is not part of the total turnover. There is no rationale for discrimination between different items of export incentive. All of them ought to be treated on an equal footing, particularly so when there is no discernible logical reason which the legislature should have in view for discrimination between two different incentives. It was further submitted, as assessee-firm is a cent per cent export-orien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the total turnover. The exclusion is in fact deliberate as total sales cannot be treated as exports and does not qualify for deduction. Hence the CIT(A) rejected the claim of the assessee. Aggrieved by the above order, the assessee is in appeal before the Tribunal. 9. Learned counsel for the assessee submitted, assessee-exporter is entitled to apply for duty-free licence whereby the assessee could import raw silk yarn. These licenses are non-transferable during the year under consideration. The only way to encash was to import the raw material yarn duty-free and to sell the same in the local market by adding on the duty element to the cost. The break-up is given as under: Export turnover of sarees (CIF) Rs. 8,75,24,182 Export turnover of sarees (FOB) Rs. 8,38,33,323 Sale of raw silk yarn Rs. 5,75,29,284 Exchange sale difference Rs. 3,37,435 Business profit Rs. 83,00,504 10. Learned counsel submitted, assessee is in the business of export of silk sarees exclusively and therefore cl. (a) to s. 80HHC(3) is applicable in the instant case of the assessee. Learned counsel objected to the stand of the Revenue that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of export activity. AB the entire profit is from export activity, there is no need to apply the formula as per cl. (b). The profit on sale of raw silk yarn has arisen directly because in view of the exports made, the assessee was entitled to apply for duty-free licences, where the assessee could import duty-free raw silk yarn and could sell the same to the actual users by adding on the duty element to earn profit. Learned counsel also relied upon the following judgments: (1) CIT vs. K.K. Doshi Co. (2000) 163 CTR (Bom) 472 : (2000) 245 IIR 849 (Bom); (2) CIT vs. Bangalore Clothing Co. (2003) 180 CTR (Bom) 127 : (2003) 260 ITR 371 (Bom); (3) Baby Marine Exports vs. Asstt. CIT (2001) 71 TTJ (Coch) 927 : (2001) 77 ITD 442 (Coch); (4) A.M. Moosa vs. Asstt. CIT (1996) 54 TTJ (Coch) 193; (5) CIT vs. Kantilal Chhotalal (2000) 163 CTR (Bom) 476 : (2000) 246 ITR 439 (Bom); (6) CIT vs. Chloride India Ltd. (2002) 178 CTR (Del) 432 : (2002) 256 ITR 625 (Cal); (7) Sudarshan Chemical Industries Ltd. vs. Dy. CIT (1997) 57 TTJ (Pune) 718 : (1997) 60 ITD 629 (Pune); (8) CIT vs. Sudarshan Chemical Industries Ltd. (2000) 163 CTR (Bom) 596 : (2000) 245 ITR 769 (Bom). 13. Learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent exporter and the profit on sale of raw silk yarn is nothing but export profit arising from the export activity/operations. It was never the intention of the legislature to deny benefits to such exporters, while interpreting the word "turnover". Learned counsel submitted, the sale proceeds of the raw silk yarn must be excluded keeping in mind the intention of the legislature. Again he relied upon the following decisions for the above proposition: (1) Chloride India Ltd. vs. Dy. CIT (1995) 53 ITD 180 (Cal) (2) CIT vs. Chloride India Ltd. (3) Associated Banking Corporation of India Ltd. vs. CIT (1965) 56 ITR 1 (SC) (4) Shree Sajjan Mills Ltd. vs. CIT (1985) 49 CTR (SC) 193 : (1985) 156 ITR 585 (SC) (5) CIT vs. K.B. Kalikutty (Decd.) (1969) 73 ITR 533 (SC) (6) CWT vs. Kripashankar Dayashanker Worah (1971) 81 ITR 763 (SC) (7) Sevantilal Maneklal Sheth vs. CIT (1968) 68 ITR 503 (SC) (8) Bajaj Tempo Ltd. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC) (9) CIT vs. G. Krishnan Nair (2003) 180 CTR (Ker) 364 : (2003) 259 ITR 727 (Kar) (10) Goel Jewellers vs. Asstt. CIT (1992) 43 ITD 725 (Del) (11) A.M. Moosa vs. Asstt. CIT (12) Wolkem India Ltd. vs. Dy. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le is to be computed under the head "Profits and gains of business or profession"; but only to the extent of 90 per cent and 10 per cent is to be treated as export because of the concession given under proviso to s. 80HHC(3). Hence the learned Departmental Representative submitted, the appeal by the assessee is liable to be dismissed. 17. In reply, learned counsel for the assessee submitted, in fact this disallowance has been made by the AO and confirmed by the CIT(A) only for the year under consideration and for all the subsequent assessment years the assessee is getting the benefit. 18. Considering the rival submissions and also going through the orders of the Revenue authorities and the decisions cited, we are of the view that the order of the CIT(A) does not call for any interference. 19. It is true s. 80HHC is a beneficial section. It should be interpreted liberally. But that does not mean that it should go beyond the scope. What is to be considered for deduction under s. 80HHC is what is derived from the export business. Assessee sold certain imported goods either to some of the parties who supplied the export material to the assessee or to some other parties in the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is not engaged in the export of raw silk yarn and it is engaged only in the export of silk sarees, the local sale of raw silk yarn should not be included in the total turnover and only the sale of silk sarees whether local or export can be included in the turnover, we are of the view that this contention of the learned counsel is to be accepted. In the case reported in CIT vs. Madras Motors Ltd., the Hon'ble High Court held as under: "The thrust of the opening clause of cl. (b) of sub-s. (3) of s. 80HHC of the Act, has a stress on the words "does not consist exclusively of the export". The words "total turnover of the business" would be controlled by and have to be read in the colour of the opening clause. The sub-section has been created only to see the ratio of the income out of the export to the total income out of the business in respect of those goods because of the obvious difficulty of segregating the profits earned out of export alone. 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. Hence, it is impermissible to apply the section even to goods which are ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds are used for the purpose of business and do not constitute surplus funds. 31. CIT(A) observed, AO did not give any reasoning regarding the receipt of insurance claim and only stated that the receipts do not fall under the head "Business income" as interest is received on fixed deposits and loans given to sister-concerns. After considering the arguments and the fact that the assessee is a 100 per cent export-oriented unit, CIT(A) held that the receipts from interest from bank interest on loans and insurance claim to be regarded as "income from business" for working out the deduction under s. 80HHC. Being aggrieved, the Revenue is in appeal before the Tribunal. 32. We have heard the rival submissions. We find that the issue stands covered in favour of the assessee by the decision of the Special Bench of the Tribunal in the case of Lalsons Enterprises vs. Dy. CIT (2004) 82 ITJ (Del)(SB) 1048 : (2004) 89 ITD 25 (Del)(SB). In this case the Tribunal has held as under: "(iii) For the purpose of applying Expln. (baa) below sub-s. (4B) of s. 80HHC and while reducing 90 per cent of the receipt by way of interest from the profits of the business, it is only the 90 per cent of the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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