Case Law Details
The second proviso to section 10B(1) cannot be construed to be a qualifying condition for claiming deduction. It just permits additional benefit which may be allowed provided domestic profit is within the limit prescribed in the proviso. On the panoply of this proviso deduction cannot be denied. The assessee would be entitled to partial deduction proportionately on export turnover in view of the provisions of sub-section(4) of section 10B of the Income-tax Act, 1961.
IN THE INCOME TAX APPELLATE TRIBUNAL, CHENNAI
I.TA. No. 12(Mds)/2006
Assessment Year: 2001-02
| M/s. Tube Investments of India Ltd.,‘Dare House’ III Floor, 234, NSC Bose Road, Chennai-1.PAN AAACT1249H. |
Vs. |
The Assistant Commissioner of Income-tax, Company Circle 111(2), Chennai. |
|
(Appellant) |
(Respondent) |
O R D E R
Per M. K. Chaturvedi (Vice-President):
This appeal came before me as Third Member to express my opinion on the following question:-
“Whether on the facts and circumstances of the case, when the assessee had domestic sales of more than 25% of the total sale value during the relevant assessment year, i.e. 2001-02, is the assessee still entitled to partial deduction proportionately on export turnover in view of the provisions of sub-section(4) of section 10B of the I. T .Act?”
2. I have heard the rival submissions. Deduction under section 10B of the Income-tax Act, 1961 was claimed as under:-
1. Deduction under section 10B on exports Rs.2,20,00,984/-
2.Deduction on domestic sales deemed to be Rs. 68,83,343/-
from exports [2nd proviso to s. 10B( 1)]
Total deduction claimed under section l0B Rs.2,88,84,327/-
Hundred per cent export-oriented units get special treatment by virtue of the fact that they export their entire products. However, in order to provide economic flexibility to them and allow them to dispose of the export-rejects and byproducts they were allowed to sell 25% of the entire products in the domestic market. In the facts of the present case I find that the export-oriented unit of the assessee had domestic sale to the extent of 28.8% as computed by the Assessing Officer. As such claim of deduction on domestic sales amounting to Rs. 68,83,343/- was denied to the assessee. On that there is no difference of opinion.
3. The difference crept on the’ question that once the domestic sales exceed the limit of 25% whether the assessee can be allowed proportionate deduction on export turnover as per the provisions of sub-section(4) of section 10B of the Act.
4. The eligibility criteria is contained in section 10B(1) by which deduction can be claimed on such profits and gains as are derived by a hundred percent export-oriented undertaking from the export of articles or things…. The words ‘hundred per cent export-oriented undertaking’ is defined under Explanation 2(iv) to section 10B. It means an undertaking which is approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 and the Rules framed under that Act. It is not the case of the department that approval as required under the statute is not being accorded to the assessee.
5. Deduction is available in respect of profits and gains as derived by a hundred per cent export-oriented undertaking from the export of articles. The next condition is that such hundred per cent export-oriented undertaking must derive profits from the export of articles or things, etc. In this context sub-section (4) of section 10B is relevant. It prescribes that for the purpose of sub-section (1) the profits derived from the export of articles or things shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things bears to the total turnover of the business carried on by the undertaking. As per-the CBDT Circular No. 794 dated 9th August, 2000 the working formula for arriving at the export profits will be as under:-
Export profits = Profits of the undertaking x Export turnover
Total turnover
The export turnover and the total turnover for the purposes of section 10B shall be of the hundred per cent export-oriented undertaking and this shall not have any material relationship with the other business of the assessee outside the unit for the purpose of this provision.
6. Profit of domestic sales if it is within the limits of 25% is deemed as profit of export for the purpose of computation of deduction under section 10B. This amount is worked out separately on a proportionate basis and added to the amount of export profits. The relief available on export profit rests on the bedrock of the eligibility criteria laid down under section 10B(1). If the assessee derives profits and gains from hundred per cent export-oriented undertaking from the export of articles or things it can claim the benefit of section 10B. The second proviso is an additional incentive which has been granted to the assessee to provide economic flexibility and to allow it to dispose of the export-rejects and byproducts, etc. This proviso in no way governs the eligibility criteria. The eligibility conditions for getting the deduction under section 10B is enshrined in sub-section(2). No interdict is laid down in the statute to withdraw the total benefit of section 108 in the eventuality of domestic sales being exceeded the 25 per cent limit. There is absolutely no ambiguity in the language of the statute. As such purposive theory should not be resorted to.
7. Interpretation postulates the search for the true meaning of the words used in the statute. If the language of the statute is plain, obvious meaning is to be applied. Rules of interpretation are applied only to resolve the ambiguities. The object and purpose of interpretation is to ascertain the mens legis, i.e. the intention of the law, as evinced in the statute. The freedom for the search of the “Spirit of the Act” or the mischief at which it is aimed opens the possibility of liberal interpretation. This finer aspect cannot be narrowly watched. It is that delicate- and important branch of judicial power, the concession of which is dangerous but the denial is disastrous. At one stream stands Lord Denning who said: “We do not sit here to pull the language of the Parliament to pieces and make nonsense of it. That is an easy thing to do. We sit here to find out the intention of Parliament and carry it out. We do this better by filling in the gaps and making sense of the enactment than by opening to destructive analysis. Viscount Simonds called it ‘a naked usurpation of the legislative function under the thin guise of interpretation.” The intention of legislature is a very slippery phrase. When the, language of the statute is transparently plain, it is wrong to give it colour according to the temper of time. When the language implied by the enactment is clear, there is no question of interpreting the provisions in any manner except by giving them their plain and obvious meaning.
8. I have perused the Exim Policy for the relevant period. It is clearly laid down in it that domestic tariff area sale up to 50% of the FOB value of exports may be made sunject to payment of applicable duties and fulfillment of minimum net foreign exchange proceeds. This makes it abundantly clear that an export-oriented undertaking can have domestic sales. In the Income-tax Act there is no statutory provision mandating denial of domestic sales to the export-oriented undertaking.
9. Section 10B(4) envisages that an assessee could have export turnover and also local turnover. To find out the export profits the profits of the business must be multiplied by export turnover and divided by the total turnover. If we take the interpretation that the benefit of section 10B is not available in the eventuality of domestic sales then the provisions of section 10B(4) would become otiose. It is the cardinal principle of law that there is nothing superfluous in the statute. The Hon’ble Supreme Court in the case of CIT v. Distributors(Baroda) P. Ltd., 83 ITR 377 has held that no part of a provision of a statute can be just ignored by saying that the Legislature enacted it not knowing what it was saying. Where an expression is used by the legislature the court must assume that the legislature deliberately used that expression and that it intended to convey some meaning thereby. In my humble opinion the second proviso to section 10B(1) cannot be construed to be a qualifying condition for claiming deduction. It just permits additional benefit which may be allowed provided domestic profit is within the limit prescribed in the proviso. On the panoply of this proviso deduction cannot be denied. The assessee would be entitled to partial deduction proportionately on export turnover in view of the provisions of sub-section(4) of section 10B of the Income-tax Act, 1961.
10. I have perused with due care both the conflicting orders on his point. I concur with the decision of the learned Accountant Member.
11. The matter will now go before the Regular Bench for deciding the appeal in accordance with the opinion of majority.
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH “C” CHENNAI
(Before Dr. O.K. Narayanan, Accountant Member and Shri Vijay Pal Rao, Judicial Member)
I.T.A. No. 12/Mds/2006
Assessment Year: 2001-02
M/s. Tube Investments of India Ltd.,
Vs.
The Assistant Commissioner of Income-tax
—-
I.T.A. No. 874/Mds/2006
Assessment Year: 2001-02
| The Assistant Commissioner of Income-tax, Company Circle 111(2), Chennai. |
Vs. |
M/s. Tube Investments of India Ltd., ‘Dare House’ III Floor, 234, NSC Bose Road, Chennai-1. |
PAN AAACT1249H.
Revenue by: Shri K.R. Meena
O R D E R
PER DR. O.K. NARAYANAN, ACCOUNTANT MEMBER:
The appeal in I.T.A. No. 12/Mds/2006 is filed by the assessee. The relevant assessment year is 2001-02. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-XI at Chennai, dated 21.11.2005.
2. The assessee is a company engaged in the business of cycle, cycle accessories, steel tubes, strips, etc. The assessee has filed the return of income for the impugned assessment year 2001-02 on a total income of Rs. 36,63,00,895/-. Additions were made by the Assessing Authority. In first appeal, modifications were granted by the CIT(Appeals) but, all the grounds were not successful before him. He confirmed the following additions made by the Assessing Officer:-
(1) Interest on capital work in progress Rs. 17.99 1akhs
(2) Expenses of ERP implementation ….. … Rs. 316.37 lakhs
(3) Amortization of consultancy payment Rs. 62.63 lakhs
(4) Deduction under section 108 Rs. 288.84 lakhs
3. The aggrieved assessee came before the Tribunal in second appeal in I.T.A. No. 12/Mds/2006. This appeal filed by the assessee along with the cross appeal filed by the Revenue in I. T.A. No. 874/Mds/2006 was listed before ITAT Chennai Bench “C” before Hon’ble Accountant and Judicial Members. The order has been authored by the learned Accountant Member. The ld. Accountant Member allowed the ground raised by the assessee against dis allowance of interest on capital work in progress at Rs.17.99 lakhs.
4. The second issue of expenses of ERP implementation has been remitted back to the Assessing Officer to decide it afresh in the light of the additional material facts available in the hands of the assessee.
5. The third issue of amortization of consultancy payment has also been remitted back to the Assessing Officer for fresh consideration after providing adequate opportunity of hearing to the assessee.
6. In respect of the last issue regarding deduction under section 10B, the Id. Accountant Member directed the Assessing Officer to work out proportionate deduction in favour of the assessee under section 10B(4) of Income-tax Act, 1961.
7. The appeal filed by the Revenue was also partly allowed by the la accountant Member. The ld. Judicial Member concurred with the view of the ld. Accountant Member in respect of all the issued except on the question of deduction under section 10B raised by the in its appeal. The ld. Judicial Member held that the is not entitled to proportionate deduction under section 10B(4). This difference of opinion was referred to the Hon’ble President and accordingly, the matter was referred to the Third Member. The Hon’ble Vice President, Chennai Zone, sitting as Third Member, agreed with the view taken by the ld. Accountant Member on the issue of deduction under section 10B and agreed with him that the assessee is entitled to partial deduction proportionately on export turnover in view of the provisions of sub-section (4) of section 10B of the Income-tax Act, 1961. Therefore, it is to be seen that the view of the ld. Accountant Member has become the majority view and accordingly, the said ground raised by the assessee stands allowed.
8. Now, these appeals are placed before us for the purpose of passing consequential orders.
9. As far as the appeal filed by the assessee is concerned, the first issue is allowed in favour of the assessee and second and third issues are remitted back and the fourth issue regarding proportionate deduction under section 10B(4) is again decided in favour of the assessee. Accordingly, the assessee is partly successful in its appeal. Without any dispute, the appeal filed by the Revenue is also party successful.
10. In result, the appeal filed by the assessee in I.T.A. No.12/Mds/2006 and the appeal filed by the Revenue in I.T.A. No. 874/Mds/2006, both stand partly allowed.
11. Orders pronounced in the open court at the time of hearing on the First Day of January, 2009.
IN THE INCOMETAX APPELLATE TRIBUNAL
CHENNAI BENCH ‘C’
BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER
I.T.A No.12/Mds/2006
Asst. Year: 2001-02
| M/s. Tube Investments of India Ltd., ‘Dare House’ III Floor, 234, NSC Bose Road, Chennai-1. |
PAN AAACT1249H.
(Appellant)
Vs.
The Assistant Commissioner of Income-tax, Company Circle 111(2), Chennai.
(Respondent)
ORDER UNDER SECTION 255(4) OF THE I.T. ACT, 1961
PER T.R. SOOD, ACCOUNTANT MEMBER:
As there is a difference of opinion between the Members constituting the Bench, the matter is being ‘referred to· the Hon’ble President of the Income Tax Appellate Tribunal under sec.255( 4) of the I.T. Act, 1961 with a request that the following question may be referred to a Third Member or pass such order as the Hon’ble President may deem fit :-
“Whether on the facts and circumstances of the case, when the Assessee had’ domestic sales of more than 25% of the total sale value during the relevant Asst. Year i.e., 2001-02, is the Assessee still entitled to partial deduction proportionately on export turnover in view of the provisions of sub sec.(4) of section 10B of the IT. Act?”
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH ‘C’
BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER
I.T.A No.12/Mds/2006
Asst. Year: 2001-02
| M/s. Tube Investments of India Ltd., ‘Dare House’ III Floor, 234, NSC Bose Road, Chennai-1. |
PAN AAACT1249H
(Appellant)
Vs.
The Assistant Commissioner of Income-tax, Company Circle 111(2), Chennai.
(Respondent)
—
I.T.A No. 874/Mds/2006
Asst. Year: 2001-02
| The Assistant Commissioner of Income-tax, Company Circle 111(2), Chennai. |
(Appellant)
Vs.
M/s. Tube Investments of India Ltd., ‘Dare House’ III Floor, 234, NSC Bose Road, Chennai-1.
PAN AAACT1249H.
(Respondent)
Assessee by : Shri Sri ram Seshadri
Department by : Shri S. Bhattacharya
O R D E R
PER T.R. 500D, A.M :
These appeals by the Assessee as well as the Revenue are directed against different orders of the CIT(Appeals) for the above Asst. Years.
2. ITA No. 12/Mds/2006: In this various grounds have been raised but at the time of hearing, the learned Counsel for the Assessee submitted that only the following four disputes are there for consideration :-
1. Dis allowance of interest on capital work in progress at Rs. 17.99 lakhs.
2. Dis allowance of expenses for ERP Implementation amounting to Rs. 316.37 lakhs.
3. Amortization of consultancy payment at Rs. 62.63 lakhs.
4. Exemption under sec.10B for EOU Unit.
3. In addition to the above, the Assessee has also filed a petition dated 19.3.2008 for admission of additional ground, which reads as under :-
1. Whether the Assessing Officer is right in levying the interest under sec.234D of the IT. ACT amounting to Rs. 3.67 lakhs for the Asst. Year 2001-02, when the section itself came into force only from 01.06.2003.
2. Whether the Assessing Officer is right in levying the interest under sec.234D of the IT. ACT amounting to Rs. 3.67 lakhs when the intimation order under sec.143(1) has been passed on 28.02.2003, but the section itself came into force only from 01.06.2003.
4. First of all, we would like to take up the additional ground.
5. After hearing both the parties, the additional grounds have been admitted by us for adjudication in view of the decision of the Hon’ble Supreme Court in the case of National Thermal power Co. v. CIT (229 ITR 383) because the same involves legal issue.
6. After Considering the rival submissions we find that identical issue has been decided recently by the Delhi Special Bench of the Tribunal in the case of ITO v. Ekta Promoters Pvt. Ltd., vide order dated 11.7.2008 in ITA Nos.2551,2552 & 2553/De1j2006 (copy filed on record). The Special Bench vide para 71 of the above order has held that :-
“71. In view of the above discussion our answer to question referred to us is that interest u/s 234D is chargeable from Asst. Year 2004-05 and it could not be charged for earlier years even though regular assessments for these years are framed after 1st June 2003 or the refund was granted for those years after the said date.”
Respectfully following the above decision of the Special Bench, we hold that interest under sec.234D of the I.T. Act is not leviable in this year and, accordingly, the additional ground of the Assessee is allowed.
7. First issue: After hearing both the parties we find that the Assessing Officer has disallowed interest amounting to Rs.17,98,988j- because the same was incurred for the purpose of plant at Nasik Unit and the Nasik Unit had not commenced production during the year. We further find that this issue is covered in favour of the Assessee by the decision of the Hon’ble Supreme Court in the case of DCIT v. Core Health Care Ltd (298 ITR 194) in which it was held that :-
“the Assessee was entitled to· deduction under section 36(1)(iii) prior to its amendment by the Finance Act, 2003, in relation to money borrowed for purchase of machinery even though the Assessee had not used the machinery in the year of borrowing.”
Respectfully following the above decision, we decide this issue in favor of the Assessee.
8. Second issue After hearing both the parties we find that the Assessee had claimed a sum of Rs. 316.37 lacs towards implementation of ERP, Package. Since this package has not come into operation the same was shown as work-in-progress, but claimed for Income-tax purposes as revenue expenditure. However, the Assessing Officer made addition of this amount. On appeal, the CIT(Appeals) confirmed the addition. After considering the rival submissions carefully, we find that the Assessee has filed more technical details to show how ERP package would function and how it would be useful to the business of the Assessee even during the year. Hence, we are of the view that since the technical details filed before us have not been examined by the Assessing Officer, it would be appropriate to set aside the order of the CIT(Appeals) and remit back the matter to the file of the Assessing Officer to decide the same in accordance with law, after considering the technical details of the ERP package.
10. Third Issue: After hearing both the parties we find that the Assessee had claimed a sum of Rs. 74,10,321/- towards consultancy fee for redesigning the entire supply chain management. The Assessing Officer held that this expenditure was in the nature of capital expenditure. He further noticed that only a sum of Rs. 11,46,432/- was claimed in the books of accounts and the balance was treated as deferred expenditure. Accordingly, he disallowed a sum of Rs. 62,63,889/- being in the nature of capital expenditure. This addition
11. Before us, the learned Counsel for the Assessee submitted that expenditure incurred for consultancy for obtaining some management reports cannot be regarded as capital expenditure and in this regard he relied on the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Crompton Engineering Company Ltd. (242 ITR 317). He submitted that it does not make a difference whether the Assessee had treated the same as deferred expenditure in its own books of accounts. In this regard he relied on the decision of Hon’ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd., (82 ITR 363).
12. The Id. Departmental Representative, on the other hand, submitted that consultancy expenditure was not incurred for the current business of the Assessee but for the new Unit at Nasik and that is why the same has been treated as deferred capital expenditure. Only amortization over a period of time can be allowed. In this regard, he further submitted that such amortization has been confirmed by Hon’ble rVJadras High Court in the case of CIT v. Ashok Leyland Ltd. (297 ITR 107).
13. After considering the rival submission carefully we find that this issue has not been discussed in detail by the Assessing Officer. It is not clear whether expenditure has been incurred to meet the present business needs or the same has been incurred for the new unit. Therefore, in the interest of justice, we set aside the order of the CIT(Appeals)on this issue and remit the matter back to the file of the Assessing Officer with a direction to examine the same afresh after providing adequate opportunity of hearing.l’1I”;’ 14. Fourth Issue: After hearing both the parties we find that the Assessee had claimed a sum of Rs.2,88,84,327/- as exempt under sec.10B of the IT. Act in respect of income of 100% EOU. During assessment proceedings the Assessing Officer noticed that details of sales were as under:-
1. Domestic Sales – Rs. 901.40 lakhs
2. Export Sales – Rs.2227.34 lahs
3. Total Sales – Rs.3128.74Iakhs
The Assessing Officer was of the view that since the Assessee has sold goods to the extent of 28.8% in the domestic tariff area, the Assessee was not entitled to deduction under sec.10B of the Act. Therefore, deduction under sec.10B of the Act was denied. On appeal, the CIT(Appeals) confirmed the action of the Assessing Officer.
15. Before us, the learned Counsel for the Assessee submitted that firstly the Assessing Officer has made mistake by including Excise Duty in the total turnover of the domestic tariff area. Excise Duty should not have been included in the total turnover as has been held by the Hon’ble Supreme Court in the case of CIT v. Lakshmi Machine Works (290 ITR 667). Alternatively he argued that even if sales in the domestic tariff area is taken in excess of 25%, even then the deduction under sec.10B should have been allowed in respect of balance export sales in terms of sub sec.( 4) of sec.10B of the Act.
16. The ld. Departmental Representative submitted that the principles laid down in the case of Lakshmi Machine Works (supra) are only for the purpose of deduction under sec.80HHC and the same could not be applied here. He submitted. that the Hon’ble Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT (87 ITR 542), has clearly held that Sales Tax is part of the trading receipts. He further submitted that the language of sec.10B is clear and deduction can be allowed only if the Assessee was owning 100% export oriented unit. Once this condition is not fulfilled then no deduction can be allowed for even export turnover. He argued that though in this year there was a provision showing that even if the Assessee has some domestic turnover, deduction has to be given under sec.10B of the Act, but the second proviso prescribes the limit for domestic sales at 25% and, therefore, the Assessee is not entitled to deduction under sec.10B of the Act.
17. In the rejoinder, the learned Counsel for the Assessee submitted that in this year the second proviso as well as sub sec.(4) were both on the Statute Book, therefore, the Assessee becomes entitled to deduction under sec.10B of the Act, if not at 100%, on proportionate basis in terms of sub sec (4) of sec.10B of the IT. Act.
18. We have considered the rival submissions carefully in the light of the material on record. We find that sec.10B of the ACT has undergone various amendments. Therefore, it is very essential to look at the provision at the relevant point of time. The relevant portion of sec.10B reads as under ;-
“10B (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the Assessee:”
Provided …..
“Provided further that the profits and gains derived from such domestic sales of articles or things or computer software as do not exceed twenty-five per cent of the total sales shall be deemed to be the profits and gains derived from the export of articles or things or computer software:”
“(4) For the purpose of sub section(l), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the Same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.”
From the above it is clear that the second proviso which was introduced by Finance Act, 2000 was on the Statute during the period. We further find that this proviso was omitted by Finance Act, 2001 with effect from 1.4.2002, which means that this proviso was available during the relevant Asst. Year which is the year before us. After going through the history of this proviso, we find that this proviso was introduced to remove the difficulties caused to certain exporters. For example, certain exporters had some rejections of the goods to be exported and such rejected goods were to be necessarily sold in domestic tarrif area. Therefore, Govt. extended the benefit given under sec.l0B of the Act by inserting this proviso. A further reading of the proviso would make it clear that if the domestic tarrif area sales were less than 25% then 100% deduction was allowable, i.e., even if the Assessee was selling some of the goods in domestic area, still he was eligible for 100% deduction.
19. Sub. Sec.(4) of sec. 10B of the LT. Act which was substituted by Finance Act, 2001 with effect from 01.4.2001. This means that during the Asst. Year 2001-02 the Assessee was entitled to the benefit under sub sec.(4) on proportionate sales. Perhaps, Govt., realized that this was double benefit and that is why the second proviso was omitted by Finance Act 2001, with effect from 01.4.2002. In this year, therefore, both the possibilities are there. At this stage, we would like to observe the general rule of interpretation in respect of the Statute where there are conflicting provisions which is known as Doctrine of Harmonious Construction is inapplicable. This rule clearly states that a Statute has to be interpreted in such a way that effect is given to all the provisions of the Act and no provision should be rendered redundant. Following this principle, we are of the view that during this year if an Assessee was having domestic sales of less than 25% in the domestic tariff area, then he was entitled to deduction at the rate of 100%. However, if the limit of 25% exceeds, then the second proviso cannot come to the assistance of the Assessee for claiming the deduction. But at that stage, sub sec.( 4) of Sec.10B of the IT. Act would come to the rescue of the Assessee, which allows proportionate deduction.
20. Now, let us examine the facts in the light of legal position discussed in detail above. During the year before us, the Assessing Officer has clearly noted in para 11 of his order that the Assessee’s domestic sales was Rs.901.4 lakhs out of the total sales of Rs.3128.74 lakhs, which comes to 28.8%. The only objection raised by the learned Counsel for the Assessee was that the Assessing Officer has wrongly included the Excise Duty in the domestic sales because the same cannot be part of the total turnover in view of the decision of the Hon’ble Supreme Court in the case of CIT v. Lakshmi Machine Works (supra). As pointed out by the ld. Departmental Representative, the decision of the Hon’ble Supreme Court in the case of Lakshmi Machine Works (supra) is not applicable while determining domestic turnover because that decision was rendered in connection with the calculation of deduction under sec.80HHC(3) of the Act. Sub sec.(3) of sec.80HHC provides that in a situation where the Assessee has export business sales and domestic business sales and, therefore, to allow deduction under this provision, the total income has to be decided in proportion to the export turnover to the total turnover. Since export turnover does not involve any Sales Tax and Excise Duty, to make numerator and denominator comparable it was held by various High Courts that Sales Tax and Excise Duty will not form part of the total turnover. These decisions culminated into the judgment of Hon’ble Supreme Court in the case of CIT v. Lakshmi Machine Works (290 ITR 667). In that decision, the Hon’ble Supreme Court in the last paragraph has observed as under ;-
“Before concluding we may state that profits are of three types, namely, book profits, statutory profits and actual profits. The amendments to section 80HHC(3) indicate exclusion of book profits. For example, commission, interest etc. do form part of the profit and loss account but for the purposes of calculation of profits derived from local sales and exports, they stand excluded. The difficulty arises because the formula is based on the hybrid system of profits, namely, actual and statutory profits. Therefore, this judgment should be read in the context of the above parameters. Our reasoning in this judgment is confined to the work ability of the formula in section 80HHC(3) of the Act as it stood at the material time.”
From the above it is clear that this decision was rendered only for the purpose of finding out the proportionate profit under sec. 80HHC(3) of the Act. Otherwise, the law is very clear that Excise Duty and Sales Tax are part of the trading turnover and this view ha-s already been confirmed by the Hon’ble Supreme Court in the case of Chowranghee Sales Bureau P. Ltd. v. CIT (87 ITR 542). In view of this decision we are of the view that Excise Duty has to be included in the domestic sales to find out the value of domestic sales. After inclusion of such Excise Duty in the domestic sales the proportion comes to 28.8% and, therefore, the second proviso of sec.10B of the Act is not applicable to the assessee case.
21. Further, we find force in the submission of the learned Counsel for the Assessee that the Assessee should have been allowed proportionate deduction on export turnover in terms of sub sec.(4) of sec.10B of the Act. This position has been discussed by us while discussing the legal situation. Therefore, we set aside the order of the CIT(Appeals) on this issue and remit the matter back to the file of the Assessing Officer with a direction to allow proportionate deduction under sec.10B( 4) of the IT. Act.
22. This appeal is partly allowed.
23. ITA No. 874/Mds/2006: In this appeal, the Revenue has raised the following grounds:-
1. The CIT(Appeals) has erred in directing the Assessing Officer to allow relief under sec.35D on Euro issue expenses.
2. The CIT(Appeals) has erred in holding that duty and sales tax should be excluded from the ‘total turnover’ for the purpose of computing the relief under sec.80HHC of the IT. Act.
3. The CIT(Appeals) has erred in allowing 100% expenditure on concrete roads.
4. The CIT(Appeals) has erred in directing the Assessing Officer to allow prior period adjustment of Rs. 44,74,000/-
24. First issue: After hearing both the parties we find that identical issue was agitated by the Revenue before us in the case of the same Assessee in ITA NO.1428 & 1429/Mds/2004& 1534 & 1535/Mds/04 and this vide para 12 of its consolidated order dated 27.7.2007 has held as under :-
“12 We, have heard the rival submissions and perused the material on record. The A.O. found that Rs. 52.10 crores had been utilized for the purpose or extension of industrial undertaking or setting up new industrial unit. He has also found that proportionate capital expenditure during the year for setting up new undertaking or expansion is Rs. 13.72 crores. When the actual investment for the purpose of setting up new undertaking or expansion as per section 35D is 41.59 crores, there is no need to work out proportionate investment. Thus the claim based on investment of Rs.41.59 crore appears to be in order. We see no infirmity in the order of the Commissioner (A) on this issue. This ground by the Department is dismissed.”
Since the facts are identical, following the above order, we decide this issue against the Revenue.
25. Second issue: After hearing both the parties, we find that this issue is squarely covered against the Revenue by the judgment of the Hon’ble Supreme Court in the case of CIT v. Lakshmi Machine Works (290 ITR 667), wherein it was held that :-
“The principal reason for enacting a formula in section 80HHC of the Income-tax Act 1961/ is to disallow a part of the concession there under when the entire deduction claimed cannot be regarded as relating to exports. Therefore, while interpreting the words “total turnover” in the formula in section BOHHC one has to give a schematic interpretation. The various amendments made therein show that receipts by way of brokerage/ commission interes0- ren0- etc., do not form part of business profits as they have no nexus with the activity of export The amendments made from time to time indicate-that they became necessary in order to make the formula workable. If so excise duty and sales tax also cannot form part of the total turnover, under section 80HHC(3): Otherwise, the formula becomes unworkable. “
Same view has been taken by the Hon’ble Madras High Court in the case of CIT v. Sundaram Clayton Ltd. (281 ITR 425). Respectfully following the above decisions, we decide this issue against the Revenue.
26. Third Issue: After hearing both the parties we find that the Assessee has claimed 100% depreciation on concrete road in TPI Factory and landscape in front of the Administrative building. The depreciation was disallowed by the Assessing Officer because the same was not admissible under sec.32 of the Act. On appeal, the depreciation was allowed by the CIT(Appeals).
27. After considering the rival submissions, we find that the Assessing Officer has not discussed this issue in detail. Moreover the learned Counsel for the Assessee had submitted that if depreciation is not allowable, this claim should have been allowed under sec.37 because it was a case of only re-laying the top concrete surface to the existing road. Therefore, in the interest of justice, we set aside the order of the CIT(Appeals) on this issue and remand the matter back to the file of the Assessing Officer with a direction to re-examine the same in detail and decide the same in accordance with law, after affording opportunity of hearing to the Assessee.
28. Fourth Issue: After hearing both the parties we find that the Assessing Officer notice that the claim of the Assessee amounting to Rs. 44,74,000/- under the head ‘General and Manufacturing, Selling and Administrative expenses’ was a prior period adjustment and, therefore, the same was disallowed. The CIT(Appeals) accepted the submission of the Assessee that against certain disputed items, the settlement was made during the year and, therefore, the claim was allowable. Accordingly, he directed the Assessing Officer to modify the order.
29. After considering the rival submissions we find that the Assessing Officer has not given any detail for this dis allowance and the CIT(Appeals) has not discussed in detail the reason for granting relief. Therefore, in the interest of justice we set aside the order of the CIT(Appeals) and remit the matter to the file of the Assessing Officer with a direction to re-examine the issue and decide the same in accordance with law, incorporating all relevant details. The Assessee shall be given opportunity of hearing in the matter.
30. The appeal filed by the Assessee as well as the Revenue are partly allowed.
PER SHRI VIJAY PAL RAO (JUDICIAL MEMBER) :
31. I have perused the proposed order of my Learned Brother in these two cross appeals. After giving my deep thought on all the issues, reasoning and conclusion of Learned Accountant Member, I concur and agree with the reasonings and conclusions with respect to all other issues in these cross appeals except for issue No.4 in assessee’s appeal. In the assesseeis appeal in ITA no. 12/06 I do not agree with the reasons and conclusion of my learned brother regarding the issue whether in the facts and circumstances of the Case the assessee is entitled for the claim of exemption under section 10B of I.T. Act. The relevant brief facts have already been narrated in the proposed order of the learned Accountant Member. Therefore the same need not be repeated herein. However, I would refer the relevant facts wherever necessary at appropriate stage/place in my order.
32. The entire dispute regarding this issue revolves and pertains to the meaning and interpretation of Sec.10B(1); 2nd proviso to Sec.10B(1) and sub-sec.(4) to section 10B as existed in the relevant assessment year 2001-02. The assessee is a 100% export oriented undertaking (EOU for short). During the period relevant to the assessment year the EOU of the assessee had a domestic sale to the extent of 28.8% as computed by the Assessing Officer. Though the assessee has claimed that while computing the domestic sale the excise duty should have been excluded and alternatively it was also contended by the assessee that even if the sale in the domestic tariff area is more than 25%, the assessee is entitled for deduction under section 10B in proportion in terms of Sub-sec.(4) to section 10B of the Act.
33. As far as the exclusion of excise duty while computing the domestic sale is concerned I concur with the conclusion of my Learned Brother that the excise duty has to be included in the domestic sale as the same is part and parcel of i the sale. However I do not agree with the reasoning and conclusion of my Learned Brother that the assessee should have· been allowed proportionate I deduction on export turnover as per sub-section (4) of Sec.10B of IT. Act. My reasons for disagreement are as under.
34. Sec.10B is a special provision in respect of newly established 100% EOU. The object and scheme of the provision is to encourage the establishment of new 100% EOU for earning and providing the convertible foreign exchange in India and therefore there would be no tax on the profits and gains from export of certain articles and goods for the period of ten consecutive years beginning with the assessment year relevant to the previous year in which the undertaking starts manufacture or produce of the said goods. Therefore it is clear that the object of the special provision under section 10B is to promote the new undertaking for 100% export and from the perusal of the sub-sec.(l) of sec.10B it is clear that there is no scope of any domestic sale to avail the benefit of tax holiday under this provision. However the second proviso was introduced vide Finance Act 2000 w.e.f. 1.4.2001 which is reproduced as under:
“Provided further that the profits and gains derived from such domestic sales of articles or things or computer software as do not exceed twenty.-five per cent of the total sales shall be deemed to be the profits and gains derived from the export of articles or things or computer software:”
It is pertinent to mention that the said second proviso of sub-section (1) to Sec.10B was deleted by Financial Act 2001 w.e.f. 1.4.2002. By virtue of introduction of second proviso, sub-section (1) of section 10B was diluted for one year by this deeming provision. This means that if the profits and gains of EOU includes profits and gains from domestic sale then profits and gains derived from domestic sale to the extent of 25% of total sale shall be deemed to be the profits and gains derived from export of such goods only for one year during which the deeming provision in the shape of second proviso remained on the statute. There is no provision which allows the domestic sale by the EOU and thereby in case of any sale by the EOU of more than 25% of the total sale for the assessment year 200 1-02 and any domestic sale for the other assessment year will dis entitle the EOU for relief under section 10B. As far as sub-section (4) of Section 10B is concerned in my view the same is only a machinary provision which facilitates the computation of profits and gains from export of goods in proportion to export turnover in respect of such goods and total turnover of the business carried on by the undertaking. From sub-section (4) it cannot be inferred that the words export turnover and total turnover refer to and mean the total sale (including domestic sale) to export sale. If sub-section (4) is interpreted in such a way to give scope of domestic sale by the EOU to avail the benefit of exemption under section 10B then the same would be against the very object and scheme of the provision itself.
35. Clause (Hi) to Explanation 2 after sub-section (9) of Sec.10B makes it very clear, which is reproduced as under:
“‘export turnover’ means the consideration in respect of export (by the undertaking) of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India.”
As per clause (iii) to Explanation 2 the export turnover is the consideration for export of goods provided, received or brought into India in convertible foreign exchange but does not include freight, telecommunication charges or insurance attributable to the delivery of such goods outside India. It shows that the export turnover has to be taken into account as not the total receipt against the export of goods but certain expenses incurred for delivery of goods or expenses incurred in foreign exchange for providing technical services shall be excluded from the total receipt. If we read sub-clause (1) of sub-section (4) along with clause (iii) of Explanation 2 together it gives a clear meaning of profit and gains derived by the EOU from export turnover and total turnover for computation of eligible profits and gains for deduction under section 10B. If sub-section (4) is interpreted in such a way that the export turnover and total turnover refers to export sale and total sale (including domestic sale) then it will defeat the very object and scheme of the provision and that would be an absurd interpretation. While interpreting a provision the true meaning of the provision would be best harmonious with other parts of it. Hence it is well settled proposition that to ascertain the legislative intention of a provision the general purpose and object of the Act and provision should be considered and it should be interpreted to make every part effective, harmonious and1~ensible. The words of the statute are to be understood in the sense in which they are best harmonious with the object and the legislature’s view. The taxing statute is to be strictly construed. In case of a taxation statute it is not permitted to stretch or strain its language in order to apply to a particular case.
36. In view of the above discussion, I am of the considered opinion that when the assessee (EOU) had domestic sale of more than 25% of the total sale during the period relevant to the assessment year 2001-02 the assessee is not entitled for exemption under section 10B of the Act. The second proviso to sub-section (1) prescribes the limit for domestic sale if any and the same will be deemed as export sales and the profits and gains of the domestic sale shall be deemed as profits and gains of the export sale. Apart from this proviso, there is no other provision to enable the assessee for claiming the exemption if the total sale of the assessee (EOU) includes the domestic sale. Sub-section (4) to section 10B talks about the export turnover and total turnover which does not mean that the total turnover includes the domestic sale. When clause (iii) of Explanation 2 makes it very much clear what is the export turnover then the total turnover would be the turnover of the EOU or only for export activity and includes the expenses which are not part of the export turnover as well as other receipts in the course of export activity but in any case does not include domestic sale. Therefore in view of the above discussion the assessee is not entitled for the relief under section 10B.
37. In the result, the appeal filed by the assessee as well as the revenue are partly allowed.
