Commissioner Of Income Tax Iii, Coimbatore v. M/S.kiran Processors Kiran Garden, Arulpuram, Palladam Raod, Tirupur

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 31.01.2006 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A).No.5 of 2006 Commissioner of Income Tax III,Coimbatore. ..Appellant Vs. M/s.Kiran ProcessorsKiran Garden, Arulpuram,Palladam Raod, Tirupur. ..Respondent Appeal under Section 260A of the Income Tax Act, 1961 against thecommon order of the Income Tax Appellate Tribunal, Madras 'D' Bench dated7.3.2005 in ITA No.191(Mds.)/2000 for the assessment years 1996-97 againstthe Order of The Commissioner of Income Tax (Appeals), Coimbatore dated25.11.1999 in ITA.No.117-C/99-2000 against the Order of the JointCommissioner of Income Tax Special Range II, Coimbatore dated 9.3.1999 inPAN/GIR K-S01/SR-11/98-99/CBE. (Delivered by P.D.DINAKARAN, J.) The above tax case appeal is directed against the order of the Income-tax Appellate Tribunal in ITA Nos.191(Mds.)/2000 dated 7.3.2005. 2. The Revenue is the appellant. The assessee is a textile processorand exporter of hosiery fabric. The assessee filed return of income on29.11.1996 and after completing assessment on 9.3.99, the assessingofficer excluded the dyeing charges in terms of Explanation (baa) toSection 80HHC of the Act, and held that when 90% of the dyeing chargeswere excluded from the profits, the deduction under Section 80HHC becamenegative and accordingly, disallowed the same. The assessee went onappeal before the Commissioner of Income-Tax (Appeals), who partly allowedthe appeal by directing the assessing officer to exclude the dyeing https://hcservices.ecourts.gov.in/hcservices/ charges from the total turnover and also to exclude only the profitelement of the dyeing charges from the profit of the business for thepurpose of computation of deduction under Section 80HHC. The appellateTribunal, on appeal by the Revenue, held that even though there was anexus between the business of the assessee and the dyeing chargesreceived, as the order of the Commissioner of Income-Tax (Appeals) has notbeen challenged by the assessee, there is no merit in the appeal andaccordingly, dismissed the same. 3. Hence, the present appeal by the Revenue raising the followingsubstantial questions of law:" Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal was rightin holding that only 90% of the profit element in thedyeing charges received by the assessee could bereduced from the profits of business for computationof deduction u/s 80HHC ignoring the plain terminologyof the Explanation (baa) to Section 80HHC under which90% of the miscellaneous receipts had to be reducedfrom the profits of business in arriving at thededuction u/s 80HHC ? " 4. In the case on hand, it is not in dispute that the dyeing chargesare received in the course of the manufacturing activity of the goodsexported and therefore, there is a nexus between the dyeing chargesreceived by the assessee and the goods exported. 5. When a similar issue came up for consideration, this Court by orderdated 3.1.2006 made in T.C.(A) No.37 of 2003 (SOUTHERN SEA FOODS LTD. v.JOINT COMMISSIONER OF INCOME TAX), held that the income derived forfreezing and processing of marine products,- but for that operation theexport cannot be made – is an income earned by using the entireundertaking of the company i.e., machinery and power and othermanufacturing and administrative set up and therefore, the freezing andprocessing charges would definitely form part of one of the components ofbusiness profits, as the activity of freezing and processing would have adirect and immediate nexus to the activity of export. 5. When a similar issue came up for consideration, this Court by orderdated 3.1.2006 made in T.C.(A) No.37 of 2003 (SOUTHERN SEA FOODS LTD. v.JOINT COMMISSIONER OF INCOME TAX), held that the income derived forfreezing and processing of marine products,- but for that operation theexport cannot be made – is an income earned by using the entireundertaking of the company i.e., machinery and power and othermanufacturing and administrative set up and therefore, the freezing andprocessing charges would definitely form part of one of the components ofbusiness profits, as the activity of freezing and processing would have adirect and immediate nexus to the activity of export. 6. As rightly held by both the authorities below, the dyeing chargeswere received by the assessee company in their capacity as both a textileprocessor and an exporter of hosiery fabric and hence, the dyeing chargesare one of the main trading receipts and it employs special machinery andincurs substantial expenditure in the form of inputs like dyes, chemicals,fuel, wages, etc. and therefore, it cannot be treated as something in thenature of brokerage, commission or other receipts, which are not relatedto the main activity of the business attracting Explanation (baa) toProviso to Sub Section (4A) of Section 80 HHC. 7. Further, it is seen from the order of the Commissioner of Income-Tax (Appeals) that the assessing officer was directed to exclude thedyeing charges from the total turnover and to exclude only the profitelement of the dyeing charges from the profit of the business for thepurpose of computing deduction under Section 80HHC. Since that order ofthe Commissioner of Income-Tax (Appeals) has not been challenged by theassessee, as rightly held by the Tribunal, the Revenue may not have anygrievance at all and hence, we find no merit in this appeal. 8. Accordingly, following the ratio laid down by this Court in theabove decision, finding no substantial question of law arises for ourconsideration, the appeal stands dismissed. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar. sraTo1.The Assistant Registrar,Income Tax Appellate TribunalChennai Bench "D" Chennai Rajaji Bhavan, III Floor, Besant Nagar, Chennai 90. 2.The Secretary, Central Board of Direct Taxes, New Delhi. 3.The Commissioner of Income Tax (Appeals), Coimbatore. 4.The Joint Commissioner of Income-tax, Special Range-II, Coimbatore. 5. The Commissioner of Income Tax III,Coimbatore. + 1 CC to Mr. N.Muralikumaran, Advocate SR NO 3894 tej(co)gp/2.3. T.C.(A)No.5 of 200631.01.2006