Commissioner Of Income Tax v. Ami Diamonds Exporters

O/ITR/3/2002 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE NO. 3 of 2002 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX....Applicant(s) Versus AMI DIAMONDS EXPORTERS.....Respondent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Applicant(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAHand HONOURABLE MR.JUSTICE K.J.THAKER Date : 02/07/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.The present reference at the instance of CIT, Surat, is made by the learned ITAT to consider the following substantial questions of law: 1.Whether, on the facts and in the circumstances of the case, the ITAT was justified in law in holding that 8% premium on the licences purchased by it from outside parties for sale or import would be liable to be treated as cash assistance u/s. 28(iiib) against its export eligible to deduction u/s. 80HHC and not income from other sources ? 2.Whether on the facts and in the circumstances of the case, the Hon’ble Tribunal was right in holding that for the purpose of working out deduction u/s.80HHC, clause (a) of section 80HHC becomes applicable instead of clause (b) as the asessee was engaged in the business of cutting and polishing of rough diamonds which are imported from abroad and then selling cut and polished diamonds mostly by export, when the assessee is also doing business in O/ITR/3/2002 JUDGMENT trading of polished diamonds and the percentage of trading of polished diamonds and the percentage of trading of polished diamonds is more than 50% of the total export sales ? 2.Though served, nobody appears on behalf of the respondent-assessee. We have heard Mr. Sudhir Mehta learned advocate appearing on behalf of the appellant-revenue. 3.Mr. Mehta learned advocate appearing on behalf of the appellant-revenue has vehemently submitted that so far as question no. 1, i.e., whether ITAT was justified in law in holding that 8% premium on the licences purchased by it from outside parties for sale or import would be liable to be treated as cash assistance u/s. 28(iiib) against its export eligible for deduction under sec. 80HHC and not income from other source is concerned, it is submitted that the learned Tribunal has not considered the Fifth proviso which was inserted by the Taxation Law (Amendment) Act, 2005 with retrospective effect from April 1, 1992, which reads as under: “Provided also that in case the computation under clause(a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off O/ITR/3/2002 JUDGMENT against the amount which bears to ninety per cent of - “Provided also that in case the computation under clause(a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off O/ITR/3/2002 JUDGMENT against the amount which bears to ninety per cent of - (a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or (b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.” 4.It is further submitted by Mr. Mehta learned advocate appearing on behalf of the appellant-revenue that, as such, on the aforesaid issue, the learned Tribunal has heavily relied upon the decision of the tribunal in the case of P. Navinkumar & Co. It is submitted that as such, against the decision of the learned Tribunal in the case of P. Navinkumar & Co. (supra), the revenue carried the matter before this Court by way of ITR No. 26/2000. It is further submitted that with respect to the aforesaid issue in the case of P. Navinkumar & Co. (supra), at the O/ITR/3/2002 JUDGMENT instance of the Revenue, reference was made to this Court by way of ITR No. 26/2000 and considering the Taxation Law (Amendment) Act, 2005, which would be applicable with retrospective effect from April 1, 1992, the Division Bench of this Court, vide its judgment and order dated 10.7.2007 has remitted the matter to the learned ITAT for its fresh consideration of the aforesaid question. 5.Having heard Mr. Mehta learned advocate appearing on behalf of the appellant-Revenue on the aforesaid issue, and considering the judgment and order passed by the learned Tribunal on the aforesaid issue, it is a case that the judgment delivered by ITAT does not indicate that the Fifth proviso inserted by Taxation Law (Amendment) Act, 2005, with retrospective effect from April 1, 1992 was noticed by it. From the judgment and order, it appears that the learned Tribunal has heavily relied upon its earlier decision in the case of P. Navinkumar & Co. (supra). However, the very issue in the case of P. Navinkumar & Co., was referred to this Court and by judgment and order dated 10.7.2007, the Division Bench of this Court has remitted the matter to the ITAT for its fresh consideration of the aforesaid question. O/ITR/3/2002 JUDGMENT 6.In view of the above, this Court is of the opinion that the matter deserves to be remitted to ITAT for its fresh consideration of the above question no. 1 before this Court for the opinion in the light of the Fifth proviso referred to above, as also the amendment made under the Fifth Act 2005. The matter is accordingly remitted to the ITAT for its fresh consideration. O/ITR/3/2002 JUDGMENT 6.In view of the above, this Court is of the opinion that the matter deserves to be remitted to ITAT for its fresh consideration of the above question no. 1 before this Court for the opinion in the light of the Fifth proviso referred to above, as also the amendment made under the Fifth Act 2005. The matter is accordingly remitted to the ITAT for its fresh consideration. 7.Now, so far as question no. 2 referred to this Court for its opinion, that is, whether on the facts and in the circumstances of the case, the learned Tribunal was right in holding that for the purpose of working out deduction u/s. 80HHC, clause (a) of section 80HHC becomes applicable instead of clause (b) as the assessee was engaged in the business of cutting and polishing of rough diamonds which are imported from abroad and then selling out cut and polished diamonds in trading of polished diamonds and the percentage of trading of polished diamonds is more than 50% of the total export sales, is concerned, as such, the aforesaid issue is now not res-integra in view of the decision of the Hon’ble Supreme Court in the case of Gem Granites v. Commissioner of Income-Tax, reported in (2004) 271 ITR 322 (SC), by which, with respect of Granite, the Hon’ble Supreme Court considered the same as mineral. It is required to be noted that in the said decision, the Hon’ble Supreme Court referred to and considered 1984 Circular, which reads as under: “Export of cut and polished diamonds and gem stones – whether eligible for deduction under section 80HHC.-Section 80HHC has been inserted in the Income-tax Act, 1961, by the Finance Act, 1983, and the deduction under this provision is admissible in relation to assessment year 1983-84 and subsequent years. The tax concession is, however, not admissible in relation to export of, inter alia, minerals and ores. 2.The Board has received a large number of references on whether the export of cut and polished diamonds and gem stones will qualify for deduction under section 80HHC. The Board are advised of the following features in the export of cut and polished diamonds and gem stones: (i) No export of aw diamonds is permitted under the import and export regulations. (ii) Export form India takes place of cut and polished diamonds. (iii) Raw diamonds imported from abroad after being cut and polished are exported in the processed form and this willbesupportedbydocuments scrutinised and certified by the Customs Department. (iv) Import of rough diamonds is allowed as replenishment against the actual O/ITR/3/2002 JUDGMENT exports of cut and polished diamonds, after the actual exports take place, not necessarily in the previous year. (v) Import of rough diamonds is allowed as replenishment on the basis of licences issued by the Joint Chief Controller of Imports and Exports, on the basis of the requisite documents produced by the exporters. Rough diamonds are also allowed to be imported on the basis of import licence issued by the licensing authorities for which the importer has to execute a bond with the Government of India for re-export after cutting and polishing within a prescribed time for a value worked out on a given formula. Detailed procedure in this regard is explained in the Import-Export Policy. 3.In view of the position brought by the above features, the export of cut and polished diamonds and gem stones will not amount to export of ‘minerals and ores’ and hence will qualify for relief under section 80HHC of the Income-tax Act, 1961.” [Source: Circular letter F. No. 187/206/83/IT(AI), dated May 22, 1984] Rough diamonds are also allowed to be imported on the basis of import licence issued by the licensing authorities for which the importer has to execute a bond with the Government of India for re-export after cutting and polishing within a prescribed time for a value worked out on a given formula. Detailed procedure in this regard is explained in the Import-Export Policy. 3.In view of the position brought by the above features, the export of cut and polished diamonds and gem stones will not amount to export of ‘minerals and ores’ and hence will qualify for relief under section 80HHC of the Income-tax Act, 1961.” [Source: Circular letter F. No. 187/206/83/IT(AI), dated May 22, 1984] 8.Therefore, in view of the aforesaid 1984 Circular, cut and polished diamonds shall qualify for deduction under sec. 80HHC of the Income-tax Act. 9.In view of the above, so far as question no. 2 referred to this Court is answered O/ITR/3/2002 JUDGMENT against the appellant-revenue and in favour of the assessee. Consequently, the present reference is disposed off by remitting the matter back to the learned ITAT so far as question no. 1 is concerned, for its fresh consideration in light of the Fifth proviso referred to above as also the amendment made under the Taxation Law (Amendment) Act, 2005. The aforesaid exercise shall be completed within a period of six months from today along with the case of P. Navinkumar & Co. (supra) which was referred by the Division Bench, if not decided so far. (M.R.SHAH, J.) mandora (K.J.THAKER, J)