D.b. Income Tax Appeal v. The Assistant Commissioner Of Income Tax, Circle-3(1), Jaipur In The State Of Raj

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 72 / 2012 Smt. Asha Kala W/o Shri Vivek Kala, A-95, Janta Colony, Jaipur in the State of Raj. ----Appellant Versus The Assistant Commissioner of Income Tax, Circle-3(1), Jaipur in the State of Raj. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Siddharth Ranka with Mr. Muzaffar IqbalFor Respondent(s) : Mr. K.D. Mathur, Mr. Prateek Kedawat for Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGHJudgment 30/08/2017 1.By of this appeal, the appellant has challenged the judgmentand order of the Tribunal whereby the Tribunal has dismissed theappeal of the assessee. 2.While admitting the appeal, this Court has framed thefollowing substantial questions of law: “(i)Whether on the facts and material available onrecord, the learned Income Tax Appellate Tribunal wasright in law in holding that reopening of theassessment u/s 147 of the I.T. Act was valid whenappellant had disclosed fully and truly all material factsin the return of income and there is no escapement? (ii)Whether on the facts and material available onrecord, the learned Income Tax Appellate Tribunal wasright in law in not allowing deduction u/s 80 HHC whenthe assessee is engaged in the business of exports outof India of advertisements, printed and published inbooks, magazines and supply of such books magazines earned foreign exchange and fall in the definition of‘goods’ and its export and particularly when in the pastyears deduction has been allowed?” 3.On 31.7.2017, the matter was argued and counsel for theappellant has relied upon judgments and the matter was fixed for2.8.2017. On 8.8.2017, counsel for the department requested fortime. Even today, counsel for the respondent is not in a position todispute the fact that the order which has been referred has notbeen challenged. 4.On issue No.1, counsel for the appellant has relied on thefollowing decisions: (1)Diamond World v. CIT :: reported in (2003) 133 Taxman 772 (Rajasthan) wherein it has been held as under:- 4.On scrutiny of assessment orders for 1991-92and 1992-93, CIT found that the order of theAssessing Officer is erroneous and prejudicial tothe interest of revenue. He issued the notice to theassessee to show cause as to why the benefit ofsection 80HHC should not be withdrawn. Afterconsidering his submissions, CIT has directed theAssessing Officer to withdraw the benefit of section80HHC given to the assessee on the amount receivedagainst advertisement which has been published in thejournal. Thereafter, assessee carried the matter beforethe Tribunal. The Tribunal has also upheld theview taken by CIT under section 263 of theIncome-tax Act, 1961. (2)CIT v. Kelvinator of India Ltd. :: (2010) 320 ITR 561 (SC) wherein it has been held as under:- However, one needs to give a schematic interpretationto the words "reason to believe" failing which, we areafraid, section 147 would give arbitrary powersto the Assessing Officer to re-open assessments on the basis of "mere change of opinion", whichcannot beper sereason to reopen.We must alsokeep in mind the conceptual difference between-power to review and power to reassess. TheAssessing Officer has no power to review; he hasthe power to reassess.But reassessment has tobe based on fulfilment of certain pre-conditionand if the concept of "change of opinion" isremoved, as contended on behalf of theDepartment, then, in the garb of re-opening theassessment, review would take place. One musttreat the concept of "change of opinion" as an in-builttest to check abuse of power by the Assessing Officer. (3) Pine Chemicals Ltd. v. DCIT :: (2015) 57 taxmann.com 302 (Gujarat) wherein it has been held as under:- on the basis of "mere change of opinion", whichcannot beper sereason to reopen.We must alsokeep in mind the conceptual difference between-power to review and power to reassess. TheAssessing Officer has no power to review; he hasthe power to reassess.But reassessment has tobe based on fulfilment of certain pre-conditionand if the concept of "change of opinion" isremoved, as contended on behalf of theDepartment, then, in the garb of re-opening theassessment, review would take place. One musttreat the concept of "change of opinion" as an in-builttest to check abuse of power by the Assessing Officer. (3) Pine Chemicals Ltd. v. DCIT :: (2015) 57 taxmann.com 302 (Gujarat) wherein it has been held as under:- Section 80HH, read with section 147, of the Income-tax Act, 1961 - Deductions - Profits and gains fromhotels or industrial undertakings, etc. in backwardareas (Reassessment) - Assessment year 1987-88 -Assessee set up its industrial undertaking in backwardarea - It earned interest, dividend and rent frominvestments made out of surplus funds accumulatedfrom profits of business - Assessee claimed deductionunder section 80HH on said income - AssessingOfficer passed assessment order under section143(3), allowing assessee's claim - Subsequently,Assessing Officer initiated reassessment proceedingson ground that deduction was wrongly allowed -Tribunal upheld validity of reassessment proceedings -Whether since all primary facts were disclosed byassessee in return of income itself, Assessing Officerwas not justified in initiating re-assessmentproceedings merely on basis of change of opinion -Held, yes - Whether, therefore, re-assessmentproceedings were to be set aside - (4)Ganesh Housing Corporation Ltd. v. DCIT :: (2013) 31 taxmann.com 359 (Gujarat) wherein it has been held as under:- Section 147, read with section 80-IB, of the Income-tax Act, 1961 - Income escaping assessment - Non- disclosure of primary facts [To disallow deductionunder section 80-IB] - Assessing Officer reopenedassessment on ground that assessee had beenallowed excessive deduction under section 80-IB inoriginal assessment as it claimed deduction by givingwrong particulars about its status by claiming as a'developer' though it was only a 'works contractor' -Whether when in spite of full disclosure made byassessee, Assessing Officer gave benefit of provisionby considering materials on record, it could not besaid that any income escaped assessment inaccordance with law - Held, yes - Whether fact thatAssessing Officer in assessment proceedings undersection 143(3) did not give any opinion regardingallowability or otherwise of deduction under section80-IB(10) could be ground for invoking section 147 - (5)CIT v. Hindustan Zinc Ltd. :: (2017) 393 ITR 264 (Rajasthan) wherein it has been held as under:- (5)CIT v. Hindustan Zinc Ltd. :: (2017) 393 ITR 264 (Rajasthan) wherein it has been held as under:- --Section32,readwithsections80IA,80IBand148of the Income-tax Act, 1961 -Depreciation - Additional depreciation (Reassessment)- Assessment year 2005-06 - Assessing Officerinitiated reassessment proceedings on ground thatassessee had made incorrect claim of additionaldepreciation on Captive Power Plant - However, it wasfound that assessee had made true and full disclosureof all relevant facts relating to claim of additionaldepreciation and also in respect of claim for grant ofdeduction under section 80IA - Further, a separateaudit report in prescribed form 10CCB in support ofclaim for deduction under section 801A/80IB was alsoduly submitted and assessee had also submitted replypursuant to all queries made by Assessing Officerduring assessment proceedings under section 143(3)- Apparently, formation of belief by AssessingOfficer regarding escapement of income wasbased on re-appreciation of material alreadyavailable on record at time of scrutinyassessment which amounted to mere change ofopinion - Whether reopening of completedassessment without any fresh material, merelyon basis of change of opinion of AssessingOfficer was without jurisdiction and patently illegal, hence, appeal preferred by revenue hadrightly been dismissed (6)Praful Somabhai Patel HUF v. ITO :: (2016) 73taxmann.com 184 (Gujarat) wherein it has been held asunder:- It is clear that when capital gain was already takeninto consideration by the Assessing Officer, againoriginal assessment cannot be changed on the basisof valuation report of wealth tax. Wealth tax valuationreport was available with the same officer, when theoriginal assessment was made. In that view of thematter, while considering the matter on the income-tax, wealth-tax valuation ought not to have beenrelied upon and the valuation report which was reliedby the Assessing Officer was available with theauthority. [Para 7] In view of various judicial pronouncements, it is clearthat section 147 authorises and permits the AssessingOfficer to assess or reassess income chargeable to taxif he has reason to believe that income for anyassessment year has escaped assessment. The word'reason' in the phrase 'reason to believe' would meancause or justification. If the Assessing Officer hascause or justification to know or suppose that incomehad escaped assessment, it can be said to havereason to believe that an income had escapedassessment. The expression cannot be read tomean that the Assessing Officer should havefinally ascertained the fact by legal evidence orconclusion. The function of the Assessing Officeris to administer the statute with solicitude forthe public exchequer with an inbuilt idea offairness to taxpayers. As observed by the SupremeCourt in Central Provinces Manganese Ore Co.Ltd. v. ITO [1991] 191 ITR 662, for initiation of actionunder section 147(a) (as the provision stood at therelevant time) fulfilment of the two requisiteconditions in that regard is essential. Merely an audit report, would not authorize theAssessing Officer to reopen the assessment even within the period of 4 years from the end of therelevant assessment year, when the saidmaterial was already before him when theoriginal assessment was made. Any suchattempt on his part would be based on merechange of opinion. To reiterate when a claimwas processed at length and after calling fordetailed explanation from the assessee, thesame was accepted, merely because a certainelement or angle was not in the mind of theAssessing Officer while accepting such a claim,cannot be a ground for issuing notice forreassessment. Therefore, the Assessing Officercannot change his opinion, which he has alreadyaccepted in his assessment order. Merely an audit report, would not authorize theAssessing Officer to reopen the assessment even within the period of 4 years from the end of therelevant assessment year, when the saidmaterial was already before him when theoriginal assessment was made. Any suchattempt on his part would be based on merechange of opinion. To reiterate when a claimwas processed at length and after calling fordetailed explanation from the assessee, thesame was accepted, merely because a certainelement or angle was not in the mind of theAssessing Officer while accepting such a claim,cannot be a ground for issuing notice forreassessment. Therefore, the Assessing Officercannot change his opinion, which he has alreadyaccepted in his assessment order. Thus, the Tribunal has committed an error inreversing the finding of the Commissioner (Appeals)and also committed an error in holding that thereopening proceedings are valid, legal and within thejurisdiction of the respondent. (7)CIT v. Vaishali Avenue :: (2014) 48 taxmann.com 289 (Rajasthan) wherein it has been held as under:- Section 37(1), read with section 147, of the Income-tax Act, 1961 - Business expenditure - Allowability of(Reassessment) - Assessment year 2006-07 - Whereall facts relating to amount taken to balancesheet as provision for project development andregistration charges on sale of plot wereavailable before Assessing Officer at time offraming of original assessment, reopening ofassessment by successor Assessing Officer onground that said expenditure was notallowable, being based on mere change ofopinion, could not be sustained (8)Austin Engineering Co. Ltd. v. JCIT :: (2009) 312 ITR 70 (Gujarat) wherein it has been held as under:- 7. The only question that would then survive would bewhether there was any failure on the part of thepetitioner-assessee to disclose fully and truly all material facts necessary for the assessment. Thoughin the reasons recorded, the respondent hasstated so, apparently, the said statement doesnot merit acceptance for the simple reason thatif all material facts had not been fully and trulydisclosed by the assessee, there was nooccasion for the Assessing Officer to frame theassessment under section 143 (3) of the Act byallowing the claim of the assessee. In fact, thelaw, as it then stood was understood identically bothby the assessee and the Assessing Officer. Merelybecausesubsequentlytheapexcourtpronounced the law to be otherwise, on the dateof the filing of the return of the income whenthe assessee made a claim for deduction, theclaim could not be termed to be either lacking inmaterial particulars or could not be termed to beuntrue. In other words, all the material factswere fully disclosed and no false facts werestated in support of the claim made. The reasonsrecorded themselves show that the AssessingOfficer has changed his opinion only on thebasis of subsequent judgment rendered by theapex court. Thus, this is a case of change ofopinion by the Assessing Officer and not a case ofany failure on the part of the assessee. (9)NDT Systemsv.ITO::(2014) 363 ITR 87 (Bombay)wherein it has been held as under:- (9)NDT Systemsv.ITO::(2014) 363 ITR 87 (Bombay)wherein it has been held as under:- 5. In view of the above, Mr. Pinto submits that thepetition be dismissed. We have considered thesubmissions. We find that the notice dated March20, 2012, under section 148 of the Act has beenissued within a period of four years from the endof the relevant assessment year, i.e., 2007-08.In such circumstances, the proviso to section147 of the Act is clearly not applicable.Therefore, it is not necessary for the Revenue toprima facie establish that there has been afailure on the part of the petitioner to disclosefully and truly all material facts necessary forassessment, while issuing a notice reopening acompleted assessment. However, even in caseof reopening of assessment within a period of four years from the end of the relevantassessment year the Assessing Officer has tohave reason to believe that income chargeableto tax has escaped assessment on the basis oftangible material. The words "reason to believe" hasbeen construed by the Supreme Court in the matterof CIT v. Kelvinator of India Ltd. [2010] 320 ITR561/187 Taxman 312; wherein the court hasobserved: "However one needs to give schematic interpretationto the words 'reason to believe' failing which we areafraid section 147 would give arbitrary powers to theAssessing Officer to reopen assessment on the basisof 'mere change of opinion' which cannot be per sereason to reopen. We must also keep in mind theconceptual difference between power to review andpower to reassess. The Assessing Officer has nopower to review ; he has power to reassess. Butreassessment has to be based on fulfilment of certainpreconditions and if the concept of 'change of opinion'is removed as contended by the department then inthe garb of reopening the assessment review wouldtake place." 6. The aforesaid observations of the apex courtmake it clear that sanctity must be attached tothe assessment orders and it cannot bedisturbed merely on account of change ofopinion. This sanctity to assessment orders is notbased on the basis of the time that has lapsed fromthe assessment order passed in the regularproceedings to the issue of notice for reopening anassessment. 7. Therefore, where all material facts necessaryfor determination of the income have beendisclosed by the assessee and the AssessingOfficer has taken a particular view on thosedisclosed facts as reflected in the assessmentorder passed in regular proceedings, thenwithout anything more, it would not be open toreopen those assessment proceedings. For insuch a case it is a clear case of change ofopinion. In the present facts it is very clear thatduring the assessment proceedings leading to theassessment order dated November 11, 2009, the petitioner had disclosed all facts with regard todeduction being claimed on account of labour chargesand radiography charges. In fact, the assessmentorder dated December 11, 2009, records the fact thata notice was issued to the petitioner to explain whythe expenses on account of labour and radiographycharges should not be disallowed under section 40(a)(ia) of the Act. The petitioner explained its view pointand the Assessing Officer on consideration of thosefacts in his order of assessment dated December 11,2009, concluded that these payments on account ofradiography charges and labour charges are taxdeductible at source in terms of section 194C of theAct. Further, the obligation on the part of the assesseeis only to make a full disclosure of primary facts andthe inferences to be drawn therefrom and theapplication of law thereon is the job of the AssessingOfficer. The petitioner has disclosed all primary factsand on consideration of those facts as reflected in theassessment order dated December 11, 2003, theamount of income has been computed after holdingthat IDS has to be deducted under section 194C ofthe Act. 8. Therefore, the impugned notice and thereasons in support thereof clearly indicates thatit has been issued merely on the basis of changeof opinion and would amount to a review of theassessment order dated December 11, 2003.Further, the reasons for reopening as communicatedby the petitioner is not on the basis of any tangiblematerial but merely on verification of the material andprimary facts already on record that the AssessingOfficer has duly considered while passing the orderdated December 11, 2003, for the assessment year2007-08. There is no fresh tangible material whichwould warrant taking a view different from the onetaken during the regular assessment proceedings. Infact even the order dated October 15, 2012 disposingof the objections clearly records that radiographycharges and labour charges were made to variouspersons like senior technicians, senior radiographerand Jr. technicians, etc., from the chart submitted inthe regular assessment proceeding leading to orderdated December 11, 2009. Therefore, it is very clearthat the impugned notice for reassessing theassessment year 2007-08 has been issued merely on change of opinion and in fact seeks to review theassessment which is already completed.(10)ICICI Home Finance Co. Ltd. v. ACIT :: (2012) 25 taxmann.com 241 (Bombay) wherein it has been held as under:- The power to reopen a completed assessment undersection 147 has been bestowed on the AssessingOfficer, if he has reason to believe that any incomechargeable to tax has escaped assessment for anyassessment year. However, this belief that income hasescaped assessment has to be the reasonable belief ofthe Assessing Officer himself and cannot be anopinion and/or belief of some other authority. In fact,the Supreme Court in the case of Indian & EasternNewspaper Society v. CIT [1979] 119 ITR 996/ 2Taxman 197has held that whether an assessment hasescaped assessment or not must be determined bythe Assessing Officer himself. The Assessing Officercannot blindly follow the opinion of an audit authorityfor the purpose of arriving at a belief that income hasescaped assessment. In the instant case, it would benoticed that the reasons for which the assessment issought to be reopened are identical to the objection ofthe audit authority dated 29-12-2009. The reasonsdo not rely upon any tangible material in theaudit report but merely upon an opinion and theexisting material already on record. This itselfindicates that there was no independentapplication of mind by the Assessing Officerbefore he issued the impugned notice. On thisground alone, the assumption of jurisdiction bythe Assessing Officer can be faulted. [Para 6] Further the Supreme Court in the caseof CIT v. Kelvinator India Ltd. [2010] 320 ITR561/187 Taxman 312(SC) has observed that theAssessing Officer has only power to reassess onfulfilment of certain preconditions, namely, he musthave reason to believe that income has escapedassessment and that there must be tangible materialto come to the conclusion that there is an escapementof income from assessment. Such reason to believeshould not be on account of mere change of opinion.Therefore, where facts have been viewed duringthe original proceeding and an assessment order has been passed then in such cases, reopeningof an assessment on the same facts withoutanything more would be a review and notpermitted under the garb of reassessment. Thiswould be a mere change of opinion in the absence ofany tangible material and is not sufficient to assumejurisdiction to issue the impugned notice. In fact, theBombay High Court in the case of Idea CellularLtd. v. Dy. CIT [2008] 301 ITR 407has held that onceall the material with regard to particular issue isbefore the Assessing Officer and he chooses not todeal with the same, it cannot be said that he had notapplied his mind to all the material before him. [Para7] has been passed then in such cases, reopeningof an assessment on the same facts withoutanything more would be a review and notpermitted under the garb of reassessment. Thiswould be a mere change of opinion in the absence ofany tangible material and is not sufficient to assumejurisdiction to issue the impugned notice. In fact, theBombay High Court in the case of Idea CellularLtd. v. Dy. CIT [2008] 301 ITR 407has held that onceall the material with regard to particular issue isbefore the Assessing Officer and he chooses not todeal with the same, it cannot be said that he had notapplied his mind to all the material before him. [Para7] Therefore, in the instant case one would have toexamine the contention of the assessee that theimpugned notice is without jurisdiction as the selfsame facts were not only before the Assessing Officerbut he had also viewed the very issues on which theassessment is sought to be reopened. So far as theissue in respect of provisions claimed as deduction forarriving at taxable profit aggregating to Rs. 52.87crores is concerned, the same was not only disclosedin the notes to account filed with the return of incomebut also in response to specific queries raised duringthe assessment proceedings. It was reiterated at thehearing that on the aforesaid account of provision, thetax had already been paid in the earlier years and theamounts were merely written back in this year to theextent they were in excess of the provisions required.So far as failure to deduct TDS on advertisement andsales promotion are concerned leading to disallowanceof the entire amount of Rs. 22.48 crores under section40(a)( ia), the same was also subject to scrutiny bythe Assessing Officer during the assessmentproceedings. In fact, the tax audit report submittedalong with return of income clearly brings out the factthat where tax has not been deducted, then the entireamount of payment has been offered for disallowanceunder section 40(a)(ia ). So far as the reason toreopen the assessment on the ground that theassessee had declared short term capital gains of Rs.3.63 crores in respect of income earned out ofinvestments had to be taxed/classified as businessincome is concerned, it is not disputed that thetreatment given was consistent with the earlier year practice and accepted by the revenue. Further it is notdisputed that the short term capital gains have beenassessed to the maximum marginal rate and even ifconsidered as business income, the tax effect wouldbe the same. Consequently, there could be noreasonable basis to have a belief that there is anyescapement of Income. [Para 8] In the circumstances, the impugned notice issuedunder section 148 as well as the impugned orderrejecting the objections to initiation of reopening theassessment were liable to be quashed. [Para 10] 5.On issue No.2, counsel for the appellant has relied on thefollowing decisions: (1)CIT v. B. Suresh :: (2009) 313 ITR 149 (SC) wherein ithas been held as under:- 8. Two questions arise for determination, namely,whether foreign exchange earned by transfer offeature film rights for exploitation outside India, in theform of lease, is entitled to the benefit of section80HHC deduction. The same is denied by theDepartment on the ground that there is no "sale". Theother question is whether such "rights" aregoods/merchandise. In the circumstances, the impugned notice issuedunder section 148 as well as the impugned orderrejecting the objections to initiation of reopening theassessment were liable to be quashed. [Para 10] 5.On issue No.2, counsel for the appellant has relied on thefollowing decisions: (1)CIT v. B. Suresh :: (2009) 313 ITR 149 (SC) wherein ithas been held as under:- 8. Two questions arise for determination, namely,whether foreign exchange earned by transfer offeature film rights for exploitation outside India, in theform of lease, is entitled to the benefit of section80HHC deduction. The same is denied by theDepartment on the ground that there is no "sale". Theother question is whether such "rights" aregoods/merchandise. 9. The basic requirement of section 80HHC is earningin foreign exchange and retention of profits for exportbusiness. Profits are embedded in the "income"earned. Earning of income depends on sale of goodsand services. Today the difference between the two isgetting blurred with globalization and cross-bordertransaction. Today with technological advancementone has to change our thinking regarding conceptslike goods, merchandise and articles. In the case of B.Suresh, the assessee had bought rights of variousdecoders and had recorded movies on beta-cam tapeswhich were transferred as telecasting rights to Star TVfor five years (it has a limited life). Hence such"rights" would certainly fall in the category of articlesof trade and commerce, hence, merchandise. wherein it has been held as under:- Section 80HHC of the Income-tax Act, 1961 - Deductions -Exporters - Assessment year 1995-96 - Whether in view ofdecision of Supreme Court in CIT v. B. Suresh [2009] 313 ITR149, telecasting rights of T.V. serials are entitled to benefit ofsection 80HHC (3)CIT v. Sun TV Ltd. :: (2007) 296 ITR 274 (Madras) wherein it has been held as under:- The ‘goods’ may be tangible property or an intangibleone. It would become goods provided it has theattributes thereof having regard to (a ) its utility; (b)capable of being bought and sold; and (c) capable ofbeing transmitted, transferred, delivered, stored andpossessed. If the above attributes are satisfied, thesame would be goods. [Para 11] In the instant case, it was found that the assesseeassigned rights to telecast the programmes in foreigncountries either by sale of video cassettes or with thehelp of satellite, of course, after entering intoagreements with foreign parties, the assesseeforfeited its rights to telecast those programmes inthose countries. Therefore, the attributes required forbringing the property involved within the meaning of‘goods’ was satisfied with reference to its utility,capability of being bought and sold, and capability ofbeing transmitted, transferred, delivered, stored andpossessed. [Para 12] (4)CIT v. Giza Impex Pvt. Ltd. :: (2007) 293 ITR 301 (Madras) wherein it has been held as under:- From the law as enunciated from the decisions of theApex Court in Tata Consultancy Services v. State ofAndhra Pradesh [2004] 271 ITR 401 and in BharatSanchar Nigam Ltd. v. UOI [2006] 282 ITR 273,'goods' may be tangible property or an intangible one.It would become goods provided it has the attributesthereof having regard to (a) its utility; (b) capable ofbeing bought and sold; and (c) capable of beingtransmitted, transferred, delivered, stored andpossessed. If the above attributes are satisfied, thesame would be goods. [Para 11] In the instant case, the Commissioner (Appeals) aftercareful consideration of the facts of the case, found (4)CIT v. Giza Impex Pvt. Ltd. :: (2007) 293 ITR 301 (Madras) wherein it has been held as under:- From the law as enunciated from the decisions of theApex Court in Tata Consultancy Services v. State ofAndhra Pradesh [2004] 271 ITR 401 and in BharatSanchar Nigam Ltd. v. UOI [2006] 282 ITR 273,'goods' may be tangible property or an intangible one.It would become goods provided it has the attributesthereof having regard to (a) its utility; (b) capable ofbeing bought and sold; and (c) capable of beingtransmitted, transferred, delivered, stored andpossessed. If the above attributes are satisfied, thesame would be goods. [Para 11] In the instant case, the Commissioner (Appeals) aftercareful consideration of the facts of the case, found that the assessee exported music software and,therefore, the transaction comes within the purview ofsection 80HHC and the said view was also affirmed bythe Tribunal. Therefore, the attributes required forbringing the property involved within the meaning ofgoods was satisfied with reference to its utility;capability of being bought and sold; and capability ofbeing transmitted, transferred, delivered, stored andpossessed. [Para 12] The above finding that the property involved is"goods" is fortified with the decision of Madras HighCourt in CIT v. Superstar Music [2007] 291 ITR 8.Accordingly, the assessee was entitled to deductionunder section 80HHC. [Para 13] In view of the ratio laid down by the Apex Courtin Tata Consultancy Services' case (supra ) and BharatSanchar Nigam Ltd.'s case (supra), it was to beopined that merely because section 80HHF came to beinserted with effect from 1-4-2000, that, by itself,does not mean that the benefit of section 80HHC,could be denied to the transactions which aregoverned under section 80HHC. Of course, it goeswithout saying that in view of the specific provisionunder section 80HHF for deductions in respect ofprofits and gains from export or transfer of any filmsoftware, television software, music software,television news software, including telecast rights, theassessee could very well in future claim suchdeductions and the same would be taken care ofunder section 80HHF(5) to prevent double benefitsbeing claimed by the assessee in such events.However, in view of finding that the transaction inquestion was covered under section 80HHC, it wasinappropriate to hold that merely because section80HHF was not on the statute book during theassessment years in question, the assessee was notentitled to claim deduction without any hindranceunder section 80HHC in spite of compliance of theingredients thereunder. (5)CIT v. Motor Industries Co. Ltd. :: (2012) 20 taxmann.com 463 (Karnataka) wherein it has been held as under:- Section 80HHC provides for deduction in respect ofthe profits retained for export business. It is not indispute that the condition precedent for application ofthis provision is that the assessee must be engaged inthe business of export out of India of any goods or (5)CIT v. Motor Industries Co. Ltd. :: (2012) 20 taxmann.com 463 (Karnataka) wherein it has been held as under:- Section 80HHC provides for deduction in respect ofthe profits retained for export business. It is not indispute that the condition precedent for application ofthis provision is that the assessee must be engaged inthe business of export out of India of any goods or merchandise to which the section applies, whichcondition is fulfilled by the assessee. In computingtotal turnover income of the assessee, the deductionof the profits derived by the assessee from export ofsuch goods or merchandise is allowed in accordancewith and subject to the provisions of this section. Sub-section (2)(a ) of section 80HHC provides that thesection shall apply to all goods or merchandise otherthan those specified in clause (b), if the sale proceedsof such goods or merchandise exported out of Indiaare received in or brought into India by the assesseein convertible foreign exchange within a period of sixmonths from the end of the previous year. Thiscondition is also fulfilled by the assessee. Sub-section(3) states that for the purpose of sub-section (1), howthe said profit has to be computed. Clause (c) of sub-section (3) which is relevant for deciding this caseprovides where the export out of India is of goods ormerchandise manufactured or processed by theassessee and of trading goods, the profits derivedfrom such export shall in respect of such goods ormerchandise manufactured or processed by theassessee, be the amount which bears to the adjustedunder the heading 'profits of the business', in thesame proportion as the adjusted export turnover inrespect of such goods bears to be the adjusted totalturnover of the business carried on by the assessee.The explanation to the said-section defines what is'adjusted export turnover' , 'adjusted profits of thebusiness' and also 'adjusted total turnover'. In orderto arrive at the 'adjusted profits of the business', onehas to go by the definition of 'profits of the business'contained in Explanation (baa) to sub-section 3(A).This provision was inserted by Finance (No.2) Act,1991 with effect from 1-4-1992. In order toappreciate this provision, the legislative intent behindthis provision is to be looked into. By reason of suchamendment, the Parliament did intend that incomederived by way of brokerage/commission interest,rent, charges, or any other receipt of a similar natureby the assessee should not be reckoned for thepurpose of computing profit or loss earned by aperson engaged in the business of export. The purportand reason for enacting section 80HHC indisputablywas to provide incentive to export houses. Theformula that existed prior to 1991 often used toprovide a distorted figure of export profits whenreceipts like interest, commission, etc. which did nothave an element of turnover were included in theprofit and loss account. Therefore, it was clarified that'profits of the business' for section 80HHC would notinclude receipts by way of brokerage, commission,interest or any other receipt of a similar nature. Theexpression 'income arising out of business of export' brings within its sweep not only the export of anygoods or merchandise manufactured or processed bythe assessee but also of trading goods. TheParliament, therefore, intended to provide incentivewhen a positive profit is earned by an exporter. [Para7] brings within its sweep not only the export of anygoods or merchandise manufactured or processed bythe assessee but also of trading goods. TheParliament, therefore, intended to provide incentivewhen a positive profit is earned by an exporter. [Para7] It is well settled that in computing the profits of thebusiness for the purpose of Explanation (baa ), theincomes which are deductible are those which areexpressly prescribed in the aforesaid provision andwhich are similar in nature. If the income is derivedout of the activity which would have direct andimmediate nexus to the activity of export, then thesaid income is not deductible from the said profits ofthe business under the aforesaid provisions. Profitsare embedded in the income earned by such exportbusiness. The difference between the concepts likegoods, merchandise, service, articles, etc., is gettingblurred with globalization and technologicaladvancement. If any income is derived from export byway of foreign exchange, such income is notdeductible and the benefit of that income has to begiven to the assessee. The expression 'any otherreceipt of a similar nature', has to be understood inthe context of the words preceding the saidexpression namely 'brokerage', 'commission','interest', 'rent', or charges, such receipts have nonexus with the income earned by way of foreignexchange. Every receipt is not income and everyincome would not necessarily include element ofexport turnover. This aspect needs to be kept in mindwhile interpreting Explanation (baa) to the saidsection. The basic requirement of section 80HHC isearning in foreign exchange and retention of profitsfor export business. Though the object of enactingsection 80HHC, is to provide incentive to exportbusiness and, thus, earning foreign exchange, thesaid benefit should go to only exporters and shouldnot be misused in getting the benefit when there is noelement of export involved in the income. Keeping inmind the legislative intent, it is clear that suchincomes which have no direct nexus with the exportturnover are liable to be deducted in arriving at theprofits of the business. It is only when the assesseehas an independent income which has no nexus withthe income derived from export, which is in thenature of brokerage, commission, interest, rent orcharges and inclusion of that income to the profits ofthe business, results in distortion, then, such incomeshould be excluded. [Para 12] In the instant case, it is not in dispute that theassessee is in the business of export of goods and merchandise. The assessee is earning foreignexchange out of that export. The disputed income isearned by the assessee as fees towardsdevelopmental work from a German company. Thedevelopmental work is intimately connected with thebusiness of manufacturing and sale of goods by theassessee. There is immediate nexus between theactivity of export and the developmental work.Admittedly, for the services rendered by way of thesedevelopmental work, the assessee has been given thebenefit of deductions under section 80-O. The receiptof consideration from a foreign enterprise is not indispute. From the very same business that theassessee is carrying on, it is having an income undertwo heads and, therefore, it is not a case of anyindependent income unrelated to or unconnected withthe business carried on by the assessee which issought to be included in the profits of the business. Inthese circumstances, the Tribunal was justified inholding that the said consideration received fordevelopmental work is not liable to be deductedunder Explanation (baa) in computing the profits ofthe business. The said order is legal and valid. It doesnot suffer from any legal infirmity. (6)CIT v. Prasad Productions Pvt. Ltd. :: (2009) 313 ITR 120 (Madras) wherein it has been held as under:- (6)CIT v. Prasad Productions Pvt. Ltd. :: (2009) 313 ITR 120 (Madras) wherein it has been held as under:- Section 80HHC of the Income-tax Act, 1961 -Deductions - Exporters - Assessment years 1996-97to 2001-02 - Transfer of rights for manufacture ofcassettes outside India amounts to export of goodseligible for deduction under section 80HHC 6.Taking into consideration the main aspect that the earlierorder has not been challenged and the basis for Section 148 wasnot sound, it ought to have been quashed in view of the decisionreported in the case of CIT Vs. Kelvinator of India Ltd. Reported in (2010) 320 ITR 561 (SC) wherein it has been observed as under:- “On going through the changes, quoted above, madeto Section 147 of the Act, we find that, prior to DirectTax Laws (Amendment) Act, 1987, re-opening couldbe done under above two conditions and fulfillment ofthe said conditions alone conferred jurisdiction on theAssessing Officer to make a back assessment, but in Section 147 of the Act [with effect from 1st April,1989], they are given a go-by and only one conditionhas remained, viz., that where the Assessing Officerhas reason to believe that income has escapedassessment, confers jurisdiction to re-open theassessment. Therefore, post-1st April, 1989, power tore-open is much wider. However, one needs to give aschematic interpretation to the words "reason tobelieve" failing which, we are afraid, Section 147would give arbitrary powers to the Assessing Officerto re-open assessments on the basis of "mere changeof opinion", which cannot be per se reason to re-open.We must also keep in mind the conceptual differencebetween power to review and power to re-assess. TheAssessing Officer has no power to review; he has thepower to re-assess. But re-assessment has to bebased on fulfillment of certain pre-condition and if theconcept of "change of opinion" is removed, ascontended on behalf of the Department, then, in thegarb of re-opening the assessment, review would takeplace. One must treat the concept of "change ofopinion" as an in-built test to check abuse of power bythe Assessing Officer. Hence, after 1st April, 1989,Assessing Officer has power to re-open, providedthere is "tangible material" to come to the conclusionthat there is escapement of income from assessment.Reasons must have a live link with the formation ofthe belief. Our view gets support from the changesmade to Section 147 of the Act, as quotedhereinabove. Under the Direct Tax Laws (Amendment)Act, 1987, Parliament not only deleted the words"reason to believe" but also inserted the word"opinion" in Section 147 of the Act. However, onreceipt of representations from the Companies againstomission of the words "reason to believe", Parliamentre-introduced the said expression and deleted theword "opinion" on the ground that it would vestarbitrary powers in the Assessing Officer. We quoteherein below the relevant portion of Circular No. 549dated 31st October, 1989, which reads as follows: 7.2 Amendment made by the Amending Act, 1989,to reintroduce the expression `reason to believe' inSection 147.--A number of representations werereceived against the omission of the words `reason tobelieve' from Section 147 and their substitution by the`opinion' of the Assessing Officer. It was pointed outthat the meaning of the expression, `reason tobelieve' had been explained in a number of courtrulings in the past and was well settled and itsomission from Section 147 would give arbitrarypowers to the Assessing Officer to reopen pastassessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has againamended Section 147 to reintroduce the expression`has reason to believe' in place of the words `forreasons to be recorded by him in writing, is of theopinion'. Other provisions of the new Section 147,however, remain the same. these fears, the Amending Act, 1989, has againamended Section 147 to reintroduce the expression`has reason to believe' in place of the words `forreasons to be recorded by him in writing, is of theopinion'. Other provisions of the new Section 147,however, remain the same. 7.In that view of the matter, both the issues are required to be answered in favour of the assessee against the department. 8.The appeal stands allowed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Pdaiya/43