In Law In Directing The A.o. To Grant The Benefit Of Interest Received/Receivable On Delayed Payments Relatable To Export Sales As Opposed To Total Sales Affect v. C.1.T., Central&Iv, Mumbai$ (2013) 343 Itr 89

ITA No. 216 of 2013} 1] IN THE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH ITA No. 216 of 2013Date of decision: 21.1.2020 Vardhman Holdings Ltd. .. Appellant Vv The Commissioner of Income Tax, Range-I, Ludhiana and another.. Respondents CORAM:HON'BLE MR. JUSTICE AJAY TEWARIHON'BLE MR. JUSTICE AVNEBEESH JHINGHON'BLE MR. JUSTICE AVNEBEESH JHING Present:Ms. Radhika Suri, Senior Advocate with Mr. Manpreet Singh Kanda, Advocate for the apellant.Mr. Manpreet Singh Kanda, Advocate for the apellant. Mr. Rajesh Katoch, Senior Standing Counsel andMs. Pridhi Jaswinder Sandhu, Advocates for the respondents.Ms. Pridhi Jaswinder Sandhu, Advocates for the respondents. AVNEESH JHINGAN, J. The assessee is in appeal under Section 260A of the IncomeTax Act, 1961 (for short, ‘the Act’) against the order dated 28.12.2012passed by the Income Tax Appellate Tribunal, Chandigarh (for short, ‘theTribunal’). Following substantial questions of law have been claimed: A,<Whether on true and correct interpretation of SectionSOHHC, the Income Tax Appellate Tribunal erred inholding that gross rent receipts from employees withoutadjusting expenses incurred by the employer on runningand maintenance of such accommodations are to beexcluded from the eligible profits of business for sectionSOHHC of Income Tax Act.SOHHC, the Income Tax Appellate Tribunal erred inholding that gross rent receipts from employees withoutadjusting expenses incurred by the employer on runningand maintenance of such accommodations are to beexcluded from the eligible profits of business for sectionSOHHC of Income Tax Act. ,,<Whether on true and correct interpretation of Section ITA No. 216 of 2013|2] SOQOHHC read with Section 10B(6)(ii1) of the Income TAct the tribunal has erred in holding that report turnoverof the unit whose profits are allowed a deduction underSection 1OB of the Income Tax Act 1s not to be includedin the export turn over for the purpose of calculating thededuction under Section 8SOHHC of the Income Tax Act196]?Act the tribunal has erred in holding that report turnoverof the unit whose profits are allowed a deduction underSection 1OB of the Income Tax Act 1s not to be includedin the export turn over for the purpose of calculating thededuction under Section 8SOHHC of the Income Tax Act196]? ,,,<Whether on true and correct interpretation of SectionSOHHC read with Section 80-[A/80-IB of Income TaxAct, the Income Tax Appellate Tribunal erred in holdingthat amounts of profits of Auro Unit V, eligible fordeduction under Section 80-IB of Income Tax Act are tobe excluded while calculating eligible profits fordeduction under Section SOHHC of Income Tax Act?SOHHC read with Section 80-[A/80-IB of Income TaxAct, the Income Tax Appellate Tribunal erred in holdingthat amounts of profits of Auro Unit V, eligible fordeduction under Section 80-IB of Income Tax Act are tobe excluded while calculating eligible profits fordeduction under Section SOHHC of Income Tax Act? ,0<Whether the Income Tax Appellate Tribunal is correct inlaw in holding that gross interest received from supplierswithout adjusting interest paid on working capitalborrowings should be excluded from eligible profits fordeduction under Section 1OB of Income Tax Act?law in holding that gross interest received from supplierswithout adjusting interest paid on working capitalborrowings should be excluded from eligible profits fordeduction under Section 1OB of Income Tax Act? 0<Whether the Income Tax Appellate Tribunal is correct inlaw in apportioning the Head Office expenses amongstvarious units claiming deduction U/s 10-B/80-IA/80-IB ofthe Act, when units are maintaining their separate booksof accounts?”law in apportioning the Head Office expenses amongstvarious units claiming deduction U/s 10-B/80-IA/80-IB ofthe Act, when units are maintaining their separate booksof accounts?” For question (iv), following question has been substituted: “ v1) Whether in facts and circumstances the ITAT is correct ITA No. 216 of 2013}3] 0<Whether the Income Tax Appellate Tribunal is correct inlaw in apportioning the Head Office expenses amongstvarious units claiming deduction U/s 10-B/80-IA/80-IB ofthe Act, when units are maintaining their separate booksof accounts?”law in apportioning the Head Office expenses amongstvarious units claiming deduction U/s 10-B/80-IA/80-IB ofthe Act, when units are maintaining their separate booksof accounts?” For question (iv), following question has been substituted: “ v1) Whether in facts and circumstances the ITAT is correct ITA No. 216 of 2013}3] in law in directing the A.O. to grant the benefit of interestreceived/receivable on delayed payments relatable toexport sales as opposed to total sales affected by the)&&%&&%%BE The facts in brief are that the assessment year involved is2001-02. The assessee filed return declaring a loss, the return was revisedand the loss declared earlier was reduced. The assessment was finalisedunder Section 143(3) of the Act on 30.3.2004 wherein the Assessing!Authority disallowed various deductions claimed by the assessee. Firstappeal filed was partly allowed on 25.1.2008. Aggrieved of the order of the1[&(]Appellate Authority, both the assessee and the revenue preferred appeals.The Tribunal vide impugned order partly allowed both the appeals. With regard to question (1), the facts are that the assesseereceived rent mainly from its employees who were using the companyaccommodation. The claim of the assessee before the Tribunal was that asper explanation (baa) to Section 80HHC of the Act, the depreciation on thebuilding owned by the assessee should be allowed. The contention wasrejected by the Tribunal placing reliance upon a decision of the SupremeCourt 1nAcg Associated Capsules P. Ltd. v. C.1.T., Central&IV, Mumbai$(2013) 343 ITR 89. The same issue is raised by Ms. Radhika Suri, learned seniorcounsel for the assessee and is not well-founded. Relevant portion ofsection SOHHC of the Act is reproduced below: ADeduction in respect of profits retained for export business. SQHHC.(1) Where an assessee, being an Indian company or ITA No. 216 of 2013|4] a person (other than a company) resident in India, is engagedin the business of export out of India of any goods ormerchandise to which this section applies, there shall, inaccordance with and subject to the provisions of this section,be allowed, in computing the total income of the assessee, |adeduction to the extent of profits, referred to in sub-section(1B)]|, derived by the assessee from the export of such goodOr merchandise. XX XX XX (baa) “profits of the business” means the profits of thebusiness aS computed under the head “Profits and gains ofbusiness or profession” as reduced by-- (1) ninety per cent of any sum referred to in clauses (illa),(111b), (lic), (iid) and (ilie) of section 28 or of any receipts byway of brokerage, commission, interest, rent, charges or anyother receipt of a similar nature included in such profits; and(2) the profits of any branch office, warehouse or any otherestablishment of the assessee situate outside India:” The explanation provides for reduction from the “profits and gains of business or profession”, receipts by way of brokerage, commission,interest, rent, charges or any other receipt of a similar nature. Depreciationis not receipt of a similar nature as mentioned in the explanation. Supreme Court 1n Acg Associated Capsules P. Ltd.4SCase (supra)held that the explanation is to be construed as per the plain naturalmeaning of the words in it. Relevant portion is reproduced below: 9. Explanation (baa) extracted above states that "profits of ITA No. 216 of 2013}>] the business" means the profits of the business as computedunder the head "Profits and Gains of Business or Profession"as reduced by the receipts of the nature mentioned in clauses(1) and (2) of the Explanation (baa). The explanation provides for reduction from the “profits and gains of business or profession”, receipts by way of brokerage, commission,interest, rent, charges or any other receipt of a similar nature. Depreciationis not receipt of a similar nature as mentioned in the explanation. Supreme Court 1n Acg Associated Capsules P. Ltd.4SCase (supra)held that the explanation is to be construed as per the plain naturalmeaning of the words in it. Relevant portion is reproduced below: 9. Explanation (baa) extracted above states that "profits of ITA No. 216 of 2013}>] the business" means the profits of the business as computedunder the head "Profits and Gains of Business or Profession"as reduced by the receipts of the nature mentioned in clauses(1) and (2) of the Explanation (baa). Thus, profits of the business of an assessee will have to befirst computed under the head "Profits and Gains of Businessor Profession” in accordance with provisions of Section 28 to44D of the Act. In the computation of such profits ofbusiness, all receipts of income which are chargeable asprofits and gains of business under Section 28 of the Act willhave to be included. Similarly, in computation of such profitsof business, different expenses which are allowable undersections 30 to 44D have to be allowed as expenses. Afterincluding such receipts of income and after deducting suchexpenses, the total of the net receipts are profits of thebusiness of the assessee computed under the head "Profitsand Gains of Business or Profession” from which deductionsare to made under clauses (1) and (2) of Explanation (baa).10. Under Clause (1) of Explanation (baa), ninety per cent ofany receipts by way of brokerage, commission, interest, rent,charges or any other receipt of a similar nature included inany such profits are to be deducted from the profits of thebusiness as computed under the head "Profits and Gains ofBusiness or Profession". The expression "included any suchprofits" in clause (1) of the Explanation (baa) would meanonly such receipts by way of brokerage, commission, interest, ITA No. 216 of 2013160] rent, charges or any other receipt which are included in theprofits of the business as computed under the head "Profitsand Gains of Business or Profession". Therefore, if anyquantum of the receipts by way of brokerage, commission,interest, rent, charges or any other receipt of a similar natureis allowed as expenses under Sections 30 to 44D of the Actand is not included in the profits of business as computedunder the head "Profits and Gains of Business or Profession"|ninety per cent of such quantum of receipts cannot bereduced under Clause (1) of Explanation (baa) from theprofits of the business. In other words, only ninety per cent ofthe net amount of any receipt of the nature mentioned inclause (1) which is actually included in the profits of theassessee is to be deducted from the profits of the assessee fordetermining "profits of the business" of the assessee underExplanation (baa) to Section 8OHHC. 11. .....Similarly, Explanation (baa) has to be construed on itsown language and as per the plain natural meaning of thewords used 1n Explanation (baa), the words "receipts by wayof brokerage, commission, interest, rent, charges or any otherreceipt of a similar nature included in such profits" will notonly refer to the nature of receipts but also the quantum ofreceipts included in the profits of the business as computedunder the head "Profits and Gains of Business or Profession"referred to in the first part of the Explanation (baa).Accordingly, if any quantum of any receipt of the nature ITA No. 216 of 2013|/] mentioned in clause (1) of Explanation (baa) has not beenincluded in the profits of business of an assessee as computedunder the head "Profits and Gains of Business or Profession",ninety per cent of such quantum of the receipt cannot bededucted under Explanation (baa) to Section 80HHC.” ITA No. 216 of 2013|/] mentioned in clause (1) of Explanation (baa) has not beenincluded in the profits of business of an assessee as computedunder the head "Profits and Gains of Business or Profession",ninety per cent of such quantum of the receipt cannot bededucted under Explanation (baa) to Section 80HHC.” The receipts mentioned in the explanation are the actualpayments received like brokerage etc. The phrase “receipt of similar nature”will not increase its scope to include depreciation which is not on samefooting as brokerage, commission etc. The finding recorded by the Tribunalon the said issue is upheld. The question is answered against the assessee. As regards question (11), learned counsel for the parties are.adidemthat the issue is covered in favour of the assessee by a decision of theDivision Bench of this Court InM/s Mahavir Spinning Mills Ltd. v.Commissioner of Income Tax, Ludhiana and another$2017 (391) ITR29() Question (111) claimed does not arise from the order of theTribunal and hence no adjudication for the same is called for. The facts relevant for substituted question (iv) are that duringthe relevant assessment year, the assessee received interest on the delayedpayment. The interest was for both types of payments received late, i.e. forthe goods exported and sold locally. The grievance of the appellant beforethe Tribunal was with regard to non-allowance of exemption under Section10B of the Act. The Tribunal relying upon its decision in assessee's owncase for the assessment year 2003-04 directed the Assessing Authority toallow deduction under Section 10B of the Act where the interest 1s received ITA No. 216 of 201313] by the assessee on delayed payments relatable to export and further gavefollowing directions; “35. The Tribunal had directed the Assessing Officer toverify and allow deduction under section 1OB of the Actwhere the interest is received/receivable by the assessee fromits customers on delayed payments, relatable to export salesmade by it. However, where such interest due from theparties was not so relatable to the export sale made by theundertaking, it was held that the assessee was not entitled tothe benefit of exemption under section 10B of the Act onsuch other income. Following the above said parity ofreasoning we find no merit in the ground of appeal No. 10raised by the assessee and the same is dismissed.” The argument raised is that the direction of the Tribunal is inviolation of Section 10B(4) of the Act. The relevant portion of the provisionis reproduced below: ASpecial provisions in respect of newly establishedhundred per cent export-oriented undertakings. 1OB.(1) Subject to the provisions of this section, a deductionof such profits and gains as are derived by a hundred per centexport-oriented undertaking from the export of articles orthings or computer software for a period of ten consecutiveassessment years beginning with the assessment year relevantto the previous year in which the undertaking begins tomanufacture or produce articles or things or computer ITA No. 216 of 2013)9] software as the case may be, shall be allowed from the totalincome of the assessee. AX XX XX (4) For the purposes of sub-section (1), the profits derivedfrom export of articles or things or computer software shall bethe amount which bears to the profits of the business of theundertaking, the same proportion as the export turnover inrespect of such articles or things or computer software bearsto the total turnover of the business carried on by theundertaking.” ITA No. 216 of 2013)9] software as the case may be, shall be allowed from the totalincome of the assessee. AX XX XX (4) For the purposes of sub-section (1), the profits derivedfrom export of articles or things or computer software shall bethe amount which bears to the profits of the business of theundertaking, the same proportion as the export turnover inrespect of such articles or things or computer software bearsto the total turnover of the business carried on by theundertaking.” Sub-section (4) to Section 10B of the Act gives a formula forworking out the profits from export of articles. Once it is held that intereston delayed payment relating to export is eligible under Section 10OB of thAct, thereafter the calculation is to be done as per sub-section (4) to Section10B of the Act. The decision of the Tribunal allowing only interest relatingto export sales under Section 1OB of the Act is upheld, however, thedirections for verification are modified to the extent that the AssessingOfficer shall assess the interest received on delayed payments as perprovisions of Section 1OB(4) of the Act. The question is answered in favourot the assessee| The answer to question (v) is against the assessee. Theappellant is having various units some of them being eligible to deductionunder Section LOB of the Act being 100% export-oriented undertaking andothers not eligible under Section 1OB of the Act. There were expensesincurred for the head office which was working for eligible and non-eligible units. With a view to check that more than the ordinary profits may ITA No. 216 of 2013/10] not arise to the eligible units, the authorities directed apportionment ofexpenses of head office amongst various units. The relevant provisions to be relevant are Sections 1OB(7) and8Q-IA (10) of the Act, same are reproduced below: ASpecial provisions in respect of newly establishedhundred per cent export-oriented undertakings. 10OB.XX XX XX (7) The provisions of sub-section (8) and sub-section (10) ofsection 80-IA shall, so far as may be, apply in relation to theundertaking referred to in this section as they apply for thepurposes of the undertaking referred to in section 80-IA. XX XX XX Deduction in respect of profits and gains from industrialundertakings or enterprises engaged in infrastructuredevelopment etc. SQ-[A.XX XX XX (10) Where it appears to the Assessing Officer that owing tothe close connection between the assessee carrying on theeligible business to which this section applies and any otherperson, or for any other reason, the course of businessbetween them is so arranged that the business transactedbetween them produces to the assessee more than theordinary profits which might be expected to arise in sucheligible business, the Assessing Officer shall, in computingthe profits and gains of such eligible business for thepurposes of the deduction under this section, take the amount ITA No. 216 of 2013j11] of profits as may be reasonably deemed to have been derivedtherefrom.” Sub-section (7) of Section 1OB of the Act provides that theprovisions of sub-sections (8) and (10) of Section 80-IA shall apply. Sub-section (10) of Section 80-IA of the Act empowers the Assessing Officer toconsider a reasonable profit derived by the eligible business, in case there isa close connection between the eligible assessee and another person or thebusiness is so arranged that the business transacted between them produceshigher profit than expected.| The contention raised by learned counsel for the revenuedeserves acceptance that the expenditure incurred by the head office is acommon expenditure for eligible and non-eligible units run by theappellant-company, the same needs to be apportioned to determine theactual profits of both the types of units. The finding recorded by theTribunal on the said issue warrants no interference. The question isanswered against the assessee. In view of the above, the appeal is disposed of. (AVNEESH JHINGAN) (AJAY TEWARIT)JUDGE JUDGE 21.1.20208- Whether speaking/reasoned:Yes/NoWhether reportable:Yes/No