M.lankalingam v. The Commissioner Of Income Tax,Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 01.08.2018 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMand THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case (Appeal) No.1013 of 2008 M.Lankalingam -vs- ..Appellant/Appellant The Commissioner of Income Tax,Chennai...Respondent/Respondent Tax Case (Appeal) filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax Appellate Tribunal'B' Bench, Chennai dated 29.02.2008 in ITA No.1909/Mds/2007 forthe assessment year 2003-04. For Appellant:Mr.R.KumarFor Respondent :Mr.D.Prabhu Mukunth Arunkumar,Standing CounselJ U D G M E N T[Delivered by T.S.Sivagnanam, J.] Heard Mr.R.Kumar, learned counsel for the appellant andMr.D.Prabhu Mukunth Arunkumar, learned Standing Counsel for therespondent. 2.This appeal, by the assessee, is directed against theorder passed by the Income Tax Appellate Tribunal 'B' Bench,Chennai dated 29.02.2008, in ITA No.1909/Mds/2007 for theassessment year 2003-04. 3.The appeal has been admitted on the following substantialquestion of law:- “Whether on the facts and in thecircumstances of the case, the Appellate Tribunalwas right in applying the decision of the SupremeCourt in the case of CIT v. Sterling Foods, 237ITR 579 (SC), rendered with reference to deductionunder Section 80HH of the Income Tax act, tocomputation of deduction under Section 80HHC ofthe Act?” 4.The Tribunal, by the impugned order, rejected the appealpetition filed by the appellant by following the decision in thecase of Commissioner of Income Tax vs. Sterling Foods reportedin (1999) 273 ITR 579 (SC). This appeal was entertainedprimarily on the ground that the decision in the case ofSterling Foods (supra) arose under Section 80HH of the IncomeTax Act, 1961 (hereinafter referred to as “the Act”) and notunder Section 80HHC of the Act. 5.A brief background with regard to the amendment, whichwas made to Section 80HHC(3) of the Act would be relevant atthis juncture. The amendment was made by the Taxation Laws(Second Amendment) Act, 2005 with retrospective effect i.e.,with effect from 1[st] April, 1992. By this amendment, certainbenefits were extended to the exporter, who are entitled toclaim according to Section 80HHC of the Act. The amendment alsocarved out two categories of exporters, viz., those whose exportis less than Rs.10 crores per year and those exporters, whoseexports turnover is more than Rs.10 crores per annum. Insofaras entitlement of these benefits to the exporter having turnoverof more than Rs.10 crores per annum is concerned, two conditionswere stipulated in the third and fourth proviso, which wererequired to be satisfied for claiming benefits. The twoconditions being, (i) the assessee had an option to choose either DutyDrawback or Duty Entitlement Pass Book Scheme, being the DutyRemission Scheme; and (ii) the rate of drawback credit attributable to thecustoms duty was higher than the rate of credit allowable underthe Duty Entitlement Pass Book Scheme, being the Duty RemissionScheme. (i) the assessee had an option to choose either DutyDrawback or Duty Entitlement Pass Book Scheme, being the DutyRemission Scheme; and (ii) the rate of drawback credit attributable to thecustoms duty was higher than the rate of credit allowable underthe Duty Entitlement Pass Book Scheme, being the Duty RemissionScheme. 6.Writ Petitions were filed by the exporters challengingthe third and fourth proviso to Section 80HHC(3) of the Act.The contention was that these conditions are severable andtherefore, these two conditions should be declared as ultravires and severed. All the writ petitions, which were filed invarious States of the Country, were clubbed together and weredirected to be heard by the Hon'ble High Court of Gujarat, bythe Hon'ble Supreme Court. The Hon'ble High Court of Gujarat,vide judgment in Avani Exports v. Commissioner of Income Tax[(2012) 348 ITR 391(Gujarat)], quashed the impugned amendmentonly to the extent that the operation of the said section couldbe given effect from the date of amendment and not in respect ofearlier assessment years of the assessees, whose export turnoveris above Rs.10 crores. In other words, the retrospectiveamendment should not be detrimental to any of the assessees. 7.As against the said judgment, the Revenue, filed Appealsbefore the Hon'ble Supreme Court and during the course ofargument, the learned Attorney General of India accepted thelegal position that those exporters whose turnover is less thanRs.10 crores and other like the respondents (therein) withturnover of more than Rs.10 crores would be at par and bothwould be entitled to the benefits. Accordingly, the Hon'bleSupreme Court substituted the direction issued by the High Courtwith the following direction:- “Having seen the twin conditions and since80HHC benefit is not available after 1.4.05, weare satisfied that cases of exporters having aturnover below and those above 10 cr. should betreated similarly. This order is in substitutionof the judgment in Appeal.” The decision in the said case has been reported in CIT v.Avani Exports [(2015) 58 taxmann.com 100 (SC)]. 8.In our considered view, the decision in the case of CITv. Avani Exports (supra) would squarely apply to the facts ofthis case and the Tribunal committed an error in applying thedecision in Sterling Foods (supra). 9.Mr.R.Kumar, learned counsel for the assessee submittedthat the Court may set aside the order and direct the relief tobe granted, since the Assessing Officer has not given thisdeduction in the assessment order dated 30.03.2006, nor givenany reasons for not allowing the deduction. 10.We refrain from passing any positive direction exceptto state the correct legal position. In fact, the assesseewhile challenging the assessment order before the Commissionerof Income Tax (Appeals), in the memorandum of grounds, hasspecifically stated that the Assessing Officer erred in notgranting proper deduction under Section 80HHC of the Act and inparticular, the Assessing Officer is not right in excludingexchange gain of Rs.2,58,204/- from export turnover and DEPB ofRs.36,48,697/- in computing “Profits of the Business”. 11.Thus, this computation necessarily has to be done bythe Assessing Officer and not by this Court. 12.One of us (T.S.Sivagnanam, J.), had an occasion toconsider similar issue in two writ petitions filed by anassessee, one in W.P.No.13910 of 2008 wherein, the assesseesought for declaration to declare the amendment to Section 80HHCas ultra vires and in the other writ petition, viz.,W.P.No.13909 of 2008, their challenge was to the assessmentorder. Following the decision in CIT v. Avani Exports (supra),both the writ petitions were allowed. 11.Thus, this computation necessarily has to be done bythe Assessing Officer and not by this Court. 12.One of us (T.S.Sivagnanam, J.), had an occasion toconsider similar issue in two writ petitions filed by anassessee, one in W.P.No.13910 of 2008 wherein, the assesseesought for declaration to declare the amendment to Section 80HHCas ultra vires and in the other writ petition, viz.,W.P.No.13909 of 2008, their challenge was to the assessmentorder. Following the decision in CIT v. Avani Exports (supra),both the writ petitions were allowed. 13.In the light of the above, the tax case appeal isallowed and the order passed by the Tribunal is set aside.Consequently, the order passed by the Commissioner of Income-tax(Appeals) is set aside and the matter is remanded to theAssessing Officer to apply the decision in the case of CIT v.Avani Exports (supra) and proceed to grant proper deduction tothe assessee under Section 80HHC of the Act. Since theassessment pertains to the year 2003-04, the Assessing Officeris directed to give priority to the matter and conclude theproceedings within a period of three months from the date ofreceipt of a copy of this judgment. No costs. Sd/- Assistant Registrar(CS-V) //True Copy// Sub Assistant RegistrarabrTo 1.The Commissioner of Income Tax, Chennai. 2.The Income Tax Appellate Tribunal 'B' Bench, Chennai.3.The Assistant Commissioner of Income Tax, Company Circle II(3), V Floor, New Block, 121 M.G.Road, Chennai-34.4.The Commissioner of Income Tax (Appeals) III, 121, Mahatma Gandhi Road, Chennai. Copy to: The Section Officer, VR Section, High Court, Madras. + 1 cc to Mr. T.N. Seetharaman, Advocate Sr.52570/18 Tax Case (Appeal) No.1013 of 2008 VGI(CO)EU(06/09/2018) https://hcservices.ecourts.gov.in/hcservices/