M/S. Nuovafil Infotech Pvt. Ltd v. The Income Tax Officer,Company Ward-I,Coimbatore

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18.01.2021 CORAM THE HON'BLE MR.JUSTICE M. DURAISWAMYANDTHE HON'BLE MRS.JUSTICE T.V. THAMILSELVI Tax Case Appeal No.1253 of 2009 andM.P. No.1 of 2009 M/s. Nuovafil Infotech Pvt. Ltd.,177, Devandra Street,Vanniyampayam,Vedapatti PO,Coimbatore - 641 007. ...Appellant/Appellant v. The Income Tax Officer,Company Ward-I,Coimbatore. ...Respondent/Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, 'A' Bench, Chennai, dated 10.09.2008 passed inI.T.A.No.747/Mds/2007 against the order of Commissioner ofIncome Tax (Appeals)I, Coimbatore in Appeal No.165/06-07 dated05.01.2007 against the order of Income Tax Officer, Companyward-I Coimbatore in PAN/GIR NO dated 25.06.2006Assessment year 2004-2005. For Respondent : Mr.T.R. Senthil Kumar Standing Counsel for Ms. K.G. UJsharani, Standing Counsel J U D G M E N T(Delivered by M. DURAISWAMY, J) The assessee has filed the above Tax Case Appealchallenging the order dated 10.09.2008 passed inI.T.A.No.747/Mds/2007 in respect of the Assessment Year 2004-05on the file of the Income Tax Appellate Tribunal, 'A' Bench,Chennai. https://hcservices.ecourts.gov.in/hcservices/ 2.1 According to the appellant, it is the 100% exportoriented unit and for the assessment year 2004-05, theassessee claimed exemption under section 10B of the Income TaxAct. The total deduction claimed was Rs.16,84,825/- and thetotal export turnover was Rs.4.25,32,628/-. The AssessingOfficer restricted the deduction to Rs.9,25,865/- on the groundthat out of the total export turnover of Rs.4.25,32,628/-, theforeign exchange realized was only Rs.2,10,35,760/- byrefusing to take into consideration of the payment ofRs.2,14,96,917/-, which was adjusted towards the imports ofcertain raw materials made by the assessee for the manufactureof the very same goods which were exported. 2.2 According to the appellant-assessee, the word 'saleproceeds' occurring in section 10B(3) cannot be construed to beonly as the total value of the goods exported but would need tobe interpreted as net sale proceeds when the competentauthority, viz., the Reserve Bank of India, permits suchrealization of foreign exchange of net sale value. 2.3 The appellant contended that the statutory authorityfailed to take into consideration the fact that when thecompetent authority under section 10B(3), viz., the ReserveBank of India, permits realization of net sale value asagainst the realization of the total value of the goodsexported as compliance with its provision and other relatedstatutory provisions dealing with the foreign exchange, theIncome Tax authority could not be allowed to interpret the word'sale proceeds' occurring in section 10B(3) as otherwise. 3. This Court admitted the above Tax Case Appeal on thefollowing Substantial Question of Law: " Would not the insistence of bringing into Indiathe entire sale value of the good exported,thereafter remitting the value of the goods importedthrough the same person, an empty formality andopposed to the decision of the Supreme Court ofIndia reported in 223 ITR 271 in the case of J.B.Boda & Co.Private Ltd. ?" 4.. We have heard Ms. Sriniranjani Srinivasan, learnedcounsel for the appellant/assessee and Mr. T.R. Senthil Kumar,learned Standing Counsel for the respondent/Revenue. 5.1 The learned counsel for the appellant submitted thatthe order passed by the authorities rejecting the case of theappellant is against the decision of the Hon'ble Supreme Courtreported in (1997) 223 ITR 0271 in the case of J.B. Boda & Co.Pvt. Ltd. vs. Central Board of Direct Taxes. In the saidjudgment, the Hon'ble Apex Court held as follows:- 4.. We have heard Ms. Sriniranjani Srinivasan, learnedcounsel for the appellant/assessee and Mr. T.R. Senthil Kumar,learned Standing Counsel for the respondent/Revenue. 5.1 The learned counsel for the appellant submitted thatthe order passed by the authorities rejecting the case of theappellant is against the decision of the Hon'ble Supreme Courtreported in (1997) 223 ITR 0271 in the case of J.B. Boda & Co.Pvt. Ltd. vs. Central Board of Direct Taxes. In the saidjudgment, the Hon'ble Apex Court held as follows:- " 8. The facts brought out in this case, are clearas to how the remittance to the foreign reinsurancecompany is made through the Reserve Bank of India inconformity with the agreement between the appellantand the foreign reinsurer, and that the remittancethat the amount due to the foreign reinsureres asalso the brokerage due to the appellant and thebalance due to the foreign reinsurer is remitted(and expressed so) in dollars. It is common groundthat the entire transaction effected through themedia of the Reserve Bank of India is expressed inforeign exchange and in effect the retention of thefee due to the appellant is dollars for the servicesrendered. This, according to us, is receipt ofincome in convertible foreign exchange. It seems tous that a "two way traffic" is unnecessary. Toinsist on a formal remittance to the foreignreinsures first and thereafter to receive thecommission from the foreign reinsurer, will be anempty formality and a meaningless ritual, on thefacts of this case. On a perusal of the nature ofthe transaction and in particular the statement ofremittance filed in the Reserve Bank of Indiaregarding the transaction filed in the Reserve Bankof India regarding the transaction, we are unable touphold the view of the respondent that the incomeunder the agreement is generated in India or thatthe amount is one not received in convertibleforeign exchange. We are of the view that the incomeis received in India in convertible foreignexchange, in a lawful and permissible manner throughthe premier institution concerned with the subject-matter -- the Reserve Bank of India. In this view,we hold that the proceedings of the Central Board ofDirect Taxes dated 11.3.1986, declining to approvethe agreements of the appellant with M/s Sedgwickoffshore Resources Ltd. London for the purposesof section 80-0 of the Income-tax Act, are improperand illegal. We declare so. we direct the respondentto process the agreements in the light of theprinciples laid down by us herein above. The appealis allowed. There shall be no order as to costs.?" Further, the Hon'ble Supreme Court held that an assesseeacting as agent of foreign reinsurer, collecting premia fromthe ceding Insurance Company in India and remitting the same tothe foreign insurer in foreign exchange, with the permission ofthe RBI, after retaining the brokerage in foreign exchange, thebrokerage income retained by assessee is receipt of income inconvertible foreign exchange qualifying for deduction undersection 80-O of the Income Tax Act. 5.2 The learned counsel for the appellant in support of hiscontention also relied upon a judgement reported in (2012) 21taxmann.com 314 in the case of Commissioner of Income Tax,Bareilly v. Henna Zebraat wherein following the ratio laiddown by the Hon'ble Supreme Court in the judgment reported in(1997) 223 ITR 0271 (cited supra), the Allahabad High Court heldas follows:- 5.2 The learned counsel for the appellant in support of hiscontention also relied upon a judgement reported in (2012) 21taxmann.com 314 in the case of Commissioner of Income Tax,Bareilly v. Henna Zebraat wherein following the ratio laiddown by the Hon'ble Supreme Court in the judgment reported in(1997) 223 ITR 0271 (cited supra), the Allahabad High Court heldas follows:- "7. It is not denied and rather admitted thatthe assessee was importing gold bars, withoutincurring any expenses on foreign exchange, whichwas imported on credit. The gold bars brought intothe country were got converted into jewellery, andexported thereafter against such credit. It was nota two way transaction. The assessee purchased goldbars from Dubai, on credit and exported it, afterthey were converted into as jewellery. The amountdue and payable in US dollars to the Dubai partiesin respect of import of gold bars from them, wasdeducted from the gross export of sale proceeds, toarrive at the balance amount receivable by theassessee from the Dubai parties. 8. We may quote here the principle of law, forour benefit, laid down by the Supreme Court in J.B.Boda (P.) Ltds case (supra) under section 80O of theAct, which in our opinion is equally applicable tosection 10A of the Act as follows:- " The facts brought out in this case are clearas to how the remittance to the foreignreinsurance company is made through the ReserveBank of India in conformity with the agreementbetween the appellant and the foreignreinsurers, and that the remittance statementfiled along with annexure "A" which evidencesthat the amount due to the foreign reinsurers asalso the brokerage due to the appellant and thebalance due to the foreign reinsurers isremitted (and expressed so) in dollars. It iscommon ground that the entire transactioneffected through the medium of the Reserve Bankof India is expressed in foreign exchange and ineffect the retention of the fee due to theappellant is in dollars for the servicesrendered. This, according to us, is receipt ofincome in convertible foreign exchange. It seemsto us that a "two-way traffic" is unnecessary.To insist on a formal remittance to the foreignreinsurers first and thereafter to receive thecommission from the foreign reinsurer, will bean empty formality and a meaningless ritual, on the facts of this case. On a perusal of thenature of the transaction and in particular thestatement of remittance filed in the ReserveBank of India regarding the transaction, we areunable to uphold the view of the respondent thatthe income under the agreement is generated inIndia or that the amount is one not received inconvertible foreign exchange. We are of the viewthat the income is received in India inconvertible foreign exchange, in a lawful andpermissible manner through the premierinstitution concerned with the subject-matterthe Reserve Bank of India. In this view, we holdthat the proceedings of the Central Board ofDirect Taxes dated 11-3-1986, declining toapprove the agreements of the appellant withSedgwick Offshore Resources Ltd., London, forthe purposes of section 80O of the Income-taxAct, are improper and illegal. We declare so. Wedirect the respondent to process the agreementsin the light of the principles laid down by ushereinabove. The appeal is allowed. There shallbe no order as to costs" 9.. The Tribunal did not commit any error in findingthat the principle of laid down in J.B. Boda & Co.(P.) Ltds case (supra) will be applicable, in thededuction of profits and gains from the businessunder section 10A of the Act. We further find thatthe words sale proceeds in section 10A would, in thecontext also mean, net proceeds, if the goods werepurchased from foreign buyers on credit. TheExplanations 1 and 2 to sub-section (3) is notattracted in the present case. 9.. The Tribunal did not commit any error in findingthat the principle of laid down in J.B. Boda & Co.(P.) Ltds case (supra) will be applicable, in thededuction of profits and gains from the businessunder section 10A of the Act. We further find thatthe words sale proceeds in section 10A would, in thecontext also mean, net proceeds, if the goods werepurchased from foreign buyers on credit. TheExplanations 1 and 2 to sub-section (3) is notattracted in the present case. 10. The distinction sought to be drawn by Sri. A.N.Mahajan on the basis of perks in the case of section80O and Section 10A of the Act is not relevant asprinciple for allowing deductions in both thesections remain the same. 11. In view of the above discussion, we find thatthe question of law raised by the appellant-department are covered by decision of the SupremeCourt in J.B. Boda & Co. (P.) Ltd. (supra). All theIncome-tax Appeals are dismissed." 6 . The learned counsel for the respondent submitted thatthe appellant did not obtain any prior approval from the RBI ascontemplated under Explanations 1 and 2 to section 10B(3) ofthe Income Tax Act and that they have not brought the entiresale proceeds, which is violative of section 10B of the Act. https://hcservices.ecourts.gov.in/hcservices/ 7. It is pertinent to note that as per Explanations 1 and2 to section 10B(3) of the Income Tax Act the sale proceedsshall be deemed to have been received in India where such saleproceeds are credited to a separate account maintained for thesaid purpose by the assessee with any bank outside India withthe approval of the Reserve Bank of India. 8. The learned counsel for the appellant further submittedthat under section 155 (11A), the prior approval of theReserve Bank of India is not required. The amended provisionof Section 155(11A) came into effect from 13.07.2006. 9. When the subject matter of the appeal is pertaining tothe assessment year 2004-05, the provisions of the amendedsection, which came into effect on 13.07.2006, has noapplication for the present case. Therefore, the appellantcannot take shelter under the amended provision of Section 155(11A). 10. It is also pertinent to note that the appellantsubmitted their application seeking approval from the RBI onlyin the year 2007. The appellant had also enclosed variouscorrespondence between them and the RBI with regard to theapproval. 11. Since the appellant had sought for the approval fromthe RBI only in the year 2007, the said correspondence shall notbe helpful to the appellant in any manner whatsoever for thereason that the subject amtter of teh appeal is pertaining tothe assessment year 2004-05. Even the Hon'ble Supreme Court inthe judgment reported in (1997) 223 ITR 0271 (cited supra)held that the assessee should get prior permission from theRBI. 12. In the Judgment reported in (2012) 21 taxmann.com 314(cited supra), the Allahabad High Court held thatExplanations 1 and 2 to section 10B(3) of the Act is notattracted to the subject matter of the appeals therein. TheHon'ble Supreme Court in the Judgment reported in 1997) 223 ITR0271 (cited supra) clearly held that prior approval ismandatory. Hence, Explanations 1 and 2 to section 10B(3) areapplicable to the case on hand. 13. The materials available on record would clearlyestablish that the appellant had not obtained prior approvalfrom the RBI as contemplated under Explanations 1 and 2 tosection 10B(3) of the Act. That apart, Form 56G would reflectthat the Foreign Inward Remittances with regard to the saleproceeds have not been brought in foreign currency during theprevious year and within six months period. As per Section10B of the Act, the entire sale proceeds should have beenbrought into India in convertible foreign exchange, within theprescribed period. Out of the total export turnover of https://hcservices.ecourts.gov.in/hcservices/ 13. The materials available on record would clearlyestablish that the appellant had not obtained prior approvalfrom the RBI as contemplated under Explanations 1 and 2 tosection 10B(3) of the Act. That apart, Form 56G would reflectthat the Foreign Inward Remittances with regard to the saleproceeds have not been brought in foreign currency during theprevious year and within six months period. As per Section10B of the Act, the entire sale proceeds should have beenbrought into India in convertible foreign exchange, within theprescribed period. Out of the total export turnover of https://hcservices.ecourts.gov.in/hcservices/ Rs.4,25,32,628/-, the foreign exchange realized within theprescribed period was Rs.2,10,35,760/- The appellant contendedthat a sum of Rs.2,14,96,917/- was adjusted against import ofraw material. 14. Since the appellant-assessee did not bring the entiresale proceeds in convertible foreign exchange as per theprovisions, the authorities disallowed the said deduction.The obligation on the part of the assessee to avail thebeneficial section is that the entire sale proceeds ought tohave been received in convertible foreign exchange as per theabove section. Alternatively, the assessee should have opened abank account as per the Explanation 2 of the above section. 15. Considering the facts and circumstances of the case,the Assessing Officer restricted the deduction toRs.9,25,865/-. The appeal preferred by the appellant before theCommissioner of Income Tax (Appeals)-I, Coimbatore was alsodismissed by the Commissioner. The Income Tax AppellateTribunal, 'A' Bench, Chennai, had also confirmed the orderpassed by the authorities and dismissed the appeal. Thereasoning given by the authorities restricting the deduction ofRs.9,25,865/- is just and proper. 16. For the reasons stated above, we do not find any groundmuch less any substantial question of law to interfere with theorder passed by the Income Tax Appellate Tribunal, 'A' Bench,Chennai, Hence, the Tax Case Appeal preferred by theappellant is liable to be dismissed. Accordingly, the TaxCase Appeal is dismissed. No costs. Consequently, theconnected Miscellaneous Petition is closed. Sd/- Assistant Registrar//True Copy// rj Sub Assistant RegistrarTo1. The Income Tax Officer,Company Ward-I,Coimbatore. 2. The Income Tax Appellate Tribunal,'A'Bench Chennai. 3. The Commissioner of Income Tax(Appeals)ICoimbatore. 4. The Income Tax Officer,Company Ward-I, Coimbatore. +1cc to Mr.T.R.Senthilkumar, Advocate, S.R.No.2364 +1cc to M/s.N.Muthukumar, Advocate, S.R.No.1844 Tax Case Appeal No.1253 of 2009 andM.P. No.1 of 2009 cs(CO)rv(04/02/2021)