To Section 80Hhc Of The Act. Even Though The v. K. Ravindranathan Nair, (2007) 295 I.t.r. 228 (Sc). The

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN MONDAY, THE 30TH AUGUST 2010 / 8TH BHADRA 1932 ITA.No. 367 of 2009() --------------------- TA.180/COCH/2002 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT. ---------------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT/RESPONDENT. ------------------------------------- M/S.PLANT LIPIDS LTD, KADAYIRUPPU P.O., KOLENCHERRY. ADV. SRI.BECHU KURIAN THOMAS FOR R THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 30/08/2010, ALONG WITH ITA NO. 960 OF 2009 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR, &K. SURENDRA MOHAN, JJ. -------------------------------------------- I.T A. Nos. 367 & 960 of 2009 -------------------------------------------- Dated this the 30th day of August, 2010 JUDGMENT Ramachandran Nair, J. These are appeals filed by the department challenging the ordersof the Income-tax Appellate Tribunal passed in the case of therespondent-assessee for the assessment years 1994-95 and 1995-96.Original assessments for these two years were completed grantingdeduction on export profit in terms of the claim made by the assesseeunder Section 80HHC of the Income Tax Act. The assessee is engagedin export of spices extracts produced by them in their factory. Besidesproduction and marketing of spices extracts, spices,etc., the assesseewas doing contract work of "distillation" for others for which assesseegot charges accounted under the head "distillation charges". Whileclaiming exemption on export profit under Section 80HHC of the Act,assessee did not exclude 90% of the "distillation charges" in terms ofExplanation (baa) to Section 80HHC of the Act. Even though the ITA 367 & 960/2009 claim was originally allowed, the assessing authority later rectified theassessment under Section 154 of the Act thereby excluding 90% of thedistillation charges and allowed eligible deduction on export profit.The first appeal filed by the assessee was allowed which was confirmedby the Tribunal on second appeal filed by the department. TheTribunal upheld the assessee's claim that rectification under Section154 itself is illegal and on the merits also the Tribunal held thatdistillation charges received by the assessee form part of businessprofits on which assessee is entitled to deduction under Section 80HHCof the Act. 2. We have heard standing counsel appearing for the appellantand Sri. Bechu Kurian Thomas appearing for the respondent-assessee. 3. Standing counsel for the appellant submitted that orders reliedon by the Tribunal for dismissing the appeals were reversed by thisCourt vide judgment in I.T.A.Nos. 824 and 1447 of 2009. Besides this,standing counsel submitted that the issue now stands squarely coveredagainst the assessee vide decision of the Supreme Court in CIT V. K.RAVINDRANATHAN NAIR, (2007) 295 I.T.R. 228 (SC). The ITA 367 & 960/2009 question that arose for consideration by the Supreme Court in theabove case was whether processing charges received by cashewexporter who was engaged in manufacture and export of cashewkernels, are eligible for deduction under Section 80HHC of the Act.The Supreme Court held that income received by the assessee whichhas no nexus to the export profits should not be included in the totalincome of the assessee for the purpose of deduction under Section80HHC of the Act. Following is the finding of the Supreme Court: ITA 367 & 960/2009 question that arose for consideration by the Supreme Court in theabove case was whether processing charges received by cashewexporter who was engaged in manufacture and export of cashewkernels, are eligible for deduction under Section 80HHC of the Act.The Supreme Court held that income received by the assessee whichhas no nexus to the export profits should not be included in the totalincome of the assessee for the purpose of deduction under Section80HHC of the Act. Following is the finding of the Supreme Court: In other words rceipts constituting independent incomehaving no nexus with exports were required to be reducedfrom business profits under clause (baa). A bare reading ofclause (baa)(i) indicates that receipts by way of brokerage,commission, interest, rent, charges, etc., formed part ofgross total income being business profits. But for thepurpose of working out the formula and in order to avoiddistorition of arriving at the export profits, clause (baa)stood inserted to say that although incentive profits and"independent incomes" constituted part of gross totalincome, they had to be excluded from gross total incomebecause such receipts had no nexus with the exportturnover. .. 4. On facts we find that "distillation charges" received by the assessee for doing distillation work or manufacturing activity for others on job work or contract basis is similar to "processing charges" ITA 367 & 960/2009 received by a cashew exporter for processing raw cashew for otherparties. So much so, the decision of the Supreme Court squarelyapplies to the assessee's case and therefore exclusion of 90% of thedistillation charges made by the assessing officer in rectificationproceedings is inconformity with the decision of the Supreme Court onthe scope of explanation (baa) to Section 80HHC of the Act.Therefore the remaining question to be considered is whether variouscontentions raised by the respondent-assessee stand in the way ofreversing the Tribunal's orders which on merits is contrary to thedecision of the Supreme Court above referred and the judgment of thisCourt in ITAs above referred. 5. Counsel for the assessee has relied on the decisions of theSupreme Court in CIT V. MCDOWELL & CO. LTD., (2009) 10 SCC755 and MAHARASHTR UNIVERSITY OF HEALTH ANDSCIENCES V. SATCHIKITSA PRASARAK MANDAL, (2010) 3SCC 786 and contended that by applying ejusdum generis distillationcharges cannot be treated as charges of "any other receipt of a similarnature" referred to in explanation (baa)(i) to Section 80HHC of the Act. ITA 367 & 960/2009 According to him, the other items referred to are brokerage,commission, interest, rent and charges which are not in the nature ofbusiness income whereas distillation charges is nothing but incomereceived on manufacture. We do not think there is any scope for ourconsidering this issue independently because we have already foundthat distillation charges received by the assessee is similar toprocessing charges received by a cashew exporter which issued isdecided by the Supreme Court and so much so we have to necessarilyfollow the Supreme Court decision above referred. Consequently wehold that distillation charges received by the assessee for contract workdone for other parties is in the nature of charges or any other receipt ofa similar nature. 6. The first contention raised by counsel for the assessee is thatSection 154 cannot be invoked to revise original assessment becausemistake sought to be correct is not a mistake apparent which can berectified under Section 154 of the Act. Counsel for the respondent-assessee has relied on the decision of the Supreme Court in I.T.O. ,BOMBAY V. VOLKART BROTHERS, (1971) 2 SCC 526 wherein ITA 367 & 960/2009 6. The first contention raised by counsel for the assessee is thatSection 154 cannot be invoked to revise original assessment becausemistake sought to be correct is not a mistake apparent which can berectified under Section 154 of the Act. Counsel for the respondent-assessee has relied on the decision of the Supreme Court in I.T.O. ,BOMBAY V. VOLKART BROTHERS, (1971) 2 SCC 526 wherein ITA 367 & 960/2009 the Supreme Court has held that error established by a long drawnprocess of reasoning on points capable of two opinions is not a mistakeapparent from the record. Standing counsel appearing for the appellantsubmitted that the relief granted without taking into account theprovisions of computation including disallowance under Explanation(baa) to Section 80HHC is a mistake apparent on the face of the order,and therefore it is liable to be corrected. In this case , in view of thecategoric pronouncement of law by the Supreme Court, we do not thinkthe question raised is capable of two opinions because "distillationcharges" received by the assessee is for work done for others and hasnothing to do with export or production of goods for export. Eventhough counsel for the respondent-assessee contended that subsequentjudgment of the Supreme Court is not a ground for rectification ofassessment under Section 154 of the Act, we do not find that theassessing officer has relied on the decision of the Supreme Court torectify the assessment. On the other hand, what has happened is thatthe view taken by the assessing officer in rectification is later declaredas law by the Supreme Court in the decision cited above. The relief ITA 367 & 960/2009 under Section 80HHC has to be worked out by applying explanationthereto and explanation (baa) provides for exclusion of 90% of items ofincome referred to therein. When Supreme Court has held that as ofnow 90% of the processing charges received by cashew exporter is tobe excluded, we see no reason why 90% of the distillation chargesreceived by the respondent-assessee should not be excluded in thecomputation of eligible deduction of export profit under Section80HHC because both are exactly the same inasmuch as it is an incomeunconnected with export business. Therefore the contention of therespondent-assessee that the question whether distillation charges is inthe nature of "any other income of similar nature" referred to underexplanation (baa) to section 80HHC is a debatable issue isunacceptable. We are of the view that assessment completed withoutreckoning explanation (baa) to Section 80HHC is a mistaken order thatcould be corrected under Section 154 of the Act. We therefore reversethe finding of the Tribunal and that of the first appellate authority onthis issue. 7. Even though counsel for the respondent-assessee contended ITA 367 & 960/2009 that rectification is carried out beyond the period of limitation, andlimitation period could be reckoned with reference to the date of receiptof order and not date of order, and he relied on the decision of theSupreme Court in COLLECTOR OF CENTRA EXCISE, MADRAS V.M.M. RUBBER & CO. T.N., (1992) Supp. (1) SCC 471, we do notfind this question as raised before the Tribunal or decided by theTribunal. In fact, even the first appellate authority does not refer to anysuch question having been raised by the assessee. The contention ofcounsel for the respondent-assessee is that since appeal was allowed bythe first appellate authority there was no scope for raising the questionbefore the Tribunal. However, we feel, if the question on limitationraised by the assessee before the first appellate authority was notconsidered, or decided, it is for the assessee to file cross-objectionbefore the Tribunal in the appeal filed by the department. Standingcounsel for the department contended that limitation for rectification ofassessment has to be reckoned with reference to the date of completionof proceedings sought to be rectified and not the date of service asclaimed by the assessee. We do not think we can in an appeal filed ITA 367 & 960/2009 under Section 260A of the I.T. Act consider any question which wasneither raised before the Tribunal nor decided by them. Therefore wedo not go into the question as to whether limitation has to be reckonedfrom the date of proceedings or from the date of service of order. We therefore allow the appeals by following the decision of theSupreme Court above referred, and that of this Court in I.T.A.Nos. 824& 1447/2009 and ITA 122, 221, 253 & 279 of 2002, and by reversingthe orders of the Tribunal and that of the first appellate authority andby restoring the rectified assessment. (C.N.RAMACHANDRAN NAIR)Judge. (K. SURENDRA MOHAN) Judge. kk