Income Tax Appellate Tribunal - Delhi
Mmtc Ltd. Core-1 vs Jt. Cit on 19 January, 2004
Equivalent citations: (2004)91TTJ(DELHI)841
ORDER
G.S. Pannu, A.M. These are two appeals-arising out of the respective orders of the CIT(A) dated 4-2-1999 pertaining to assessment year 1991-92 and 1995-96. Since similar grounds of appeal are involved in these appeals, they are disposed off by this single consolidated order for convenience and brevity.
2. ITA 1902/DeI/99 : Although in the memo of appeal, the appellant has preferred as many as four grounds of appeal but it was submitted at the time of hearing that only the following two grounds are being pressed for adjudication which shall be dealt with by us in seriatum:
"1. The Learned CIT(A) erred in directing that the miscellaneous receipts amounting to Rs. 321,82,000 did not form a part of the business income and not entitled to relief under section 80HHC for working out the deduction.
2. The Learned CIT(A) erred in holding that income earned on investment in Unit Trust of India amounting to Rs. 3,33,00,000 was the income from other sources as against the claim of the appellant of the same being income from business and thereby reducing the same while giving benefit under section 80HHC."
3. Briefly stated, the facts relevant to the aforesaid ground are as follows.
The grievance of the assessee is with regard to the manner of computation of deduction liable under section 80HHC. The assessee contends that it is eligible for 80HHC benefits in relation to the incomes of Rs. 3,21,82,000 and Rs. 3,33,00,000 representing miscellaneous receipts and dividend income on units of Unit Trust of India respectively. With regard to the component of miscellaneous receipts, it was contended before the assessing officer that the major portion of it consisted of incomes on account of load port discharge receipts, invocation of P.G. Bonds, forfeiture of earnest money deposit, etc. The assessing officer did not take the aforesaid income into consideration for calculation of deduction under section 80HHC on the plea that in the absence of any head-wise declaration of such expenses, the same could not be considered as receipts relatable to the profits of the assessee's business. On the issue of the dividends from the UTI, the claim of deduction under section 80HHC was also denied on the plea that the same did not fall within the ambit of section 80HHC. Aggrieved by the order of the assessing officer, the assessee unsuccessfully carried the matter in appeal before the CIT(A). The assessee, in this manner, is in further in appeal before us against the aforesaid stand of the revenue.
4. At the time of hearing, it was contended by the counsel for the assessee that the miscellaneous receipts directly pertained to the assessee's business and that the same were liable to be considered for calculating the deduction under section 80HHC. Our attention was invited to the paper book filed which inter-alia contained the details of the impugned miscellaneous receipts to demonstrate that the assessee had the necessary details in this regard. With regard to the incomes on account of dividend from Unit Trust of India, the learned Counsel submitted that such income is liable to be treated as business income in view of the decision of the Apex Court in the case of Apollo Tyres Ltd. v. Commissioner of Income Tax 255 ITR 273, as also the decision of the Hon'ble High Court of Kerala in the case of Commissioner of Income Tax v. Apollo Tyres Ltd. 237 ITR 706. On the other hand, the learned Departmental Representative Shri Amitab Mishra, appearing on behalf of the respondent has defended the orders of the lower authorities.
The contention of the department is that the impugned incomes could not constitute incomes fort the purposes of computing the relief under section 80HHC in so much as the same could not be said to have been derived from the business of exports. Our attention was drawn to the detailed discussion made by the CIT(A) in its order specially in paragraphs 14 and 15, which inter-alia referred to the various case laws on the issue.
5. After hearing the rival submissions and carefully perusing the entire material on record, we proceed to dispose off the impugned issues in the following lines. The facts having a bearing on the issue before us lie in a narrow compass. The crux of the issue which arises for our adjudication revolves around the eligibility or otherwise of the impugned receipts for benefit under section 80HHC of the Income Tax Act. Section 80HHC provides that an assessee who is engaged in the business of export out of India of any goods or merchandise shall be allowed in computing its taxable income a deduction in relation to the profits derived by it from such exports. In other words, in order to qualify for deduction under section 80HHC not only the face-tum of making of export out of India is a sin-e-qua-non condition but it is also imperative that the profits which are considered for the said deduction must also be derived by an assessee from such exports. The section also lays down the manner and computation under which such profits are to be deduced. Of course, the manner of computation is not the subject matter of controversy before us. In order to understand as to what would constitute profits derived from the activities specified under section 80HHC we may advert to certain well recognized judicial pronouncements on the subject. The CIT(A) has also relied upon the decision of the Hon'ble High Court of Karnataka in the case of Sterling Food v. CIT 150 ITR 292 to hold the issue against the assessee. The said decision has since been approved by the Hon'ble Apex Court and reported as CIT v. Sterling Foods 237 ITR 579 (SC). The assessee therein was engaged in processing sea food for export purposes in the course of which it earned some import entitlements granted by the central government under an export promotion scheme. It sold such import entitlements and claimed that the sale proceeds of such import entitlements was eligible for relief under section 80HHC of the Act. The Apex Court approved the denial of relief to the assessee with respect to its aforesaid income. The Apex Court, while referring to the world 'derived' opined that the same means 'get', 'to trace from a source', 'arise from', 'originate in', 'show the origin' or 'formation of'. In this manner, it was deduced that the source of import entitlements could not be said to be the industrial undertaking of the assessee, but was the scheme of the central government were in such entitlements become available. Therefore, it was opined that it does not constitute a profit and gain derived from the assessee's industrial undertaking which was a condition sin-qua-non for claiming relief from section 80HHC.
6. Presently, we are dealing with section 80HHC but not section 80HH with which the Hon'ble Apex Court was dealing with. However, the presence of the word "derived from" under sub-section 80HHC also is significant. Therefore, it is against the aforesaid premise as laid down by the Hon'ble Supreme Court that we proceed further to test the efficacy of the action of the assessee in seeking relief under section 80HHC with respect to the impugned incomes. Firstly, in relation to the miscellaneous receipts, the receipts as are found credited in this account are in respect of invocation of P.G. bonds, load port discharge, etc. The business of the assessee comprises of acting as a channelising agency both, for export and import which itself requires transportation by sea, etc., which would require income/expires of the impugned heads which are normal in such trade. However, it does not appear from the orders of the lower authorities that any approach had been made to verify the impugned receipts so, as to see as to whether or not the same flows from the assessee's business or not. In fact, the lower authorities have merely gone by the fact that the assessee has failed to give bifurcations of the impugned expenditure. In our view, complete and true details of the miscellaneous receipts is not presently available so as to draw proper conclusions in this regard. Therefore, we deem it fit and proper to remit this issue back to the file of the assessing officer to verify the details of the miscellaneous receipts after affording an opportunity to the assessee of being heard in the matter and, there after pass appropriate orders in accordance with law with regard to the assessee's claim for 80HHC. Of course, the assessing officer shall take into consideration the legal premise as discussed by us in the aforesaid paragraphs while evaluating the claim of the assessee with regard to the miscellaneous receipts.
7. Secondly, now the claim of the assessee with regard to the dividends from Unit Trust of India. In our view, the assessee has to fail on this issue for the reasons discussed here in after. The stand of the assessee is that income from units is liable to be treated as business income thereby qualifying for relief under section 80HHC. In our view, merely because an income/ receipt is liable to be constituted as a business income of the assessee, the same ipso facto does not qualify to be eligible for relief under section 80HHC. Much more is required to be done so as to be eligible for the relief under section 80HHC. The facet of a direct nexus of the said receipts vis-a-vis the business of export of assessee is absent having regard to the facts of the instant case. Although the dividend income of Unit Trust of India may be a business income but it is a receipt which is de horse from the export activity of the assessee and the receipts from export activity alone qualify for section 80HHC benefits. Hence, in our view, having regard to the decision of the Apex Court in the case of Sterling Foods (Supra) the assessee is not eligible for claiming the relief under section 80HHC with regard to the impugned income represented by Unit Trust of India dividends. In the result, the appeal of the assessee is treated as partly allowed.
8. ITA No. 1903/Del/99: The said appeal by the assessee pertains to the assessment year 1995-96, Although the memo of appeal preferred by the assessee contains five grounds of appeal, but it was submitted at the time of hearing that only the following four grounds are being pressed.
"1. The learned Commissioner (Appeals) has erred in holding that an expenditure amounting to Rs. 12,35,200 was incurred by the assessee in earning income from the investment made in 1964 units of the Unit Trust of India.
2. The Learned Commissioner (Appeals) has erred in confirming the disallowance of Rs. 42,57,647 being the payment to the GP Fund beyond the due date under section 43B and ignoring that the assessee had always been making lump sum payments to the Trust from tune to time and also in ignoring that the intimation from different branches in respect of contribution to the Provident Fund took considerable time.
The Learned Commissioner (Appeals) erred in confirming the deemed income amounting to Rs. 53.50 lakhs being a sum not received from the processor and in ignoring that we had neither filed any claim against the processor nor actually received this income.
4. The Learned Commissioner (Appeals) has erred in holding that income earned on investment in Unit Trust of India amounting to Rs. 938,08,010 was the income from other sources as against the claim of the appellant of the same being income from business and thereby reducing the same while giving benefit under section 80HHC".
9. Briefly the facts in relation to the first ground are that the assessee earned certain incomes from dividends from Unit Trust of India. The assessee claimed deduction under section 80M in relation to the dividend income on the gross amount of such dividends. The assessing officer took the plea that certain expenses were attributable. The assessing officer took the plea that certain expenses were attributable towards earning of such income and estimated the said expenses as of 50% of the dividend income, thereby scaling down the amount of deduction of under section 80M. The Commissioner (Appeals) has partly given relief to the assessee by holding the sum of Rs. 12,35,200 can reasonably be attributed considered as expenditure incurred for earning the dividend income. The Commissioner (Appeals) relied upon has of the earlier year decision on the similar issue in this regard. The assessee is in further appeal before us.
10. It was contended by the learned Counsel that the limits of Unit Trust of India which have yielded dividends were bought in 1990 out of surplus funds. Therefore, the assessee neither incurred any expenditure on account of earning this income during the year nor any interest was paid for the purposes of earning such incomes. It was also contended that there is no administrative expenses which could be said to have been incurred for earning the aforesaid incomes. Similarly, it was explained that the interest earned during the year was more than the expenditure incurred on interest and, therefore, there could not be a stand to the effect that any interest was incurred with regard to the funds deployed for purchase of units. Therefore, the entire amount of the dividend income was liable to be considered for deduction under section 80M.
11. On the other hand, the learned Departmental Representative has vehemently defended the orders of the first appellate authority.
12. We have considered the rival submissions and have also perused the entire material on record and proceed to dispose off the issue in the following lines. Section 80M provides that a corporate assessee is eligible for deduction out of its gross total income of any income by way of dividends. Undoubtedly, income of dividends falling under section 80M is to be reckoned with after reducing out of the gross dividends the relatable expenditure incurred. Presently, it is only the manner of computing such expenditure which is in dispute before us. The assessee contends that it has not incurred any expenditure whereas the assessing officer as well as the Commissioner (Appeals) have estimated certain expense in a particular manner. In our view, the matter needs a fresh appraisal by the assessing officer in so much as that the assertion of the assessee have not been properly looked into. If the assessee is able to demonstrate that it had not incurred any expenditure for earning such incomes, it has to succeed in its prayer of allowing the benefits of section 80M on the gross dividends. Therefore, we deem it fit and proper to restore the issue back to the file of the assessing officer who shall, after obtaining the necessary details from the assessee, decide the issue afresh in accordance with law.
13. In this manner, the assessee succeeds on this ground for statistical purposes.
14. In the second ground the grievance of the assessee is with regard to the disallowance made under section 43B in relation to the contribution to the CP fund. Briefly stated, the facts are that the assessing officer found that in relation to the monthly contributions payable on account of Provident Fund Contribution, the payments were deficient in some cases. He disallowed the entire amount of payment which was deficient. Also, in respect of its subsidiary MITXCO which was merged -with the assessee, the payment outstanding on account of provident fund contribution was also disallowed. The action of the assessing officer has since been sustained by the Commissioner (Appeals).
15. After hearing the rival submissions, we deem it fit to disposed the issue as follows. Undoubtedly, the provisions of section 43B(b) read with 2nd proviso lead to the inference that the deduction of sums payable by the assessee as an employer by, way of contribution to provident funds is to be made only if the same are paid within the due date under the respective act. This is also applicable to the payments made within the previous year also having regard to the decision of the Hon'ble High Court of Kerala in the case of CIT v. South India Corporation Ltd. 242 ITR 114. A perusal of the facts as emerging from the orders of the lower authorities as also in the paper book do not reflect the details of the dates on which such payments have been made. Therefore, it would be inappropriate to proceed to apply the provisions of section 43B as they stand, in the absence of requisite details. Hence we deem it fit and proper to remit the issue back to the file of the assessing officer who shall de novo go into this issue and verify the facts and thereafter pass appropriate orders in accordance with law on the issue.
16. For statistical reasons, the assessee succeeds on this count.
17. Briefly stated the facts in relation to the third ground are that the assessee had certain processing contract. As the printed balance sheet indicated that the assessee had a claim of Rs. 53,50,000 against one of the processors which was not credited to its profit and loss account. The assessing officer treated the impugned amount as income liable for taxation in the year under consideration. The Commissioner (Appeals) has since sustained the action of the assessing officer.
18. At the time of hearing, Shri O.C. Tandon appearing on behalf of the assessee has made detailed submissions on this issue. A reference has been made to a number of judicial pronouncements also in this regard. Reference was made to the decision of the Bombay High Court in the case of H.M. Kashiparekh & Co. Ltd. v. CIT Bombay North, Kutch and Saurashtra 39 ITR 706 for the proposition that it was the real income of the assessee which alone was liable to be taxed. A reference was also made to the decisions in CIT Amritsar-II v. Ferozepur Finance (P) Ltd. 124 ITR 619 Punjab and Haryana, CIT Tamil Nadu-V v. Motor Credit Co. (P) Ltd. 127 ITR 572 (Mad) as also to Godhra Electricity Co. Ltd. v. Commissioner of Income Tax 225 ITR 746 (SC) to argue that having regard to the principles of real Income Theory, the impugned amount was not liable for taxation during the year under consideration. On the other hand, the learned Departmental Representative has defended the order of the lower authorities.
19. We have heard the rival submissions and have also perused carefully the orders of the lower authorities as also the relevant material and the authorities cited at Bar before us and proceed to dispose off the issue in the following lines. The propositions of law which are being canvassed by the assessee cannot be disputed. Most certainly the income-tax is a levy on income but in the absence of accrual/receipt of any income there cannot be a levy of tax. It is also an undisputed proposition that an entry in the books of account or the absence of an entry in the books of account cannot be a sole determinate or a conclusive factor in testing the efficacy to taxation of a certain receipt. Coming back to the instant case, the only fact which is emerging out of the orders of the lower authorities is that a note appears in the balance sheet which indicates that on account of a certain processing contract with a processor certain compensation is liable to be received by the assessee. This is the only guiding factor which had influenced the decision of both the authorities. In our view, the taxability or otherwise of an amount of the nature which is presently before us is to be guided by the contractual obligations between the assessee and the other party. We find no effort has been made by the lower authorities in this regard. Therefore, without adverting to the merits of the issue, we deem it fit and proper to restore the issue back to the file of the assessing officer who shall cull out the complete and true facts in relation to the impugned amount and thereafter take appropriate view in accordance with law. Of course the assessing officer shall afford an opportunity to the assessee of being heard in the matter. In this manner, on the said ground the assessee succeeds for statistical purposes.
20. The fourth ground is in relation to the claim of the assessee for relief under section 80HHC in relation to the dividend incomes from Unit Trust of India. The issue in this ground has already been adjudicated by us while disposing off the assessee's appeal in ITA 1902 (Supra). Our decision there in as found in Para 7 holds good here in also. In this manner the assessee fails in this ground also.
21. In the result, both the appeals of the assessee are treated as partly allowed.