Income Tax Appellate Tribunal - Bangalore
M/S Clean Foods Ltd.,, Bangalore vs Assessee on 26 September, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE 'C' BENCH, BANGALORE
BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT
AND
SHRI N.V.VASUDEVAN, JUDICIAL MEMBER
I.T.A.No.486(B)/2011
(Assessment year : 2003-04)
M/s Clean Foods Ltd.,
Arakere Gate, 11th KM,
Bannerghatta Road,
Bangalore-560 076
PAN No.AAACC7602F Appellant
Vs
The Dy. Commissioner of Income-tax,
Circle-11(2),
Bangalore. Respondent
Assessee by : Shri Balram R Rao, Advocate
Revenue by : Shri A. Sundara Rajan, JCIT
Date of hearing : 26-09-2012
Date of pronouncement : 05-10-2012
ORDER
PER SHRI N.V.VASUDEVAN, JM:
This is an appeal by the assessee against the order dated 13- 01-2011 of CIT(A)-I, Bangalore, relating to assessment year 2003-04.
2 ITA No.486(B)/20112. The grounds of appeal raised by the assessee reads as follows;
"1.On the facts and circumstances of the case, the learned CIT(A) ought to have accepted the explanation and refrained from upholding the disallowance in deduction claimed u/s 80HHC of the Act.
2. The ld.CIT(A) ought to have appreciated the additional amount received by the appellant was in connection with the export of goods manufactured by the appellant and the nomenclature used in the agreement 'as interest' would not change the character and the nature of receipt for excluding the same by applying the Explanation (baa) to Sec.80HHC of the Act.
3. On the facts the amount received 'as interest' was for belated lifting of the goods by Pepsico in the course of export and incidentally it is towards the value of the goods lifted and thus forming part of the export turnover and also business profit and accordingly the provisions of Explanation(baa) to Sec.80HHC of the Act has no application for the exclusion of the same for computing the relief u/s 80HHC of the Act.
4. Without prejudice even if Explanation (baa) to Sec.80HHC was applicable, the exclusion of 90% was only of net interest as the appellant had to pay interest on the amount borrowed for manufacture and consequently the ld. CIT(A) ought to have directed the assessing authority to consider the net of interest for the purpose of exclusion of 90% therefrom."
3. The assessee is a company it manufactures fruit pulp and concentrates and exports the same through M/s Pepsico India Holding Private Ltd., (M/s PIHPL). As per the agreement between the assessee and M/s PIHPL, M/s PIHPL has to remove the goods manufactured for them by the assessee within a particular period of time. In case of delay in removing the goods M/s PIHPL agreed to 3 ITA No.486(B)/2011 pay compensation which is described as "interest" by the assessee. This is nothing but inventory carrying charges additionally payable by M/s PIHPL. During the previous year, the asseseee received a sum of Rs.1,20,04,595/- from M/s PIHPL on account of interest/inventory carrying charges.
4. The assessee had claimed deduction u/s 80HHC of the Act. The question before the AO was as to whether the aforesaid sum namely interest/inventory carrying charges should be treated as profits of the business for the purpose of computation of deduction u/s 80HHC of the Income Tax Act, 1961 (the Act).
5. According to the Assessee the aforesaid sum was as good as export sale proceeds and has to be considered as part of the profits of the business while computing deduction u/s.80-HHC of the Act. The AO was of the view that as far as the interest/inventory carrying charges are concerned, the same had no nexus with the export activity. He was of the view that the aforesaid income was in the nature of interest income, as referred to in Explanation(baa) to Sec.80HHC of the Act and therefore, 90% of the interest income should be reduced from the profits of the business, while computing the deduction u/s 80HHC of the Act. Accordingly, the deduction claimed u/s.80-HHC of the Act was allowed at a reduced sum than what was claimed by the Assessee.
4 ITA No.486(B)/20116. Before the CIT(A), the assessee submitted that the amount in question cannot be strictly construed as interest and it was nothing but in the nature of additional price for the goods supplied to M/s PIHPL. The assessee pointed out that he has to pay bank interest, as it had taken loan on the goods manufactured and stored for M/s PIHPL. The assessee pointed out the interest/inventory carrying cost is arrived at based on the bank rate of interest calculated on the number of days after the goods are manufactured and kept with the assessee to be lifted by M/s PIHPL. The assessee therefore, submitted that the sum in question has to be treated as additional price and has to be considered having direct link withy the business of export. Alternatively, the assessee submitted that the assessee should be given the benefit of netting i.e. the interest received by the assessee from M/s PIHPL should be netted against interest paid by the assessee to the bank and it is only 90% of the residue that should be reduced from the business income invoking Explanation(baa) to Sec.80HHC of the Act. In this regard, the assessee placed reliance on the Hon'ble Delhi High Court in the case of Sriram Honda Power Equp 289 ITR 475(Del), supporting the aforesaid contention of the assessee.
7. The CIT(A) however, did not agree with the contentions put forth on behalf of the assessee. The CIT(A) was of the view, the income in question cannot be said to be derived from the business of export, as it was not the direct source of export of Mango pulp. With regard to the argument of the assessee that only 90% of the net interest has to 5 ITA No.486(B)/2011 be excluded from profits of the business under Explanation (baa) to Sec.80HHC of the Act, the CIT(A) relying on the decision of the Hon'ble Madras High Court in the case of CIT Vs V Chinnapandi (2006) 282 ITR 389(Mad.) held that 90% of only the gross interest and not the net interest that has to be excluded from the profits of the business. The CIT(A) also referred to the decision of the Hon'ble Bombay High Court in the case of CIT Vs Gem Plus Jewellery India Pvt.Ltd.,(2011) 330 ITR 175(Bom.)
8. Aggrieved by the order of the CIT(A), the assessee has preferred the present appeal before the Tribunal. We have heard the submissions of the learned counsel for the assessee, who reiterated the plea of the assessee as put forth before the revenue authorities. The learned DR relied on the order of the CIT(A).
9. We have considered the rival submissions. Expln.(baa) of sec.80HHC of the Act is as follows:
"(baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by--
(1) ninety per cent. of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits ; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India "6 ITA No.486(B)/2011
10. As far as the plea of the assessee is that the interest income has to be considered as income from business for the purpose of computing deduction u/s 80HHC of the IT Act, 1961, we are of the view that the said claim cannot be accepted, as the earning of the said interest income had no direct link with the export business. Even if we do not consider the receipt in question strictly as "Interest" but as inventory carrying charges, the same has to be excluded as "charges or any other receipt of a similar nature". In this regard, the CIT(A) has relied on the decision of the Hon'ble Supreme Court in the case of Liberty India Vs CIT(2009) 317 ITR 218(SC). In view of the aforesaid decision of the Hon'ble Supreme Court, the prayer of the assessee cannot be accepted.
11. As far as the alternative prayer for excluding 90% of the net interest income ( gross interest income - interest paid to the bank by the assessee having nexus with the interest income), we arte of the view that in the light of the decision of the Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt.Ltd., Vs CIT 343 ITR 89(SC), the plea of the assessee has to be accepted. The Hon'ble Supreme Court in the aforesaid decision held as under;
"Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "Profits and Gains of Business or Profession". The expression "included any such profits" in clause (1) of the Explanation (baa) would mean only such 7 ITA No.486(B)/2011 receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and Gains of Business or Profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under ss. 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining "profits of the business" of the assessee under Explanation (baa) to s. 80HHC.
Further, Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words "receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits" will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under 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 mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC."
In the light of the aforesaid decision of the Hon'ble Supreme Court, the quantum of amount to be excluded under Explanation to (baa) to Sec.80HHC of the Act is remanded to the AO for fresh consideration.
8 ITA No.486(B)/2011The AO will verify the nexus between the interest receipts and the expenses claimed by the asseseee to have nexus with the interest receipts and decide the issue in accordance with law laid down by the Hon'ble Supreme Court. For statistical purpose, the appeal of the assessee is treated as partly allowed.
12. In the result the appeal of the Assessee is treated as partly allowed for statistical purpose.
Order pronounced in Court on the 5th October, 2012.
Sd/- Sd/-
(N. BARATHVAJA SANKAR) (N.V.VASUDEVAN)
VICE PRESIDENT JUDICIAL MEMBER
Place: Bangalore
Dated: 05-10-2012
am*
Copy to :
1. The assessee
2. The Revenue
3. CIT(A)
4. CIT
5. DR
6. GF(B'lore)
7. GF(Delhi)
By Order
Sr. Private Secretary, ITAT, Bangalore