Karnataka High Court
The Commissioner Of Income Tax vs M/S Supreme Overseas Exports India Ltd on 1 June, 2010
Bench: N.K.Patil, B.V.Nagarathna
IN THE HIGH COURT OF KARNATAKA AT" BANGALORE
DATED THIS THE 15'1" DAY OF JUNE 2019' A.
PRESENT
THE HONBLE' MR. JUSTICE N4.R.pA'i*1"1;'7--'1;' V
THE HONBLE MRS. JUSTIGE B.V;N}\GAR§:§TH_NA...
I.T.A.NO.262§TZ'2F()_t_3_*;h§ '
BETWEEN :
1. THE COMMISSIONER OE'INcO:viE 'i*A§{;55'-
c.R.BU1LDING,jQUEENS '
BANGALORE'.
2. THE ASS1S:rART,cOia/1MiSS£<O2fiER}OF INCOME TAX,
c1RcLE:2{23;1;c.R:ir5u1LDVINO,
QUEENS R,OA£3,««BANG«ALQ_RE.
. . APPELLANTS
(BY J
- OOOOO
A M,/S'.--SUR,REME "OVERSEAS
EXPOR*rS_:'1ND1A- 1.39..
#1 1 / 24%' CROSS.
KR 2ND STAGE,
-- V~-- 5560 0'70. ...RESPC)NDENT
SMfr.S§N1TYA ,ADV., FOR M/S. K.R.PRASAD)
THIS ITA IS FILED UNDER SECTION 260A OF THE
:j11\:cOME TAX ACT, 1961 ARISING OUT OF ORDER DATED
28.01.2005 PASSED IN I'I'A.NO.2440/BANG/2004 FOR THE
E
IR.)
ASSESSMENT YEAR 20022003 PRAYING THATKHTHIS
HONBLE COURT MAY BE PLEASED TO:
a] FORMULATE THE SUBSTANTIAL QU_E:fS*ti-ore 0.
LAW STATED THEREIN.
b] ALLOW THE APPEAL AND .SET.ASI;?:)E_i%llFfl:T4 '
PASSED BY THE OF} TI_r1E;. 'ltNC(.h)'MI£.."v..epTAX.
APPELLATE TRIBUNAL.
THIS ITA COMING ONVF-OR HEARING. ...tiAY, * '
NAGARATHNA J., DELIVERED T'HE"FOLLOWING-3
V 1' 2
The Revenue has challenging the
order dated l{FAv.:No.2440/Bang/2004 by
the Incomes' Bangalore Bench 'A',
with regard the 5ASseSsni.en,t:'yea1' 20022003 by raising the
following substantial"questions of law:
it the Tribunal was correct in holding that
T incentives received by the assessee
"ladshéould form part of the turn over of the assessee
for the purpose of computation of deduction
under section 80H}-IC of the Act which would
result in a profit and consequently deduction
9,9»
under section SOHHC of the Act is allowable to
the assessee ?
2. Whether the assessing officer was _;correjet,__ tll_
holding that the export ince'ntive.s._received,by"
the assessee cannot form part 'jDf\'._1;hfi"El,1l'1'1'»Q\tt3.f__'
for the purpose of _con1putation devductliont
under section 80 the}'.ct'l'wlhiclh: would
result. in a aTr1d'.consvet1uently no
deduction under'l-thisV"slection_fbe granted to
theiassessee
_TheVl'it?act:s:"0f .,_cas€ giving rise to the filing of
this appeal .a3'e*. that respondent--assessee is a
manufacturer of-.lAela'therV'garments and an exporter. He had le'2;pVor'ted tlllithe ~ . ent.ireVlmé§arments manufactured. For the //,fisse_ssn1etr1tJ.VYeguc/:2OO2--20O3, he filed his return of income claimi_ng under Section SOHHC of the income Tax (for"shAort 'the Act'). The said deduction included a sum I 1,405/« being the incentives in the form of Duty ,.._hA:Draw Back falling under Section 28 {iii){b] of the Act. The Treturn was processed under Section 143(1) of the Act and the Assessing Ofiicer took the Inatter for scrutiny and found that the deduction claimed by the assessee under _Sec't.i_'on_ SOHHC of the Act was contrary to the said _ assessee had included 90% of the incentives receivedby him for the purpose of computation of total :inar:onl1l'e.torl'clain1i_n A deduction under Section 80HHC -of the Act. A.ccO_I'di_ng /tllhel Assessing Officer, the said -could' be avfgpart of the total income for the deduction under Section SOHHC of the claim of the assessee of assessment came to be "Being aggrieved by the said order,_the'OV-a:=«sessee.ffpiteferted an appeal before the Commissioner of lncoine (Appeals)--III, Bangalore, who in turn ugphelgd the '-order of the Assessing Officer and dismissed byxorder dated 22.7.2004. Being aggrieved by the assessee filed an appeal before the Income Ta;:_A;ppe11ate Tribunal, Bangalore Bench 'A', who after hearing both sides, passed a common order in respect it oth:e;' assessment. years by also holding that the assessing flloffiber was not right in deleting the export incentive for the :."purpose of computation of deduction under Section 80HHC 1 2» of the Act and has further held that if the said incentive amount is taken into account. the total turnover profit and accordingly granted relief under Section V ~ the Act by allowing the appeal x.lBe'ing»t.vu aggrieved by the said order, the revenuielhas lllprefened appeal by raising the afo1'esaids_ubstanti'al:qu.esti:on.f§'votilaw. M
3. It is siibmittedon ot7lpth¥e'revenue that the deduction under Sect:ion..5QiPIif'lCl v"avonId'beiapplicable only if there is a pifofi-ta question and if there is said Section is not applicable respondent in the instant appeal couldnotl liaveclaiinpedllldeduction for the Assessment year 2002-2063-.iAn question. He has drawn our attention to l'vario*us clauses of the said provision and contended that in Assessing Officer has observed that the tota1,__ inc.om_ej'..-- received by the assessee from the export "b1isiness__result;ed in a negative figure. Therefore, he passed 1,l-%;hE'>'a;¢.S:'SeSSn1ent order holding that the respondent--assessee hyvisgfnot. entitled to the benefit under the said Section which 6 order has to be restored in this appeai by setting aside-athe order of the tribunal.
4. Per contra, 1earned_.~~~c.ounse1 'for tiae respondent--assessee white drawing our *§itt'ention"to SOHHC has stressed on Proviso__p'i*~...and Proviso 80}{HC[3) and subrnitted that the__Vnature oi'.busVinesVs of the ..;..--~ respondent comes under _ 3f Section 8OHHC. An amen.drnent:.was. fsection 80HHC of the read with expianationp which, the assessee is entitled to the said provision since 90% of the duAt'y.__dravV' has to be inciuded. She further'supbmitsi-that" as" per the computation made by the }\ssessing"d"Offieer, there was no such addition made with hvoefvthe duty draw back received. According to hen the Officer without proceeding further held d"-'~___Vt-hat sinceithere was a loss, the assessee is not entitled to _s1,tch benefit. flw
5. Having heard the Eearned counsel on both sides and on perusal of the material on record and as .wei1<«.._as_ noting down the various provisions of Section including the amendment, the only_p.oi,nt thatlr'etjuireis4_'fo1~:.V' consideration is:
"VVhether the entitled to dE3d.I.tCfiO:?'"l Act by taking into' 1 and Proviso 5 and vexpliariathion clauses 62; in this question, it would be necessary' to note._«tha*t SOHHC deals with profits retained for exp-ortbusiness Where the assessee is an Indian lndianttresident engaged in the business of or merchandise and while computing the total_.ii1co4i.ne of the assessee, a deduction to the extent of ' "profits "derived from the export of such goods or merchandise under the said section. Sub-section[2) of Section SQHHC deals with the nature of goods or merchandise to which the section applies. Subsection (3) deals with three :'§»«« kinds of export business firstly. goods or merchandise manufactured or processed by the assessee and e:<~p_or_ted secondly, export of trading goods and thirdly, _ merchandise, manufactured or processed by --ihe"as_sesseey_ass_ well as export of trading goods. Si"r_1cejthe' one it the extent of profits, proviso--1:_to._VSubl--s.ec'tion_Sec_tion SOHHC states that while comptitinrg the under Sub--section 3(a), 3[b) shall be further increased by the.Vamournt--if§tl0/o of any sum referred to or sale of a licence and Clause [iiib) and (me) t}¢L:é«..yl_'§am¢vmpvroportion as the export tu1'nover'o,_ears to, t11e'~tota1"tu.rno\rer of the business carried by the assessee." 'lProvis.o--5 states that in case when the at"corriplutatioriiunderblause [a], [b] or {c} of Section 3 is a loss, "1o"ss:l_1.shall be set off against the amount which bears ~9(;)9:'bAlof any sum referred to any Clause {iiia), {iiib) and [iivic}', as the case may be or any sum referred to in Clyaufse [iiid) or [iiie), as the case may be of Section 28 as by H applicable in the case of assessee, referred to in 2"'-*, 31"" or 4"" proviso as the case may be. 2"", 3"' and 4"' proviso deals with situations where the assessee is having export turnover not exceeding Rs.lO Crores during the previous exceeding Rs. 10 Crores during the previous year._.u*
7. Explanation to Section after 4[c) defines "export turnover", "total turnover" of the business". Explanation [ba_]____spea=k_s of ."to_t:al tui1'nover"
and the proviso to the Sandie' states ti'i.at1'e1ation to any assessment year c.ommenc*in.g:on 1e;~e».g£ie::_ "E51 day of April, 1991, the expression _7'to.ta1 tulrnoverflshalllhave effect as if it also eXC1uded....ariy ;»;3g1fi refer:-'edt'b Clausefiiia), (iiib], (iiic], [iiid) and [ii_ie_} erceeeeen [i;>a:a.--) defines "profits of the
8. Explanation' business" as"con1pu'ted*--.unde1' the head "profits and gain of professvion" as reduced by 90% of any sum iirigclause (iiia], [iiib], fiiic), [Hid] and fiiie) of 283;-.ler Section 28 or of any receipts by way of ley.b1'oke1'age«,._ commission, interest, rent, charges or any other A f_'recedi'p.t of a similar nature included in such profits i.e., only ' 10}?/o has to be considered and it also includes profits of any . 1/,' * ..v~ branch, officer. warehouse or any other establishment of the assessee situate outside Endia.
9. in the case of COMMISSIONER oF'iNCéi;£E:TAx we. by Vs.~ KRAVINDRANATHAN NAIR H2o0*?') }'TR»228l'z'sC}1;i it apex court has stated that thev'*b_asis"'for deciuction._VViVln'§der Section SOHHC is the profits The formula in Section Ap'ifov;i_des"lfor.Aa*fraction of export turnover dividedaby 'total 'be applied to business profits 90% of the sums mentioned Explanation. Profit incentives __1i.1A{\§g.j'._:"Ve'17¢.,'€4'coriimissicnlbrokerage charges etc., though theyélforriied gross total income, have to be excluded as they were "independent. incomes" which had no "cleriient"-of export. turnover.
1(_)~.~ per Clause (baa) of the Explanation, 90% of 3the incentive profits or receipts by way of brokerage, " _con1mission, interest, rent charges or any other receipt of nature included in business profits computed in terms of Sections 28 to 44D have to be deducted while calculating KL,"
.4:
According to this definition. "total turnover" will exclude cash compensatory support, duty draw backs and profitéffor sale of material entitlement licence. The said _ retrospective effect from 1/ 4/ 1987.; WI?rom .tl'1'e= -a:ssesvsnaent: 9' year 1991-92 onwards. the incomes~._spc1:cifi:ed*..in.lS'ectiovn. .l (iiia), {iiib} and (me) are t 0 ezgcludedlll V 'Fherefore. the turnover is restricted topsuch whic'h_lth'aveflelernents of profit in and any by Duty and Sales Tax cannot be taken not have any element of _' A eptplanation which is inserted by the Fin_ance the assessment year 1992-93 onwards has bveerrlheld be clarificatory in nature and will with A.retrosVp"ectviVe effect to the years prior to the A arnendrnent;
" in the case of COMMISSIONER OF INCOME-TAX W LAKSHMI MACHINE WORKS {(2007) 290 ITR 667 (son, __the Apex Court referred to the subsequent amendment made to the Finance Act. 1992 and held that as per the said fa» l4 assessee. Proviso--l has to be applied while cornputing___the profits and proviso 5 applies when there is a loss.
15. Since such an exercise hasnot been "do'neby'the.o_ Assessing Officer and further aI1ie1idriientser..n3.ade"\§$n.e.f;VeA 1/4/ 1992 have not been ta1l<V:_er.1__. into-._ regard to the assessment year é0Oé--03, we find that the matter has thelight of the aforesaid observations orders dated 30/1/2004, by the three authorities the Commissioner of income Bangalore and the Income Tax Appeiiate'rribunail'i§a§igai§1'e""Beneh 'A'. are liable to be set asidevand rnatter'- has to be remanded back to the 'Asse'slsir:'g Officer tovflreconsider the entire issue in the light of s._the.e.an1efi--de'd:Vprovisions of Section 801-IHC and thereafter, to deAte_rmin..e':as'll' to whether the respondent is entitled to V'-»deductio__n under Section ESOHHC of the Act. .7 -' E, P
16. In Vi€W of the aforesaid reasons. we are of the View that the substantial questions of law do not I'€qLEi<I:'é'-. he considered at this stage.
17. The appeal of the 1'eveniie 'i-s.a1i.owed:ni1'i._ p:a'rtf setting aside the order of the Assessing' Oiifieeii' da'teVti -30/. vide Annexure 'C'. the order pas'::ec} i:he.Co:nn1~issio.ne:r of " V Income Tax {Appea1s)--HI, Ba11galo_teI;-in-..if1'A 132/C I2{2}/CIT{A}III/0304 "V.i.dt'3.'..}3iY.1nUCXUTC 'B' as well as the order passed by '»~:Pgpf;V"ellate Tribunal, Bangalore Be11c3}'1"'i'?'xj:._:V:'in I'i='A m;;:24ee%iiieA2445/eang/2004 dated 28/ i/2005 remitted back to the Assessing the'"e:n'LiiLe issue in the light of the amerided, and the observations made above and the1"ez--1fteVi* t..o4Vdete;"n'iine as to whether the respondent is entitled "to. any benefit under the said provision after affording. hreasuonabiief onp'oi'tu1iity of hearing to both parties. u 1': "
Sd/-3 JUDGE sa'/3 IUDGE