Delhi High Court
Gadore Tools Pvt. Ltd., New Delhi vs Commissioner Of Income Tax on 19 February, 1999
Author: J.B. Goel
Bench: J.B. Goel
ORDER
Devinder Gupta, ACJ.
1. Following nine questions of law have been referred for opinion at the behest of Commissioner of Income Tax, Delhi-1, New Delhi:-
"1. Whether the Tribunal was right in law in admitting the additional grounds of appeal filed before it on 25th May, 1982?
2. Whether the Tribunal rightly held that the CCS receipts from the Government did not constitute taxable receipt in the assessee's hands?
3. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the cash compensatory support did not constitute profits and gains within the meaning of Section 28(1) or Section 28(iv) of the Income Tax Act, 1961 but constituted a receipt on capital account only?
4. Whether the Tribunal rightly upheld the Commissioner of Income Tax (A) order that the assessee was entitled to weighted deduction under Section 35B of the Act on commission of Rs.12,10,893/- as export sales?
5. Whether the Tribunal was right in rejecting the Revenue's additional ground that though the amount of Rs.12,10,893/- had been considered for weighted deduction in the agreement, the Commissioner of Income Tax (A) should have withdrawn such deduction?
6. Whether the Tribunal rightly held that the powers of enhancement by the Commissioner of Income Tax(A) being subjected to the constraints and limitation as provided under Section 251(2) of the I.T. Act, 1961, the question of enhancement could be considered only if a notice was given in that regard?
7. Whether the Tribunal was right in holding that the assessee was entitled to weighted deduction under Section 35B on amount of Rs. 1,93,262/- falling under the head Export Promotion?
8. Whether the Tribunal was right in holding that the assessee was entitled the weighted deduction under Section 35B on amount of Rs. 7,564/- falling under the head Export Guarantee Insurance?
9. Whether the Tribunal was right in holding that the assessee was entitled to weighted deduction under Section 35B on amount of Rs. 27,375/- falling under the head Interest paid on post shipment export credit loans?"
2. At the behest of the assessee, the following three questions have been referred for opinion:-
"1. Whether on the facts and in the circumstances of the case, Tribunal was correct in law in holding that the draw back of duty of Rs. 13,30,484/- received by the assessee from the Central Government was not in the nature of capital receipt and thus taxable?
2. Whether on the facts and in the circumstances of the case, Tribunal was correct in law in holding that the gains from sale of Import Entitlement of Rs. 27,18,920/- received by the assessee was not in the nature of Capital Receipt and thus taxbale?
3. Whether on the facts and in the circumstances of the case Tribunal was correct in law in holding that the following items are not entitled to weighted deduction under Section 35B:-
(a) Difference in Exchange rates. Rs. 1,90,744/-
(b) Ocean freight charges Rs. 7,22,669/-
on export consignments.
(c) Forwarding charges on
consignments. Rs. 1,19,758/-
(d) Inland freight on Rs. 4,73,168/-
export consignments.
(e) Inspection fee on Rs. 29,381/-
exports."
3. The assessee is a private limited company and is engaged in business of manufacture and sale of hand tools in India. It also exported these items to various parts of the world. The accounting year was from 1.7.1973 to 30.6.1974. Related assessment under Section 144 of the Income Tax Act, 1961 was framed on 30.3.1978. The assessee preferred appeal, which was decided by Commissioner of Income Tax (Appeals)-VIII on 31.1.1979. Assessee as well as Revenue filed appeals before the Income Tax Appellate Tribunal against the said order of Commissioner of Income Tax (Appeals) Delhi on 30.3.1979 and 5.5.1979 respectively. The assessee by a petition dated 27.4.1982 filed on 25.5.1982 sought permission to raise six additional grounds. The Revenue also sought permission to raise additional grounds. The assessee did not object to the raising of additional grounds by the Revenue but the Revenue objected the assessee seeking to agitate additional grounds. By a detailed order dated 19.9.1983 Delhi Bench of the Tribunal admitted additional grounds both of assessee and of Revenue. Reference was sought on behalf of Revenue by filing application, which was rejected by the Tribunal Delhi Bench observing that it would be open to the Revenue to seek reference in relation to the question of admissibility of additional grounds, when a final order is passed disposing of appeals on merits. The appeal of the Revenue was partly accepted. Assessee's appeal in respect of original grounds was rejected. It was partly allowed for the additional grounds. In this back ground Revenue and Assessee sought reference and consequently the aforementioned questions were referred for opinion.
4. The first question whether the Tribunal was right in law in admitting the additional grounds of appeal filed before it on 25th May, 1982 is now squarely covered by the decision of Supreme Court in National Termal Power Co. Ltd. Vs. Commissioner of Income Tax, (1998) 229 I.T.R. 383 holding that the Tribunal has discretion to allow or not to allow new grounds to be raised. Even in a situation where the Tribunal is only required to consider the question of law arising from facts, which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised, when it is necessary to consider that question in order of correctly assess the tax liability of an assessee. Accoridngly, this question is answered in affirmative and against the Revenue.
5. The second and third questions referred at the behest of Revenue deserve to be answered in favour of the Revenue in view of the amendments incorporated in the Income Tax Act, 1961 by the Finance Act, 1990. Finance Act, 1990 incorporated clause (iiib) to Section 28 of the Income Tax Act, 1961 with effect from 1.4.1967 to the effect that cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government shall be chargeable to income tax under head profits and gains of business or profession. This amendment has been made retrospectively with effect from 1.4.1967. Clause (vb) in sub-section (24) of Section 2 of the Income Tax Act, 1961 was also incorporated by the Finance Act, 1990 with effect from 1.4.1967 that income includes any sum chargeable to income tax under clause (iiib) of Section 28. Thus the C.C.S. Receipts received from the Government would be taxable receipts in the hands of the assessee and constitute profits and gains. This Court in Commissioner of Income Tax Vs. Smarts (P) Ltd. (1998) 233 I.T.R. 243 has also taken note of these amendments. Accordingly the questions are answered in favour of the Revenue.
6. Question No. 4 referred at the behest of Revenue is now squarely covered by the decision of Supreme Court in Commissioner of Income Tax Vs. Stepwell Industries Ltd. & Another, (1997) 228 I.T.R. 171 (S.C) and of this Court in Commissioner of Income Tax Vs. International Exporters, 1998(233) I.T.R. 23. The amount of commission was paid in India though for export. In Stepwell Industries case (supra), it was held that merely because some activities took place out side India, the same will not qualify the exporter for deduction mentioned in Section 35B of the Act. In International Exporters (supra), this Court held that the amount of commission paid in India though on export sales would not qualify for weighted deduction under any of the sub-clauses of Section 35B(1) of the Act. As such the question is answered in negative in favour of the Revenue that the assessee was not entitled to weighted deduction under Section 35B of the Act.
7. Question No. 5 need not be answered separately in as much as it is a mixture of questions 4 and 6, which have separately been answered.
8. On question No. 6 also the position is settled in view of the decision of the Supreme Court in Commissioner of Income Tax (Central) Calcutta Vs. Rai Bahadur Hardutoroy Moti Lal Chamaria 1967 (66) I.T.R. 443 that power for enhancement by the Commissioner of Income Tax is subject to the limitation as provided in sub-section (2) of Section 251 and such question could be considered only if notice was given in that regard. Accordingly, this question is answered in affirmative against the Revenue.
9. Question No. 7 referred at the behest of Revenue is covered by the decision of this Court in International Exporters' case (supra) that expenditure under the heading "Export Promotion" is not entitled to weighted deduction under any of the clauses of sub-section (b) of Section 35B(1) of the Act. Question thus is answered in negative and in favour of the Revenue.
10. The question No. 8 about weighted deduction under the heading "Export Guarantee Insurance" is not only covered in International Exporters' case (supra) but also by another decision in Commissioner of Income Tax, Delhi-1, New Delhi Vs. M/s. Gedore Tools (I) Pvt. Ltd. I.T.R. No. 49 of 1987, decided on 9.3.1998 by this Court. Thus the question is answered in negative and in favour of the Revenue.
11. Question No. 9 also has to be answered in favour of the Revenue and against the assessee on the basis of the opinion rendered by this Court while answering I.T.R. No. 223/83, Gedore Tools (India) Pvt. Ltd. Vs. Commissioner of Income Tax, Delhi-1 decided on 9.3.1998 that interest on Post Shipment Export Credit Loan is not an expenditure entitled for weighted deduction under Section 35B of the Act.
12. In view of the opinion rendered on questions 2 and 3 referred at the behest of Revenue, questions No.1 and 2 referred at the behest of assessee are answered in affirmative, in favour of the Revenue and against the assessee.
13. Question No. 3 referred at the behest of assessee is the one on which this Court in Gedore Tools (India) Pvt. Ltd. Vs. Commissioner of Income Tax, Delhi-1, New Delhi, I.T.R. No. 223/83, decided on 9.3.1998 rendered its opinion that expenditure on the items referred to in this question are not entitled to weighted deduction under Section 35B of the Act. On that basis the question is answered in negative in favour of the Revenue and against the assessee.