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2016 DIGILAW 1684 (GUJ)

Cham Ice & Cold Storage v. Income Tax Officer

2016-08-08

G.R.UDHWANI, K.S.JHAVERI

body2016
JUDGMENT : K.S. Jhaveri, J. 1. By way of these appeals, the appellants have challenged common judgment and order of the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot (For short, "the Tribunal") in ITA Nos. 13, 297, 488, 731 and 1515/RJT/2005 dated 06.03.2007, whereby the appeals filed by the assessee as well as the department were dismissed and the order of the CIT (Appeals) was confirmed. 2. At the time of admitting these Appeals, following question of law was framed:- "TAX APPEAL Nos. 1382 & 1384 of 2007 "(A) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal, was right in confirming the disallowance of deduction u/s. 80HHC of the Income-tax Act, 1961 in respect of commission of received from the export house?" TAX APPEAL Nos. 1163 to 1166 of 2008 "1. Whether on the facts and in the circumstances of the case and on interpretation of section 80HHC of the IT Act 1961, the Appellate Tribunal is justified in dismissing the appeal filed by the revenue and confirming the order of CIT(A)? 2. Whether on the facts and circumstances of the case the ITAT is justified in working out deduction u/s. 80HHC sub-section (3) of the IT Act in the case of the assessee who is a supporting manufacturer even though for deduction u/s. 80HHC of the Act on the disclaimer sales certified by the Export Houses, there is separate formula as per sub-section(3A) of section 80 HHC of the Act applies, wherein there are no similar proviso as that of sub-section (3) of Section 80HHC of the Act?" 3. Mr. Divatia, learned counsel for the appellant submitted that the Tribunal has committed an error in confirming the order passed by CIT (Appeals). He further submitted that both the authorities below have failed to appreciated the calculation put before them. He further submitted that the Honourable Supreme Court in the case of CIT v. Baby Marine (Eastern) Exports [290 ITR 323] had held that premium paid by export house or trading house to the supporting manufacturer on FOB value of exports formed integral part of turnover of the supporting manufacturer and as such includible in its profits eligible for deduction under Section 80HHC of the Act. He has relied upon the decision of Madras High Court in the case of Commissioner of Income Tax v. Aswini Fisheries Ltd. reported in (2008) 11 DTR (Mad) 350, wherein it was observed as under:- "4. In the case of CIT v. Baby Marine Exports (supra), the assessee was engaged in the business of selling marine products both in the domestic market and also exporting them directly as well as through export houses. In relation to exports through export houses, the export house agreed to pay the assessee an incentive of 2.25 per cent of the FOB value as an incentive commission. The assessee showed the premium as part of its total turnover for the purpose of the special deduction under s. 80HHC of the IT Act, 1961. The AO rejected the claim of the assessee holding that the assessee, a supporting manufacturer, sold the goods to the export house in respect of which the export house had issued a certificate under the provisions to s. 80HHC(1); (sic) that the export house premium was nothing but an integral part of sale price realised by the assessee; that the premium could not possibly be considered to be either commission or brokerage, as a person could not earn commission or brokerage for himself; and that the export house premium received by the assessee was includible in the "profits of the business" of the assessee while computing the deduction under s. 80HHC. On appeal by the Department the High Court also held that the assessee was entitled to the benefit of s. 80HHC on the export premium received from the export houses. On appeal to the Supreme Court, the Supreme Court while affirming the decision of the High Court held that "since the sales were to the export house the provisions of sub-s. (1) of s. 80HHC did not apply to the case of the assessee. On appeal to the Supreme Court, the Supreme Court while affirming the decision of the High Court held that "since the sales were to the export house the provisions of sub-s. (1) of s. 80HHC did not apply to the case of the assessee. Only the provisions of sub-s. (1A) of s. 80HHC applied." 3.1 He submitted that the aforesaid view is further fortified by the decision of the Supreme Court in the case of Southern Sea Foods Ltd. v. Join Commissioner of Income Tax reported in (2016) 287 CTR (SC) 108, wherein it is observed as under:- "In view of above decision rendered by this Court in CIT v. Baby Marine Exports (2007) 209 CTR (SC) 183 : ( 2007 (4) SCC 555 which has been followed subsequently in CIT v. Dalbir Singh (Civil Appeal No. 6430 of 2012 and other connected matters, decided on 12th Sept. 2012) we allow this appeal and set aside the order of the High Court. All consequential reliefs be granted to the appellant." 3.2 In view of above observations, he submitted that the Tribunal has committed an error while passing the impugned order and the same is required to be set aside. 4. On the other hand, Mr. Pranav Desai, learned counsel for the revenue has taken us through the decision of the Supreme Court in the case of P.R. Prabhakar v. CIT reported in 284 ITR 548 and submitted that the direction given by the Tribunal is not proper. 5. We have heard both the learned counsel and perused the record. The Tribunal has considered the in question in detail and granted appropriate direction under 80HHC of the Act and observed as under in paragraph 12 of the impugned order. "12) We have carefully considered the rival submissions alongwith the order of the tax authorities as well as the case law relied before us. The plaint reading of section 80HHC makes it clear that the deduction u/s. 80HHC is liable on profit derived from the exports. The method of computation of the deduction is laid down u/s. 80HHC(3)on the profit of the business. The plaint reading of section 80HHC makes it clear that the deduction u/s. 80HHC is liable on profit derived from the exports. The method of computation of the deduction is laid down u/s. 80HHC(3)on the profit of the business. The profit of the business has been defined under explanation (baa) given u/s. 80HHC(4C) to mean the profit of the business as computed under the head profit & gains of the business or profession as reduced by 90% of the export incentives as given under clauses 111 (a), 111 (b), 111 (c), 111 (d) and 111 (e) of section 28 or of any receipt by way of brokerage, commission, interest, rents, charges or any other receipts of a similar nature included in such profit. In view of proviso to 80HHC (3), 90% of the export incentive as laid down u/s. 28, clause 111 (a), 111 (b), 111 (c), 111 (d) and 111 (e) are not to be added while computing the deduction u/s. 80HHC but no addition for computing the deduction u/s. 80HHC is to be made in respect of other items 90% of which is to be excluded from the profit under the head income from business or profession in accordance with the explanation (baa). This clearly denotes that the legislature wanted to allow deduction in respect of such other items @ 10% of the receipt of the nature of these items. We have gone through the decision of Hon'ble Supreme Court in the case of P.R. Prabahakar v. CIT (supra). The facts relating to this decision are that the appellant was engaged in the business of export of his own products and also procured export contract for other exporters for commission. In the Assessment Year 90-91, he derived an income of Rs. 56,69,321/- by way of commission, whereas as an exporter of goods, he incurred a loss of Rs. 6,372/-. The total value of the goods exported outside India by the appellant during the Assessment Year was Rs. 3,67,600/-. The deduction u/s. 80HHC was claimed in respect of export income. In the Assessment Year 90-91, he derived an income of Rs. 56,69,321/- by way of commission, whereas as an exporter of goods, he incurred a loss of Rs. 6,372/-. The total value of the goods exported outside India by the appellant during the Assessment Year was Rs. 3,67,600/-. The deduction u/s. 80HHC was claimed in respect of export income. The Hon'ble High Court held that the income derived by the appellant towards commission and brokerage for procuring order and export for other was not eligible for exemption for tax u/s.80HHC of the I.T. act and that the explanation whereby the deduction in respect of profit derived out of such commission or brokerage was confined to 10% of the income was clarificatory in nature and had retrospective effect. When the matter went before the Hon'ble Supreme Court, Hon'ble Supreme Court clarified that the amendment u/s. 80HHC is not retrospective and is perspective. This amendment relate to the insertion to the explanation (baa) u/s. 80HHC defining the profit for the purpose of business while computing deduction u/s. 80HHC(3). No such explanation was there during the Assessment Year 90-91 and, therefore, 90% of the income of the nature as enumerated under explanation (baa) were not to be excluded while computing the profit for business for the purpose of computation of deduction u/s. 80HHC(3) of the I.T. Act. In view of the said decision of the Hon'ble Supreme Court, we are of the opinion that the assessee before us does not have any case. The commission called as service charges by the assessee are the receipt of the nature as laid down under the explanation (baa) and, therefore, in our opinion 90% of such receipt has to be excluded while computing deduction u/s. 80HHC. This judgment has been given by the Hon'ble Supreme Court vide its order dated 18/07/06. The Rajkot Bench has given its order on which Ld.AR has relied is dated 25/11/05, i.e., much prior to the decision of the Hon'ble Supreme Court. We also noted that even the decision of Hon'ble Madras High Court in the case of CIT v. P.R. Prabhakar (supra) which was delivered on 18.05.04 was also not considered by the Rajkot Bench. In our opinion, the facts in the case before us as well as in the case of P.R. Prabhakar are similar and there is no difference. We also noted that even the decision of Hon'ble Madras High Court in the case of CIT v. P.R. Prabhakar (supra) which was delivered on 18.05.04 was also not considered by the Rajkot Bench. In our opinion, the facts in the case before us as well as in the case of P.R. Prabhakar are similar and there is no difference. The assessee in the impugned case before us has also produced export contract for other exporters under the agreement entered into with them and has rendered various services to these export houses as enumerated under clause 1 to 6 of the agreement and in consideration thereof the assessee was paid service charges which, in our opinion, is not different from the commission or brokerage. We, therefore, are of the view that the decision of Rajkot Bench in the case of Morbi Vegetable Products Ltd. (supra) get overruled by the decision of the Hon'ble Supreme Court in the case of P.R. Prabhakar (supra), which decision is binding on us. We accordingly did not find any illegality or infirmity in the order of CIT(A) in allowing the deduction to the assessee by excluding 90% of the commission which the assessee received from the export houses in respect of which the assessee has processed the export. We accordingly confirm the order of Ld.CIT(A) in each of the case." 6. Taking into consideration the findings recorded by both the lower authorities, we find that the impugned judgment and order passed by the Tribunal is just and proper and it is not required to be interfered with. Therefore, these appeals deserve to be dismissed and the same are dismissed.