Delhi High Court

Sita World Travel (1) Ltd. vs Dy. Cit on 16 March, 2004

Equivalent citations: (2004) 91 TTJ Del 20

ORDER

Keshaw Prasad, A.M.:

While appeal for assessment year 1989-90 has been directed by the assessed against the order of the Commissioner (Appeals), dated 11-10-1996 the appeal for assessment year 1993-94 has been directed against the order of the Commissioner (Appeals), dated 1-10-1996. As the issues in both the appeals are common, the appeals are being disposed of by a consolidated order.

2. The first issue which is common to both the years related to the deduction under section 80HHD of the Act.

3. Briefly, the facts of the case are that the assessed is engaged in the business of travel agents and tour operators. When it filed the return of income, it claimed deduction under section 80HHD of the Act based on the report of the chartered accountant. During assessment proceedings, the assessing officer asked the assessed as to why the incomes on account of dividend, capital gains, interest from banks and interest from others may not be reduced from the eligible profits for the purposes of deduction under section 80HHD of the Act as these profits were not derived from the services provided to foreign tourists. The assessed furnished its reply which was considered by the assessing officer. He observed that in assessment years 1990-91, 1991-92 and 1992-93, this issue has been examined at length and deduction under section 80HHD of the Act was not allowed on the income from the above mentioned sources. The assessing officer also observed that in assessment years 1990-91 and 1991-92 even the Commissioner (Appeals) has confirmed the disallowance of deduction under section 80HHD of the Act on such incomes. Following his order for these years, the assessing officer excluded the incomes from the above sources from the eligible profits and allowed deduction under section 80HHD of the Act on the remainder. Following the Commissioner (Appeals)'s order in assessment years 1990-91 and 1991-92, the Commissioner (Appeals) upheld the action of the assessing officer which has been challenged before us.

4. It is argued by the learned counsel that admittedly the assessing officer/Commissioner (Appeals) have gone by their orders for assessment years 1990-91 to 1992-93. He stated that in assessment year 1990-91 when the assessed's claim was rejected by the Commissioner (Appeals) an appeal was preferred before the Tribunal. The Tribunal vide its order dated 25-9-2000, had adjudicated this issue. Vide, para 10 of its order, the Tribunal has held that the interest from bank received by the appellant was inextricably linked with the business activities done by the appellant. The appellant was, therefore, entitled to deduction under section 80HHD on the interest income received from bank. Even in assessment year 1992-93, the Tribunal had adjudicated this issue vide its order dated 11-9-2001 in which it has followed the earlier order of the Tribunal. The learned counsel stated that this was squarely covered by the order of the Tribunal in appellant's own case and, therefore, the assessing officer may be directed to allow deduction under section 80HHD on the interest income. Regarding other incomes no arguments were made. On the other hand, learned Departmental Representative relied on the decision of Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT (2003) 262 ITR 278 (SC) and the decision of Hon'ble Kerala High Court reported in Nanji Topan Bhai & Co. v. Asstt. CIT (2000) 243 ITR 192 (Ker). In counter arguments, the learned counsel stated that the decision of Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT (supra) was not with reference to deduction under section 80HHD of the Act. In that case, the issue related to the deduction under section 80HH of the Act whereas in the appellant's case, the deduction under section 80HHD was involved. He stated that profits for claiming deduction under section 80HH was altogether different from the profits eligible for deduction under section 80HHD. He stated that section 80HH applies for deduction "where the gross total income of an assessed includes any profits and gains derived from an industrial undertaking". The word "derived" has not been defined in this section. How the business profits will be computed for deduction under section 80HH has also not been provided. But section 80HHD was altogether different. Sub-section (3) of section 80HHD has prescribed the computation of amount which will be treated as profits derived from services provided to foreign tourists. Similarly, the computation of profits is also given. As the Tribunal in the earlier years has held the interest income to be business income, the profits will have to be treated as profits derived from services provided to the foreign tourists. He stated that the provisions of section 80HHD of the Act were akin to the provisions of section 80HHC of the Act. While relying on the Special Bench decision in the case of International Research Park Lab. v. Assistant Commissioner (1994) 50 M (Del)(SB) 661 : (1995) 212 ITR 1 (Del) (SB) (AT), the learned counsel heavily relied on the decision of Jaipur, Special Bench in the case of Rajeev Enterprises v. Assessing Officer (2003) 78 TTJ (Jp)(S8) 330. He stated that the Tribunal has held that the interest income was the business income and, therefore, eligible for deduction under section 80HHC of the Act. The learned counsel also referred to the findings of the Tribunal in para 31 of its order in which it was held that what was to be taken into account was profits and gains of business in the same proportion which the export turnover bore to the total turnover. It was not necessary that every receipt to qualify for the deduction must be "derived from export of goods or merchandise". It was enough if the income was part of the profits and gains of business. The learned counsel stated that in view of the Tribunal order in earlier years, there is no dispute that the interest was the part of the profits and gains of business or profession. He referred to the decisions of Hon'ble Bombay High Court reported in CIT v. Shrike Construction Equipments Ltd. (2000) 246 ITR 429 (Bom), Hon'ble Madras High Court decision reported in CIT v. N.S.C. Shoes (2002) 258 ITR 749 (Mad). The learned counsel also stated that Hon'ble Madras High Court in the above reported case though denied deduction under sections 80HH and 80-1 of the Act, it allowed deduction under section 80HHC of the Act. The learned counsel stated that as section 80HHD was akin to section 80HHC, the appellant was entitled to deduction under section 80HHC on the interest income. He also relied on the decision of Bangalore Bench of the Tribunal reported in Mrs. Rhona Varghese v. CGT (2003) 131 Taxman 139 (Ker) which was directly on section 80HHD of the Act. While relying on the decision reported in N.R. Paper & Board Ltd. & Ors. v. Dy. CIT (1998) 101 Taxman 525 (Guj), the learned counsel stated that the doctrine of precedent cannot be given a go by. This doctrine of precedent has to be followed. He stated that the department's reliance on the decision of Hon'ble Supreme Court in the case of Pandian Chemicals (supra) was, therefore, misplaced. While relying on the decisions reported in CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC), CIT v. N. Krishnan (1998) 233 ITR 646 (Ker) and Vipan Khanna v. CIT (2002) 255 ITR 220 (P&H), the learned counsel stated that the Hon'ble Courts have given guidelines as to how to read the Supreme Court judgment. He stated that the judgment of the Hon'ble Kerala High Court in the case reported in Nanji Topan Bhai & Co. v. Assistant Commissioner (supra) is also not relevant because the Hon'ble Kerala High Court had not considered the provisions of section 80HH (3) of the Act. It was stated that while section 80HHC was amended by inserting Expln. (baa) of the Act, no amendment was brought to the provisions of section 80HHD of the Act. Learned counsel stated that even after the insertion of Expln. (baa), it was clear that the interest income could not always be assessed under the head "Income from other sources". He, therefore, pleaded that the deduction under section 80HHD may be allowed on the interest income received by the appellant.

5. We have considered the rival submissions. The appellant has claimed deduction under section 80HHD of the Act on certain incomes including interest income. This section reads as under :

"Section 80HHD(l)-Where an assessed, being an Indian company or a person (other than a company) resident in India, is engaged in the business of a hotel or of a tour operator, approved by the prescribed authority in this behalf or of a travel agent, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessed a deduction of a sum equal to the aggregate of

(a) fifty per cent of the profits derived by him from services provided to foreign tourists; and

(b) so much of the amount out of the remaining profits referred to in clause (a) as is debited to the P&L a/c of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessed in the manner laid down in sub-section (4)."

6. In the earlier years also, the appellant had claimed deduction under section 80HHD of the Act which has been allowed by the Tribunal by treating the interest income as profits and gains derived from services to the foreign tourists. Thus, the issue was squarely covered in favor of the appellant by the decision of the Tribunal in the appellant's own case. Following the rule of consistency and precedence such decision has to be followed unless the facts were different or there was change in law. We find that by placing reliance on the decision of Hon'ble Supreme Court in the case of Pandian Chemicals (supra), the revenue has stated that due to decision of the Hon'ble Supreme Court in this case, there was change in the law. We have, therefore, examined the effect of Hon'ble Supreme Court decision in the case before us. Admittedly, the Hon'ble Supreme Court decision was in the context of deduction under section 80HH of the Act. In that case, the assessed had deposited certain amounts with the electricity board for obtaining the electric connection. Certain interest was earned on that deposit. The question arose as to whether the interest earned on such deposits was business profits derived from the industrial undertaking. The Hon'ble Supreme Court negatived the claim and while doing so, the Hon'ble court held that the derivation of profits on the deposits made with the electricity board cannot be said to flow directly from the industrial undertaking itself. But in the case before us, the profit has been derived directly from the services rendered to the foreign tourists. As mentioned earlier, the business of the appellant was to organise tour operation for foreign tourists. The organisation of tour also included booking of the hotel, transportation with various airlines. For this purpose, the appellant had received certain amount in Advance from the foreign tourists and the same was deposited in banks There is an International Air Transport Association (IATA) which an international apex body of both International Air Lines and travel agents as members and the assessed being agent of this association, is required to fulfill certain conditions of IATA and if it fails to fulfill any of the conditions laid down by IATA, then its agency will be cancelled immediately or the action for cancellation will be initiated after receiving the complaint against the agent.

Therefore, the assessed has to maintain certain cash balances in his hand or in the bank. Therefore, it was forced to keep balance in bank. Therefore, the amount which was received in advance was deposited in bank in the shape of FDRs on which the assessed received interest income. Therefore, this income is inextricably linked with the business activity of the assessed as there is no purpose of the assessed to do any other business. The Tribunal had examined this issue in the earlier years and has held that the. interest income was the business income derived from the services rendered to the foreign tourists.

7. Moreover, the provisions of section 80HHD were altogether different than the provisions of section 80HH of the Act which was the issue in the case of Pandian Chemicals (supra). Section 80HH provides for deduction where the gross total income "includes any profits and gains derived from an industrial undertaking". The section has not defined the word "derived" nor it has provided for computation of profits which will be eligible for deduction under section 80HH of the Act. The section 80HHD of the Act does not talk of profits derived from industrial undertaking, This section provides for deduction of the profits derived by the appellant from services provided to foreign tourists". Further sub-section (3) of section 80HHD of the Act has provided the formula for computation of the profits "derived from services provided to the foreign tourists". Similarly, section 80HHC(l) of the Act has prescribed the deduction of profits "derived by the assessed from the export of such goods or merchandise". Sub-section (3) has provided as to how the profits derived from the export of goods or merchandise has to be computed., Therefore, the provisions of section 80HHD of the Act were akin to the provisions of section 80HHC of the Act and not section 80HH of the Act. In various cases, the Hon'ble Court/Benches of the Tribunal as indicated earlier have held that the assesseds would be entitled to deduction under section 80HHC of the Act even if it was not entitled to deduction under section 80HH/80-I of the Act. The Jaipur Special Bench of the Tribunal in the case of Rajeev Enterprises (supra) while adjudicating the deduction under section 80HHC of the Act has held that what was to be taken into account was profits and gains of business in the same proportion which export turnover bore to the total turnover. It was not necessary that every receipt to qualify for the deduction must be "derived" from export of goods or merchandise. It would be sufficient if such income forms part of profits and gains of business, Keeping in view this decision and the decision of the Tribunal in the appellant's own case, there is no dispute that the profits by way of interest from bank was the business profits assessable under the head "Profits and gains of business or profession".

8. In view of above facts, we hold that the ratio laid down by the Hon'ble Supreme Court in the case of Pandian Chemicals (supra), does not apply to the appellant's case for deduction under section 80HHD of the Act. Concurring with the findings of the Tribunal in the earlier years, we hold that the appellant was entitled to deduction under section 80HHD of the Act on the interest income received from the bank. The assessing officer is directed to allow deduction under section 80HHD of the Act on such income in both the years. However, as no arguments on other incomes have been raised by the learned counsel, we hold that the Commissioner (Appeals) was justified in rejecting the claim of the assessed on other incomes. The issue raised by the assessed in both the years is, therefore, partly allowed.

9. Second issue which is common in both the years related to the levy of interest under section 234B of the Act. As this ground of appeal is consequential in nature, we direct the assessing officer to recalculate the interest under section 234B of the Act, if any, on the basis of income determined as per our order.

10. In assessment year 1993-94, the appellant has raised the ground relating to the write back of unclaimed credit balances. It was fairly conceded by the learned counsel that in the earlier years, this issue has been decided by the Tribunal against the appellant. 'As no new facts have been brought on record, concurring 'with the same,' we hold that the Commissioner (Appeals) has rightly rejected the claim of the appellant on this issue.

11. In the result, both the appeals directed by the assessed are partly allowed.