M/S Lotus Trans Travels P. Ltd. vs Commissioner Of Income Tax
2010 Latest Caselaw 5917 Del

                                           Reportable

*                IN THE HIGH COURT OF DELHI AT NEW DELHI

+                                          ITA No. 241 of 2004
                                           ITA No. 466 of 2007
                                           ITA No. 113 of 2009
                                           ITA No. 616 of 2007

%                                               Reserved On: November 16, 2010
                                               Pronounced On: December 24, 2010

(1)     ITA No.241 of 2004

M/S LOTUS TRANS TRAVELS P. LTD.           . . .APELLANT
                     Through: Mr. Ajay Vohra with Ms.
                                Kavita Jha, Mr. Somnath
                                Shukla and Ms. Akansha
                                Aggarwal, Advocates.
                 VERSUS

COMMISSIONER OF INCOME TAX                . . . RESPONDENT
                       Through : Mr. Sanjeev Sabharwal,
                                 Ms.   Prem      Lata Bansal,
                                 Advocates.
(2) ITA No.113 of 2009

M/S LOTUS TRANS TRAVELS P. LTD.            . . . APPELLANT
                     Through : Mr. Ajay Vohra with Ms.
                                Kavita Jha, Mr. Somnath
                                Shukla and Ms. Akansha
                                Aggarwal, Advocates
                 VERSUS

COMMISSIONER OF INCOME TAX                                    . . .RESPONDENT
                    Through:                         Mr. Sanjeev Sabharwal,
                                                     Ms.   Prem     Lata Bansal,
                                                     Advocates.
(3)     ITA No.466 of 2007

M/S LOTUS TRANS TRAVELS P. LTD.           . . . APPELLANT
                     Through : Mr. Ajay Vohra with Ms.
                                Kavita Jha, Mr. Somnath
                                Shukla and Ms. Akansha
                                Aggarwal, Advocates
                 VERSUS

COMMISSIONER OF INCOME TAX                                     . . .RESPONDENT
                    Through:                         Mr. Sanjeev Sabharwal,
                                                     Ms.   Prem     Lata Bansal,
                                                     Advocates




ITA No. 241/2004, 466/2007,113/2009,616/2007                            Page 1 of 8
 (4)     ITA No.616 of 2007

M/S LOTUS TRANS TRAVELS P. LTD.            . . . APPELLANT
                     Through : Mr. Ajay Vohra with Ms.
                                Kavita Jha, Mr. Somnath
                                Shukla and Ms. Akansha
                                Aggarwal, Advocates
                 VERSUS

COMMISSIONER OF INCOME TAX                            . . .RESPONDENT
                    Through:                   Mr. Sanjeev Sabharwal,
                                               Ms.   Prem     Lata Bansal,
                                               Advocates.
CORAM :-

        HON'BLE MR. JUSTICE A.K. SIKRI
        HON'BLE MR. JUSTICE SURESH KAIT

1.      Whether Reporters of Local newspapers may be allowed
        to see the Judgment?
2.      To be referred to the Reporter or not?
3.      Whether the Judgment should be reported in the Digest?


A.K. SIKRI, J.

1. All these appeals raise a common question of law in respect of

the same assessee but pertaining to four different assessment years.

That is the reason of filing four appeals which were heard together

and are being disposed of by this judgment.

2. Appeals were admitted on the following substantial question of

law:-

"Whether the Income-Tax Appellate Tribunal was justified in law in holding that the interest on a fixed deposits in banks and another interest were not eligible for deduction under Section 80 HHD of the Income-Tax Act, 1961?"

3. The facts which are necessary for deciding the question of law

may now be spelled out.

4. The appellant, a private limited company is a tour operator. It

is approved by the Department of Tourism, the prescribed authority

for the purposes of Section of 80 HHD of the Income Tax Act

(hereinafter referred to as the „Act‟). The appellant arranges tours

primarily for Japanese tourists visiting the Buddhist Circuit in India.

The appellant receives advances from the travelling group prior to

the group landing in India, in order to make necessary arrangements

for their stay, transportation etc. Advances received in foreign

exchange are deposited by the appellant in bank (s) in India in short-

term deposits on which interest has been earned by the appellant.

The appellant claimed deduction under Section 80 HHD of the Act by

apportioning the profits assessable under the head "profits and gains

of business or profession" (including interest income) in the ratio of

receipts in foreign exchange (excluding interest income) to total

receipts of business. The income was shown as "other income" in

the tax return. The Assessing Officer accepted the interest income,

in the nature of business income assessable under the head "profits

and gains of business or profession". He, however, held that since

interest income was not derived from the business of providing

services to foreign tourists, the same did not qualify for deduction

under Section 80HHD of the Act.

5. The CIT (A) accepted the deduction as claimed by the

appellant. On further appeal by the Revenue, the Tribunal, however,

reversed the order of the CIT (A) and restored that of the Assessing

officer holding that since interest income was not derived from the

business of providing services to foreign tourists, the same could not

enter the computation of deduction under Section 80HHD of the Act.

6. The submissions of Mr. Vohra was that "profits derived from

services provided to foreign tourists" has to be quantified as per the

statutory formula prescribed in sub-section (3), viz., by apportioning

profits of the business as computed under the head "profits and

gains of business or profession‟ in the ratio of receipts in convertible

foreign exchange to total receipts of the business carried on by the

assessee. The fictional/artificial formula provided in sub-section (3)

mandates the manner in which the deduction admissible under

Section (1) of Section 80HHD of the Act has to be computed. The

formula admits of no deviation/brooks no interference. He referred

to and relied upon the special Bench decision of the Tribunal in

International Research Park Laboratories Ltd. Vs. ACIT, 212

ITR 1, which related to Section 80 HHC of the Act (before its

amendment w.e.f. 1st April, 1992), where the Tribunal has held that

deduction under the said section had to be computed only in

accordance with the statutory/strait jacket formula in sub Section

(3). Mr. Vohra submitted that this reasoning of the Tribunal is

approved by the Supreme Court in the case of P.R. Prabhakar Vs.

CIT. 284, ITR 548. He also referred to another decision of Supreme

Court in the case of Baby Marine Exports, 290 ITR 323 wherein the

Court reiterated the position of law that deduction under Section 80

HHC had to be quantified with reference to profits computed under

the head "profits and gains of business or profession", even though

not strictly derived from export. In that case, it was held that export

premium received by supporting manufacturer for sale of goods to

Export House formed part of business profits and consequently

deduction under Section 80HHC of the Act was admissible with

reference thereto.

7. According to Mr. Vohra, the principle of law discernible from

the aforesaid judgments, rendered in the context of Section 80HHC

is equally applicable while interpreting Section 80HHC of the Act,

which is identically worded and was introduced with the same

legislative intent of encouraging earning of precious foreign

exchange. In that view of the matter, in the respectful submission of

the appellant, the interest income accepted and assessed as "profits

and gains of business or profession", must necessarily enter the

computation of deduction under section 80HHD of the Act, in terms

of the statutory formula contained in Section (3) of the said Section.

It needs to be appreciated that the formula is universally applicable

and cuts both ways: it may hurt some assessees while causing

unintended benefits to some others. The consequences flowing from

the application for the statutory formula, in the nature of deeming

fiction, should not unnecessarily prejudice the mind of the Court and

the statutory fiction enacted as part of law must be taken to its

logical conclusion.

8. His concluding submission was that section 80 HHD being a

beneficial provision, intended to boost earning precious foreign

exchange for the country, must receive liberal construction (refer

Bajaj Tempo Ltd. Vs. CIT, 196 ITR 188, P.R. Prabhakar and

CIT Vs. Baby Marine Exports, (supra))

9. Learned counsel for the department, on the other hand,

contended that since the interest income was not "derived from"

services rendered to foreign tourists, the same did not qualify for

deduction under Section 80HHD of the Act. It was also argued that

if the interest income was not in the nature of business income

and it was described by the assessee itself as "other income" it had

to be treated as "income from other sources" and, therefore, it

could not qualify for deduction under Section 80 HHD of the Act on

this ground also.

10. Section 80 HHD of the Act gives certain benefits to those

engaged in the business of hotel or tour operator. If such assessees

make earnings in convertible foreign exchange than to the extent of

those earnings deduction is allowed in computing the total income of

the assessee in the manner specified in said provision. To qualify for

this deduction it is the pre-condition that the profits derived by such

assessee are "from services provided to foreign tourists". As

mentioned above, the assessee is a Tour Operator. Its earnings are

from Japanese tourists visiting the Buddhist circuit in India. Those

earnings are in convertible foreign exchange. It is not in dispute that

the assessee is entitled to deduction on such income. However, the

assessee also wants interest earned on advances received in foreign

exchange by making deposits in banks in India as short term

deposits. Whether this interest would qualify as "profits derived

from services provided to foreign tourists", is the question. The

entire matter has to be examined from this angle leaving aside the

technical jargons and legal luances.

11. The expression "derived from" has come up for interpretation

in the case of Commissioner of Income Tax Vs. Sterling Foods,

Banglore, 237 ITR 579. In that case, it was authoritatively

pronounced by the Supreme Court that there has to be a direct

nexus between the profits and gains and the industrial undertaking.

This view was reiterated by the Apex Court in Hindustan Liver Ltd.

Vs. CIT, 239 ITR 297. In a recent judgment pronounced by the

Supreme court in the case of Liberty India Vs. Commissioner of

Income Tax [317 ITR 218], the principle is revisited in a more lucid

manner. The Court reiterated the distinction between the expression

"derived from" and considered the expression "derived from" in

contra distinction the term "attributable to" and held that the

connotation of the words "derived from " is narrower as compared to

that of the words "attributable to". By using the expression "derived

from", Parliament intended to cover sources not beyond the first

degree. The Apex Court further opined that on analysis of Sections

80IA and 80IB, it becomes clear that any industrial undertaking

which becomes eligible on satisfying sub-Section (2) would be

entitled to deduction under sub-section (1) only to the extent of

profits derived from such industrial undertaking after the specified

date. Apart from eligibility, sub-section (1) purports to restrict the

quantum of deduction to a specified percentage of the profits. This

is the importance of the words "derived from an industrial

undertaking" as against "profits attributable to an industrial

undertaking". On this principle, the Court held that DEPB/Duty

drawback incentives which flow from the scheme framed by the

Central Government or from the provisions of Customs Act, 1962

cannot be treated as incentive profits from eligible business under

Section 80IB of the Act.

12. If one has regard to the aforesaid pronouncement of the Apex

Court, attributing the restricted meaning to the word "derived from",

the answer to the question before us becomes too obvious. The

interest income is not derived from the foreign tourists. It is the

deposit which is made of the advances received from those foreign

tourists which is kept in the bank account and interest is received

there from. Such an interest cannot be treated to be derived from

the services provided to the foreign tourists. This interest income is

not the result of services provided to those foreign tourists. Rather,

further income is earned from the income generated from the

services provided to those foreign tourists which source obviously

becomes beyond the first degree. There is another difficulty in the

way of the assessee. Such profit derived from "services provided to

foreign tourists" should be in convertible foreign exchange income in

question is received from banks in India in Indian currency and not in

foreign exchange. By no stretch of imagination, the assessee can

take benefit thereof for the purpose of Section 80HHD of the Act.

13. We, therefore, answer the question in favour of the Revenue

and against the assessee. As a result, these appeals are dismissed.

(A.K. SIKRI) JUDGE

(SURESH KAIT) JUDGE

DECEMBER 24, 2010 skb