Madras High Court
M/S.Fab N Fabrics vs The Assistant Commissioner Of ... on 17 October, 2022
T.C.A. No.115 of 2009
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 17.10.2022
CORAM
THE HONOURABLE MR.JUSTICE S.VAIDYANATHAN
and
THE NONOURABLE MR.JUSTICE C.SARAVANAN
T.C.A. No.115 of 2009
M/s.Fab N Fabrics
Suriyan Nagar, ABT Road
New Extension
Karuvampalayam
Tirupur - 641 607 .. Appellant
Vs.
The Assistant Commissioner of Income-Tax
Circle-I
Tirupur .. Respondent
***
Prayer : Tax Case Appeal filed under Section 260A of the Income Tax
Act, 1961, against the order of the Income Tax Appellate Tribunal,
Chennai 'A' Bench dated 19.08.2008 made in ITA No.196/Mds/2007.
***
For Appellant : Mr.C.J.Yeswanthram
for Mr.K.Vaitheeswran
For Respondent : Mrs.S.Premalatha
for Mr.Swaminathan,
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T.C.A. No.115 of 2009
Senior Standing Counsel
JUDGMENT
S.VAIDYANATHAN, J.
AND
C.SARAVANAN, J.
The appellant has filed this appeal against the order of the Income
Tax Appellate Tribunal, Chennai 'A' Bench dated 19.08.2008 made in ITA
No.196/Mds/07. By the impugned order, the Tribunal has reversed the
decision of the Appellate Commissioner dated 13.10.2006 granting relief
to the appellant herein. Earlier, the assessment was completed and an
assessment order came to be passed under Section 143(3) r/w Section
147 of the Income Tax Act on 24.03.2006, whereby, 90% of the income
derived by the appellant from processing charges was deducted for the
purpose of determining the export turnover in terms of the decision of
the Hon'ble Supreme Court in CIT vs. K.Ravindranathan Nair reported
in (2007) 295 ITR 228.
2. When this appeal was admitted, this court had framed the
following question as the substantial question of law for the purpose of
answering the same under Section 260A of the Income Tax Act:
" Whether, on the facts and circumstances of the
case, the Tribunal was right in law in holding that receipts
such as fabrication charges, embroidery charges etc.,
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T.C.A. No.115 of 2009
have no nexus with the export activity and warrants only
10% deduction as per Explanation (baa) to Section
80HHC of the Income Tax Act, 1961 while calculating
business profit?
3. The impugned order of the Tribunal is sought to be assailed by
the learned counsel for the appellant by stating that the observations in
paragraph 21 of the decision of the Hon'ble Supreme Court in CIT vs.
K.Ravindranathan Nair was merely an obiter and cannot be construed
as a ratio and therefore, the substantial question of law, has to be
answered in favour of the appellant herein. Specifically, the learned
counsel for the appellant stated that the scope of the dispute which
arose before the Hon'ble Supreme Court in the above case was,
whether the department was right in including processing charges,
amounting to Rs.1,54,68,811/- in the total turnover while arriving at
export profits under Section 80HHC(3) of the Act, as it stood at the
material time. It is, therefore, submitted that the observation in
paragraph 21 of the above said case has been wrongly applied to the
facts of the present case. That apart, the learned counsel for the
appellant has also referred to few other decisions, which are as below:
(i) CIT Vs. Bangalore Clothing Co. (2003) 260 ITR 371;
(ii) Ingersoll-Rand (India) Ltd. vs. DCIT (2020) 427 ITR 158;
(iii) CIT vs. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297;
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T.C.A. No.115 of 2009
and
(iv) Circular No.691 of 1991 dated 19.12.1991.
4. Learned standing counsel appearing for the Income Tax
department defended the impugned order of the Tribunal and submitted
that the present appeal is liable to be dismissed, as not only the issue
has been answered against the assessee in the above cited case of the
Hon'ble Supreme Court, but also in the case of VTM Limited vs.
Deputy Commissioner of Income Tax dated 23.02.2021 in T.C.A.
Nos.817 & 818 of 2010.
5. We have considered the arguments advanced by the learned
counsel appearing for the appellant and the learned standing counsel
appearing for the Income Tax Department.
6. We have no doubt in applying the ratio of the Hon'ble Supreme
Court in Ravindranathan Nair's case. In paragraph 21, the Hon'ble
Supreme Court has clearly explained the scope of explanation to Section
80HHC with the following observations:
"21. At the outset, we may state that, in the present
case, we are dealing with the law as it stood during
assessment year 1993-94. At that time section 80HHC(3) of
the Income-tax Act constituted a Code by itself. Subsequent
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T.C.A. No.115 of 2009
amendments have imposed restrictions/qualifications by
which the said provision has ceased to be a Code by itself. In
the above formula there existed four variables, namely,
business profits, export turnover, total turnover and 90 per
cent of the sums referred to in clause (baa) to the said
Explanation. In the computation of deduction under section
80HHC all four variables had to be taken into account. All
four variables were required to be given weightage. The
substitution of section 80HHC(3) secures profits derived from
the exports of eligible goods. Therefore, if all the four
variables are kept in mind, it becomes clear that every
receipt is not income and every income would not necessarily
include element of export turnover. This aspect needs to be
kept in mind while interpreting clause (baa) to the said
Explanation. The said clause stated that 90 per cent of
incentive profits or receipts by way of brokerage,
commission, interest, rent, charges or any other receipt of
like nature included in Business Profits, had to be deducted
from Business Profits computed in terms of sections 28 to
44D of the Income-tax Act. In other words, receipts
constituting independent income having no nexus with
exports were required to be reduced from Business Profits
under clause (baa). A bare reading of clause (baa)(1)
indicates that receipts by way of brokerage, commission,
interest, rent, charges, etc., formed part of gross total
income being Business Profits. But for the purpose of working
out the formula an din order to avoid distortion of arriving
export profits clause (baa) stood inserted to say that
although incentive profits and "independent incomes"
constituted part of gross total income, they had to be
excluded from gross total income because such receipts had
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T.C.A. No.115 of 2009
no nexus with the export turnover. Therefore, in the above
formula, we have to read all the four variables. On reading all
the variables it becomes clear that every receipt may not
constitute sale proceeds from exports. That, every receipt is
not income under the Income-tax Act and every income may
not be attributable to exports. This was the reason for this
court to hold that indirect taxes like excise duty which are
recovered by the tax payers for and on behalf of the
Government, shall not be included in the total turnover in the
above formula (See: CIT v. Lakshmi Machine Works 2006
(6) Scale 168/290 ITR 667 (SC)."
7. In the light of the above decision of the Hon'ble Supreme Court,
we are of the view that the substantial question of law raised in this case
has to be answered against the appellant. Accordingly, the appeal is
liable to be dismissed.
8. Tax Case Appeal is dismissed. No costs.
[S.V.N., J.] [C.S.N., J.]
17.10.2022
Asr
To
The Assistant Commissioner of Income-Tax
Circle-I
Tirupur
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T.C.A. No.115 of 2009
S.VAIDYANATHAN, J.
and
C.SARAVANAN, J.
asr
T.C.A. No.115 of 2009
Dated : 17.10.2022
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