Commissioner of Income Tax and Another vs Ace Designers Ltd.

N. Kumar, J.—This appeal was admitted to consider the following substantial questions of law :

(i) Whether the Tribunal was correct in holding that customs duty paid of Rs. 16,94,789 relating to imports made during the previous year has to be allowed as a deduction under s. 43B of the Act despite taking into account the fact that the customs duty paid has already been debited to P&L a/c by adding to purchasing cost of raw materials which has already been debited to P&L a/ c and consequently failed to record a finding ?

(ii) Whether the Tribunal was correct in holding that the export turnover of Rs. 28.85 not received within the stipulated period as per Expln. 2 to s. 80HHC(2)(a) of the Act can also be taken into account for the purpose of computing deduction by applying to CIT for condonation of delay as per the Board Circular No. 14(XI)30 of 1995, dt. 11th April, 1995 ?

(iii) Whether the Tribunal is correct in holding that the assessee is entitled to deduction under s. 80HHC of the Act without including the sales-tax and excise duty paid during the assessment year by the assessee when computing the total turnover before computing the deduction ?

(iv) Whether the Tribunal wafc correct in holding that 90 per cent of servicing/reconditioning charges of Rs. 8,19,774 and packing and forwarding charges of Rs. 18,23,233 cannot be reduced as per Expln. (baa) to s. 80HHC of the Act for the purpose of computing deduction under s. 80HHC as held by the AO and confirmed by the CIT(A) as they are not in the nature of charges ?

(v) Whether the Tribunal was correct in holding that even though assessee is not manufacturing packing material the charges received towards packing material and forwarding charges should be treated as part of gross total income for the purpose of claiming deduction under s. 80-1 of the Act especially in view of s. 80-I(lA) of the Act and the judgments of this Honble Court in Commissioner of Income Tax Vs. Siddaganga Oil Extractions Pvt. Ltd., and judgment of Honble Supreme Court in Commissioner of Income Tax, Karnataka Vs. Sterling Foods, Mangalore, ?

(vi) Whether the Tribunal is correct in holding that since separate accounts for expenses incurred in earning dividend income is not maintained, it is not open to the AO to estimate the expenses at 5 per cent of the gross dividend before allowing claim under s. 80M of the Act by relying on one other judgment of the Honble Tribunal which has not been accepted by the Revenue and appealed against ?

The first substantial question of law is covered by the judgment of the apex Court in the case of Berger Paints India Ltd. Vs. Commissioner of Income Tax, Calcutta, where it is held that, s. 43B provides that the entire amount of excise duty/customs duty paid by the assessee in a particular accounting year is an allowable deduction in respect of that year irrespective of the amount of excise duty/ customs duty which was included in the valuation of the assessees closing stock at the end of the accounting year.

In the instant case, a sum of Rs. 16,94,789 was the customs duty paid, which was in the cost of raw materials and subsequently the said amount was deducted from the closing stock. Therefore, the said deduction was done in the very; year when it was paid. In the light of the aforesaid undisputed facts, the finding recorded by the Tribunal cannot be found fault with. Hence the first substantial question of law is answered in favour of the assessee and against the Revenue.

Insofar as the second substantial question of law is concerned, the Tribunal has remitted the matter back to the CIT for consideration of the application for condonation of delay as the export receipts are received beyond the stipulated period. Therefore, as no finding is recorded on the said question, ithe second substantial question of law is not answered.

Insofar as the third substantial question of law is concerned, the same is also concluded by the judgment of the apex Court in the case of Commissioner of Income Tax, Coimbatore Vs. Lakshmi Machine Works, , where the apex Court has held that s. 80HHC of the IT Act, 1961, is a beneficial section. It is. intended to provide an incentive to promote exports. The intention was to exempt profits relatable to exports. Just as commission received by the assessee is relatable to exports and yet it cannot form part of turnover for the purposes of s. 80HHC, excise duty and sales-tax also cannot form part of turnover. Just as interest, commission, etc. do not emanate from the turnover so also excise duty and sales-tax do not emanate from such turnover. Since excise duty and sales-tax do not involve any such turnover, such tax had to be excluded. Commission, interest, rent, etc., do yield profits, but they do not partake the character of turnover and therefore they are not includible in the total turnover. If so, excise duty and sales-tax also cannot form part of the total turnover under s. 80HHC(3). In that view of the matter, the third substantial question of law is answered in favour of the assessee and against the Revenue.

Insofar as the fourth substantial question of law is concerned, i.e., holding that 90 per cent of servicing/reconditioning charges of Rs. 8,19,774 and packing and forwarding charges of Rs. 18,23,233 cannot be reduced as per Expln. (baa) to s. 80HHC of the Act is concerned, even here, the law on the point is well-settled. What cannot be reduced is specifically provided under Expln. (baa) to s. 80HHC. In the instant case, the servicing/reconditioning charges, packing and forwarding charges which are allowed are not the items which fall under the Expln. (baa). In fact, packing, forwarding charges, servicing/reconditioning charges are intimately connected with the export business conducted by the assessee. In that view of the matter, the aforesaid question is answered in favour of the assessee and against the Revenue.

Insofar as the fifth question of law is concerned, it is not in dispute that the assessee was not in the manufacture of packing material. But he needed the packing material to export the goods which he had manufactured even for local sales. Therefore, this packing material was intimately connected with the goods which he was exporting or which he was selling. Therefore the same cannot be bifurcated. Therefore in the facts and circumstances of this particular case, the assessee was entitled to claim deduction under s. 80-1(2). Accordingly, the said question is answered in favour of the assessee and against the Revenue.

Insofar as the sixth substantial question of law is concerned, it is covered by the judgment of this Court in the case of Maharashtra Apex Corporation Ltd. Vs. The Commissioner of Income Tax, , wherein it was held that deduction under s. 80M of the Act cannot be made on a notional basis unless the assessee incurs any expenditure, the same cannot be deducted. In that view of the matter, the said substantial question of law is also answered in favour of the assessee and against the Revenue.

We do not find any merit in this appeal. Accordingly it is dismissed.