ORDER
S. Bandyopadhyay, A.M.
The first ground in this appeal filed by the assessee relates to the disallowance of an amount of Rs. 10,041 being of the nature of local conveyance expenses, but considered under section 37 of the Act as guest house expenditure.
2. The assessing officer discusses in this connection that the total expenditure on guest house maintenance was Rs. 24,96,062. Besides maintenance, depreciation, repairs, etc. this aggregate amount includes also the local conveyance of Rs. 10,041. The Commissioner (Appeals) has disallowed the appellate ground in this regard by simply commenting that local conveyance was in respect of staff of the guest house and hence is required to be disallowed.
The assessee agitates against the above disallowance.
3. The learned counsel for the assessee strongly contends that the local conveyance expenses cannot be considered to be expenses incurred for or in connection with the maintenance of the guest house.
4. We are, however, not in agreement with the contention on behalf of the assessee. The learned counsel for the assessee had admitted before us that the local conveyance expenses under consideration related to the staff located at the guest house and hence the expense should be considered to be closely connected with the maintenance of the guest house inasmuch as the local conveyance should be treated as having been incurred for the purpose of fetching things and articles required for maintenance of the guest house. The assessee itself seems to have included the local conveyance expenses within the guest house expense and also came up with the break-up of the guest house expenses in that manner (by including the local conveyance expenses) before the assessing officer, Otherwise, the assessing officer would not have got any separate idea about the local conveyance expenses incurred by the staff of the guest house. In essence, therefore, the assessee admits that the local conveyance expenses were a part and parcel of the expenses incurred by it for maintenance of the guest house. As such, we agree with the departmental contention that the local conveyance expenses are intimately connected with the maintenance of the guest house and were also incurred for that very purpose alone. We, therefore, uphold the action of the lower authorities in disallowing the amount under consideration.
5. The second and third grounds relate to the question of inclusion/exclusion of brokerage, commission and other selling charges within “export turnover” for the purpose of computation of deduction under section 80HHC. In the assessment order, the assessing officer refers to the definition of export turnover as given in Explanation (b) to sub-section (4A) of section 80HHC to be the sale proceeds received in and brought into India in convertible exchange. What has been seen, in the circumstances of the case, is that from the gross sale proceeds of tea abroad, the assessee diverted expenses like commission and brokerage payable to the foreign agents in foreign country and brought the net proceeds thereby to India. The assessee had asked for the permission of the RBI to adjust the expenses by way of commission and brokerage against the gross sale proceeds. The assessing officer thus argues that the figure of “export turnover” should be taken at the net figure of sale proceeds after deducting the amounts of commission and brokerage paid from the gross figure of sale proceeds. The Commissioner (Appeals) has upheld the said action of the assessing officer.
6. Before us, it is strongly contended by the learned counsel for the assessee that the sale of tea abroad and receipt of gross sales proceeds, in the process, is a completely different operation than payment of brokerage and commission thereon. It is stated that since the assessee was required to make payment of brokerage and commission to the foreign agents in foreign country outside India, the RBI granted the assessee permission to adjust the said payment out of the aforesaid receipt of gross sale proceeds. He says, otherwise, the assessee should have clearly brought the gross sale proceeds to India and made separate remittance of the commission and brokerage. It is argued that in such a case, the department would not have any point to argue that the amounts of commission and brokerage paid outside India would have to be deducted from the figure of gross sale proceeds for the purpose of arriving at the figure of “export turnover”. In this connection, the learned counsel for the assessee relies on the judgment of the Supreme Court in the case of J.B. Boda & Co. (P) Ltd. v. CBDT (1997) 223 ITR 271 (SC) at 281. The circular of the Central Board of Direct Taxes No. 731, dated 20-12-1995 (published at (1996) 130 CTR (St) 1) with regard to the issue of allowance of deduction under section 80-O has also been referred to in this connection. Further reliance has also been placed on the judgment of the Tribunal, Delhi Bench in the case of Capt. K.C. Saighal v. ITO (1995) 54 ITD 488 (Del).
7. On the other hand, the learned Departmental Representative relies on another judgment of the Supreme Court in the case of Sea Pearl Industries & Ors. v. CIT (2001) 247 ITR 578 (SC) at page 583 to argue that the object of allowing deduction under section 80HHC is to encourage the earnings of foreign exchange. The learned Departmental Representative argues in this connection that inasmuch as the brokerage and commission had to be paid out of the gross sale proceeds, the net amount actually earned by the assessee by way of foreign exchange is required to be taken into consideration.
8. We are of the opinion that the expression “export turnover” denotes gross sale proceeds. The relevant definition with effect from 1-4-1991, simply speaks of exclusion of freight or insurance attributable to the transport of goods or merchandise behind the customs station. There is no provision in the Act about exclusion of commission and brokerage also from the gross figure of sale proceeds. However, in the instant case, the departmental stands seems to be that inasmuch as the assessee brings to India only the net sale proceeds, it should be allowed deduction under section 80HHC in respect of such net sale proceeds. We are unable to accept the departmental contention in this regard. The payment of commission and brokerage out of the gross sale proceeds is merely an act of convenience. That by itself cannot allow the assessing officer to compute the export turnover by deducting the amount of commission and brokerage. It is not the scheme that in arriving at the figure of turnover any types of expenses are required to be deducted. Simply because, again, as a measure of convenience, payment of commission and brokerage was made out of the gross sale proceeds, it cannot be that the amount of such payment would have to be deducted from the figure of turnover as such. On the other hand, the matter has got to be looked up from the angle that the assessee received the entire gross sale proceeds separately and made separate payments in respect of commission and brokerage abroad. This principle has been acknowledged by the Supreme Court also, albeit in the matter of computation of deduction under section 80-O with regard to adjustment of reinsurance commission receivable by the assessee with amounts of premium payable to the insurance companies abroad. The above mentioned Central Board of Direct Taxes Circular No. 731, dated 20-12-1995, clarifies the position with regard to deduction under section 80-O. In the matter of export activities, many businessmen are required to make import of their raw-materials or other articles and they spend foreign exchange in that regard. By analogy, with the departmental contention, it may be said in such a case that for computing export turnover, the amount of foreign exchange spent by those businessmen, in the process of import, should be deducted. Such, however, cannot be considered to be the intention of the legislature, in any case. We are, therefore, of the opinion that the figure of gross sale proceeds, however, deducting therefrom the freight and insurance, as per amended definition, will have to be considered as export turnover for the purpose of computation of deduction under section 80HHC. The orders of the lower authorities are, therefore, being reversed and the assessing officer is directed to recompute the deduction accordingly.
9. Grounds numbered 4 and 5 relate to the question of wealth deduction under section 80HHC will have to be allowed at the stage of computation of composite income to the assessee from agricultural as well as non-agricultural operations or from the non-agricultural component as such, after applying the ratio of 40 : 60 to the composite income. Both the assessing officer as well as Commissioner (Appeals) have held that deduction under section 80HHC is required to be allowed from the non-agricultural component of the income of the assessee alone and not from the composite income. In this connection, the learned Departmental Representative refers to the insertion of sub-section (4B) to section 80HHC by the Finance Act, 1999, with effect from 1-4-1992.
In this connection, the learned counsel for the assessee draws our attention to the order of the Tribunal, E-Bench, Calcutta, dated 22-12-1999 (ITA No. 1975/Cal/97, etc.) in the case of Warren Tea Ltd. v. Union of India & Ors. (1999) 236 ITR 492 (Cal) wherein even after taking into consideration the amendment, as referred to above, the Tribunal has held the issue in favour of the assessee by holding that in the case of tea business where the allocation between the agricultural and non-agricultural income is required to be done under rule 8, the introduction of this new sub-section (4B) to section 80HHC does not alter the legal position as enunciated by the Honble Calcutta High Court in the case of Warren Tea Ltd. (supra) to the effect that deduction under section 80HHC is required to be allowed before allocation of the composite income into non-agricultural and agricultural components. The discussion made by the Tribunal in this connection, is reproduced below :
“It is required to be noted herein that the entire income of the composite nature of operations is required to be computed first as if it were income derived from business. There is no mention in this sub-rule about under which sections of the Income Tax Act, the said income derived from business is to be computed. In other words, the computation should not be considered to be limited to sections 28 to 44D alone of the Income Tax Act. There cannot be any doubt about the fact that while computing the income from business of an assessee, deduction under sections of Chapter VI are required to be allowed like sections 80H, 80J, etc. whereas certain other sections 80L and 80M specifically relate to computation of dividend income covered by the head income from other sources. It is also required to be noted with emphasis that the expression used by legislature is income and not profit. Had the expression profits been used it could have been argued that the said profit should have been computed by allowing expenses incurred for earning income according to commercial principles or even in accordance with the provisions of the Income Tax Act as contained in sections 28 to 44D. When, however, the income of the business, which is context to Income Tax Act must connote the income which will ultimately be subjected to taxation, is required to be computed, there cannot be any doubt about the fact that even deduction which are allowable to a business enterprise under the provisions of Chapter VI-A or otherwise, should also be given effect to before arriving at such income. In the case of a tea company, thus, the composite income as if the same was derived from business, should thus be arrived at by allowing not only the expenses connected therewith but also such deductions under Chapter VI-A, which are directly related to computation of business income. Only after arriving at the composite income in that manner, the said income should be allocated into agricultural and non-agricultural components by using the ratio of 60 is to 40. The principle has been enunciated in detail even by the Calcutta High Court in the assessees own case as referred to above by taking clue from the judgment of the Supreme Court in the case of Tata Tea Ltd. v. State of West Bengal (1988) 173 ITR 18 (SC). Thus, for the purpose of applicability of the new sub-section 4(b), only such income which is not charged to tax at that stage shall be excluded. In other words, if the assessees business income includes any agricultural operation also, the income from which can be arrived at directly or some other income which is exempt under the other provisions of the Act, then such income should be excluded from the total income of the assessee as referred to in sub-sections (1) and (1A) of section 80HHC. So far as the agricultural component of the income from tea business is, however, concerned, the said agricultural income, although included in a latent manner, cannot be touched in view of non-determinability of the agricultural income from production of tea at that stage and under the fiction of law as contained in rule 8 treating the composite income consisting of both agricultural as well as non-agricultural components as business income merely. We are, therefore, of the opinion that even after introduction of sub-section (4B), it will not be possible to segregate before allowance of section 80HHC in a specific manner. If the departmental contention in this regard is to be accepted, that will directly militate against the statutory provisions of rule 8, which has not at all been subjected to re-amendment. This is also not a case where two different views are plausible with equal force rather the view adopted by the department and as contained in its Circular No. 600 is one, which can be taken only for arguing in a very indirect and convoluted manner. If we take into consideration the provisions of section 80HHC(1) read with sub-section (4B) thereof along with rule 8 of Income Tax Rules, in our view, no other conclusion can be drawn than what has been arrived at by us as above. We are clearly of the opinion that the introduction of this new sub-section (4B) to section 80HHC does not at all alter the legal position as enunciated by the Honble Jurisdictional High Court in the assessees own case as mentioned above.
Taking into consideration all these aspects, we feel that even after amendment of section 80HHC by retrospective introduction of sub-section (4B), so far as the assessees having composite nature of activities like production and manufacture of tea are concerned, the old position of law as for the years prior to the amendment should continue to apply. In that view, we direct the assessing officer, as in the cases of the earlier years also, first to allow deduction under section 80HHC and only thereafter to allocate the net total on composite income into agricultural and non-agricultural components.”
Following the aforesaid judgment of the Tribunal, so far as the present issue is also concerned, we decide the same in favour of the assessee and direct that deduction under section 80HHC be allowed at the stage of computation of composite income of the assessee without allocating the same into agricultural and non-agricultural components.
10. Grounds numbered 6 and 7 are directed against levy of additional tax. At the stage of hearing before us, the learned counsel for the assessee submitted that in view of the order of the Tribunal, B-Bench, Calcutta dated 8-11-2000 in ITA No. 769/Cal/96 in the assessees appeal for the assessment year 1992-93, the aforesaid grounds have become infructuous. Hence, these grounds are being dismissed.
11. In the result, the appeal filed by the assessee is partially allowed to the above-mentioned extent.