Order
T.N. Chopra, A.M.
This appeal by the assessee is directed against the order of Commissioner (Appeals), dated 7-12-1999, for the assessment year 1996-97.
2. Ground No. 1 is general in nature. Ground No. 2 is against the conclusion of learned Commissioner (Appeals) that sales-tax amounting to Rs. 51,05,269 and excise duty amounting to Rs. 6,28,85,426 collected from the customers form part of “total turnover” for the purpose of computing deduction under section 80HHC of the Income Tax Act. The main ground taken by the assessee for assailing the conclusion of the learned Commissioner (Appeals) is that sales-tax and excise duty collected by the assessee are separately earmarked and credited to separate accounts for meeting liability for these taxes and since such receipts have no element of profit, they should not form part of computation of relief under section 80HHC of the Income Tax Act.
3. The assessee is a public limited company engaged mainly in the business of manufacture and sale of chloroflworocarbons. For assessment year 1996-97 under appeal, the assessee claimed deduction under section 80HHC of the Income Tax Act amounting to Rs. 14,11,75,230. For the purpose of computation of deduction, the figure of total turnover adopted at Rs. 75,31,22,778 does not include the amount of excise duty and sales-tax collected from the customers as under
Rs.
Excise duty
6,28,85,426
Sales-tax
51,04,269
The assessee claimed that total turnover does not include sales-tax and excise duty in view of the decision of Calcutta Bench of the Tribunal in the case of Chloride India v. Dy. CIT (1995) 53 ITD 180 (Cal-Trib). The assessing officer (AO), however, proceeded to compute the deduction under section 80HHC by including the sales tax and excise duty receipts as part of the total turnover. The learned Commissioner (Appeals) upheld the action of the assessing officer on the issue.
4. Assailing the conclusion of the learned Commissioner (Appeals), Shri J.P. Shah, the learned counsel for the assessee, argued that sales-tax and excise duty received by the assessee from the customers do not contain an element of profit and since such receipts have been credited separately and do not form part of profit and loss account of the assessee, such receipts cannot be included for the purpose of adopting the figure of total turnover for the purposes of computing deduction under section 80HHC. In support of this contention, the learned counsel placed reliance on the following decisions :
(i) Chloride India Ltd. (supra);
(ii) Sudarshan Chemical Industries Ltd. v. Dy. CIT (1997) 60 ITD 629 (Pune-Trib);
(iii) Avon Cycles Ltd. v. Asstt. CIT (1997) 59 TTJ (Chd-Trib) 75;
(iv) Shree Dinesh Mills Ltd. v. Asstt. CIT (2000) 72 177) 110 (Ahd-Trib);
(v) Wolkern India Ltd. v. Dy. CIT (1999) 65 TTJ (Jp-Trib) 69; and
(vi) Eagle Flasks Industries Ltd. v. Dy. CIT (1999) 65 TTJ (Pune-Trib) 422.
5. The learned Departmental Representative, on the other hand, placed reliance on the following decisions :
(i) Britannia Industries Ltd. v. Dy. CIT (1999) 71 ITD 14 (Cal-Trib); and
(ii) Ponds (India) Ltd. v. Dy. CIT (1998) 64 lTD 33 (Mumbai-Trib).
The learned Departmental Representative further submitted that the Calcutta Bench of the Tribunal has decided the issue in favour of the revenue in spite of an earlier decision of the same Bench in the case of Chloride India Ltd. (supra) in favour of the assessee. The learned Departmental Representative further pointed out that the assessment year involved in the present appeal relates to assessment year 1996-97 and Explanation (ba) appended to section 80HHC by the Finance (No. 2) Act, 1991, would be applicable whereas in Chloride India Ltd. relied upon by the learned counsel, the assessment year involved being 1986-87, the amended Explanation contained in clause (ba) would not be applicable. The learned counsel for the assessee further referred to the decisions of Hon’ble Supreme Court in the case of Chowinghee Sales Bureau (P) Ltd. v. CIT (1973) 87 ITR 542 (SC) and McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC) and argued that the trading receipts include the receipts pertaining to excise duty as well as sales-tax from the customers. The learned Departmental Representative also placed reliance on the provisions of section 43B and argued that receipts on account of sales-tax and excise duty as well as payments in respect thereof made to the government authorities are clearly treated as integral part of business receipts and business expenditure by the legislature for the purposes of computing business income under the Income Tax Act. Relying on this ground, the learned Departmental Representative argued that there is absolutely no justification for excluding such receipts from the figure of total turnover while computing deduction under section 80HHC of the Income Tax Act.
6. We have carefully considered the rival submissions and perused the various decisions cited by the learned representatives on both sides. In our opinion, the position is now well settled by a string of judgments of Honble Supreme Court that excise duty and sales-tax recovered by the assessee from the customers essentially constitute trading receipts of the assessee. The decisions of the Honble Supreme Court in Chowringhee Sales Bureau (supra) and Sinclair Murray & Co. (P) Ltd. v. CIT (1974) 97 ITR 615 (SC) though rendered in the context of sales-tax rules, govern the facts of the instant case in the matter of sales-tax and excise duty realisation by the assessee. Further reliance is placed on the decision of Honble Gujarat High Court, in the case of Navjivan Udyog Mandir (P) Ltd. v. CIT (1994) 207 ITR 40 (Guj) wherein the Hon’ble High Court has categorically held that the amount of excise duty collected by the assessee from the customers would form part of its trading receipts. Reference in this behalf may further be made to the recent decisions of Hon’ble Supreme Court as under :
(i) Jonhalla Narasimharao & Co. & Ors. v. CIT (1993) 200 ITR 588 (SC); and
(ii) CIT v. T. Naggi Reddy (1993) 202 ITR 253 (SC).
It is further to be noted that payments of excise duty as well as sales-tax made by the assessee to the government departments are invariably treated as legitimate business expenditure liable to deduction for the purpose of computing the business income. Section 43B inserted by the Finance Act, 1983, by way of a special provision stipulated that deduction would be allowed in respect of such expenditure only in the year when payment has actually been made to the government departments. Thus, the essential character of the amount realised from the customers as a part of sale proceeds and subsequent payment of sales-tax and excise duty to the government departments has been unequivocally accepted and acknowledged as business receipts and business expenditure. It, therefore, does not stand to reason to exclude sales-tax and excise duty realised from the customers as part of sale proceeds for the purpose of computing relief under section 80HHC.
7. Section 80HHC(3) lays down a formula for computing profits derived from exports which is as under :
Profits of the business X export turnover/Total turnover of the business
The expressions “export turnover” and “total turnover” have been defined under Explanation (b) and (ba) appended to section 80HHC. Clause (ba) which gives an exclusive definition of total turnover reads as under :
“(ba) “total turnover” shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962).”
Provided that in relation to any assessment year commencing on or after the 1st day of April 1991, the expression “total turnover” shall have the effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28; ‘
Similarly, “export turnover” defined in clause (b) of the Explanation specifically excludes freight or insurance attributable to the transport of goods beyond the customs station. A bare perusal of the aforesaid definitions would indicate that there is no legislative intention, express or implied, to exclude realisation on account of sales-tax or excise duty from the scope and ambit of “total turnover.” What is sought to be excluded expressly by the legislature is freight and insurance attributable to the transport of goods beyond the customs station. Therefore, any attempt to restrict the scope of the expression “total turnover” by excluding sales-tax and excise duty realisation would be contrary to the express legislative intention as well as the unambiguous statutory language used for defining the expression “total turnover”.
8. The expression “total turnover of the business” would thus necessarily include the sale realisation of the assessee on the sale of goods. Such realisations would obviously include various components like cost of raw material, overhead expenses of the assessee, other miscellaneous expenses like sales-tax, excise duty, etc., and element of profit included by the assessee. These components are integral parts of the sale proceeds and there is no justification whatsoever for excluding any cost component for the purpose of adopting the figure of “total turnover” while computing deduction under section 80HHC. This is particularly so when the legislature had specifically indicated items to be excluded, viz., freight and insurance. Similarly, in the proviso reproduced above, the amounts referred to in clauses (iiia), (iiib) and (iiic) of section 28 are also to be excluded with effect from 1-4-1991. In the circumstances, we see no logic in the contention of the learned counsel for excluding sales-tax and excise duty receipts against the express provisions in the statute referred as above.
9. Now, we may refer to the various decisions of the Tribunal relied upon by the learned counsel. In Chloride India Ltd., the main ground for excluding sales tax and excise duty realisation mentioned by the Tribunal is that numerator and denominator should be the same and they should not include different items of ingredients which will result in a distorted picture. With deepest respect to the learned members of the Tribunal, we feel that the essential character of the numerator and denominator while working out the profits derived from profit is the export realisations and total sales realisations. The numerator represents the export sales of the assessee and the nominator represents the total sales raised by the assessee. Thus, there is no absurdity or distortion involved as felt by the learned Calcutta Bench. In any case, it is significant to note that in a subsequent decision in Britannia Industries Ltd. (supra), the Honble Calcutta Bench has taken a contrary view holding that sales-tax and excise duty realised by the assessee would form part of the total turnover.
10. In Sudershan Chemical Industries Ltd. (supra) the Pune Bench of the Tribunal has referred to the trading principles and observed that since the statutory levies collected by the assessee have no element of profit, they are not liable to be included in the turnover of business. With deep esteem to the learned Members of the Pune Bench, it is respectfully submitted that as per the principles of commercial accounting, whatever is realised by the assessee from the customers in the course of sales transactions represents the trading receipts of the business and there is no sanction under the accountancy principles to exclude any portion of such realisation on the ground that a component does not contain an element of profit. Apart from the fact that the definition of “total turnover” in Explanation (ba) does not provide for any such exclusion any portion of the realisation on the so-called ground that it does not contain a profit element. Sales realisation, as we have already pointed out, is an integral part of the price realised by the assessee on the sale of its goods and no portion of such realisation can be excluded on the ground that it has no element of profit.
11. The learned counsel for the assessee has heavily relied upon the decision of Ahmedabad Bench of the Tribunal in Shree Dinesh Mills Ltd.’s case (supra). The learned counsel argued that the decision referred by Ahmedabad Bench is binding on us. There can be no dispute about the proposition that in income-tax matters which are governed by the Indian statute, when there is decision of one Bench of the Tribunal interpreting the statutory provisions, it would be wise judicial policy and practice not to take a different view. However, this is not an absolute proposition and there are certain well-known exceptions to it. In cases where a decision is sub silentio, per incuriam, obiter dicta or takes a view which it is impossible to arrive at or there is another view in the field or some such or similar infirmsity is manifestly perceivable in the decision, a different view can be taken by another Bench of the Tribunal. We are amply supported by the decision of the Honble Gujarat High Court the case of N.R. Paper and Boards Ltd. v. Dy. CIT (1998) 234 ITR 733 (Guj) which is the jurisdictional High Court and hence binding on us. At page 752 of the report (234 ITR). Their Lordships of the Gujarat High Court observed that the decisions of any High Court are not intended to be “gag orders” of other High Courts and do not have the effect of freezing judicial thinking on the points covered by them. Now, in the instant case before us, we find that contrary view has been taken on the issue by various Benches of the Tribunal. However, having regard to the aforesaid discussion, we would prefer to follow with respect the view taken by Calcutta and Bombay Benches in Britannia Industries Ltd. (supra) and Ponds (India) Ltd. (supra) respectively since this view is purported by a string of decisions of Honble Supreme Court hearing the sales receipts being inclusive of sales-tax and excise duty. We would, accordingly, dismiss this ground and uphold the view taken by the learned Commissioner (Appeals) on the issue.
12. Ground No. 3 reads as under.:
“The learned Commissioner (Appeals) erred in confirming disallowance of rent, municipal taxes and depreciation relating to the guest house amounting to Rs. 1,41,240 (Rs. 1,22,150, Rs. 17,243 and Rs. 2,047). Your appellant submits that the disallowance under section 37(4) is not applicable to these expenses as these are allowable under sections 30 and 32.”
Respectfully following the decision of Honble Gujarat High Court in CIT v. Ahmedabad Mfg. & Calico Printing Co. Ltd. (1992) 197 ITR 538 (Guj), we hold that rent and municipal taxes are liable to be deducted. However, with regard to depreciation relating to the guest house, we follow the Honble Gujarat High Court decision in the case of CIT v. Gaekwar Mills Ltd. (1992) 193 ITR 734 (Guj) and hold that assessee is not entitled to depreciation. This ground in thus partly allowed.
13. Ground No. 4 reads as under :
“The learned Commissioner (Appeals) erred in holding that deduction of Rs. 2,67,23 in respect of sundry balances written off is allowable only if it related to sales made in earlier years and not if they represent advances.
Your appellant submits that the disallowance is not justified as such loss, is loss on revenue account and is deductible in computing business income under section 28, although not allowable under section 36.
Your appellant prays that the disallowance be deleted”.
The learned Commissioner (Appeals) has dealt with the issue vide paras 14, 15 and 16 of the order and remitted the issue of disallowance of Rs. 2,67,123 to the file of the assessing officer with the direction that deduction would be allowed in respect of those amounts which were written off in the books of accounts and which related to sales effected in the past. The learned counsel argued that even if advances for purchases written off in the books do not fall for deduction under section 36(2), the deductibility of such amounts should be considered as admissible business expenditure for the purposes of section 28. We are inclined to accept the contention of the learned counsel. We would, accordingly, direct that if the advances for purchases have been written off in the books on grounds of non-recovery, the assessing officer would consider the issue of deduction of such amounts of business loss under section 28. This ground is, therefore, partly allowed as above.”
14. Ground No. 5 reads as under :
“The learned Commissioner (Appeals) erred in holding that interest earned by the appellant (Rs. 2,02,76,020 less expenses relating thereto Rs. 10,61,550) cannot form part of profits and gains derived from industrial undertaking and thereby confirming exclusion of such amount for computing deductions under sections 80HH and 80-I.
Your appellant submits that such interest is earned by deployment of profits of industrial undertaking and the investments are held for future requirements of the industrial undertaking.
Your appellant submits that the deductions under sections 80HH and 80-I ought to be allowed with reference to entire income including such interest and prays that the said deductions be allowed accordingly.”
The assessing officer has dealt with this point vide para 10 of the assessment order. In Schedule-9 appended to the profit and loss account, the assessee has shown other income at Rs. 2,37,22,000. Our of this, interest income of Rs. 2,02,76,020 has been derived by the assessee from interest on deposits. In the computation of income, the assessee has itself treated this income as “income from other sources” and no deduction under sections 80HH, 80-I and 80HHC has been claimed. However, the assessee had appended a note being note 10 to the return to the effect that this income may be treated as part of business profits and deduction under sections 80HH and 80-I may be allowed. The assessing officer, however, held that the interest earned on inter-corporate deposits represents “income from other sources” and cannot be treated as business income. No deduction under sections 80HH and 80-I has been allowed.
15. In appeal, the learned Commissioner (Appeals) has upheld that action of the assessing officer vide paras 17, 18 and 19 of the impugned order. The learned Commissioner (Appeals) has placed reliance on the decision of South India Shipping Corporation v. CIT (1999) 240 ITR 224 (Guj) and held that interest income, being non-business income does not qualify for deduction under sections 80HH and 80-I.
16. We are inclined to uphold the conclusion of the learned Commissioner (Appeals) on the issue. Interest on inter-corporate deposits made by the assessee out of surplus funds of the assessee- company would clearly be “income from other sources”. The recent Supreme Court pronouncement in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) has settled the issue beyond any controversy. The Hon’ble Supreme Court observed that the computation of income under each of the six heads as contemplated under section 14 of the Income Tax Act will have to be made independently and separately and interest receipts by an assessee from deposits could only be taxed under the head “income from other sources” under section 56 of the Income Tax Act. The income received by an assessee had to be treated under one or other head having regard to the source from which that income is derived. A mere fact that a person carried on business does not lead to the inference that all income received by such a person is business income. The decision of Madras High Court in South India Shipping Corporation Ltd. (supra) relied upon by the learned Commissioner (Appeals) fully supports the view taken by us here. The interest income thus clearly has no nexus, direct or indirect with the industrial undertaking and, therefore, sections 80HH and 80-I would not be applicable in respect of interest income. With regard to the limited scope and ambit of the expression “derived from” used in sections 80HH and 80-I, reference may be made to the recent decision of Hon’ble Supreme Court in CIT v. Sterling Foods (1999) 237 ITR 579 (SQ) and Hindustan Liver Ltd. v. CIT (1999) 239 ITR 297 (SC).
17. The learned counsel made an alternative submission that the assessee may be allowed to adjust the interest debited to the profit & loss account against the interest received from the intercorporate deposits and only a net amount be excluded for the purpose of sections 80HH and 80-I. To a specific query from the Bench whether interest debited to the profit and loss account has any direct nexus with the interest received from intercorporate deposits, the learned counsel readily conceded that no such nexus between the business activity and the intercorporate deposits can be established. We are, therefore, not inclined to accept the alternative contention of the assessee. Interest income from intercorporate deposits is, as we have already held, liable to be assessed as “income from other sources” under section 56 of the Income Tax Act. Any deduction from such income would have to be considered under the provisions of section 57 of the Income Tax Act. Clause (iii) of section 57 contemplates that deduction of expenditure “laid out or expended wholly and exclusively for the purpose of making or earning such income. The expression “for the purpose of making or earning such income” used in clause (iii) of section 57 as above has a narrow and restricted ambit as compared with section 37(1). In the instant case, the deduction of interest sought by the assessee against the interest income is not covered under section 57(iii) and, therefore, the alternative contention of the assessee is rejected. The Honble Supreme Court decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) amply supports our view. This ground is rejected.
18. Ground No. 6 is as under :
“The learned Commissioner (Appeals) erred in holding that profits from trading activity computed by the assessing officer at Rs. 19, 18,822 does not form part of income derived from industrial undertaking and thereby disallowing deductions under sections 80HH and 80-I with reference to such profits.
Your appellant submits that the profit from trading activity is not properly calculated and further, the trading activity was in any case integral part of the operations of the industrial undertaking.
Your appellant prays that the deductions under sections 80HH and 80-I be allowed with reference to entire profits without reducing profit from trading activity therefrom. ”
This ground is not pressed and is, therefore, rejected.
19. Ground No. 7 is as follows :
The learned Commissioner (Appeals) erred in confirming disallowance of Rs. 2,23,000 in respect of expenditure on diversification project given up during the year treating it as capital expenditure.
Your appellant submits that the expenditure did not result in creation of any capital asset and hence the expenditure is not of capital nature.
Your appellant prays that the disallowance be deleted.”
This ground is not pressed and is, therefore, rejected.
20. Ground No. 8 is as follows :
The learned assessing officer erred in disallowing Rs. 26,62,291 being expenditure incurred during the year on diversification project which project is given up in following year, treating it as capital expenditure.
Your appellant submits that the disallowance is not justified and prays that the same be deleted.”
This ground is not pressed and is, therefore, rejected
21. In the result, assessee’s appeal is partly allowed.
