COMMISSIONER OF INCOME-TAX VS RAJASTHAN UDYOG
1999 P T D 513
[225 I T R 468]
[Rajasthan High Court (India)]
Before B.R. Arora and B.J. Shethna, JJ
COMMISSIONER OF INCOME-TAX
Versus
RAJASTHAN UDYOG
D.B. Income-tax Reference No.4 of 1991, decided on 14/11/1995.
(a) Income-tax---
----Special deduction---New industrial undertaking in backward area-- Deduction from profits and gains of business---Deduction to be allowed on commercial profits after deducting investment allowance of current year, deduction under Ss.35-B & 80-J, etc.---Indian Income Tax Act, 1961, Ss-35-B, 80-J & 80-HH.
(b) Income-tax---
----Income---Business income---Export---Cash compensatory support---Is revenue receipt ---C.B.D.T. Circular No.572, dated 3-8-1990---Indian Income Tax Act, 1961, Ss. 2(24) & 28 [as amended by Finance Act, 1990].
Deduction under section 80-HH of the Income Tax Act, 1961, on commercial profits has to be allowed after deducting investment allowance of the current year and deduction under section 35-B/80-J of the Act.
CIT v. Vishnu Oil and Dal Mills (1996) 218 ITR 71 (Raj.) fol.
After the insertion of new clauses (iii-a), (iii-b) and (iii-c) in section 28 the profit on sale of import entitlements, cash compensatory support and drawback of duty received by exporters are chargeable to income-tax under the head "Profits and gains of business or profession", and these incentives have also been included in the definition of the term "income" in clause (24) of section 2 with retrospective effect from the dates from which these incentives were introduced.
Jeewanlal (1929) Ltd. v. CIT (1983) 142 ITR 448 (Cal.) fol
Sandeep Bhandawat for the Commissioner.
Vineet Kothari for the Assessee.
JUDGMENT
B.R. ARORA, J.---The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, at the instance of the Revenue under section 256(1) of the Income Tax Act, 1961, has referred the following questions of law for the opinion of this Court:
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in
(a)directing the Income-tax Officer to allow the deduction under section 80-HH of the Income Tax Act, 1961, on commercial profits without deducting investment allowance of current year, deduction under section 35-B/80-J, etc. ?
(b)holding that cash compensatory support receipt for export cannot be treated as revenue receipt for taxation ?
The identical question came up for consideration before us in CIT v. Vishnu Oil and Dal Mills (1996) 218 ITR 71 (Raj.), (D.B.) Income-tax Reference No. l of 1991---decided on November 13, 1990, in which we have answered the first question as follows (at page 74):
"If we read section 80-HH with section 80-AB of the Act then it is very much clear that for the purpose of determination of the relief under section 80-HH of the Act, the gross total income of the assessee has to be worked out after deducting unabsorbed losses and unabsorbed depreciation and the income eligible for deduction under section 80-HH will be the net income as computed in accordance with the provisions of the Act and not the gross income."
The first question is, therefore, answered in favour of the Revenue and against the assessee.
So far as question No.(b) is concerned, after the reference made by (B. R. Arora, J) the Tribunal, the law on the point has been amended and an Explanatory Note on the provisions of the Finance Act, 1990, was issued modifying the provisions relating to exemption of income from export. Circular No.572 (see (1990) 186 ITR (St.) 81), dated August 3, 1990, issued in this regard reads as under (at page 100):
"Explanatory notes on the provision of the Finance Act, 1990-- Modification of provisions relating to exemption of income from exports.---27. At present exporters are given incentives by way of Cash Compensatory Support (CCS), drawback of duty and import entitlement licences. The taxation of C.C.S. has been a subject- matter of litigation. The Calcutta High Court in the case of Jeewanlal (1929) Ltd. (1983) 142 ITR 448, held that the C.C.S. received by an exporter was a revenue receipt and was subject to income-tax. The Special Bench of the Tribunal has, however, in a case, distinguished the aforesaid decision and came to the conclusion that C.C.S. was a capital receipt and hence not subject to tax. The Department's view all along has been that C.C.S. or any other subsidy received by an exporter as an export inventive is a revenue receipt and hence taxable.
27.1 Similarly, the Department's view as regards drawback of duty and profit on sale of import entitlement license has been that these are revenue receipts and hence liable to tax. There are many Court decision supporting this view.
27.2 To put an end to litigation which may arise regarding the taxability of these incentives received by exporters, new clauses (iii-a), (iii-b) and (iii-c) have been inserted in section 28 of the Income Tax Act, to provide that profit on sale of import entitlement licenses, C.C.S. and drawback of duty respectively shall be chargeable to income-tax under the head 'Profits and gains of business or profession'. These have further been included in the definition of the term 'income' in clause (24) of section 2.
27.3 These amendments will take effect retrospectively from the dates from which these incentives were introduced. Thus, amendment with regard to profit on sale of import entitlement licences will apply from April 1, 1962, cash assistance from April 1, 1967, and drawback of duty from April 1, 1972, and will accordingly, apply in relation to the assessee years 1962-63, 1967-68 and 1972-73, respectively, and subsequent years."
In view of the amendment made in the taxing provision regarding the taxability of these incentives received by the exporters, new clauses (iii-a) (iii-b) and (iii-c) have been inserted in section 28 of the Income Tax Act to provide that the profit on sale of import entitlement licences, C.C.S. and drawback of duty respectively shall be chargeable to income-tax under the head "Profits and gains of business or profession." These have further been included in the definition of the term "income" in clause (24) of section 2 and hence it is not necessary to go into merits of the case. The law has been amended with retrospective effect from the dates from which these incentives were introduced. In view of the amended provisions of section 28 of the Act relating to exemption of income from exports (item No.27.2 above), this question is also answered in favour of the Revenue and against the assessee.
In the result, the reference is answered in favour of the Revenue and against the assessee.
M.B.A./1732/FCReference answered.