IRFAN SHERIFF v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2005-LL-1118-10]

Citation 2005-LL-1118-10
Appellant Name IRFAN SHERIFF
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 18/11/2005
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags inward remittance certificate • convertible foreign exchange • industrial undertaking • goods and merchandise • intellectual property • development charges • condition precedent • business of export • sale consideration • technical know-how • gross total income • foreign enterprise • eligible business • personal property • trading activity • export incentive • letter of credit • lump sum payment • cross-objection • export turnover • advance payment • total turnover • profit on sale • provident fund • purchase price • capital nature
Bot Summary: The deduction under s. 80HHC was first calculated and on the balance o f the profits only deduction under s. 80-IB had been allowed by invoking the provisions of s. 80-IA(10) of the Act. The following questions arise for our consideration: Whether the technical know-how, drawings, designs, technology in regard to the manufacture of segmented tyres transferred to M/s Segmax, USA were goods or merchandise within the meaning of the provisions of s. 80HHC Whether the provisions of s. 80HHC and s. 80-IB can be claimed on the same income and what is the implication of the provisions of s. 80-IB(13) r/w s. 80-IA(9) Whether the provisions of Expln. To s. 80HHC was held applicable to the receipts on sale of DEPB licence being export incentive the proviso to sub- s. of s. 80HHC would have to be applied and the profits computed under s. 80HHC would have to be further increased by such amount. Prior to the amendment, s. 80-IA did not provide that if deduction under s. 80HHC has been allowed on the gross total income, deduction under s. 80-IA should be allowed only on the balance income, i.e., the amount remaining after deduction under s. 80HHC. When there is no such provision or intention of the legislature to allow deduction under s. 80-IA on the balance amount, there is no justification to allow deduction under s. 80-IA only on the balance amount, i.e., the amount which remained after deduction under s. 80HHC. The object of inserting the aforesaid sub-section has been explained in Circular No. 772, dt. Further, if one looks into the provisions of s. 80-IC(5) of the Act, which is relied upon by the learned CIT in the order under s. 263 to deny the deduction under s. 80HHC, it is clear that the language employed in s. 80-IA(9). 80-IC(5) totally prohibits allowance of any other deduction under Chapter VI-A and s. 10A and s. 10B, once deduction under s. 80-IC is given. 23rd Dec., 1998 151 CTR 9, we hold that the assessee can claim deduction under s. 80HHC as well as s. 80-IB. However, it is made clear that the total deduction in both the sections will not exceed the profit included in the gross total income, as s. 80AB governs both s. 80HHC and s. 80- IB. The next issue to be considered is whether the amount received on sale of DEPB licence will be excluded as per cl.


This appeal by assessee and cross-objection by Revenue are directed against order of learned CIT(A)-I, Bangalore, dt. 7th Dec., 2004. appellant is individual who is doing business of manufacture n d export of segmented tyres in name and style M/s ANZ Tyres International. appellant had for asst. yr. 2001-02 filed return of income on 31st Oct., 2001 declaring nil income after claiming benefit of deduction under ss. 80HHC and 80-IB of Act. agreement for payment of design, development and manufacture fees was entered into between Segmax LLC and ANZ Tyres International on 9th June, 2000. As per art. 2 of said agreement, ANZ will perform following acts: (a) ANZ will provide and maintain such facilities, procedures and competent trained personnel as are required to manufacture and/or source and supply laminated tyres and other engineering products from India to Segmax. (b) ANZ will provide all design, development and manufacturing assistance and supervision and oversight from India to Segmax s efforts in selling laminated tyres in United States. (c) ANZ shall supply tyres to Segmax against advance payment or against prime bank letter of credit for products supplied by ANZ from India. (d) ANZ shall expand and set up design, development and manufacturing facilities in India to facilitate complete designing, development and manufacture of laminated tyres and components for off-road vehicles and agricultural equipment. (e) ANZ shall carry out product development by defining tooling, design and production processes, which is intimately and inextricably necessary for production and manufacture of laminated tyres according to client requirement. (f) ANZ shall draw out marketing plan giving details or product positioning, pricing and distribution network for laminated tyres and other engineering products. (g) ANZ will make available personnel for specific assignments upon request by Segmax and with reasonable advance notice for standard daily wage rate plus expenses, to be negotiated upon each occasion. (h) Any expense related to travel, product design and development expenses and management of product related issues in India shall be managed by ANZ and all expenses in this regard shall be paid by ANZ. assessment came to be completed under s. 143(3) on 29th March, 2004 wherein assessing authority had made following adjustments to returned income: (i) sale consideration in regard to sale of design and technology for manufacture of segmented tyres was held to be not eligible for deduction under s. 80HHC as claimed by appellant but was granted benefit of deduction under s. 80-O of Act. Further, for purpose of computing deduction under s. 80HHC, provisions of Expln. (baa) were invoked in regard to receipts and 90 per cent of same had been reduced. (ii) deduction under s. 80HHC was first calculated and on balance o f profits only deduction under s. 80-IB had been allowed by invoking provisions of s. 80-IA(10) of Act. (iii) Thirdly, while computing deduction under s. 80HHC, assessing authority had reduced 90 per cent of export incentive being sale proceeds of DEPB licence by invoking provisions of s. 80HHC, cl. (baa) of Explanation to s. 80HHC(4A). issues were agitated before CIT(A) who had upheld action of t h e assessing authority in treating sale consideration of design, technology and know-how along with drawings in regard to manufacture of segmented tyres as not being entitled to benefit of deduction under s. 80HHC on ground that same were not goods. action of assessing authority in reducing 90 per cent of such receipts by resorting to Expln. (baa) to s. 80HHC was also upheld. CIT(A) had also upheld action of assessing authority in reducing 90 per cent of export incentives by invoking provisions of Expln. (baa) to s. 80HHC. Also, deduction under s. 80-O as granted by assessing authority in assessment order came to be withdrawn by CIT(A) whereby assessment also came to be enhanced. CIT(A) was of opinion that payment received by appellant was not in consideration of use outside India of any patent, invention or registered trade mark but had been received for design, development and manufacturing support rendered by appellant in connection with supply of laminated tyres and other related products to client of appellant s customers. This is evident from para 4.4 of CIT(A) s order. Aggrieved by order of CIT(A), appellant is now in appeal before us. following questions arise for our consideration: (i) Whether technical know-how, drawings, designs, technology in regard to manufacture of segmented tyres transferred to M/s Segmax, USA were goods or merchandise within meaning of provisions of s. 80HHC? (ii) Whether provisions of s. 80HHC and s. 80-IB can be claimed on same income and what is implication of provisions of s. 80-IB(13) r/w s. 80-IA(9)? (iii) Whether provisions of Expln. (baa) to s. 80HHC would apply to sale consideration of DEPB licence? (iv) If design, technical know-how, drawings, etc. sold by assessee to Segmax, USA do not fall within meaning of terms goods or merchandise for purpose of deduction under s. 80HHC, can assessee be entitled to alternate claim of deduction under s. 80-O? On behalf of appellant, Shri George Mathan had argued that appellant had entered into agreement with one Mr. Lary Clamer of Segmax LLC, USA for sale of design, development and manufacturing technology of laminated tyres. Copy of said agreement is placed in paper book at pp. 22 to 25 and portion of design which had been transferred have also been placed between (pp.) 26 to 28 of paper book. Copy of affidavit of said Mr. Lary Clamer who is said to be purchaser of technology, know-how, methodology and design for manufacture of laminated tyres was also placed at pp. 29 and 30 of paper book. appellant s counsel had argued that what has been transferred under agreement was only goods as clear-cut designs in black and white along with methodology, know-how and technology had been transferred and even as per CIT(A) in para 4.4 of his order, for purpose of denying benefit under s. 80-O had held that charges had been received for design, development and manufacturing support rendered by appellant. It was further submitted that designs were goods in view of decision of Hon ble Supreme Court in Associated Cement Companies Ltd. vs. Commr. of Customs (2001) 124 STC 59 (SC) and decision of Bombay High Court in case of Abdulgafar A. Nadiadwala vs. Asstt. CIT (2004) 188 CTR (Bom) 232: (2004) 267 ITR 488 (Bom). It was further submitted that designs being goods, appellant was entitled to deduction under s. 80HHC in relation to sale consideration received on sale of design, technology, know-how and methodology for manufacture of laminated tyres. Shri George Mathan submitted that provisions of Expln. (baa) to s. 80HHC did not apply in case of sale consideration of design and technology insofar as sub-cl. (1) of Expln. (baa) is to be read harmoniously and sale consideration of design and technology of laminated tyres did not fall within any of terms mentioned in sub-cl. (1) of Expln. (baa) to s. 80HHC, nor was any other receipt of similar nature. It was further argued that term any other receipt of similar nature should be read ejusdem generis. Shri George Mathan further submitted that sale consideration of DEPB licence was also not hit by provisions of Expln. (baa) to s. 80HHC as same fell within cl. (iv) of s. 28 and not under cl. (iiia), (iiib) or (iiic) of s. 28. For this view, representative also relied upon decision of Tribunal, Delhi Bench in P&G Enterprises (P) Ltd. vs. Dy. CIT (2005) 93 TTJ (Del) 788: (2005) 93 ITD 138 (Del). Without prejudice to above argument, representative has also submitted that if Expln. (baa) to s. 80HHC was held applicable to receipts on sale of DEPB licence being export incentive, then, proviso to sub- s. (3) of s. 80HHC would have to be applied and profits computed under s. 80HHC would have to be further increased by such amount. Shri George Mathan further submitted that appellant would be entitled to deduction of benefit of both ss. 80HHC and 80-IB on same income and s. 80-IA(9) only bar, claim of deduction under Chapter VI-A in excess of profits available and did not bar appellant from making claim under ss. 80HHC and 80-IB on same income. It was submitted that both deductions under ss. 80HHC and 80-IB was to be computed separately for which he placed reliance on following decisions: (a) CIT vs. Rochi Ram & Sons (2004) 191 CTR (Raj) 472: (2004) 271 ITR 444 (Raj); (b) J.P. Tobacco Products (P) Ltd. vs. CIT (1997) 140 CTR (MP) 329: (1998) 229 ITR 123 (MP); (c) CIT vs. M.P. State Electronics Development Corpn. Ltd. (2004) 267 ITR 405 (MP). It was submitted that deductions under Chapter VI-A should be computed independently on gross total income and not on balance of income after deducting relief already computed. It was submitted that deduction under s. 80HHC is to be computed under sub-s. (3) independently and under s. 80-IB(3) independently and net of both these deductions would be controlled by s. 80-IA(9) to restrict such net deduction to extent of income available. He further submitted that issue had already been considered by Hon ble Tribunal in case of Mittal Clothing [ITA No. 3773/Bang/2004] for asst. yr. 2001-02, dt. 20th June, 2005 wherein it has been held that deduction under ss. 80HHC and 80-IA is to be calculated independently and not on balance of income available after reducing benefit of deduction already granted. Learned Departmental Representative, CIT(A) Shri Arun Bhatnagar kly supported appellate order to extent challenged by appellant. He submitted that while working out deduction under s. 80HHC, appellant has claimed export sales of Rs. 7,27,52,647 as against export sales of Rs. 4,44,53,978 of laminated tyres. appellant included sum of Rs. 2,82,98,695 while claiming deduction under s. 80HHC. As could be seen from copy of invoices and foreign inward remittance certificate that sum of Rs. 2,82,98,695 represents development charges, which have been received towards design development and manufacturing support cost. No merchandise or goods have been exported out of India relating to development charges received. invoice prepared clearly shows that amount received under development charges is towards design development and manufacturing support cost and does not form part of export sale of laminated tyres. On plain reading of provisions of s. 80HHC, it is very clear that provisions of s. 80HHC applies only where appellant is engaged in business of export out of India of any goods or merchandise. In case of appellant no goods or merchandise have been exported out of India. design and development charges received by assessee from foreign enterprise in consideration for use of designs would not result in export of any goods or merchandise as specified in section under s. 80HHC of Act. Considering above position, it is very clear that appellant has not exported any goods or merchandise when appellant received moneys in foreign exchanges by raising invoices for design, development and manufacturing support. In circumstances, appellant s contention that design and development charges should form part of export turnover is not acceptable. It is undisputed fact that design and development cost received by appellant represents reimbursement of design and development charges incurred by appellant for development of product and excess received represents appellant s income. This amount is received by virtue of separate agreement entered into with foreign enterprises. There is no stipulation in agreement as to rate at which laminated tyres have to be sold. terms of agreement are very clear and development charges are paid for design development and manufacturing facilities. There is no mention about rate at which laminated tyres have to be sold. selling price of laminated tyres has not been fixed by agreement. In circumstances, appellant s contention that development charges should form part of export turnover is not acceptable. He accordingly submitted that not only design, development and manufacturing support charges are not entitled to deduction under s. 80HHC but same has also to be reduced from profits of business as per Expln. (baa) to s. 80HHC. He submitted that such charges were neither included in total turnover nor included in export turnover. As regards decision of Hon ble Supreme Court in Tata Consultancy Services vs. State of Andhra Pradesh (2004) 192 CTR (SC) 257: (2004) 271 ITR 401 (SC) relied by learned counsel, Shri Bhatnagar submitted that some activity can be treated differently under different laws. Thus, though sale of software is intellectual property and held to be goods can still be royalty under Copyright Act. Similarly, export of granite may be export under Customs Act, but not export under s. 80HHC of IT Act as held by Hon ble Supreme Court in case of Gem Granites vs. CIT (2004) 192 CTR (SC) 481: (2004) 271 ITR 322 (SC). Thus, merely it is held as goods under Sales-tax Act, amount will retain its character as royalty. In present case what is received by assessee is drawing, design, development and manufacturing support charges which cannot be considered as goods as defined in s. 80HHC of Act. He also relied upon decision of Hon ble Supreme Court in Gramophone Co. of India Ltd. vs. Birendra Bahadur Pandey (1984) 2 SCC 534. Shri Bhatnagar submitted that said case arose under Copyright Act, 1957. word "import" is defined in Copyright Act as well as in Customs Act. In action against copyright infringement, appellant tried to import definition of word "import" as appearing in Customs Act in disregard of definition of word "import" contained in Copyright Act. Hon ble Supreme Court, rejecting argument, held as under: "The word import in ss. 51 and 53 of Copyright Act means bringing into India from outside India . It is not limited to importation for commerce only, but includes importation for transit across country." Shri Bhatnagar further submitted that Hon ble Supreme Court in case o f Jagatram Ahuja vs. CGT (2000) 164 CTR (SC) 1: (2000) 246 ITR 609 (SC) held thus: "The words and expressions defined in one statute as judicially interpreted do not afford guide to construction of same words or expressions in another statute unless both statutes are pari materia legislations or it is specifically provided in one statute to give same meaning to words as defined in another statute. aim and object of two legislations namely, Gift-tax Act and Estate Duty Act, are not similar." Summarising case laws relied by counsel for assessee and by Revenue, he submitted that above-mentioned discussion unmistakably classifies same transaction differently for purposes of different taxation statutes. In such scenario, definition in another statute is of no help when concerned statute contains different definition of impugned transaction. Moreover, by any stretch of imagination, development charges received by appellant cannot be taken as part of export turnover, as same has not been received in respect of any sale. As regards nature of receipt on sale of DEPB licence, he submitted that objective of DEPB is to neutralise incidence of customs duty on import content of export product. neutralization shall be provided by way of grant of duty credit against export product. duty credit under scheme shall be calculated by taking into account deemed import content of said export product as per standard input-output norms and basic custom duty payable on such deemed imports. value addition achieved by export of such product shall also be taken into account while determining rate of duty credit under scheme. DEPB scheme, exporter may apply for credit, as specified percentage of FOB value of exports made in freely convertible currency. credit shall be available against such export products and at such rates as may be prescribed by DGFT by way of public notice issued in this behalf, for import of raw materials, intermediates, components, parts, packaging materials, etc. holder of DEPB shall have option to pay additional custom duty if any in cash as well. DEPB/or items imported against it are freely transferable. He further submitted that though Tribunal, Delhi Bench in case of P&G Enterprises (P) Ltd. (supra) held that amounts received on sale of DEPB licence do not fall under any of cls. (iiia), (iiib), (iiic) of s. 28 but fall under cl. (iv) of s. 28. However, he still submitted that keeping in view nature of scheme related to DEPB as mentioned above, profit on sale of DEPB credits are not eligible for deduction under s. 80HHC. As pointed out earlier, purpose of DEPB scheme is to neutralize incidence of custom duty on import content of export product. neutralization is provided by way of grant of duty credit and accordingly as stated in letter issued by CBDT, elaborate scheme of computation of deduction provided under s. 80HHC(iii) of IT Act, does not cover profit on sale of DEPB credits, as clear from wordings of s. 80HHC(1) deduction allowable only to extent of profit, which must be derived by appellant from export of goods or merchandise. In this case of DEPB credits, this basic condition is not fulfilled. Since receipt in nature of sale of DEPB credit have no nexus with sale processes and export activity, such receipts are to be excluded to extent of 90 per cent thereof as in cl. (baa) of Explanation to s. 80HHC. For this purpose, he relied upon following decisions: CIT vs. Eastern Chemicals & Minerals (P) Ltd. (1991) 94 CTR (Mad) 86: (1991) 192 ITR 423 (Mad); Hindustan Lever Ltd. vs. CIT (1979) 12 CTR (Bom) 55: (1980) 121 ITR 951 (Bom); CIT vs. Kantilal Chhotalal (2000) 163 CTR (Bom) 476: (2000) 246 ITR 439 (Bom); CIT vs. K.K. Doshi & Co. (2000) 163 CTR (Bom) 472: (2000) 245 ITR 849 (Bom); CIT vs. S.G. Jhaveri Consultancy Ltd. (2000) 163 CTR (Bom) 593: (2000) 245 ITR 854 (Bom); CIT vs. Jameel Leathers & Uppers (2000) 246 ITR 97 (Mad); CIT vs. Sterling Foods (1999) 153 CTR (SC) 439: (1999) 237 ITR 579 (SC); Krislar Diesel Engines (P) Ltd. vs. Asstt. CIT (2000) 69 TTJ (Mad) 46: (2000) 74 ITD 414 (Mad); Vikas Sales Corpn. vs. CCT (1996) 102 STC 106 (SC). As regards argument that provisions are in nature of incentive and hence to be liberally interpreted, same cannot be accepted in view of decision of Hon ble Supreme Court in case of IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513: (2004) 266 ITR 521 (SC). As regards simultaneous claim of deduction under s. 80HHC and s. 80- IB, he submitted that deduction claimed under both sections should not exceed very amount of profits from industrial undertaking. In order to bring end to multiple deduction, sub-s. (9A) was introduced in old s. 80-IA by Finance (No. 2) Act, 1998 w.e.f. 1st Jan., 1999. This provision is retained in new s. 80-IA also in form of sub-s. (9) and in new s. 80-IB in form of sub-s. (13). This sub-section reads as follows: "Where any amount of profits and gains of undertaking or of enterprise in case of assessee is claimed and allowed under this section for any assessment year, deduction to extent of such profits and gains shall not be allowed under any other provisions of this Chapter under heading C Deductions in respect of certain incomes , and shall in no case exceed profits and gains of such eligible business of undertaking or enterprise, as case may be." Analysing section, Shri Bhatnagar submitted that following position emerge: deduction is allowed under s. 80-IA/80-IB in respect of profits of undertaking. Any deduction to extent allowed above shall not be allowed under any other section, say s. 80HHC. deduction under s. 80-IA/80-IB shall in no case exceed profits of that industrial undertaking. This has been explained by Hon ble Rajasthan High Court in CIT vs. Rochiram & Sons (supra), wherein it is held thus: "The provisions of s. 80-IA of IT Act, 1961 have been amended by insertion of sub-s. (9A) which provides that if deduction under any of sections has been allowed under Chapter VI-A and if any further deduction is to be allowed under any other section, that should be allowed only on balance amount. This amendment has been brought by Act of 1998 and made effective from 1st April, 1999. Prior to amendment, s. 80-IA did not provide that if deduction under s. 80HHC has been allowed on gross total income, deduction under s. 80-IA should be allowed only on balance income, i.e., amount remaining after deduction under s. 80HHC. When there is no such provision or intention of legislature to allow deduction under s. 80-IA on balance amount, there is no justification to allow deduction under s. 80-IA only on balance amount, i.e., amount which remained after deduction under s. 80HHC." object of inserting aforesaid sub-section has been explained in Circular No. 772, dt. 23rd Dec., 1998 extracted herein: "35.1 Under provisions of Chapter VI-A of IT Act, various deductions from profits and gains are allowed to specified appellants, subject to fulfilling certain requirements specified under relevant sections. total deductions under Chapter VI-A of IT Act are restricted to gross total income in respect of appellant as whole. However, it was noticed that certain assessees claimed more than 100 per cent deduction on such profits and gains of same undertaking, when they were entitled to deductions under more than one section of Chapter VI-A. With view to providing suitable statutory safeguard in IT Act to prevent taxpayer from taking undue advantage of existing provisions of Act by claiming repeated deductions in respect of same amount of eligible income, even in cases where it exceeds such eligible profits of undertaking or hotel, inbuilt restrictions in ss. 80HHD and 80-IA have been provided by amending section, so that such unintended benefits are not passed on to appellant. These amendments will take effect from 1st April, 1999 and will accordingly, apply in relation to asst. yr. 1999-2000 and subsequent years". He accordingly submitted that where units are eligible for deduction under s. 80-IA as well as s. 80HHC, total deduction should not exceed profit of eligible business. As regards decision of Hon ble Bombay High Court in Abdul Gaffar A. Nadiadwala s case (supra) by learned counsel for assessee, Shri Bhatnagar submitted that facts of above-mentioned cases are totally different from case of appellant. assessee in that case is individual by status. He filed his return of income and claimed deduction under s. 80HHC in respect of export of beta-cam tapes with rights attached thereto. From detailed note, which was furnished by assessee, to Hon ble High Court, it is revealed "that to show 35 mm format film on television, same is required to be made compatible for transmission and telecast. This is required to be done by adopting process; whereunder 35 mm format film passes through high tech telecine machine. CCD camera, which is interlinked with machine, adjusts picture s frame and sound, with result synchronized picture and sound is recorded on to beta-cam tape. beta-cam tape is video format of 3/4 of magnetic tape of highly professional quality and used for transmission and telecast. With use of computerized colour correction and decoders, beta-cam tapes present better picture with improved sound quality. In short, beta-cam tapes make film available at 35 mm cinematography, compatible for transmission and telecast". Moreover, Hon ble High Court has given observation that assessee in above-mentioned case has complied with provisions of s. 80HHC as such entitled to claim deduction under said section, i.e., exported beta-cam tapes containing film as certified under Cinematography Act, 1952.............. Customs Department has treated beta-cam tapes as goods for imposition of duty. assessee has contended that it is well settled that two wings of Government cannot take two views of same transaction. Keeping in view above circumstances, Hon ble High Court (held) that beta-cam tapes are goods and merchandise for purposes of s. 80HHC. It was held by Hon ble High Court at p. 516 "that Custom authorities have granted custom clearance when articles or goods were physically exported, there must have been subject of custom clearance. No material or things or goods can cross custom borders unless they go through gamut of custom clearance. There is no dispute, rather any dispute, so far as this aspect of matter is concerned.... It is thus, not in dispute that export of beta-cam tapes was subjected to custom clearance. condition precedent for claiming deduction under s. 80HHC is that transaction must result in export out of India of any goods or merchandise". Moreover, this particular transaction was also covered under s. 80HHF. Since provision of s. 80HHF was not available in relevant assessment year, Hon ble High Court has given finding that transaction in question was covered under s. 80HHC. From above-mentioned facts, it is crystal clear that facts of case relied upon by appellant are entirely different from case in hand. Moreover, under provisions of s. 80HHC, definition of export turnover is as follows: " export turnover means sale proceeds (received in or brought into India) by assessee in convertible foreign exchange in accordance with cl. (a) of sub-s. (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to transport of goods or merchandise beyond customs station as defined in Customs Act, 1962." Moreover, from above definition it is clear that since word means is used definition is exclusive not inclusive. It is well known that in definition clauses, legislature uses word means where it wants to exhaust significance of term defined and word includes where it intends that while term defined should retain its ordinary meaning, its scope should be widened by specific enumeration of certain matters which its ordinary meaning may or may not comprise so as to make definition enumerative and not exhaustive Taj Mahal Hotel vs. CIT (1968) 70 ITR 366 (AP) and CIT vs. Taj Mahal Hotel 1973 CTR (SC) 480: (1971) 82 ITR 44 (SC). Accordingly, appellant s contention that technical know-how, drawings, designs, patent, etc. constitutes plant and when appellant parted with know- how in favour of Segmax, he had exported plants which tantamounts to goods is without any merits. As regards cross-objection raised by Revenue, Shri Bhatnagar submitted that sale proceeds of DEPB licence should be covered under cl. (baa) of Explanation to s. 80HHC and not under s. 28(iv) as held by learned CIT(A). We have perused impugned order. We have heard parties at length. We have also perused decisions cited by both counsel. first n d important issue to be decided is whether assessee is entitled to deduction under s. 80HHC in respect of amount realized on sale of design, development and manufacturing technology of laminated tyres. It is contention of assessee that what is exported is goods and hence eligible for deduction under s. 80HHC. AO has treated receipt as eligible for deduction under s. 80-O. Learned CIT(A) has refused both deductions and treated amount as other receipts falling within cl. (baa) of Explanation to s. 80HHC. As per s. 80HHC, where assessee is engaged in business of export out of India of any goods or merchandise to which this section applies, deduction to extent of profits derived from export of such goods or merchandise is deductible while computing total income. As per sub-s. (2)(a) of s. 80HHC, this section applies to all goods or merchandise other than those specified in cl. (b). As per sub-s. (2)(b) of s. 80HHC, this section does not apply to (i) mineral oil, and (ii) minerals and ores, other than processed minerals and ores. Thus s. 80HHC will apply to all goods and merchandise other than mineral oil and minerals and ores. words goods or merchandise are not defined in s. 80HHC and are also not defined in Act. We have, therefore, to apply commonsense meaning to word goods . As per Art. 366(12) of Constitution of India, word goods is defined to include all materials, commodities and articles . In interpreting such words, definition of goods in Sale of Goods Act, 1930, is ordinarily followed. Hon ble Supreme Court in case of Tata Consultancy Services (supra) held thus: "The term goods , for purposes of sales-tax, cannot be given narrow meaning. Properties which are capable of being abstracted, consumed and used and/or transmitted, transferred, delivered, stored or possessed, etc., are goods for purpose of sales-tax. test to ascertain whether property is goods for purposes of sales-tax is not whether property is tangible or intangible or incorporeal. test is whether concerned item is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed, etc. In case of software, both canned and uncanned, all of these are possible. Intellectual property when it is put on media becomes goods. software programme may consist of various commands which enable computer to perform designated task. copy right in programme may remain with originator of programme. But moment copies are made n d marketed, it becomes goods which are susceptible to sales-tax. Even intellectual property, once it is put on to media, whether it be in form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become goods . There is no difference between sale of software programme on CD/floppy disc and sale of music on cassette/CD or sale of film on video cassette/CD. In all such cases, intellectual property has been incorporated on media for purposes of transfer. Sale is not just of media which by itself has very little value. software and media cannot be split up. What buyer purchases and pays for is not disc or CD. As in case of paintings or books or music or films buyer is purchasing intellectual property and not media, i.e., paper or cassette or disc or CD. transaction of sale of computer software package off shelf is clearly sale of goods within meaning of that term in s. 2(n) of Andhra Pradesh General Sales-tax Act, 1957. term all materials, articles and commodities in s. 2(h) of Act includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. software programmes have all these attributes." Hon ble Supreme Court in case of Scientific Engineering House (P) Ltd. vs. CIT (1985) 49 CTR (SC) 386: (1986) 157 ITR 86 (SC) held: "that various documents such as drawings, designs, charts, plans, processing data and other literature included in documentation service, supply whereof was undertaken by foreign collaborator, more or less formed tools by using which business of manufacturing instruments was to b e done by appellant and for acquiring such technical know-how through these documents, lump sum payment was made. This expenditure was incurred by appellant as and by way of purchase price of drawings, designs, charts, plans, processing data and other literature, etc., comprised in "documentation service" and was of capital nature as result whereof capital asset of technical know-how in shape of drawings, designs, charts, plans, processing data and other literature was acquired by appellant. that plant was not necessarily confined to apparatus which was used for mechanical operations or process or was employed in mechanical or industrial business. But in order to qualify as "plant", particular article had to have some degree of durability. test to be applied was: Did article fulfil function of plant in assessee s trading activity? Was it tool of his trade with which he carried on his business? If answer was in affirmative, it would be plant . that drawings, designs, charts, plans, processing data and other literature comprised in documentation service as specified in cl. 3 constituted book and fell within definition of plant in s. 43(3) of IT Act, 1961. purpose of rendering such documentation service by supplying these documents to appellant was to enable it to undertake its trading activity of manufacturing theodolites and microscopes and these documents had vital function to perform in manufacture of these instruments; in fact, it was with aid of these complete and up-to-date set of documents that appellant was able to commence its manufacturing activity and these documents really formed basis of business of manufacturing instruments in question. That by themselves these documents did not perform any mechanical operations or processes did not militate against their being plant since they were in sense basic tools of assessee s trade having fairly enduring utility, though owing to technological advances they might or would in course of time become obsolete. capital asset acquired by appellant, viz., technical know-how in shape of drawings, designs, charts, plans, processing data and other literature, fell within definition of plant and was, therefore, depreciable asset." Aforesaid decision was followed by Hon ble Supreme Court in case of CIT vs. Elecon Engineering Co. Ltd. (1987) 166 ITR 66 (SC). expression merchandise is broad enough to include anything, which is tradable. P.H. Collin s "Dictionary of Business" would understand merchandise as "goods which are for sale, or which has been sold". P. Ramanatha Iyer s "Law Lexicon" (1997 Edn.) would understand "merchandise" as under: "A term of very extended meaning, converting all articles of commerce; objects of commerce; subjects of commerce and traffic; any article which is object of commerce; or which may be bought or sold in trade; all kinds of personal property which is bought and sold in market". In present case, it is seen that assessee received consideration for providing design, development and manufacturing assistance and for defining tooling design and production process. This was done by transferring various design documents and connected papers therewith. conjoint and harmonious reading of various definitions as well ratio laid down by Hon ble Supreme Court leads us in no doubt that amount received by assessee for sale of design, development and manufacturing technology of laminated tyres amounts to sale of goods or merchandise and hence eligible for deduction under s. 80HHC. It is not correct to hold that amount received falls within term "in consideration for use of any patent, invention, design or registered trade mark" used in s. 80-O of Act. amount received is not for use of but for sale of drawing, design and technology as such. After transfer of design and technology, same is property of purchaser and no longer remains with assessee. Thus, amount received is not for merely allowing use of such drawing, design or technology but for sale of such product, which falls within definition of "goods or merchandise" within meaning of s. 80HHC of Act. We accordingly hold that since amount is received inconvertible foreign exchange as specified under s. 80HHC, assessee is entitled to deduction under s. 80HHC of Act. In view of our above answer, it is not necessary to deal whether amount received is eligible for deduction under s. 80-O also or not. next issue for consideration is whether assessee is entitled to deduction under s. 80HHC as well as 80-IB and implication of sub-s. (9) of s. 80-IA or sub-s. (13) of s. 80-IB. answer is not far away. Recently this Tribunal in case of Mittal Clothing Co. vs. Dy. CIT in ITA No. 3773/Bang/2004, dt. 20th June, 2005 held thus: "We have heard both sides and perused materials on record. It appears that CIT(A) has revised assessment order, under s. 263, on two points. Firstly there were late payments of provident fund dues which was found by AO while giving effect to d. 263 order as not correct as payments were made in time. According to CIT, second point is that assessee cannot be allowed deduction under s. 80HHC because he was allowed deduction under s. 80-IB of Act. We have already noticed that so far as allowability of deduction under s. 80HHC is concerned which was subject-matter of appeal before CIT(A) and decide in favour of assessee. Copy of appellate order have been filed alongwith paper book. Therefore, in our considered opinion, CIT by exercising power under s. 263, cannot withdraw relief under s. 80HHC because theory of merger will apply which is supported by decision of Full Bench of jurisdictional High Court in case of CIT vs. Hindustan Aeronautics Ltd. (1986) 54 CTR (Kar) 247 which was confirmed by decision of Hon ble Supreme Court reported in Hindustan Aeronautics Ltd. vs. CIT (2000) 160 CTR (SC) 524: (2000) 243 ITR 808 (SC). Further, we find that CIT was not justified to hold that once relief under s. 80-IB was allowed to assessee, no further relief under s. 80HHC can be allowed, provision of s. 80-IA(9) is quoted below: 80-IA(9) Where any amount of profits and gains of undertaking or of enterprise in case of assessee is claimed and allowed under this section for any assessment year, deduction to extent of such profits and gains shall not be allowed under any other provisions of this Chapter under heading C-Deductions in respect of certain incomes , and shall in no case exceed profits and gains of such eligible business of undertaking or enterprise, as case may be." Further, we find that s. 80-IA(9), which was inserted by Finance (No. 2) Act of 1998 w.e.f. 1st April, 1999 was originally sub-s. (9A) of old s. 80-IA of Act. In Finance Bill (No. 2) of 1998, placed at p. 25 of assessee s paper book, sub-s. (9A) to s. 80-IA sought to be inserted w.e.f. 1st April, 1990 is referred. Notes on Clause Explaining Provisions of Bill placed at p. 28 of assessee s paper book, is reproduced below: It is proposed to insert new sub-s. (9A) in s. 80-IA so as to provide that where amount of profits and gains of industrial undertaking or hotel, is claimed and allowed under said section, profits to that extent shall not qualify for deduction for any assessment year under any other provisions of Chapter VI-A and in no case shall exceed eligible profits of industrial undertakings or hotel, as case may be. This amendment will take effect retrospectively from 1st April, 1991, and will, accordingly, apply to asst. yr. 1991-92 and subsequent years. Further, Memorandum Explaining Provisions of Finance Bill is placed at p. 29 of paper book and relevant portion of Memorandum is set out below: Amendment in s. 80-IA and s. 80HHC to prevent double deduction of same profit. Under provisions of Chapter VI-A of IT Act, various deductions from profits and gains are allowed to specified assessees subject to fulfilling certain requirements specified under relevant sections. total deduction under Chapter VI-A of IT Act are restricted to gross total income in respect of assessee as whole. However, in certain cases it was noticed that certain assessees claimed However, in certain cases it was noticed that certain assessees claimed more than 100 per cent deduction on such profits and gains of same undertaking, when they were entitled to deductions under more than one section of Chapter VI-A. With view to providing suitable statutory safeguard in IT Act to prevent taxpayer from taking undue advantage of existing provisions of Act, by claiming repeated deductions in respect of same amount of eligible income, even in cases where it exceeds such eligible profits of undertaking or hotel, it is proposed to provide inbuilt restrictions in ss. 80HHD and 80-IA, so that such unintended benefits are not passed on to assessees. This amendment is sought to be introduced retrospectively w.e.f. 1st April, 1990. Finance Bill of 1998 received assent of President and became Finance (No. 2) Act of 1998. In Finance Act, sub-s. (9A) was inserted, but instead of being inserted retrospectively w.e.f. 1st April, 1991, amendment was made prospectively w.e.f. 1st April, 1999. Later on, when s. 80-IA was substituted by new s. 80-IA w.e.f. 1st April, 2000, old sub-s. (9A) of s. 80- IA became present sub-s. (9) of existing provisions of s. 80-IA of Act. Therefore, object of insertion of s. 80-IA(9A), which later became 80- IA(9) in present section, was to prevent deduction of more than 100 per cent of profits and gains of undertaking by claiming multiple deduction. object of insertion of s. 80-IA(9A) was not to prevent claim of deduction under more than one section, under Chapter VI-A, where assessee satisfies conditions of these sections, but, only to ensure that sum total of deductions so claimed by assessee does not exceed profits and gains of undertaking in respect of which deductions are allowable. When one peruses second limb of s. 80-IA(9) which reads shall in no case exceed profits and gains of such eligible business of undertaking or enterprise, as case may be;. second limb of s. 80-IA(9) conveys meaning that sum total deduction allowed under s. 80-IA/80-IB and other incentive provisions of Chapter VI-A should not exceed profits and gains of such eligible business. Otherwise, second limp need not be there at all. Further, if one looks into provisions of s. 80-IC(5) of Act, which is relied upon by learned CIT in order under s. 263 to deny deduction under s. 80HHC, it is clear that language employed in s. 80-IA(9). Sec. 80- IC(5) reads as under: 80-IC(5) Notwithstanding anything contained in any other provisions of this Act, in computing total income of assessee, no deduction shall be allowed under any other section contained in Chapter VI-A or in s. 10A or s. 10B, in relation to profits and gains of undertaking or enterprise. As is clear, language used by legislature in s. 80-IC(5) is completely different from language used in s. 80-IA(9). Sec. 80-IC(5) totally prohibits allowance of any other deduction under Chapter VI-A and s. 10A and s. 10B, once deduction under s. 80-IC is given. language employed, to totally prohibit other deductions, is plain and simple and to make matters all more clear, non obstante clause is also used. While taking this view, we find support from Board Circular No. 772 dt. 23rd Dec., 1998 [(1999) 151 CTR (St) 9: (1999) 235 ITR (St) 35 at p. 63]. We find that even Board has understood scope of s. 80-IA(9) so as to discharge claim of more than 100 per cent deduction of profits and gains of undertaking by inserting different incentive provisions of Chapter VI-A. relevant para of Board circular is reproduced below: 35. Amendment in s. 80HHD and s. 80-IA to prevent double deduction of same profits: (35.1) Under provisions of Chapter VI-A of IT Act, various deductions from profits and gains are allowed to specified assessees, subject to fulfilling certain requirements specified under relevant sections. total deductions under Chapter VI-A of IT Act are restricted to gross total income in respect of assessee as whole. (35.2) However, it was noticed that certain assessees claimed more than 100 per cent deduction on such profits and gains of same undertaking, when they were entitled to deduction under more than one section of Chapter VI-A. With view to providing suitable statutory safeguards in IT Act to prevent taxpayers from taking undue advantage of existing provisions of Act by claiming repeated deductions in respect of same amount of eligible income, even in cases where it exceeds such eligible profits of undertaking or hotel, inbuilt restrictions in ss. 80HHD and 80-IA have been provided by amending sections so that such unintended benefits are not passed on to assessees. (35.3) These amendments will take effect from 1st April, 1999 and will accordingly, apply in relation to asst. yr. 1999-2000 and subsequent years. Therefore, even Board has understood amendment effected by Finance Act, 1998 to provide safeguard and ensure that, repeated deductions are not claimed where it even exceeds eligible profits of undertaking. We are of view that provisions of s. 80-IA(9) only regulate deductions allowable under Chapter VI-A and there is no restriction contained therein to regulate other deductions. provisions of Chapter VI-A are meant to encourage various objects and these incentive provisions must be construed for benefit of taxpayer. For these reasons, we hold that since assessee has not claimed more than 100 per cent deduction in respect of profits of undertaking and since AO has also not allowed more than 100 per cent deduction of profits under both ss. 80-IB and 80HHC there is no need to interfere with order of AO." In view of decision of this Tribunal and in view of CBDT Circular No. 772, dt. 23rd Dec., 1998 [(1999) 151 CTR (St) 9], we hold that assessee can claim deduction under s. 80HHC as well as s. 80-IB. However, it is made clear that total deduction in both sections will not exceed profit included in gross total income, as s. 80AB governs both s. 80HHC and s. 80- IB. next issue to be considered is whether amount received on sale of DEPB licence will be excluded as per cl. (baa) of Explanation to s. 80HHC. It is contention of assessee that such amount doed not fall under cl. (iiia) of s. 28 of Act but falls under cl. 28(iv) of Act. Since cl. (baa) refers merely to cl. (iiia) of s. 28 and since s. (iv) of s. 28 is not referred to in cl. (baa), same is not to be excluded while computing profits of business for purpose of s. 80HHC. We are in agreement with submission of learned counsel for assessee. Profit on sale of DEPB licence is not equivalent to profit on sale of licence granted under Imports (Control) Order, 1955 made and under Imports and Exports (Control) Act, 1947 referred in section under cl. (iiia) of s. 28. Similar view has been held by Tribunal, New Delhi Bench in case of P&G Enterprises (supra). We accordingly hold that while computing "profits of business" for purpose of s. 80HHC, profit on sale of DEPB licence will not be excluded under cl. (baa) of Explanation to s. 80HHC. Learned Departmental Representative has kly contended that same activity is to be treated differently in different laws. It is his contention that export of granite, though export under Customs Act, is not export under s. 80HHC of Act. On this issue there cannot be any debate as under s. 80HHC, deduction is not admissible to export of minerals and ores and granite falls within definition of minerals and ores and hence not eligible under s. 80HHC. However, in present case there is no specific prohibition under s. 80HHC for not allowing deduction on drawings, designs and know-how. Since it has been held that same falls within definition of goods or merchandise, deduction is admissible. Other decisions relied by learned Departmental Representative are all distinguishable on facts of case. In cross-objection, it was contended that amount realized on sale of DEPB credits is not eligible for deduction under s. 80HHC. Since it has been held that amount realized on sale of DEPB credit is assessable as business income under s. 28(iv) of Act, word profit of business will also include profit on sale of such DEPB credit. In result, appeal is partly allowed and cross-objection is dismissed. *** IRFAN SHERIFF v. ASSISTANT COMMISSIONER OF INCOME TAX
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