DISCOVER INDIA TOURS (P) LTD. v. ASSESSING OFFICER
[Citation -2006-LL-0825-3]

Citation 2006-LL-0825-3
Appellant Name DISCOVER INDIA TOURS (P) LTD.
Respondent Name ASSESSING OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 25/08/2006
Assessment Year 2002-03
Judgment View Judgment
Keyword Tags profits and gains of business • convertible foreign currency • convertible foreign exchange • rate of foreign exchange • private limited company • business or profession • exchange fluctuation • income from business • interest chargeable • additional evidence • computing deduction • gross total income • business activity • judicial decision • interest accrued • interest on fdrs • export business • export turnover • business profit • interest earned • interest income • total turnover • short payment • special bench • excess amount
Bot Summary: For the relevant assessment year under consideration, the assessee filed income declaring net taxable income of Rs. 60.87 lacs after claiming deduction under s. 80HHD of the IT Act, 1961 at Rs. 76.77 lacs. As per AO, such income cannot be said to be derived from services provided to foreign tourists, and that an income can be said to be derived from services provided to foreign tourists only if it is directly related to such activities. The limited controversy before us is as to whether the income which is attributed to the business income of the assessee, will form part of its income from business or profession. The contrary view taken by various High Courts are under special circumstances where such interest income has been assessed as income from other sources, which is not the case of the instant assessee, insofar as AO himself has held that interest income was attributable to the business and business profit was computed inclusive of such interest income. There is no reason for not considering such income computed under t h e head Income from business and profession while computing deduction under s. 80HHD. Thus, we found that various case laws discussed by the lower authorities in their respective orders and cited at Bar by learned Departmental Representative, pertain to the interest income assessed as income from other sources. Entire income of the assessee in the instant case has been undisputedly earned in convertible foreign exchange and was assessed as income from business or profession and that too only from business of rendering services to the foreign tourists. In view of the above discussion, respectfully following the ratio laid down in case of Sita Travels by Tribunal, Delhi Bench, we reverse the conclusion case of Sita Travels by Tribunal, Delhi Bench, we reverse the conclusion of the lower authorities and direct the AO to take the figure of business income, which included interest income also for computing deduction under s. 80HHD of the Act.


R.C. SHARMA, A.M.: This is appeal filed by assessee against order of CIT(A), dt. 20th Dec., 2005 for asst. yr. 2002-03 in matter of order passed under s. 143(3) of IT Act, 1961. Following are grounds of appeal: "1. impugned order of learned CIT(A) and learned AO is bad in law, is devoid of jurisdiction, is arbitrary, based on conjectures and surmises, passed without application of mind, without granting proper opportunity to defend, without following proper legal procedures and is against principles of natural justice. As such order is null and void ab initio. order is against provisions of Act and appellant denies his liability to tax as determined and computed by learned AO and manner in which it has been so determined or computed. learned CIT(A) has erred in law in upholding legal validity of impugned order, whether in specific terms or by implication. learned AO has erred in law and on facts and circumstances of case in making additions of and learned CIT(A) has erred in law and on facts in sustaining impugned additions/computations: (a) In computing deduction under s. 80HHD at Rs. 59,03,828 being based on misconception of law and facts, as against claim of assessee Rs. 76,77,032. (b) In net profits of business at Rs. 1,02,96,600 (A) as against Rs. 1,33,89,163 by excluding Rs. 30,92,563 from profits of business for computing deduction under s. 80HHD, though accepting claim of assessee that it is income from business or profession . (c) In computing net foreign exchange receipts at Rs. 5,06,59,179 (B) as against Rs. 5,30,18,504 by ignoring Rs. 22,67,477 being profits in exchange fluctuation account, which is inherent part of gross receipts of foreign exchange earnings. (d) In taking gross total receipts in foreign exchange at Rs. 5,30,11,431 (C) as against Rs. 5,52,78,908 by ignoring Rs. 22,67,477 being profits in exchange fluctuation account, which is inherent part of gross receipts of foreign exchange earnings. (e) In not specifically directing adjustment of special reserve under s. 80HHD from Rs. 38,38,516 to Rs. 29,51,914 having direct bearing on future taxable income of assessee, as unutilized reserve entails tax. (f) In charging interest under ss. 234B and 234C on alleged short payment of advance tax based on misconception of law and facts. assessee denies his liability to advance tax to extent of tax credits available under s. 115JB, brought forward Rs. 7,20,934 as also on disputed income. (g) That even if it is held that any part of interest is to be charged under ss. 234B and 234C, even then interest under ss. 234B and 234C, which is not penal in nature but only compensatory for withholding payment of taxes, are valid and legal expenses of business being incurred on funds withheld and used in business only and on which similar income from interest has been earned and brought to tax, should have been allowed in computing net taxable income. appellant craves leave to add to, alter or delete any of grounds of appeal up to time of hearing, which arise out of present appeal or subsequently due to any new facts or legal finding. appellant craves leave and sanction of Hon ble Tribunal to file additional evidence, if so required for proper prosecution of case, based on facts and circumstances, which has not been or could not be adduced or filed before lower authorities either because proper and sufficient opportunity was not provided or because it was not solicited or its need was not appreciated." Rival contentions have been heard and record perused. facts in brief r e that assessee is private limited company engaged in business of handling inbound foreign tours. Entire income was received by assessee in convertible foreign exchange. There is also no dispute to fact that assessee- convertible foreign exchange. There is also no dispute to fact that assessee- company was not engaged in any other business and does not have any business income earned in Indian Rupees. For relevant assessment year under consideration, assessee filed income declaring net taxable income of Rs. 60.87 lacs after claiming deduction under s. 80HHD of IT Act, 1961 at Rs. 76.77 lacs. In course of assessment proceedings, AO recomputed deduction under s. 80HHD at Rs. 98.39 lacs and also enhanced taxable income from Rs. 60.87 lacs to Rs. 78.61 lacs. While computing deduction, AO has denied deduction in respect of interest earned by assessee out of its EEFC account amounting to Rs. 30.92 lacs even though included this amount while working out business profits of assessee. As per AO, such income cannot be said to be "derived" from services provided to foreign tourists, and that income can be said to be "derived" from services provided to foreign tourists only if it is directly related to such activities. After discussing various case laws, he reached to conclusion that interest on EEFC account cannot be held to be eligible for deduction under s. 80HHD of Act. By impugned order, CIT(A) confirmed disallowance made by AO. CIT(A) observed that AO had excluded interest income of Rs. 30,92,563 received on FDR with bank as well as ignored Rs. 22,57,477 accrued on account of foreign exchange fluctuation, which were not derived from business of assessee-company out of services rendered to foreign tourists, as same is several degree removed from income earned by rendering services to foreign tourists. Aggrieved by above order of CIT(A), assessee is in further appeal before us. learned Authorised Representative has drawn our attention to provisions of s. 80HHD of Act, more particularly to sub-s. (3) indicating computation provision in respect of profits derived from services provided to foreign tourists. He submitted that as per computation provision, profit of foreign tourists shall be amount which bears to profits of business, as computed under head "Profits and gains of business or profession", same proportion as receipts specified in sub-s. (2). He has drawn our attention to order of AO wherein at p. 7 of his order he observed that income from interest can be said to be attributable to business activities of assessee, but cannot be classified as being derived from services provided to foreign tourists. He has further drawn our attention to gross total income computed by AO at p. 8 of his order at Rs. 1,37,66,324 which were inclusive of such interest income, and submitted that while computing deduction under s. 80HHD, AO has again changed gross total income, and reduced therefrom interest income of Rs. 30,92,563. As per learned Authorised Representative, maintaining of EEFC account was inextricably connected with business of foreign tourists being done by assessee. On other hand, learned Departmental Representative submitted that interest income cannot be classified for deduction under s. 80HHD, insofar as such income is not "derived" from tourists, to whom assessee was rendering his services. He reiterated case laws relied by lower authorities in their respective orders and thus justified order of lower authorities. We have considered rival contentions and carefully gone through orders of authorities below. We have also deliberated on case laws cited by learned Departmental Representative and Authorised Representative as well as referred by lower authorities in their respective orders, in context of factual matrix of case. In instant case, assessee maintained EEFC account as per requirement and directions of RBI, from where interest was accrued to assessee. portion of foreign exchange receipt is deposited in this account and account is maintained in foreign exchange only. Interest was also credited by bank in foreign exchange only and not in Indian currency. As per computation provision, provided in sub-s. (3) of s. 80HHD of Act, amount of deduction, shall be amount which bears to profit of business as computed under head "Profits and gains of business or profession", same proportion as receipts specified in sub-s. (2), bear to total receipts of business carried on by assessee. It is crystal clear from plain reading of sub-s. (3) that first we have to compute profit of business under head "Profits and gains of business or profession". In instant case also, while computing business income as per provisions of IT Act, 1961, AO himself at p. 8, had worked out gross total income at Rs. 1,37,66,324 which was inclusive of interest income. At p. 7 he has given clear-cut finding that interest income from EEFC account was attributable to business activity of assessee. AO has nowhere treated such interest income as "income from other sources". Such finding of AO was confirmed by CIT(A). Revenue is not in appeal before us against order of CIT(A) and findings confirmed by him. Therefore, limited controversy before us is as to whether income which is attributed to business income of assessee, will form part of its "income from business or profession". Undisputedly, it was income attributable to business activities of assessee, and very much part of its business income. Therefore, while computing deduction under s. 80HHD, as per sub-s. (3), we have to take business profit which is inclusive of figure of interest determined by AO himself at p. 8 of his order. Once interest income is found to be business income, it will qualify for consideration as per method provided for calculation of deduction under sub-s. (3) of s. 80HHD of Act. case laws discussed by AO and relied on by learned Departmental Representative pertain to deduction claimed under ss. 80HH, 80HHA, 80-I and 80-IB of IT Act, 1961 where deductions are allowable qua "industrial undertaking or foreign project" and not qua profits of business as proportion of export turnover to total turnover of business as provided in s. 80HHC/80HHD of Act, and as proportion of foreign tourists receipts as per sub-s. (2) as reduced by receipts covered by sub-s. (2A) to total receipts of business. Thus, interest earned which forms part of "profits of business" has to be considered on facts and merit of each case for purpose of claim under these sections. contrary view taken by various High Courts are under special circumstances where such interest income has been assessed as "income from other sources", which is not case of instant assessee, insofar as AO himself has held that interest income was attributable to business and business profit was computed inclusive of such interest income. Therefore, there is no reason for not considering such income computed under t h e head "Income from business and profession" while computing deduction under s. 80HHD. Thus, we found that various case laws discussed by lower authorities in their respective orders and cited at Bar by learned Departmental Representative, pertain to interest income assessed as "income from other sources". Entire income of assessee in instant case has been undisputedly earned in convertible foreign exchange and was assessed as income from business or profession and that too only from business of rendering services to foreign tourists. We also found that Tribunal, Special Bench in case of Asstt. CIT vs. Lucky Tour & Travels (2004) 90 TTJ (Del) 1104 held that deduction under s. 80HHD has to be computed by determining profit of business under head "Profits and gains of business and profession", and thereafter apportioning said profits in proportion as receipts specified in sub-s. (2) bear to total receipts without reducing total receipts of tours by amount paid by assessee to book hotels, etc. Similarly, in case of Sita World Travel (I) Ltd. vs. Dy. CIT (2004) 91 TTJ (Del) 20, it was held that interest on FDRs comprising of advance receipts from tours is eligible for deduction under s. 80HHD of Act. In instant case, deposit with bank in EEFC account was put as per requirement and directions of RBI, interest was allowed thereon by bank, in convertible foreign exchange. Thus, not only deposit was made in foreign exchange but interest accrued thereon was also in foreign exchange. AO have included it in business income while computing profits and gains of business and profession, and has not treated it as "income from other sources." We are well aware of fact that order passed by co-ordinate Bench should not be lightly disregarded. In taking this view, we are supported by decision of Hon ble Supreme Court in case of Union of India & Anr. vs. Paras Laminates (P) Ltd. (1990) 87 CTR (SC) 180: (1990) 186 ITR 722 (SC) wherein Hon ble Supreme Court has observed that it is true that Bench of two Members must not lightly disregard decision of another Bench of same Tribunal on identical question. rational of this rule is need of continuity, certainty and predictability in administration of justice. Persons effected by decision of Tribunal have right to expect that those exercising judicial functions will follow reasons or grounds of judicial decision in earlier cases on identical matters. In view of above discussion, respectfully following ratio laid down in case of Sita Travels (supra) by Tribunal, Delhi Bench, we reverse conclusion case of Sita Travels (supra) by Tribunal, Delhi Bench, we reverse conclusion of lower authorities and direct AO to take figure of business income, which included interest income also for computing deduction under s. 80HHD of Act. We direct accordingly. Next grievance of assessee relates to income generated in exchange fluctuation account, which was not treated by lower authorities as part of its export earning allowable for deduction under s. 80HHD of Act. On same analogy as was adopted for interest, lower authorities held that profit in exchange fluctuation account was not derived from business of tour operators but was merely attributable to such business, therefore, not eligible for deduction under s. 80HHD of Act. We have considered rival contentions and found from record that bills for services rendered to foreign tourists were raised by assessee in foreign currency and payments were also received in foreign currency. Whenever bills were raised, on basis of notional value of foreign currency, amount was credited in books of account and subsequently when payment was received, on basis of actual rate of foreign exchange prevailing on that day, amount was credited as income. As there is difference in exchange rate on date of raising bills vis-a-vis date on which bill was actually realized, excess amount realised or loss incurred was on account of foreign exchange earning for services rendered to foreign tourists only. This profit or loss was part and parcel of foreign exchange sale proceeds only and by no stretch of imagination, it can be said to be "income from other sources", so as to disqualify for deduction under s. 80HHD of Act. Total receipts in convertible foreign exchange is got increased or reduced due to change in foreign exchange rate applied at two different points of time. However what assessee has got on account of services rendered to foreign tourists was exactly Rupee equivalent of bills realized in foreign currency and nothing more or less. actual income was exact value realized by assessee when its bills were honoured by foreign tourists. In order to arrive at net foreign exchange receipts, amounts certified under Item 2A, in Form 10CCA are to be considered. However, while considering total receipts and net receipts of foreign exchange, AO in instant case has wrongly reduced exchange fluctuation income instead of adding same to foreign tour receipts. issue regarding treatment of income/loss arising out of exchange fluctuation is no more res integra and by plethora of decisions, it has been held that, such amount is part and parcel of sale proceeds in convertible foreign exchange. Tribunal, Delhi Bench in case of Sharp Credit Ltd. vs. Dy. CIT (2004) 83 TTJ (Del) 1056 has held that total turnover of export receipts includes profit/loss in exchange fluctuation. Similarly, Tribunal, Ahmedabad Bench in case of Priyanka Gems vs. Asstt. CIT (2005) 94 TTJ (Ahd) 557, order authored by one of Members constituting this Bench have dealt with issue in great length and held that in case of export business, income earned or loss incurred on account of fluctuation in exchanged rates, forms part of sale proceeds earned in convertible foreign currency and, therefore, eligible for deduction under s. 80HHC/80HHD of Act. In view of above, we direct AO to verify records and relevant certificate in Form 10CCA, and consider foreign exchange earning actually realized by assessee, after considering excess amount realized due to exchange rate fluctuation as forming part of income eligible for deduction under s. 80HHD. Accordingly, AO is directed to recompute deduction under s. 80HHD of Act. Last ground of assessee relates to allow tax credit available under s. 115JB, while computing interest chargeable under ss. 234B and 234C of Act. issue regarding giving credit of tax credit available under s. 115JB is no more in dispute. Tribunal in case of Chemplast Sanmar Ltd. vs. Dy. CIT (2004) 83 TTJ (Chennai) 427 and Madras High Court in case of CIT vs. T.T. Investments & Trades (P) Ltd. (1984) 42 CTR (Mad) 48 held that tax paid under s. 115JA of Act is advance tax retained by Department for being set off against tax liability of future years and assessee is entitled to adjust net credit first before charging of interest under ss. 234B and 234C of Act. In instant case, assessee is engaged in business of handling inbound foreign tourists and entire income was received in convertible foreign exchange. tax credit of Rs. 7,20,934 under s. 115JB of Act was claimed while computing advance tax and net tax. AO computed interest without giving this credit. In view of decisions referred to above, we do not find any merit in action of view of decisions referred to above, we do not find any merit in action of AO in computing interest payable under ss. 234B and 234C of Act without giving credit for tax under s. 115JB of Act. We, therefore, reverse action of lower authorities and direct AO to recompute interest under ss. 234B and 234C of Act after giving due deduction for tax credit of Rs. 7,20,934 under s. 115JB of Act. In result, appeal of assessee is allowed in terms indicated hereinabove. *** DISCOVER INDIA TOURS (P) LTD. v. ASSESSING OFFICER
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