In High Court of Judicature at Madras Dated: 27.08.2014 Coram Honourable Mr.JUSTICE R.SUDHAKAR and Honourable Mr.JUSTICE G.M.AKBAR ALI Tax Case (Appeal) No.469 of 2005 Deputy Commissioner of Income Tax Special Range - I, Coimbatore .... Appellant Vs. M/s.Lakshmi Machine Works Limited, Perianaickenpalayam, Coimbatore - 641 020. .... Respondent APPEAL under Section 260A of Income Tax Act against order dated 28.09.2001 made in I.T.A.No.1052/Mds/2013 on file of Income Tax Appellate Tribunal, Madras 'A' Bench. For Appellant : Mr.A.P.Srinivas Standing counsel for Income Tax For Respondent: Mr.R.Venkata Narayanan JUDGMENT (Delivered by R.SUDHAKAR,J.) This Tax Case (Appeal), filed by Revenue as against order of Income Tax Appellate Tribunal, was admitted by this Court on following 2 substantial question of law: 1. Whether on facts and in circumstances of case, Income-tax Appellate Tribunal is right in holding that cash compensatory support, duty draw back and profit on sale of import entitlement licences will not form part of turnover for purpose of determining deduction under Section 80HHC is valid in law? 2. Whether on facts and in circumstances of case, Income-tax Appellate Tribunal is right in holding that insurance, machinery hire charges, interest on deferred payment on export and interest on intercorporate loans, will not form part of turnover for purpose of determining deduction under section 80HHC is valid in law?" 2. respondent/assessee is engaged in manufacture of textile machinery for local sales as well as export. assessee claimed deduction under Section 80HHC in respect of export profits. Assessing Officer declined to exclude certain receipts, namely, cash compensatory support, duty drawback and profit on sale of import entitlement licenses from total turnover for purpose of deduction under Section 80HHC of Income Tax Act. Similarly, claim on interest on deferred payment, insurance claim, machinery hire charges on export and intercorporate loans, Assessing Officer denied same. Aggrieved by order of Assessing Officer, assessee filed appeal before Commissioner of Income Tax (Appeals), who confirmed order of Assessing Officer. As against which, assessee preferred further appeal before Income Tax Appellate Tribunal. 3 3. Tribunal by placing reliance on Circular No.571 dated 1.8.1990 granted benefit to assessee in respect of cash compensatory support, duty drawback and profit on sale of import entitlement licenses. In so far as issue that insurance claim, machinery hire charges and rent charges cannot form part of total turnover is concerned, Tribunal, placing reliance on decision reported in (2000) 245 ITR 548 (Bom.) (CIT V. Samir Diamonds Export Ltd.), held as follows: "6. At time of hearing learned counsel for assessee relied on following decisions:- a) International Research Park Laboratories Ltd. vs. Asst. Commissioner of Income-tax - ITAT - Delhi Bench 'D'(Special Bench); b) Salgaocar Mining Industries Ltd. vs. Dy.DIT - I.T.A.I. - Pune Bench; and c) CIT vs. Samir Diamonds Export Ltd. (2000) 245 ITR 548 (Bom.) We have gone through aforesaid decisions. In decision of Bombay High Court reported in 245 ITR 548 their Lordships held as under: "both Commissioner of Income-tax (Appeals) and Tribunal had found that interest on refunds and interest on loans fell under different head of income, viz., "Income from other sources". Moreover, under section 80HHC(3)(b) of Income-tax Act, 1961, as it stood at relevant time, deduction of export profits was allowed from gross total income in 4 accordance with following formula: Profits of X Export turnover business Total turnover" same view was taken by Special Bench of ITAT Delhi Bench as well as Pune Bench. We, therefore, applying same ratio, decide issue in favour of assessee. We order accordingly." 4. Aggrieved by order of Tribunal, Revenue has filed present Tax Case (Appeal) before this Court contending that Circular No.571 dated 01.8.1990 is in relation to Clause (bb) of Explanation to Section 80HHC of Income Tax Act. Clause (bb) of Explanation to Section 80HHC has been inserted vide Finance Act 1990 with effect from 1.4.1991 and circular is dated 1.8.1990. plea of Revenue is that by Finance Act, 1990, with effect from 1.4.1991, Clause (bb) of Explanation to Section 80HHC was inserted; since it was indicated in Finance Act, 1990, Circular No.571 dated 1.8.1990 was issued, however, subsequently, by Finance (No.2) Act, 1991, with effect from 01.4.1991, Clause (bb) of Explanation to Section 80 HHC was omitted and clause (ba) of Explanation to Section 80HHC was inserted by Finance (No.2) Act, 1991, retrospectively with effect from 1.4.1987. relevant provision reads as follows: "(ba) "total turnover" shall not include freight or insurance attributable to transport of goods or merchandise, beyond customs station as defined in Customs Act, 1962 (52 of 1962) Provided that in relation to any assessment year commencing on 5 or after 1st day of April, 1991, expression "total turnover" shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28" 5. plea of assessee is that Circular No.571 dated 1.8.1990 made it clear that total turnover will not include any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28 and hence Tribunal is correct in granting benefit. We find that such finding of Tribunal is erroneous in view of Finance (No.2) Act, 1991 with effect from 1.4.1991, where clause (ba) of Explanation to Section 80HHC was inserted and made it clear that expression 'total turnover' shall have its effect, as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28, on or after 1.4.1991 and not before. Hence, circular No.571 dated 01.08.1990 has no relevance, in view of insertion of clause (ba) vide Finance (No.2) Act, 1991 with effect from 1.4.1991. Circular would have application only if clause (bb) of Explanation to Section 80HHC, inserted by Finance Act, 1990, is in force, which is not case herein. We therefore hold that first question of law is answered in favour of Revenue and against assessee. 6. As far as second substantial question of law is concerned, which is form part of paragraph No.5 of order of Tribunal, we find that there is no decision rendered by Tribunal on this issue. However, this issue can be considered in light of clause (ba) of Explanation to Section 80HHC inserted 6 R.SUDHAKAR,J. AND G.M.AKBAR ALI,J. vide Finance (No.2) Act, 1991 with effect from 1.4.1991. Learned counsel appearing for assessee submits that if assessee is able to furnish any material to establish deduction, Assessing Officer may be directed to consider same. 7. It is made clear that if assessee is able to establish that such amount is not relatable to freight or insurance attributable to transport of goods or merchandise beyond customs station, then assessee will be entitled to move before Assessing Authority and establish it as matter of fact and claim benefit. To this extent, we remand matter to Assessing Officer. Tax Case (Appeal) stands disposed of accordingly. No costs. Index :Yes/No (R.S.,J) (G.M.A.,J) Internet: Yes/No 27.08.2014 sl To 1. Income Tax Appellate Tribunal, Madras 'A' Bench. 2. Commissioner of Income Tax (Appeals), Tiruchirapalli. 3. Deputy Commissioner of Income Tax, Company Circle I, Trichy. T.C.(A) No.469 of 2005 Deputy Commissioner of Income-tax, Special Range-I, Coimbatore v. M/s. Lakshmi Machine Works Limited