Vardhman Holdings Ltd. v. The Commissioner of Income-tax, Range-I, Ludhiana and another
[Citation -2020-LL-0121-66]

Citation 2020-LL-0121-66
Appellant Name Vardhman Holdings Ltd.
Respondent Name The Commissioner of Income-tax, Range-I, Ludhiana and another
Court HIGH COURT OF PUNJAB & HARYANA
Relevant Act Income-tax
Date of Order 21/01/2020
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags profits and gains of business or profession • interest on delayed payment • apportionment of expenses • head office expenses • expenditure incurred • benefit of exemption • business of export • export of articles • eligible business • interest received • expenses incurred • reasonable profit • eligible assessee • export turnover • profits derived • working capital • gross interest • profit derived • total turnover • interest paid • export sale
Bot Summary: Profits of the business means the profits of the business as computed under the head Profits and gains of business or profession as reduced by ninety per cent of any sum referred to in clauses,,, and of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and the profits of any branch office, warehouse or any other establishment of the assessee situate outside India: The explanation provides for reduction from the profits and gains of business or profession, receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature. Explanation extracted above states that profits of MANOJ KUMAR 2020.01.30 12:46 I attest to the accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 5 the business means the profits of the business as computed under the head Profits and Gains of Business or Profession as reduced by the receipts of the nature mentioned in clauses and of the Explanation. Under Clause of Explanation, ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head Profits and Gains of Business or Profession. The expression included any such profits in clause of the Explanation would mean only such receipts by way of brokerage, commission, interest, MANOJ KUMAR 2020.01.30 12:46 I attest to the accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 6 rent, charges or any other receipt which are included in the profits of the business as computed under the head Profits and Gains of Business or Profession. If any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under Sections 30 to 44D of the Act and is not included in the profits of business as computed under the head Profits and Gains of Business or Profession, ninety per cent of such quantum of receipts cannot be reduced under Clause of Explanation from the profits of the business. Explanation has to be construed on its own language and as per the plain natural meaning of the words used in Explanation, the words receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head Profits and Gains of Business or Profession referred to in the first part of the Explanation. Sub- section of Section 80-IA of the Act empowers the Assessing Officer to consider a reasonable profit derived by the eligible business, in case there is a close connection between the eligible assessee and another person or the business is so arranged that the business transacted between them produces higher profit than expected.


ITA No. 216 of 2013 [1] IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 216 of 2013 Date of decision: 21.1.2020 Vardhman Holdings Ltd. Appellant v. Commissioner of Income Tax, Range-I, Ludhiana and another Respondents CORAM: HON'BLE MR. JUSTICE AJAY TEWARI HON'BLE MR. JUSTICE AVNEESH JHINGAN Present: Ms. Radhika Suri, Senior Advocate with Mr. Manpreet Singh Kanda, Advocate for apellant. Mr. Rajesh Katoch, Senior Standing Counsel and Ms. Pridhi Jaswinder Sandhu, Advocates for respondents. AVNEESH JHINGAN, J. assessee is in appeal under Section 260A of Income Tax Act, 1961 (for short, 'the Act') against order dated 28.12.2012 passed by Income Tax Appellate Tribunal, Chandigarh (for short, 'the Tribunal'). Following substantial questions of law have been claimed: i) Whether on true and correct interpretation of Section 80HHC, Income Tax Appellate Tribunal erred in holding that gross rent receipts from employees without adjusting expenses incurred by employer on running and maintenance of such accommodations are to be excluded from eligible profits of business for section 80HHC of Income Tax Act. MANOJ KUMAR 2020.01.30 12:46 I attest to accuracy and ii) Whether on true and correct interpretation of Section authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 [2] 80HHC read with Section 10B(6)(iii) of Income Tax Act tribunal has erred in holding that report turnover of unit whose profits are allowed deduction under Section 10B of Income Tax Act is not to be included in export turn over for purpose of calculating deduction under Section 80HHC of Income Tax Act, 1961? iii) Whether on true and correct interpretation of Section 80HHC read with Section 80-IA/80-IB of Income Tax Act, Income Tax Appellate Tribunal erred in holding that amounts of profits of Auro Unit V, eligible for deduction under Section 80-IB of Income Tax Act are to be excluded while calculating eligible profits for deduction under Section 80HHC of Income Tax Act? iv) Whether Income Tax Appellate Tribunal is correct in law in holding that gross interest received from suppliers without adjusting interest paid on working capital borrowings should be excluded from eligible profits for deduction under Section 10B of Income Tax Act? v) Whether Income Tax Appellate Tribunal is correct in law in apportioning Head Office expenses amongst various units claiming deduction U/s 10-B/80-IA/80-IB of Act, when units are maintaining their separate books of accounts? For question (iv), following question has been substituted: vi) Whether in facts and circumstances ITAT is correct MANOJ KUMAR 2020.01.30 12:46 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 [3] in law in directing A.O. to grant benefit of interest received/receivable on delayed payments relatable to export sales as opposed to total sales affected by assessee? facts in brief are that assessment year involved is 2001-02. assessee filed return declaring loss, return was revised and loss declared earlier was reduced. assessment was finalised under Section 143(3) of Act on 30.3.2004 wherein Assessing Authority disallowed various deductions claimed by assessee. First appeal filed was partly allowed on 25.1.2008. Aggrieved of order of 1st Appellate Authority, both assessee and revenue preferred appeals. Tribunal vide impugned order partly allowed both appeals. With regard to question (i), facts are that assessee received rent mainly from its employees who were using company accommodation. claim of assessee before Tribunal was that as per explanation (baa) to Section 80HHC of Act, depreciation on building owned by assessee should be allowed. contention was rejected by Tribunal placing reliance upon decision of Supreme Court in Acg Associated Capsules P. Ltd. v. C.I.T., Central-IV, Mumbai, (2013) 343 ITR 89. same issue is raised by Ms. Radhika Suri, learned senior counsel for assessee and is not well-founded. Relevant portion of Section 80HHC of Act is reproduced below: Deduction in respect of profits retained for export business. MANOJ KUMAR 80HHC. (1) Where assessee, being Indian company or 2020.01.30 12:46 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 [4] person (other than company) resident in India, is engaged in business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, [a deduction to extent of profits, referred to in sub-section (1B)], derived by assessee from export of such goods or merchandise. (baa) profits of business means profits of business as computed under head Profits and gains of business or profession as reduced by (1) ninety per cent of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profits; and (2) profits of any branch office, warehouse or any other establishment of assessee situate outside India: explanation provides for reduction from profits and gains of business or profession, receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature. Depreciation is not receipt of similar nature as mentioned in explanation. Supreme Court in Acg Associated Capsules P. Ltd.'s case (supra) held that explanation is to be construed as per plain natural meaning of words in it. Relevant portion is reproduced below: 9. Explanation (baa) extracted above states that "profits of MANOJ KUMAR 2020.01.30 12:46 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 [5] business" means profits of business as computed under head "Profits and Gains of Business or Profession" as reduced by receipts of nature mentioned in clauses (1) and (2) of Explanation (baa). Thus, profits of business of assessee will have to be first computed under head "Profits and Gains of Business or Profession" in accordance with provisions of Section 28 to 44D of Act. In computation of such profits of business, all receipts of income which are chargeable as profits and gains of business under Section 28 of Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under Sections 30 to 44D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, total of net receipts are profits of business of assessee computed under head "Profits and Gains of Business or Profession" from which deductions are to made under clauses (1) and (2) of Explanation (baa). 10. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in any such profits are to be deducted from profits of business as computed under head "Profits and Gains of Business or Profession". expression "included any such profits" in clause (1) of Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, MANOJ KUMAR 2020.01.30 12:46 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 [6] rent, charges or any other receipt which are included in profits of business as computed under head "Profits and Gains of Business or Profession". Therefore, if any quantum of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature is allowed as expenses under Sections 30 to 44D of Act and is not included in profits of business as computed under head "Profits and Gains of Business or Profession", ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from profits of business. In other words, only ninety per cent of net amount of any receipt of nature mentioned in clause (1) which is actually included in profits of assessee is to be deducted from profits of assessee for determining "profits of business" of assessee under Explanation (baa) to Section 80HHC. 11. Similarly, Explanation (baa) has to be construed on its own language and as per plain natural meaning of words used in Explanation (baa), words "receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profits" will not only refer to nature of receipts but also quantum of receipts included in profits of business as computed under head "Profits and Gains of Business or Profession" referred to in first part of Explanation (baa). MANOJ KUMAR 2020.01.30 12:46 Accordingly, if any quantum of any receipt of nature I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 [7] mentioned in clause (1) of Explanation (baa) has not been included in profits of business of assessee as computed under head "Profits and Gains of Business or Profession", ninety per cent of such quantum of receipt cannot be deducted under Explanation (baa) to Section 80HHC. receipts mentioned in explanation are actual payments received like brokerage etc. phrase receipt of similar nature will not increase its scope to include depreciation which is not on same footing as brokerage, commission etc. finding recorded by Tribunal on said issue is upheld. question is answered against assessee. As regards question (ii), learned counsel for parties are ad idem that issue is covered in favour of assessee by decision of Division Bench of this Court in M/s Mahavir Spinning Mills Ltd. v. Commissioner of Income Tax, Ludhiana and another, 2017 (391) ITR 290. Question (iii) claimed does not arise from order of Tribunal and hence no adjudication for same is called for. facts relevant for substituted question (iv) are that during relevant assessment year, assessee received interest on delayed payment. interest was for both types of payments received late, i.e. for goods exported and sold locally. grievance of appellant before Tribunal was with regard to non-allowance of exemption under Section 10B of Act. Tribunal relying upon its decision in assessee's own case for assessment year 2003-04 directed Assessing Authority to allow deduction under Section 10B of Act where interest is received MANOJ KUMAR 2020.01.30 12:46 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 [8] by assessee on delayed payments relatable to export and further gave following directions: 35. Tribunal had directed Assessing Officer to verify and allow deduction under section 10B of Act where interest is received/receivable by assessee from its customers on delayed payments, relatable to export sales made by it. However, where such interest due from parties was not so relatable to export sale made by undertaking, it was held that assessee was not entitled to benefit of exemption under section 10B of Act on such other income. Following above said parity of reasoning we find no merit in ground of appeal No. 10 raised by assessee and same is dismissed. argument raised is that direction of Tribunal is in violation of Section 10B(4) of Act. relevant portion of provision is reproduced below: Special provisions in respect of newly established hundred per cent export-oriented undertakings. 10B. (1) Subject to provisions of this section, deduction of such profits and gains as are derived by hundred per cent export-oriented undertaking from export of articles or things or computer software for period of ten consecutive assessment years beginning with assessment year relevant to previous year in which undertaking begins to manufacture or produce articles or things or computer MANOJ KUMAR 2020.01.30 12:46 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 [9] software as case may be, shall be allowed from total income of assessee. (4) For purposes of sub-section (1), profits derived from export of articles or things or computer software shall be amount which bears to profits of business of undertaking, same proportion as export turnover in respect of such articles or things or computer software bears to total turnover of business carried on by undertaking. Sub-section (4) to Section 10B of Act gives formula for working out profits from export of articles. Once it is held that interest on delayed payment relating to export is eligible under Section 10B of Act, thereafter calculation is to be done as per sub-section (4) to Section 10B of Act. decision of Tribunal allowing only interest relating to export sales under Section 10B of Act is upheld, however, directions for verification are modified to extent that Assessing Officer shall assess interest received on delayed payments as per provisions of Section 10B(4) of Act. question is answered in favour of assessee. answer to question (v) is against assessee. appellant is having various units some of them being eligible to deduction under Section 10B of Act being 100% export-oriented undertaking and others not eligible under Section 10B of Act. There were expenses incurred for head office which was working for eligible and non- eligible units. With view to check that more than ordinary profits may MANOJ KUMAR 2020.01.30 12:46 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 [10] not arise to eligible units, authorities directed apportionment of expenses of head office amongst various units. relevant provisions to be relevant are Sections 10B(7) and 80-IA (10) of Act, same are reproduced below: Special provisions in respect of newly established hundred per cent export-oriented undertakings. 10B. (7) provisions of sub-section (8) and sub-section (10) of Section 80-IA shall, so far as may be, apply in relation to undertaking referred to in this section as they apply for purposes of undertaking referred to in section 80-IA. Deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. 80-IA. (10) Where it appears to Assessing Officer that owing to close connection between assessee carrying on eligible business to which this section applies and any other person, or for any other reason, course of business between them is so arranged that business transacted between them produces to assessee more than ordinary profits which might be expected to arise in such eligible business, Assessing Officer shall, in computing profits and gains of such eligible business for MANOJ KUMAR purposes of deduction under this section, take amount 2020.01.30 12:46 I attest to accuracy and authenticity of this document High Court,Chandigarh ITA No. 216 of 2013 [11] of profits as may be reasonably deemed to have been derived therefrom. Sub-section (7) of Section 10B of Act provides that provisions of sub-sections (8) and (10) of Section 80-IA shall apply. Sub- section (10) of Section 80-IA of Act empowers Assessing Officer to consider reasonable profit derived by eligible business, in case there is close connection between eligible assessee and another person or business is so arranged that business transacted between them produces higher profit than expected. contention raised by learned counsel for revenue deserves acceptance that expenditure incurred by head office is common expenditure for eligible and non-eligible units run by appellant-company, same needs to be apportioned to determine actual profits of both types of units. finding recorded by Tribunal on said issue warrants no interference. question is answered against assessee. In view of above, appeal is disposed of. (AVNEESH JHINGAN) (AJAY TEWARI) JUDGE JUDGE 21.1.2020 mk Whether speaking/reasoned: Yes/No Whether reportable: Yes/No MANOJ KUMAR 2020.01.30 12:46 I attest to accuracy and authenticity of this document High Court,Chandigarh Vardhman Holdings Ltd. v. Commissioner of Income-tax, Range-I, Ludhiana and another
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