Commissioner of Income Tax vs Morbi Vegetable Products Ltd.

K.S. Jhaveri, J.—Since, the issue involved in both the appeals is common, they are heard together and disposed of by this common judgment.

By way of these appeals, the appellant-Revenue has challenged the order of the learned ITAT, Rajkot Bench (for short, ''the Tribunal''), Dated: 25.11.2005, rendered in ITA Nos. 353 & 354/RJT/2004 for the A.Ys. 1996-97 and 1997-98, respectively.

The brief facts of the case are that the common respondent-assessee in both the appeals, filed its returns of income for the respective assessment years. Pursuant thereto, the cases of the assessee for the relevant assessment years came to be examined and at the end of assessment proceedings, the concerned AO made certain additions/disallowances to the income of the assessee, herein. Being aggrieved with the same, the assessee approached the learned CIT(A) by filing separate appeals for the respective assessment years and the CIT(A) allowed both the appeals filed by the assessee. The Revenue, hence, carried the matter before the Tribunal, wherein, the Tribunal passed the impugned order, dismissing both the appeals filed by the Revenue. Hence, the present appeals.

At the time of admitting these appeals, this Court framed the following common question of law;

"Whether in the facts and circumstances of the case, the Appellate Tribunal was right in law in allowing claims for deduction u/s. 80HHC of the Income Tax Act, 1961 holding that service charges, interest, delivery and distribution charges cannot be excluded while computing the profit of business for the purpose of deduction?"

At the very outset, Mr. Parikh, learned Advocate for the appellant-Revenue, invited our attention to the orders of the learned CIT(A) and submitted that in the appeals before the CIT(A), the assessee, in the written submissions filed by it, clarified that it was challenging the exclusion of service charges of Rs. 54,30,076/- and that it does not challenge the exclusion of interest, delivery and distribution charges etc. He, therefore, requested that this Court may consider the question framed, herein, qua exclusion of service charges only.

In above view of the matter, we are required to consider the question framed, herein, qua exclusion of service charges only.

Mr. Parikh, submitted that the Tribunal erred in passing the impugned order, inasmuch as it failed to appreciate the material on record in its proper perspective. He submitted that the Tribunal overlooked the provisions of Section 80HHC of the Income Tax Act, 1961 (for short, ''the Act''), which envisages deductions from the income derived from the export. He, further, submitted that the CIT(A) as well as the Tribunal erred in holding that the issue involved in this appeal is covered by the decision of the High Court of Kerala in the case of Baby Marine (Eastern) Exports Vs. Assistant Commissioner of Income Tax, . He, therefore, submitted that present appeals be allowed.

On the other hand, Mr. Patel, learned Advocate for the common assessee in both the appeals, supported the orders of the CIT(A) as well as the Tribunal and submitted that there being concurrent findings in favour of the assessee, present appeals be dismissed. He, further, submitted that even otherwise, in view of the fact that the view taken by the Kerala High Court in "BABY MARINE EXPORTS VS. ACIT" (Supra) has now been confirmed by the Apex Court in Commissioner of Income Tax, Thiruvananthapuram Vs. Baby Marine Exports, Kollam, , and therefore, these appeals deserve dismissal.

Heard learned Counsels for the parties and perused the material on record as well as the orders passed by the CIT(A) and the Tribunal. From a perusal of the orders of the CIT(A) as well as the Tribunal, it appears that while answering the issue raised in these appeals in favour of the assessee, both the authorities below placed reliance on a decision of the Kerala High Court in "BABY MARINE EXPORTS VS. ACIT" (Supra), wherein, the Kerala High Court laid down that the service charge is a part of the price for sale of the merchandise and that it is neither brokerage, commission, interest charges or collection or any amount of similar nature and on the basis of the same, CIT(A) and the Tribunal held that the 90 per cent of the export premium cannot be deducted while computing the deduction u/s. 80HHC of the Act. Aforesaid view taken by the High Court of Kerala has now been confirmed by the Apex Court vide its decision in "CIT VS. BABY MARINE EXPORTS" (Supra), wherein, the Apex Court has held that according to Section 80HHC(1), the export house in computing its total income is entitled to deduction to the extent of the profit derived by the assessee from the export of the goods or merchandise, whereas, according to section 80HHC(1A), the assessee being supporting manufacturer shall be entitled to a deduction of profit derived by the assessee from the sale of goods or merchandise. Thus, we do not find that the Tribunal committed any error in passing the impugned order.

In the result, both the appeals are DISMISSED. We hold that the Appellate Tribunal was right in law in allowing claim of the assessee for deduction u/s. 80HHC of the Act, holding that service charges cannot be excluded while computing the profit of business for the purpose of deduction under the aforesaid section. The question raised in these appeals is answered in FAVOUR of the assessee and against the REVENUE, accordingly.