Commissioner of Income Tax vs Victor Cycles P. Ltd.

Ajay Kumar Mittal, J.—In this reference the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereafter referred to as "the Tribunal"), has refereed the following question of law to this Court u/s 256(1) of the Income Tax Act, 1961 (for short "the Act"), for the assessment year 1983-84:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessee as an exporter in the assessment year 1982-83 for claiming deduction of Rs. 2,80,955 u/s 80HHC(1)(b) of the Income Tax Act, 1961, at 5 per cent. of incremental turnover of Rs. 56,19,099 (Rs. 56,66,189 - Rs. 47,090) ?

Briefly noticed, the facts are that the assessee-company claimed deduction at the rate of 5 per cent. of the incremental turnover at Rs. 2,80,955 u/s 80HHC of the Act for the assessment year 1983-84. The said amount was arrived at by reducing the export sales of the earlier year, i.e., Rs. 47,090 from the export turnover of the year under consideration, i.e., Rs. 56,66,189. The claim was not allowed by the Assessing Officer on the ground that in the immediately preceding year the assessee-company who was only a partner in the firm had not exported any goods out of India and, therefore, there was no incremental turnover in the year under consideration. The said action of the Assessing Officer was confirmed by the Commissioner of Income Tax (Appeals). The assessee-company took the matter before the Tribunal and the Tribunal by placing reliance upon a judgment of the hon''ble Supreme Court in Commissioner of Income Tax, Bihar Vs. Ramniklal Kothari, , vide its order dated September 7, 1994, held Rs. 56,19,099 to be the incremental turnover qualifying for deduction at the rate of 5 per cent. u/s 80HHC(1)(b) of the Act and directed the Assessing Officer to allow 5 per cent. deduction of incremental turnover as per law.

Learned Counsel for the Revenue submitted that the Tribunal had wrongly allowed the deduction u/s 80HHC(1)(b) of the Act and has allowed the additional deduction of 5 per cent. on incremental turnover of Rs. 56,19,099. According to learned Counsel, the assessee-company started exporting the goods directly in the year under consideration and, therefore, in view of Sub-section (3), the assessee was not entitled to claim 5 per cent. deduction on incremental turnover u/s 80HHC(1)(b) of the Act. Learned Counsel further submitted that the reliance of the Tribunal on Commissioner of Income Tax, Bihar Vs. Ramniklal Kothari, is misplaced.

No one has appeared on behalf of the assessee to oppose the reference made by the Tribunal.

We have heard learned Counsel for the Revenue and find force in his submission.

It would be expedient to reproduce Section 80HHC of the Act, as it stood at the relevant time, which reads thus:

80HHC. (1) Where the assessee, being an Indian company or a person (other than a company), who is resident in India, exports out of India during the previous year relevant to an assessment year any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, the following deductions, namely:

(a) a deduction of an amount equal to one per cent. of the export turnover of such goods or merchandise during the previous year; and

(b) a deduction of an amount equal to five per cent. of the amount by which the export turnover of such goods or merchandise during the previous year exceeds the export turnover of such goods or merchandise during the immediately preceding previous year.

(2 (a) This section applies to all goods or merchandise (other than those specified in Clause (b)) if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange.

(b) The goods or merchandise referred to in Clause (a) are the following, namely:

(i) agricultural primary commodities, not being produce of plantations ;

(ii) mineral oil ;

(iii) minerals and ores ; and

(iv) such other goods or merchandise as the Central Government may, by notification in the Official Gazette, specify in this behalf.

(3) No deduction under Clause (b) of Sub-section (1) shall be allowed unless the assessee had, during the immediately preceding previous year, exported out of India goods or merchandise to which this section applies.

A reading of the aforesaid provision shows that an assessee is entitled to the deduction of an amount equal to 1 per cent. of export turnover of the qualifying goods or merchandise which has been exported out of India during the accounting year. In addition thereto, a deduction of an amount equal to 5 per cent. of the amount by which the export turnover of the qualifying goods or the merchandise during the previous year exceeds the turnover of such goods or merchandise during the immediately preceding year shall be available provided the assessee has exported out of India any qualifying goods or merchandise during the previous year immediately preceding the relevant previous year for which the deduction is claimed. In other words, if an assessee newly enters the export business during a particular year, he will be entitled to the concession at the rate of 1 per cent. for that year and shall not be entitled for additional 5 per cent. on account of incremental turnover. In Sub-section (3), no deduction of 5 per cent. on account of incremental export turnover shall be allowed, unless the assessee had exported such goods or merchandise out of India during the immediately preceding year.

Now, adverting to the facts of the present case, the assessee-company was a partner in M/s. Victor Cycles for the period June 17, 1981, to June 30, 1981, when on June 30, 1981, the said firm was dissolved and all assets were taken over by the assessee. It was firm M/s. Victor Cycles in which the assessee-company was a partner had made export for the period June 17, 1981, to June 30, 1981. Sub-section (3) denies the benefit of incremental turnover in case the assessee had not exported goods or merchandise during the immediately preceding previous year. In the present case, as per the findings recorded by the Tribunal, the assessee is a private limited company who started exporting the goods directly in the year under consideration.

Further, the issue before the hon''ble Supreme Court in Commissioner of Income Tax, Bihar Vs. Ramniklal Kothari, was whether an assessee who was not carrying an independent business of his own was entitled to deduction on account of expenses incurred by him in earning income from those firms in which he was a partner. The said case does not advanced the case of the assessee as that is not the question involved in the present case.

The Tribunal was, thus, not right in allowing 5 per cent. additional deduction on account of incremental turnover to the assessee. Accordingly, the question referred to this Court is answered in the negative, i.e., in favour of the Revenue and against the assessee.