RBT Exports vs The Assistant Commissioner of Income Tax

V. Ramasubramanian, J.—This Tax Case Appeal arises out of an order of remand passed by the Income Tax Appellate Tribunal, directing the assessing officer to compute the qualifying income by applying the Explanation (baa) under section 80HHC.

Heard Mr. M.P. Senthilkumar, learned counsel appearing for the appellant and Mr. M. Swaminathan, learned Standing Counsel for the respondent.

The appellant is said to be a Partnership Firm having a modern Processing and Cold Storage Plant. The appellant filed a return of income for the assessment year 1996-97 on 30.10.1996 disclosing its total income as NIL. They claimed deduction under section 80HHC as well as under section 80 IA.

The case was processed under section 143(1)(a) and a notice was issued on 15.9.1997.

Thereafter, an order of assessment was passed on 31.3.1999, holding that the appellant was not entitled to deduction under section 80HHC in respect of (i) processing charges of Rs. 18,97,879/-, (ii) processing and cold storage service charges of Rs. 10,60,000/- and (iii) storage charges of Rs. 2,74,839/-.

The assessing officer applied Explanation (baa) to section 80HHC to arrive at the said conclusion.

The appellant filed an appeal before the Commissioner of Income tax (Appeals). While the appeal was pending, the assessing officer passed another order on 26.4.1999 rectifying the mistake committed in the original order. Thereafter, the Commissioner of Income Tax (Appeals) dismissed the appeal by order dated 10.5.1999. Since the revised order passed, suo motu, by the assessing officer, on 26.4.1999, could not reach the Commissioner of Income Tax (Appeals) before he dismissed the appeal on 10.5.1999, the order of the assessing officer could not be given effect to. Therefore, the assessing officer held the order of rectification to have become infructuous. As against the said conclusion, the appellant filed a fresh appeal. But, the Commissioner of Income Tax (Appeals) dismissed the said appeal by order dated 11.10.1999.

In the meantime, the appellant filed a further appeal before the Tribunal as against the first order dated 10.5.1999 passed by the Commissioner of Income tax dismissing his appeal. The Tribunal, by order dated 28.9.2006, remanded the matter to the assessing officer insofar as the claim for deductions under section 80HHC is concerned, after holding that Explanation (baa) is applicable. Insofar as the relief claimed by the appellant under section 80 IA was concerned, the Tribunal held in favour of the assessee. The Department has not come up on appeal as against that portion of the order relating to section 80 IA. However, the assessee has come up on appeal as against the order of remand passed by the Tribunal, on the short ground that it has wrongly held that Explanation (baa) to be applicable. The following questions of law were framed at the time of admission:--

"1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the Explanation (baa) to Section 80HHC of the Income Tax Act, 1961 would apply to the processing hall and cold storage service charges and storage charges received by the appellant for use of its entire infrastructure facilities?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the Processing Charges, Processing hall and cold storage service charges and storage charges are not in the nature of turnover of the business?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in not considering the Explanatory Memorandum to the Finance Bill and Board''s Circular No. 621 dated 19.12.1991 and hence holding that Explanation (baa) to Section 80HHC was applicable and 90% of the income arising from Processing Charges, charges for processing hall and cold storage plant and storage charges should be excluded while computing deduction under Section 80HHC?"

Unfortunately, for the assessee, the question as to whether processing and cold storage service charges and storage charges would come within the Explanation (baa) to section80HHC or not, is already covered by a judgment of this court dated 27.7.2011 in T.C.(A) No. 260 of 2005 as against the very appellant herein in respect of the assessment year 1995-1996. This judgment has attained finality. Therefore, out of the three heads of claims, viz., (1) processing charges to the extent of Rs. 18,97,879/- (2) processing and cold storage service charges of Rs. 10,60,000/- and (3) storage charges of Rs. 2,74,839/-, items 2 and 3 are already covered against the assessee by the judgment of the supreme Court. Hence, to that extent, we cannot find fault with the order of the Tribunal holding that the Explanation (baa) to section 80HHC would apply. That leaves us with the only remaining question as to whether processing charges of Rs. 18,97,879/- would call for deduction under section 80HHC or whether the Explanation (baa) would apply even to the processing charges or not.

The learned counsel for the appellant seeks to make a distinction between processing charges and the processing and cold storage service charges. According to the learned counsel for the appellant, the processing charges are the income derived by the appellant by undertaking job work for other exporters. In contrast, the processing and cold storage service charges are those earned by him by letting out to third parties, the entire infrastructure including the storage hall, the plant and machinery, etc. Therefore, it is the contention of the learned counsel for the appellant that the processing charges earned by him by undertaking job work would qualify to be included within the total turnover that constitutes the profits of business.

A look at the order of the Tribunal would show that on this question, there has been no independent finding recorded by the Tribunal. The Tribunal did not analyse whether what the appellant contends in relation to the nature of the income that is encapsulated as processing charges is correct or not. Therefore, we are of the view that in the light of what is observed in para 10 of the judgment of this court in T.C.A. No. 260 of 2005, the assessing officer should be allowed a free hand to determine the same. para 10 of the judgment of this court dated 27.7.2011 in T.C.(A) Bi, 260 of 2005 reads as follows:--

"In considering whether the receipt would form part of the turnover, the Apex Court held that the nature of every receipt has to be seen to find out whether it has the attribute of export turnover."

Therefore, we are of the considered view that insofar as two out of the three items of claims for deduction under section 80HHC are concerned, Explanation (baa) would apply in view of the decision of this court dated 27.7.2011. Insofar as the processing charges alone are concerned, the matter requires re-examination by the assessing officer.

In view of the above, we hold that the Tribunal was not right without analysing the nature of the processing charges in coming to the conclusion that Explanation (baa) to section 80HHC would apply to processing charges also. Therefore, that portion of the order of the Tribunal alone is set aside. However, the order of remand is confirmed and the assessing authority is at liberty to examine the nature of the income that comes under the heading processing charges. The other questions of law are answered against the assessee. No costs.