COMMISSIONER OF INCOME TAX-I, LUDHIANA vs. M/S MANAV TOOLS (INDIA) PVT. LTD.

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ITA/206/2003HC Punjab & HaryanaPHHC01039032200323 November 2010Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The Court held that the IPRS incentive could not be taxed in assessment year 1993-94. The reasoning was based on the principle established in the case of Commissioner of Income Tax, Patiala Vs. M/s Sriyansh Knitters (P) Limited Ludhiana, decided by the same High Court, which held that no income accrues until the assessee's claim is quantified and verified. In the present case, the assessee had submitted the claim for IPRS, and it was received during the subsequent assessment year 1994-95. The Tribunal's finding that IPRS is allowed by the government based on scrutiny and examination for determining the price difference, and thus does not automatically accrue without claim submission, scrutiny, and approval, was upheld. The Court found no perversity or illegality in the Tribunal's order. The issue of commission paid to M/s. Uni Tools (India) Pvt. Ltd. was not decided by the High Court as it was not part of the substantial question of law raised by the Revenue.

What were the facts?

The Revenue filed an appeal against the order of the Income Tax Appellate Tribunal (Tribunal) for assessment year 1993-94. The assessee, M/s. Manav Tools (India) Pvt. Ltd., had declared nil income, claiming unabsorbed investment allowances. The Assessing Officer (AO) framed an assessment at Rs. 5,46,412/-, making additions including Rs. 6,47,261/- on account of IPRS (Import Replenishment Passbook Scheme) incentive. The AO held that the IPRS accrued on the date of export, March 22, 1993, falling within the assessment year 1993-94, even though the claim was received in assessment year 1994-95. The Commissioner of Income Tax (Appeals) deleted the IPRS addition, holding it accrued in assessment year 1994-95 as the claim was filed and finalized then. Both parties appealed to the Tribunal, which dismissed both appeals. The Revenue has now appealed to the High Court.

What were the issues?

1. Whether the right to receive IPRS accrued on the date of export, i.e., March 22, 1993, making it taxable for assessment year 1993-94? (Question of law) Assessee's Contention (as inferred from the Tribunal's decision and the High Court's acceptance): The assessee, following the mercantile system of accounting, argued that IPRS income accrues only when it is quantified, scrutinized, and approved by the government. Since the claim was made and finalized in the subsequent assessment year (1994-95), the income could not be taxed in assessment year 1993-94. The Tribunal's findings, upheld by the High Court, indicate the assessee relied on the principle that income accrues upon quantification and finalization. Revenue's Contention: The Revenue argued that the IPRS accrued on the date of export, March 22, 1993, and was therefore exigible to income tax for assessment year 1993-94. The Revenue relied on the principle that entitlement arises upon export.

Which sections of the Income-tax Act were involved?

Section 260A,Section 143(1)(a)

AI-generated summary — verify with the full judgment below

Income Tax Appeal No. 206 of 2003 1 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 206 of 2003 Date of Decision: 23.11.2010 Commissioner of Income Tax-I, Ludhiana --- Appellant Versus M/s. Manav Tools (India) Pvt. Ltd. Ludhiana --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL. --- PRESENT:Mr. Rajesh Katoch, Advocate for the appellant-Revenue. None for the respondent-assessee. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the Revenue against the order dated 2.8.2002, passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, (in short “the Tribunal”) in ITA Nos. 1200/CHANDI/95 and 1543/CHANDI/95 relating to the assessment year 1993-94. The Revenue has claimed the following substantial question of law for determination by this Court:

Income Tax Appeal No. 206 of 2003 2 “Whether the right to receive IPRS accrued on the date of export i.e. 22.3.1993, in the year relevant to the assessment year 1993-94?” The facts necessary for adjudication, as narrated in the appeal are that the assessee filed its return for the assessment year 1993-94, declaring net income at Rs. nil. The assessee claimed unabsorbed investment allowances of Rs. 50,454/- and 37,971/- for the past assessment years 1989-90 and 1990-91 respectively. The return was processed under Section 143(1) (a) of the Act. Assessment was framed, vide order dated 30.3.1994, at an income of Rs. 5,46,412/- and, while doing so, the assessing officer made the following additions: i) Addition of Rs. 2,35,554/- on account of commission paid to M/s. Uni Tools (India) Pvt. Ltd. ii) Addition of Rs. 6,47,261/- on account of IPRS on accrual basis as the assessee became entitled to receive the IPRS incentive on the date of export itself which was 22.3.1993 relating to the assessment year 1993-94 though the claim was received in the assessment year 1994-95. The Commissioner of Income Tax (Appeals), [hereinafter referred to as “CIT(A)”] in the appeal carried by the assessee, vide order dated 19.7.2005, upheld the disallowance of commission but deleted the addition of Rs. 6,47,261/- on account of IPRS observing that the assessee did not file claim to receive IPRS in the assessment year 1993-94 before the appropriate authority for obtaining such incentive and the claim having been filed and finalized in the financial year 1993-94,

Income Tax Appeal No. 206 of 2003 3 the IPRS incentive accrued in the assessment year 1994-95 and not in 1993-94. The order passed by the CIT(A) was challenged by both the sides, i.e. the Revenue and the assessee, before the Tribunal, by preferring separate appeals. The appeals of both the sides were dismissed by the Tribunal vide order dated 2.8.2002. This is how the Revenue has preferred the instant appeal. We have heard learned counsel for the parties and perused the record. The Revenue has raised an issue with regard to taxability of IPRS relating to the assessment year 1993-94. Counsel for the revenue argued that the IPRS accrued on the date of export i.e. 22.3.1993, therefore, the same was exigible to income tax relating to assessment year 1993-94. We are unable to accept the aforesaid submission of the Revenue. The issue regarding accrual of income from export incentive came up for consideration before this Court in ITC NO.184 of 1994 (The Commissioner of Income Tax, Patiala Vs. M/s Sriyansh Knitters (P) Limited Ludhiana) decided on 11.10.2010 wherein it was held that no income accrues till claim of the assessee was quantified and verified. Admittedly, in the present case, the assessee had submitted the claim for IPRS and received it during the next assessment year i.e. assessment year 1994-95 and, therefore, the same could not be held to be taxable in the current assessment year. The findings recorded by the Tribunal while upholding the claim of the assessee deserve to be noticed here, which are as under:-

Income Tax Appeal No. 206 of 2003 4 “We have heard both the parties and given our thoughtful consideration to the rival submissions. We have also examined the facts, evidence and material on record. From the facts discussed above, it is obvious that the assessee had exported the goods towards fag end of the accounting year under reference i.e. on 22.3. 93. It is not in dispute that the assessee had made claim in the next accounting year and IPRS received in the next accounting year were duly reflected in the A.Y.1994-

95.

It is also a fact that the assessee had been following the mercantile system of accounting. The question that requires to be considered is-whether the assessee becomes entitled to IPRS automatically without making such claim to the Govt. or it is subject to the finalization and approval of the Govt.? As discussed above, IPRS is allowed by the Govt. on account of price difference between the international and Indian price of raw material consumed in the manufacture of goods, which have been exported. There does not appear to be any automatic formula to determine the difference between the price prevailing in the international market and price of raw material prevailing in the country. It is also not the case that reimbursement of IPRS was being made at a fixed percentage of the exports. Thus very nature of the scheme is such which requires scrutiny and examination by the Govt. for determination of price difference. Until and unless claim is submitted to the Govt. and is scrutinized and approved by the Govt. it cannot be said that the assessee has acquired the right to receive such income. Moreover, the exports were made at the fag end of the accounting year i.e. about 8 days before the Income Tax Appeal No. 206 of 2003 5 close of the accounting year. Therefore, it does not appear that the assessee delayed submission of its claim for IPRS with an intention to defer its income to the next assessment year. Therefore, the amount which was neither quantified nor accrued or finalized by the Govt. in the A.Y. under reference could not be considered to have accrued to the assessee in the assessment year under reference. We have also referred to the two judgments relied upon by the ld. Departmental Representative for the revenue. In the case of Anglo French Textiles(supra), the issue before the High Court was-whether the High Court related to the amounts of Rs.15,47,005/- received by the assessee on the un-utilised import licence. In that case the assessee had already exported goods. As per the scheme of the Govt. the assessee had already exported goods. As per the scheme of the Govt. the assessee was entitled to cash equivalent to 8% of the un-utilised import licence. Thus in that case percentage of the amounts to be received in respect of un-utilised amount of import licence, was determined at a Income Tax Appeal No. 206 of 2003 6 fixed rate. This is not the case here. The assessee is not entitled to IPRS at a fixed percentage of the exports value of goods. It was still to be examined and determined by the Govt. Therefore, the ratio of the judgment of Bombay High Court is also not applicable to the facts of the present case. Having regard to the facts and circumstances of the case, we are of the considered opinion that the order of CIT(A) does not merit any interference. Accordingly, the same is upheld and this ground of appeal is dismissed.” No perversity or illegality could be pointed out in the aforesaid finding, which may warrant interference by this Court. Accordingly, there is no merit in the appeal and the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) November 23, 2010 JUDGE *rkmalik*

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