COMMISSIONER OF INCOME TAX vs. M/S GREATWAYS PVT. LTD.

ITA/581/2006HC Punjab & HaryanaPHHC01075319200601 February 2008Author: MR. JUSTICE SATISH KUMAR MITTAL,MR JUSTICE RAKESH KUMAR GARG7 pages
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What were the facts?

The Revenue (Commissioner of Income Tax, Ludhiana-II) appealed against the ITAT's order concerning Assessment Year 2003-04. The assessee, M/s Greatways Private Limited, an exporter of hosiery items, had filed its return. The Assessing Officer (AO) noted discrepancies: (a) Sales Tax and Central Sales Tax were not included in the total turnover for Section 80HHC deduction; (b) Interest income of Rs.59,03,694/- was treated as business income and reduced by 90% for computing business profit, whereas the AO considered it 'income from other sources'; and (c) a negative figure for 'profit from export of manufacturing business' was taken as zero. The AO's assessment order included Sales Tax and CST in the turnover, treated premium on sale of export quota as not covered by Sections 28(iiia)-(iiic) and thus not an export incentive, and disallowed deduction on 90% of export quota sale premium. The CIT(A) ruled in favour of the assessee on all these points. The ITAT, in turn, dismissed the Revenue's appeal partly, upholding the CIT(A)'s decisions.

What did the High Court hold?

The High Court decided the appeal by addressing each substantial question of law. For the first question regarding the inclusion of Central Sales Tax and Sales Tax in the total turnover for Section 80HHC deduction, the Court found it was covered against the Revenue by its prior decision in CIT Vs. M/s Vardhman Polytex Limited. The Court then focused on the second and third questions. Regarding the second question, concerning the treatment of interest income as business income versus income from other sources for Section 80HHC, the Court held that interest income is not derived from exports and therefore not eligible for deduction under Section 80HHC. This question was answered in favour of the Revenue and against the assessee, relying on the judgment in Commissioner of Income tax-III, Ludhiana Versus M/s Malwa Cotton Spinning Mills Limited and Commissioner of Income Tax Vs. Sterling Foods. For the third question, concerning the exclusion of 90% of interest income from business profit, the Revenue's counsel conceded that this question was to be answered against the Revenue in view of the Supreme Court's decision in Hero Exports Vs. Commissioner of Income Tax(Central), Ludhiana. Consequently, the appeal was partly allowed.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether Central Sales Tax and Sales Tax should form part of the total turnover when computing deduction under Section 80HHC. 2. Whether premium on sale of export quota, treated as incentive and not covered by Sections 28(iiia), 28(iiib), and 28(iiic), should be treated as 'Business Income' instead of 'income from other sources' for Section 80HHC computation. 3. Whether 90% of interest income assessable under 'income from other sources' should be excluded from business profit. The Revenue argued that Sales Tax and CST should be included in the total turnover for Section 80HHC. For the second issue, the Revenue contended that interest income is not derived from exports and thus not eligible for Section 80HHC deduction, and should be treated as 'income from other sources'. For the third issue, the Revenue argued for the exclusion of 90% of interest income from business profit. The assessee argued that interest income on FDRs given to the Apparel Export Promotion Council is directly related to business and should be treated as business income. The assessee also relied on decisions favouring the inclusion of interest income in business profit for Section 80HHC computation.

Which sections of the Income-tax Act were involved?

Section 80HHC,Section 28(iiia),Section 28(iiib),Section 28(iiic),Section 143(1),Section 143(2),Section 143(3),Section 143(4),Section 260A

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In the High Court for the States of Punjab and Haryana at Chandigarh … ITA No.581 of 2006

Date of decision:1.2.2008 The Commissioner of Income Tax, Ludhiana-II .. Appellant Versus M/s Greatways Private Limited,

G.T.Road, Ludhiana Respondent Coram: Hon’ble Mr.Justice Satish Kumar Mittal Hon'ble Mr.Justice Rakesh Kumar Garg Present: Mr.Vivek Sethi, Advocate for Mr.Sanjeev Bansal, Advocate for the appellant-revenue. Mr.Akshay Bhan, Advocate for the respondent-assessee .. Rakesh Kumar Garg,J

1.

This appeal has been preferred by the Revenue against the order dated 25.5.2006 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh in ITA No.596/CHD/2005 for the Assessment Year 2003- 04 proposing following substantial questions of law:- 1.Whether on the facts and in law , the ITAT was correct in upholding that the Central Sales Tax and Sales Tax be not formed the part of total turnover while computing of deduction u/s 80 HHC ? 2.Whether on facts and in law, the Tribunal was right to uphold the order of the CIT (A) that the premium on sale of export quota, as incentive, which is not covered u/s 28(iiia), 28(iiib) and 28(iiic) of the Inc

The order continues below.

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