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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
Both the appeals of the assessee are directed against the common order passed by the Commissioner of Income Tax (Appeals) -3, Chennai, dated 28.02.2017 and pertain to assessment years 2009-10 and 2010-11. Since common issues arise for consideration in both the appeals, we heard these appeals together and disposing of the same by this common order.
Shri G. Baskar, the Ld.counsel for the assessee, submitted that the assessee claimed deduction under Section 10B of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. counsel, the assessee is a 100% Export Oriented Unit. The assessee exported valves and also earned management fee which was incidental to the export of valves. According to the Ld. counsel, the assessee claimed before the Assessing Officer that management fee partakes the character of profits and gains from business or profession. The Assessing Officer however, rejected the claim of the assessee and found that the management fee, sale of scrap and interest are not derived from industrial undertaking. Referring to Section 10B of the Act, the Ld.counsel submitted that this section clearly says that the deduction shall be from the profits and gains of 100% Export Oriented Unit. Placing reliance on the order of the Special Bench of this Tribunal in Maral Overseas Ltd. v. Addl. CIT (2012) 16 ITR (Trib) 565, the Ld.counsel submitted that in view of Section 10B(4) of the Act, the entire profit of the undertaking is eligible for deduction under Section 10B of the Act. According to the Ld. counsel, the interest on the fixed deposit receipt has to be treated as profit of the undertaking, therefore, the assessee is eligible for deduction under Section 10B of the Act. The Ld.counsel has also placed his reliance on the judgment of Karnataka High Court in CIT v. Motorola India Electronics (P) Ltd. (2014) 265 CTR 94 and also the judgment of Delhi High Court in Priviera Home Furnishing v. Addl. CIT (2016) 138 DTR 149.
The Ld.counsel for the assessee further submitted that the Assessing Officer has also reopened assessments for both the assessment years under Section 147 of the Act. The assessments were completed under Section 143(3) of the Act on 13.03.2013 and on 27.02.2013 for assessment years 2009-10 and 2010-11 respectively. The Assessing Officer had no fresh material for reopening the assessments. Referring to the objection filed before the Assessing Officer, a copy of which is available at page 62-63 and 89-90 of the relevant paper-book, the Ld.counsel submitted that the management fee of `56,52,503/- and `56,13,961/- for the assessment years 2009-10 and 2010-11 respectively are in the nature of rendering technical services in connection with export of valves from India, therefore, the assessee explained before the Assessing Officer that it has to be treated as profits and gains from business.
On the contrary, Shri Asish Tripathy, the Ld. Departmental Representative, submitted that the profit derived by the undertaking from export of article or thing alone is eligible for deduction under Section 10B of the Act. In this case, the management fee was not derived from the business of export. Therefore, according to the Ld. D.R., the Assessing Officer, by placing reliance on the judgments of Apex Court in CIT v. Sterling Foods (1999) 237 ITR 579 and in Pandian Chemicals Ltd. v. CIT (2003) 262 ITR 278, found that the management fee was not derived from the export of business, therefore, he rejected the claim of the assessee and the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.
We have considered the rival submissions on either side and perused the relevant material available on record. The only issue arises for consideration is whether the assessee is eligible for deduction under Section 10B of the Act in respect of management fee or not? Both the authorities below have rejected the claim of the assessee by placing reliance on the judgment of Apex Court in Sterling Foods (supra) and Pandian Chemicals Ltd. (supra). The assessee claimed that it being 100% Export Oriented Unit, the profit has to be computed as provided in Section 10B(4) of the Act.
Therefore, the management fee, which is in relation to export of valves, cannot be reduced from profit of the undertaking. The contention of the assessee is that the management fee is part of export profit, therefore, eligible for deduction under Section 10B of the Act.
We have carefully gone through the judgment of Delhi High Court in Priviera Home Furnishing (supra). In the case before Delhi High Court, the assessee-company is engaged in the business of manufacturing and sale of home furnishings. The assessee set up a 100% Export Oriented Undertaking which was eligible for deduction under Section 10B of the Act in respect of export drawback, customer claims, freight subsidy and interest on fixed deposit receipts. The Delhi Bench of this Tribunal allowed the claim of the assessee holding that export drawback forms part of income eligible for deduction under Section 10B of the Act. As regards other three claims, viz. customer claims, freight subsidy and interest on FDRs, this Tribunal found that it cannot form part of income eligible for deduction under Section 10B of the Act. On further appeal before the Delhi High Court, the Delhi High Court after considering the judgment of Apex Court in Pandian Chemicals Ltd. (supra) and Sterling Foods (supra), found that freight subsidy, customer claims and interest on FDRs are profit of the undertaking. Moreover, the interest was earned on the fixed deposit for facilitating letter of credit and bank guarantee. Therefore, the Delhi High Court found that the assessee is eligible for deduction under Section 10B of the Act.
In the case before us, the claim is only in respect of management fee. The management fee is in connection with export of valves, therefore, in view of the judgment of Delhi High Court in Priviera Home Furnishing (supra), this Tribunal is of the considered opinion that the assessee is eligible for deduction under Section 10B of the Act. In other words, the management fee of `56,52,503/- and `56,13,961/- for the assessment years 2009-10 and 2010-11 respectively are eligible for deduction under Section 10B of the Act. Therefore, we are unable to uphold the orders of the lower authorities. Accordingly, the orders of both the authorities below are set aside and the Assessing Officer is directed to allow the claim of the assessee in respect of management fee under Section 10B of the Act.
In the result, both the appeals filed by the assessee are allowed.