THE COMMISSIONER OF INCOME TAX vs. M/S RESONACE LABORATORIES

1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 6TH DAY OF JUNE 2012 PRESENT THE HON'BLE MR. JUSTICE D V SHYLENDRA KUMAR AND THE HON'BLE MR. JUSTICE B MANOHAR ITA Nos.793, 794, 795 and 796 of 2006 IN ITA NO. 793 OF 2006 BETWEEN : 1 THE COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE C R BUILDING QUEENS ROAD BANGALORE

2 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE – 12(2) C R BUILDING QUEENS ROAD BANGALORE … APPELLANTS [By Sri M Thirumalesh, Adv.] AND : M/S. RESONACE LABORATORIES NO.832, 37TH CROSS, 22ND MAIN, 4TH T BLOCK JAYANAGAR, BANGALORE – 560 041 … RESPONDENT [By M/s. S Parthasarathy, Malhararao

2 & Dinesh, Advs.] THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 25.11.2005 PASSED IN IT(SS)A NO. 692/BANG/2003 FOR THE ASSESSMENT YEAR 1999-2000, PRAYING TO SET ASIDE THE SAID ORDER OF THE TRIBUNAL AND ETC., IN ITA NO. 794 OF 2006 BETWEEN : 1 THE COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE C R BUILDING QUEENS ROAD BANGALORE

2 THE JOINT COMMISSIONER OF INCOME-TAX SPECIAL RANGE-1 C R BUILDING QUEENS ROAD BANGALORE … APPELLANTS [By Sri M Thirumalesh, Adv.] AND : M/S. RESONACE LABORATORIES NO.832, 37TH CROSS, 22ND MAIN, 4TH T BLOCK JAYANAGAR, BANGALORE – 560 041 … RESPONDENT [By M/s. S Parthasarathy, Malhararao & Dinesh, Advs.] THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 25.11.2005 PASSED IN IT(SS)A NO. 691/BANG/2003 FOR THE ASSESSMENT YEAR 1997-98, PRAYING TO SET ASIDE THE SAID

3 ORDER OF THE TRIBUNAL AND ETC., IN ITA NO. 795 OF 2006 BETWEEN : 1 THE COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE C R BUILDING QUEENS ROAD, BANGALORE

2 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE – 12(2) C R BUILDING QUEENS ROAD BANGALORE … APPELLANTS [By Sri M Thirumalesh, Adv.] AND : M/S. RESONACE LABORATORIES NO.832, 37TH CROSS, 22ND MAIN, 4TH T BLOCK JAYANAGAR, BANGALORE – 560 041 … RESPONDENT [By M/s. S Parthasarathy, Malhararao & Dinesh, Advs.] THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 25.11.2005 PASSED IN IT(SS)A NO. 771/BANG/2003 FOR THE ASSESSMENT YEAR 2000-2001, PRAYING TO SET ASIDE THE SAID ORDER OF THE TRIBUNAL AND ETC., IN ITA NO. 796 OF 2006 BETWEEN : 1 THE COMMISSIONER OF INCOME-TAX

4 CENTRAL CIRCLE C R BUILDING QUEENS ROAD BANGALORE

2 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE – 12(2) C R BUILDING QUEENS ROAD BANGALORE … APPELLANTS [By Sri M Thirumalesh, Adv.] AND : M/S. RESONACE LABORATORIES NO.832, 37TH CROSS, 22ND MAIN, 4TH T BLOCK JAYANAGAR, BANGALORE – 560 041 … RESPONDENT [By M/s. S Parthasarathy, Malhararao & Dinesh, Advs.] THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 25.11.2005 PASSED IN IT(SS)A NO. 772/BANG/2003 FOR THE ASSESSMENT YEAR 2001-2002, PRAYING TO SET ASIDE THE SAID ORDER OF THE TRIBUNAL AND ETC., THESE APPEALS COMING ON FOR HEARING, THIS DAY, SHYLENDRA KUMAR J., DELIVERED THE FOLLOWING:

5 JUDGMENT These four appeals by the revenue relate to the assessment years 1999-2000, 1997-98, 2000-01 and 2001-02 respectively and arise out of the assessment orders passed in respect of the same assessee, which had reached the tribunal and in terms of the orders questioned in each of these appeals, the tribunal had allowed the appeals of the assessee on the question of manner of computation of the amount characterized as profits earned from export business of the assessee, which amount qualifies for deduction in terms of Section 80HHC of the Income Tax Act, 1961 [for short, the Act]. 2. All these appeals had been admitted to examine the following questions of law as arising from out of the orders of the tribunal:

6 ITA 793 OF 2006 Whether the Appellate Authorities were correct in holding that conversion charges cannot be treated as income of the assessee from business and Explanation (baa) to section 80HHC read with section 41(1) of the Act which would exclude the addition of this income for the purpose of computation of eligible profits for the purpose of deduction under section 80HHC of the Act. ITA 794 OF 2006 1. Whether the Appellate Authorities were correct in holding that conversion charges cannot be treated as income of the assessee from business and Explanation (baa) to section 80HHC read with section 41(1) of the Act which would exclude the addition of this income for the purpose of computation of eligible profits for the purpose of deduction under section 80HHC of the Act. 2. Whether Appellate Authorities were right in holding that other income received by the assessee cannot be treated as part and parcel of eligible profit for the purpose of computation of deduction under section 80HHC of the Act.

7 ITA 795 OF 2006 Whether the Appellate Authorities were correct in holding that conversion charges cannot be treated as income of the assessee from business and Explanation (baa) to section 80HHC read with section 41(1) of the Act which would exclude the addition of this income for the purpose of computation of eligible profits for the purpose of deduction under section 80HHC of the Act. ITA 796 OF 2006 Whether the Appellate Authorities were correct in holding that conversion charges cannot be treated as income of the assessee from business and Explanation (baa) to section 80HHC read with section 41(1) of the Act which would exclude the addition of this income for the purpose of computation of eligible profits for the purpose of deduction under section 80HHC of the Act. 3. However, at the time of hearing, it is pointed out by Sri S Parthasarathy, learned counsel for the assessee that reference to Section 41(1) of the Act is totally unnecessary, as neither the tribunal had examined the issue in the context of Section 41(1) of the Act nor is the

8 finding having any bearing in the context of this statutory provisions. 4. We find even in terms of Section 80HHC of the Act for determination of the profits earned from export business, the provisions of Section 41(1) of the Act has no direct bearing or linking and therefore re-frame the question as common question in all these appeals, as under: Whether the Appellate Authorities were correct in holding that conversion charges cannot be treated as income of the assessee from business and Explanation (baa) to section 80HHC of the Act which would exclude the addition of this income for the purpose of computation of eligible profits for the purpose of deduction under section 80HHC of the Act. 5. We have heard Sri M Thirumalesh, learned standing counsel for the revenue and Sri S Parthasarathy, learned counsel for the assessee.

9 6. Sri Thirumalesh submits that the question as raised in these appeals had been examined by a division bench of this court in the case of other assessees and one such examination had been undertaken in the judgment rendered by this court in the case of M/S MAINI PRECISION PRODUCTS PVT LTD vs THE JOINT COMMISSIONER OF INCOME-TAX [ITA Nos 52 OF 2009 AND 182-185 OF 2009, decided on 18-8-2009. 7. Sri Thirumalesh submits that this court, following and applying the judgment of the Supreme Court in the case of COMMISSIONER OF INCOME TAX vs K RAVINDRANATHAN NAIR [(2007) 295 ITR 228] had answered a like question in the affirmative and in favour of the revenue and therefore the present question is also to be answered in the negative, as the appeal is by the revenue, the tribunal having taken a view contrary to the one indicated in the judgment of this court.

10 8. However, Sri Parthasarathy, learned counsel for the assessee while submits that in so far as the question of computation of profits of the assessee arising from its export business for the purpose of qualifying for deduction under Section 80HHC of the Act is concerned, the question as answered by this court in the case of M/S MAINI PRECISION PRODUCTS PVT LTD [supra] governs the issue, nevertheless, points out that in so far as it relates to the question of computation of profit of the business of the assessee is concerned and particularly as in this case, the profits of the business of the assessee was inclusive of certain receipts in the nature of conversion charges which had been received by the assessee on the basis of the law declared by the Supreme Court in the case of M/S ACG ASSOCIATED CAPSULS PVT LTD vs THE COMMISSIONER OF INCOME TAX [rendered on 8-2-2012 in Civil Appeal

11 No 1914 of 2012], applying the principles of Explanation(baa) to Section 80HHC of the Act and therefore submits even if appeal of the revenue is to be allowed, following the judgment of this court in the case of M/S MAINI PRECISION PRODUCTS PVT LTD [supra] the matter will have to be, nevertheless, remanded to the assessing officer for the purpose of arriving at the figure which qualifies for reduction on applying the Explanation(baa) for the purpose of computing such export profits.

12 mentioned in Explanation(baa) to Section 80HHC of the Act. 10. We are afraid that we cannot accept this submission for the reason that firstly the very question is as to whether conversion charge is one which is covered within explanation(baa) to section 80HHC of the Act as a residuary item and when once it is held so, in the manner of computation of that, the principle of law declared by the Supreme Court in the case of M/S ACG ASSOCIATED CAPSULS PVT LTD [supra] is automatically attracted and has to be applied. 11. it is for this reason, while we allow these appeals, set aside the orders of the tribunal by answering the question in the negative and in favour of the revenue, nevertheless, issue direction to the assessing officer to recompute the amount which qualifies for deduction under Section 80HHC of the Act in respect of the

13 assessee for the assessment years in question by applying the ratio of the judgment of the Supreme Court in the case of M/S ACG ASSOCIATED CAPSULS PVT LTD [supra] in so far as the profits attributable to conversion charges are concerned or arriving at the conversion charges received by the assessee for the purpose of computation of the profits. Sd/- JUDGE Sd/- JUDGE

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