2006-VIL-355-ITAT-DEL
Equivalent Citation: TTJ 104, 298, [2006] 9 SOT 665 (DELHI)
Income Tax Appellate Tribunal DELHI
IT APPEAL NO. 311 (DELHI) OF 2006
Date: 25.08.2006
DISCOVER INDIA TOURS (P) LIMITED.
Vs
ASSESSING OFFICER.
BENCH
JUDGMENT
This is an appeal filed by the assessee against the order of the CIT(A), dt. 20th Dec., 2005 for the asst. yr. 2002-03 in the matter of order passed under s. 143(3) of the IT Act, 1961.
2. Following are the grounds of appeal:
"1. The impugned order of the learned CIT(A) and the learned AO is bad in law, is devoid of jurisdiction, is arbitrary, based on conjectures and surmises, passed without application of mind, without granting proper opportunity to defend, without following the proper legal procedures and is against the principles of natural justice. As such the order is null and void ab initio.
2. The order is against the provisions of the Act and the appellant denies his liability to tax as determined and computed by the learned AO and the manner in which it has been so determined or computed. The learned CIT(A) has erred in law in upholding the legal validity of the impugned order, whether in specific terms or by implication.
3. The learned AO has erred in law and on the facts and circumstances of the case in making additions of and the learned CIT(A) has erred in law and on facts in sustaining the impugned additions/computations:
(a) In computing the deduction under s. 80HHD at Rs. 59,03,828 being based on misconception of law and facts, as against the claim of the assessee Rs. 76,77,032.
(b) In net profits of business at Rs. 1,02,96,600 (A) as against Rs. 1,33,89,163 by excluding Rs. 30,92,563 from profits of business for computing deduction under s. 80HHD, though accepting the claim of the assessee that it is 'income from business or profession'.
(c) In computing the net foreign exchange receipts at Rs. 5,06,59,179 (B) as against Rs. 5,30,18,504 by ignoring Rs. 22,67,477 being profits in exchange fluctuation account, which is an inherent part of gross receipts of foreign exchange earnings.
(d) In taking the gross total receipts in foreign exchange at Rs. 5,30,11,431 (C) as against Rs. 5,52,78,908 by ignoring Rs. 22,67,477 being profits in exchange fluctuation account, which is an inherent part of gross receipts of foreign exchange earnings.
(e) In not specifically directing adjustment of special reserve under s. 80HHD from Rs. 38,38,516 to Rs. 29,51,914 having a direct bearing on future taxable income of the assessee, as unutilized reserve entails tax.
(f) In charging interest under ss. 234B and 234C on alleged short payment of advance tax based on misconception of law and facts. The assessee denies his liability to advance tax to the extent of tax credits available under s. 115JB, brought forward Rs. 7,20,934 as also on the disputed income.
(g) That even if it is held that any part of interest is to be charged under ss. 234B and 234C, even then interest under ss. 234B and 234C, which is not penal in nature but only compensatory for withholding payment of taxes, are valid and legal expenses of business being incurred on funds withheld and used in business only and on which similar income from interest has been earned and brought to tax, should have been allowed in computing net taxable income.
4. The appellant craves leave to add to, alter or delete any of the grounds of appeal up to the time of hearing, which arise out of the present appeal or subsequently due to any new facts or legal finding.
5. The appellant craves leave and sanction of the Hon'ble Tribunal to file additional evidence, if so required for proper prosecution of the case, based on facts and circumstances, which has not been or could not be adduced or filed before lower authorities either because proper and sufficient opportunity was not provided or because it was not solicited or its need was not appreciated."
3. Rival contentions have been heard and record perused. The facts in brief are that assessee is a private limited company engaged in the business of handling inbound foreign tours. Entire income was received by the assessee in convertible foreign exchange. There is also no dispute to the fact that assessee-company was not engaged in any other business and does not have any business income earned in Indian Rupees. For the relevant assessment year under consideration, the assessee filed income declaring net taxable income of Rs. 60.87 lacs after claiming deduction under s. 80HHD of the IT Act, 1961 at Rs. 76.77 lacs. In the course of assessment proceedings, the AO recomputed the deduction under s. 80HHD at Rs. 98.39 lacs and also enhanced the taxable income from Rs. 60.87 lacs to Rs. 78.61 lacs. While computing the deduction, the AO has denied deduction in respect of interest earned by the assessee out of its EEFC account amounting to Rs. 30.92 lacs even though included this amount while working out business profits of the assessee. As per AO, such income cannot be said to be "derived" from services provided to foreign tourists, and that an income can be said to be "derived" from services provided to foreign tourists only if it is directly related to such activities. After discussing various case laws, he reached to the conclusion that interest on EEFC account cannot be held to be eligible for deduction under s. 80HHD of the Act.
4. By the impugned order, the CIT(A) confirmed the disallowance made by the AO. The CIT(A) observed that the AO had excluded interest income of Rs. 30,92,563 received on FDR with bank as well as ignored Rs. 22,57,477 accrued on account of foreign exchange fluctuation, which were not derived from business of the assessee-company out of services rendered to the foreign tourists, as the same is several degree removed from the income earned by rendering services to the foreign tourists.
5. Aggrieved by the above order of the CIT(A), the assessee is in further appeal before us.
6. The learned Authorised Representative has drawn our attention to the provisions of s. 80HHD of the Act, more particularly to sub-s. (3) indicating the computation provision in respect of profits derived from services provided to foreign tourists. He submitted that as per computation provision, the profit of foreign tourists shall be the amount which bears to the profits of the business, as computed under the head "Profits and gains of business or profession", the same proportion as receipts specified in sub-s. (2). He has drawn our attention to the order of the AO wherein at p. 7 of his order he observed that income from interest can be said to be attributable to the business activities of the assessee, but cannot be classified as being derived from services provided to the foreign tourists. He has further drawn our attention to the gross total income computed by the AO at p. 8 of his order at Rs. 1,37,66,324 which were inclusive of such interest income, and submitted that while computing deduction under s. 80HHD, the AO has again changed the gross total income, and reduced therefrom interest income of Rs. 30,92,563. As per learned Authorised Representative, maintaining of EEFC account was inextricably connected with the business of foreign tourists being done by the assessee.
7. On the other hand, learned Departmental Representative submitted that interest income cannot be classified for deduction under s. 80HHD, insofar as such income is not "derived" from tourists, to whom the assessee was rendering his services. He reiterated the case laws relied by lower authorities in their respective orders and thus justified the order of the lower authorities.
8. We have considered the rival contentions and carefully gone through the orders of the authorities below. We have also deliberated on the case laws cited by the learned Departmental Representative and Authorised Representative as well as referred by lower authorities in their respective orders, in the context of factual matrix of the case. In the instant case, the assessee maintained EEFC account as per the requirement and directions of the RBI, from where interest was accrued to the assessee. A portion of foreign exchange receipt is deposited in this account and the account is maintained in foreign exchange only. Interest was also credited by the bank in foreign exchange only and not in Indian currency. As per computation provision, provided in sub-s. (3) of s. 80HHD of the Act, the amount of deduction, shall be the amount which bears to the profit of the business as computed under the head "Profits and gains of business or profession", the same proportion as the receipts specified in the sub-s. (2), bear to the total receipts of the business carried on by the assessee.
9. It is crystal clear from the plain reading of sub-s. (3) that first we have to compute profit of the business under the head "Profits and gains of business or profession". In the instant case also, while computing the business income as per provisions of the IT Act, 1961, the AO himself at p. 8, had worked out gross total income at Rs. 1,37,66,324 which was inclusive of interest income. At p. 7 he has given a clear-cut finding that interest income from EEFC account was attributable to the business activity of the assessee. The AO has nowhere treated such interest income as "income from other sources". Such finding of the AO was confirmed by the CIT(A). The Revenue is not in appeal before us against the order of the CIT(A) and the findings confirmed by him. Therefore, the limited controversy before us is as to whether the income which is attributed to the business income of the assessee, will form part of its "income from business or profession". Undisputedly, it was an income attributable to business activities of the assessee, and very much part of its business income. Therefore, while computing deduction under s. 80HHD, as per sub-s. (3), we have to take the business profit which is inclusive of the figure of the interest determined by the AO himself at p. 8 of his order. Once the interest income is found to be business income, it will qualify for consideration as per the method provided for calculation of deduction under sub-s. (3) of s. 80HHD of the Act.
10. The case laws discussed by the AO and relied on by learned Departmental Representative pertain to the deduction claimed under ss. 80HH, 80HHA, 80-I and 80-IB of the IT Act, 1961 where the deductions are allowable qua "industrial undertaking or foreign project" and not qua profits of business as a proportion of export turnover to total turnover of business as provided in s. 80HHC/80HHD of the Act, and as a proportion of foreign tourists receipts as per sub-s. (2) as reduced by the receipts covered by sub-s. (2A) to the total receipts of the business. Thus, the interest earned which forms part of "profits of business" has to be considered on the facts and merit of each case for the purpose of the claim under these sections. The contrary view taken by various High Courts are under special circumstances where such interest income has been assessed as "income from other sources", which is not the case of the instant assessee, insofar as AO himself has held that interest income was attributable to the business and business profit was computed inclusive of such interest income. Therefore, there is no reason for not considering such income computed under the head "Income from business and profession" while computing deduction under s. 80HHD. Thus, we found that various case laws discussed by the lower authorities in their respective orders and cited at Bar by learned Departmental Representative, pertain to the interest income assessed as "income from other sources". Entire income of the assessee in the instant case has been undisputedly earned in convertible foreign exchange and was assessed as income from business or profession and that too only from business of rendering services to the foreign tourists. We also found that Tribunal, Special Bench in the case of Asstt. CIT vs. Lucky Tour & Travels (2004) 90 TTJ (Del) 1104 held that deduction under s. 80HHD has to be computed by determining the profit of business under the head "Profits and gains of business and profession", and thereafter apportioning the said profits in the proportion as receipts specified in sub-s. (2) bear to the total receipts without reducing the total receipts of tours by the amount paid by the assessee to book hotels, etc. Similarly, in case of Sita World Travel (I) Ltd. vs. Dy. CIT (2004) 91 TTJ (Del) 20, it was held that interest on FDRs comprising of advance receipts from tours is eligible for deduction under s. 80HHD of the Act. In the instant case, deposit with bank in EEFC account was put as per the requirement, and directions of the RBI, interest was allowed thereon by the bank, in convertible foreign exchange. Thus, not only the deposit was made in foreign exchange but interest accrued thereon was also in foreign exchange. The AO have included it in business income while computing profits and gains of business and profession, and has not treated it as "income from other sources."
We are well aware of the fact that an order passed by the co-ordinate Bench should not be lightly disregarded. In taking this view, we are supported by the decision of Hon'ble Supreme Court in the case of Union of India & Anr. vs. Paras Laminates (P) Ltd. (1990) 87 CTR (SC) 180 : (1990) 186 ITR 722 (SC) wherein Hon'ble Supreme Court has observed that it is true that a Bench of two Members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. The rational of this rule is the need of continuity, certainty and predictability in the administration of justice. Persons effected by the decision of Tribunal have a right to expect that those exercising judicial functions will follow the reasons or grounds of the judicial decision in the earlier cases on identical matters.
11. In view of the above discussion, respectfully following the ratio laid down in case of Sita Travels by Tribunal, Delhi Bench, we reverse the conclusion of the lower authorities and direct the AO to take the figure of business income, which included interest income also for computing deduction under s. 80HHD of the Act. We direct accordingly.
12. Next grievance of the assessee relates to income generated in exchange fluctuation account, which was not treated by the lower authorities as part of its export earning allowable for deduction under s. 80HHD of the Act. On the same analogy as was adopted for interest, the lower authorities held that profit in exchange fluctuation account was not derived from business of tour operators but was merely attributable to such business, therefore, not eligible for deduction under s. 80HHD of the Act.
13. We have considered the rival contentions and found from the record that bills for services rendered to foreign tourists were raised by the assessee in foreign currency and payments were also received in foreign currency. Whenever the bills were raised, on the basis of notional value of foreign currency, the amount was credited in the books of account and subsequently when the payment was received, on the basis of actual rate of foreign exchange prevailing on that day, the amount was credited as income. As there is a difference in exchange rate on the date of raising the bills vis-a-vis the date on which the bill was actually realized, the excess amount realised or the loss incurred was on account of foreign exchange earning for the services rendered to foreign tourists only. This profit or loss was part and parcel of the foreign exchange sale proceeds only and by no stretch of imagination, it can be said to be "income from other sources", so as to disqualify for deduction under s. 80HHD of the Act. Total receipts in convertible foreign exchange is got increased or reduced due to change in foreign exchange rate applied at two different points of time. However what the assessee has got on account of services rendered to foreign tourists was exactly the Rupee equivalent of bills realized in foreign currency and nothing more or less. The actual income was exact value realized by the assessee when its bills were honoured by foreign tourists. In order to arrive at the net foreign exchange receipts, the amounts certified under Item 2A, in Form 10CCA are to be considered. However, while considering the total receipts and net receipts of foreign exchange, the AO in the instant case has wrongly reduced the exchange fluctuation income instead of adding the same to the foreign tour receipts. The issue regarding treatment of income/loss arising out of exchange fluctuation is no more res integra and by plethora of decisions, it has been held that, such amount is part and parcel of sale proceeds in convertible foreign exchange. Tribunal, Delhi Bench in the case of Sharp Credit Ltd. vs. Dy. CIT (2004) 83 TTJ (Del) 1056 has held that total turnover of export receipts includes profit/loss in exchange fluctuation. Similarly, Tribunal, Ahmedabad Bench in the case of Priyanka Gems vs. Asstt. CIT (2005) 94 TTJ (Ahd) 557, order authored by one of the Members constituting this Bench have dealt with the issue in great length and held that in case of export business, income earned or loss incurred on account of fluctuation in exchanged rates, forms part of the sale proceeds earned in convertible foreign currency and, therefore, eligible for deduction under s. 80HHC/80HHD of the Act.
14. In view of the above, we direct the AO to verify the records and relevant certificate in Form 10CCA, and consider the foreign exchange earning actually realized by the assessee, after considering the excess amount realized due to exchange rate fluctuation as forming part of income eligible for deduction under s. 80HHD. Accordingly, the AO is directed to recompute the deduction under s. 80HHD of the Act.
15. Last ground of the assessee relates to allow tax credit available under s. 115JB, while computing interest chargeable under ss. 234B and 234C of the Act. The issue regarding giving credit of tax credit available under s. 115JB is no more in dispute. Tribunal in the case of Chemplast Sanmar Ltd. vs. Dy. CIT (2004) 83 TTJ (Chennai) 427 and Madras High Court in the case of CIT vs. T.T. Investments & Trades (P) Ltd. (1984) 42 CTR (Mad) 48 held that tax paid under s. 115JA of the Act is advance tax retained by the Department for being set off against the tax liability of future years and assessee is entitled to adjust the net credit first before charging of interest under ss. 234B and 234C of the Act. In the instant case, the assessee is engaged in business of handling inbound foreign tourists and entire income was received in convertible foreign exchange. A tax credit of Rs. 7,20,934 under s. 115JB of the Act was claimed while computing advance tax and net tax. The AO computed interest without giving this credit. In view of the decisions referred to above, we do not find any merit in the action of the AO in computing interest payable under ss. 234B and 234C of the Act without giving credit for tax under s. 115JB of the Act. We, therefore, reverse the action of the lower authorities and direct the AO to recompute interest under ss. 234B and 234C of the Act after giving due deduction for tax credit of Rs. 7,20,934 under s. 115JB of the Act.
16. In the result, the appeal of the assessee is allowed in terms indicated hereinabove.
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