IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN MONDAY, THE 30TH AUGUST 2010 / 8TH BHADRA 1932 ITA.No. 367 of 2009() --------------------- TA.180/COCH/2002 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT. ---------------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT/RESPONDENT. ------------------------------------- M/S.PLANT LIPIDS LTD, KADAYIRUPPU P.O., KOLENCHERRY. ADV. SRI.BECHU KURIAN THOMAS FOR R THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 30/08/2010, ALONG WITH ITA NO. 960 OF 2009 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR, & K. SURENDRA MOHAN, JJ. -------------------------------------------- I.T A. Nos. 367 & 960 of 2009 -------------------------------------------- Dated this the 30th day of August, 2010 JUDGMENT Ramachandran Nair, J. These are appeals filed by the department challenging the orders of the Income-tax Appellate Tribunal passed in the case of the respondent-assessee for the assessment years 1994-95 and 1995-96. Original assessments for these two years were completed granting deduction on export profit in terms of the claim made by the assessee under Section 80HHC of the Income Tax Act. The assessee is engaged in export of spices extracts produced by them in their factory. Besides production and marketing of spices extracts, spices,etc., the assessee was doing contract work of "distillation" for others for which assessee got charges accounted under the head "distillation charges". While claiming exemption on export profit under Section 80HHC of the Act, assessee did not exclude 90% of the "distillation charges" in terms of Explanation (baa) to Section 80HHC of the Act. Even though the ITA 367 & 960/2009 2 claim was originally allowed, the assessing authority later rectified the assessment under Section 154 of the Act thereby excluding 90% of the distillation charges and allowed eligible deduction on export profit. The first appeal filed by the assessee was allowed which was confirmed by the Tribunal on second appeal filed by the department. The Tribunal upheld the assessee's claim that rectification under Section 154 itself is illegal and on the merits also the Tribunal held that distillation charges received by the assessee form part of business profits on which assessee is entitled to deduction under Section 80HHC of the Act. 2. We have heard standing counsel appearing for the appellant and Sri. Bechu Kurian Thomas appearing for the respondent-assessee. 3. Standing counsel for the appellant submitted that orders relied on by the Tribunal for dismissing the appeals were reversed by this Court vide judgment in I.T.A.Nos. 824 and 1447 of 2009. Besides this, standing counsel submitted that the issue now stands squarely covered against the assessee vide decision of the Supreme Court in CIT V. K. RAVINDRANATHAN NAIR, (2007) 295 I.T.R. 228 (SC). The ITA 367 & 960/2009 3 question that arose for consideration by the Supreme Court in the above case was whether processing charges received by cashew exporter who was engaged in manufacture and export of cashew kernels, are eligible for deduction under Section 80HHC of the Act. The Supreme Court held that income received by the assessee which has no nexus to the export profits should not be included in the total income of the assessee for the purpose of deduction under Section 80HHC of the Act. Following is the finding of the Supreme Court: In other words rceipts constituting independent income having no nexus with exports were required to be reduced from business profits under clause (baa). A bare reading of clause (baa)(i) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc., formed part of gross total income being business profits. But for the purpose of working out the formula and in order to avoid distorition of arriving at the export profits, clause (baa) stood inserted to say that although incentive profits and "independent incomes" constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. .. 4. On facts we find that "distillation charges" received by the assessee for doing distillation work or manufacturing activity for others on job work or contract basis is similar to "processing charges" ITA 367 & 960/2009 4 received by a cashew exporter for processing raw cashew for other parties. So much so, the decision of the Supreme Court squarely applies to the assessee's case and therefore exclusion of 90% of the distillation charges made by the assessing officer in rectification proceedings is inconformity with the decision of the Supreme Court on the scope of explanation (baa) to Section 80HHC of the Act. Therefore the remaining question to be considered is whether various contentions raised by the respondent-assessee stand in the way of reversing the Tribunal's orders which on merits is contrary to the decision of the Supreme Court above referred and the judgment of this Court in ITAs above referred. 5. Counsel for the assessee has relied on the decisions of the Supreme Court in CIT V. MCDOWELL & CO. LTD., (2009) 10 SCC 755 and MAHARASHTR UNIVERSITY OF HEALTH AND SCIENCES V. SATCHIKITSA PRASARAK MANDAL, (2010) 3 SCC 786 and contended that by applying ejusdum generis distillation charges cannot be treated as charges of "any other receipt of a similar nature" referred to in explanation (baa)(i) to Section 80HHC of the Act. ITA 367 & 960/2009 5 According to him, the other items referred to are brokerage, commission, interest, rent and charges which are not in the nature of business income whereas distillation charges is nothing but income received on manufacture. We do not think there is any scope for our considering this issue independently because we have already found that distillation charges received by the assessee is similar to processing charges received by a cashew exporter which issued is decided by the Supreme Court and so much so we have to necessarily follow the Supreme Court decision above referred. Consequently we hold that distillation charges received by the assessee for contract work done for other parties is in the nature of charges or any other receipt of a similar nature. 6. The first contention raised by counsel for the assessee is that Section 154 cannot be invoked to revise original assessment because mistake sought to be correct is not a mistake apparent which can be rectified under Section 154 of the Act. Counsel for the respondent- assessee has relied on the decision of the Supreme Court in I.T.O. , BOMBAY V. VOLKART BROTHERS, (1971) 2 SCC 526 wherein ITA 367 & 960/2009 6 the Supreme Court has held that error established by a long drawn process of reasoning on points capable of two opinions is not a mistake apparent from the record. Standing counsel appearing for the appellant submitted that the relief granted without taking into account the provisions of computation including disallowance under Explanation (baa) to Section 80HHC is a mistake apparent on the face of the order, and therefore it is liable to be corrected. In this case , in view of the categoric pronouncement of law by the Supreme Court, we do not think the question raised is capable of two opinions because "distillation charges" received by the assessee is for work done for others and has nothing to do with export or production of goods for export. Even though counsel for the respondent-assessee contended that subsequent judgment of the Supreme Court is not a ground for rectification of assessment under Section 154 of the Act, we do not find that the assessing officer has relied on the decision of the Supreme Court to rectify the assessment. On the other hand, what has happened is that the view taken by the assessing officer in rectification is later declared as law by the Supreme Court in the decision cited above. The relief ITA 367 & 960/2009 7 under Section 80HHC has to be worked out by applying explanation thereto and explanation (baa) provides for exclusion of 90% of items of income referred to therein. When Supreme Court has held that as of now 90% of the processing charges received by cashew exporter is to be excluded, we see no reason why 90% of the distillation charges received by the respondent-assessee should not be excluded in the computation of eligible deduction of export profit under Section 80HHC because both are exactly the same inasmuch as it is an income unconnected with export business. Therefore the contention of the respondent-assessee that the question whether distillation charges is in the nature of "any other income of similar nature" referred to under explanation (baa) to section 80HHC is a debatable issue is unacceptable. We are of the view that assessment completed without reckoning explanation (baa) to Section 80HHC is a mistaken order that could be corrected under Section 154 of the Act. We therefore reverse the finding of the Tribunal and that of the first appellate authority on this issue. 7. Even though counsel for the respondent-assessee contended ITA 367 & 960/2009 8 that rectification is carried out beyond the period of limitation, and limitation period could be reckoned with reference to the date of receipt of order and not date of order, and he relied on the decision of the Supreme Court in COLLECTOR OF CENTRA EXCISE, MADRAS V. M.M. RUBBER & CO. T.N., (1992) Supp. (1) SCC 471, we do not find this question as raised before the Tribunal or decided by the Tribunal. In fact, even the first appellate authority does not refer to any such question having been raised by the assessee. The contention of counsel for the respondent-assessee is that since appeal was allowed by the first appellate authority there was no scope for raising the question before the Tribunal. However, we feel, if the question on limitation raised by the assessee before the first appellate authority was not considered, or decided, it is for the assessee to file cross-objection before the Tribunal in the appeal filed by the department. Standing counsel for the department contended that limitation for rectification of assessment has to be reckoned with reference to the date of completion of proceedings sought to be rectified and not the date of service as claimed by the assessee. We do not think we can in an appeal filed ITA 367 & 960/2009 9 under Section 260A of the I.T. Act consider any question which was neither raised before the Tribunal nor decided by them. Therefore we do not go into the question as to whether limitation has to be reckoned from the date of proceedings or from the date of service of order. We therefore allow the appeals by following the decision of the Supreme Court above referred, and that of this Court in I.T.A.Nos. 824 & 1447/2009 and ITA 122, 221, 253 & 279 of 2002, and by reversing the orders of the Tribunal and that of the first appellate authority and by restoring the rectified assessment. (C.N.RAMACHANDRAN NAIR) Judge. (K. SURENDRA MOHAN) Judge. kk ITA 367 & 960/2009 10