Tube Investments of India Ltd. v. ACIT
ITA No. 12/Mds./2006
A.Y. : 2001-2002. Dated : 5-1-2009
S. 10B of the Income-tax Act, 1961 — Second
proviso to S. 10B(1) and Ss.(4) of S. 10B — When the assessee had domestic
sales of more than 25% of total sales value during A.Y. 2001-02, is the
asses-see still entitled to partial deduction proportionately on export
turnover in view of S. 10B(4) — Held, Yes. Whether excise duty needs to be
included in domestic turnover while computing the value of domestic sales to
find out the domestic sales as a percentage of total turnover — Held, Yes.
Facts :
The assessee had in its return of income claimed
a sum of Rs.2,88,84,327 as exempt u/s.10B of the Act in respect of income of
100% EOU. In the course of assessment proceedings, the AO noted that the
details of sales were as under :
Domestic Sales Rs. 901.40 lakhs
Export Sales Rs. 2,227.34 lakhs
Total Sales Rs. 3,128.74 lakhs
The AO held that since the domestic sales were
28.8%, the assessee was not entitled to deduction u/s.10B of the Act. The
domestic sales as mentioned above were taken to be inclusive of excise duty.
On an appeal by the assessee, the CIT(A)
confirmed the action of the AO.
Aggrieved, the assessee preferred an appeal to
the Tribunal where it contended that the amount of domestic sales to be
considered should be exclusive of excise duty. Also, since during the
assessment year under consideration, second proviso to as well as Ss.(4) were
both on the Statute Book, therefore, it is entitled to claim deduction
u/s.10B, if not at 100%, on proportionate basis in terms of Ss.(4) of S. 10B.
As regards inclusion of excise duty in computing
the value of domestic sales, the Tribunal held that in view of the ratio of
the decision of SC in the case of Chowranghee Sales Bureau P. Ltd., excise
duty and sales tax are part of trading turnover and therefore, excise duty
needs to be included in domestic sales to find out the value of domestic
sales.
The Accountant Member held that since during the
assessment year, both, the second proviso as well as Ss.(4) were on the
statute book, an assessee whose domestic sales were less than 25% would be
covered by the second proviso and would be entitled to 100% deduction and if
the domestic sales exceeded this limit of 25%, then Ss.(4) would apply and the
assessee would be entitled to deduction on a proportionate basis. In the
present case, since the domestic sales exceeded 25% of the total sales, the AO
was directed to allow deduction on a proportionate basis u/s.10B(4).
The Judicial Member disagreed with the Accountant
Member on the issue of grant of proportionate deduction and held that during
the period relevant to the A.Y. 2001-02, if an assessee had domestic sale of
more than 25%, then the assessee would not be entitled to exemption u/s.10B of
the Act.
Upon a difference of opinion amongst the Members,
the TM was asked to consider the question as to whether when the assessee had
domestic sales of more than 25% of the total sale value during the A.Y.
2001-02, he is still entitled to partial deduction on export turnover in view
of provisions of 10B(4) ?
On a reference the Third Member
Held :
The eligibility criteria are laid down in Ss.(1).
The second proviso is an additional incentive which has been granted to the
assessee to provide economic flexibility and to allow it to dispose of the
export-rejects and by-products, etc. The second proviso no way governs the
eligibility criteria. No interdict is laid down in the statute to withdraw the
total benefit of S. 10B in the eventuality of domestic sales being in excess
of 25% limit. There is no ambiguity in the language of the statute. The
interpretation that benefit of S. 10B is not available in the eventuality of
domestic sales exceeding the percentage mentioned in the second proviso would
render the provisions of Ss.(4) otiose. On the panoply of the second proviso
deduction cannot be denied. Accordingly, he held that the assessee was
entitled to claim deduction proportionately on export turnover in view of the
provisions of S.10B(4).
