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Distinguish Pandian Chemicals (SC) for 10A

1.    In the course of Appellate proceedings it is submitted that Section 10B(4) of the Act stipulates specific formula for computing the profit derived by the undertaking from export. Thus, the provisions of sub- section (4) of section 10B of the Act mandate that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover by the total turnover. Thus, even though sub-section (1) of section 10B refers to profits and gains as are derived by a 100% EOU, the manner of determining such eligible profits has been statutorily defined in sub-section (4) of that section. Both sub-sections (1) and (4) are to be read together while computing the eligible deduction u/s 10B of the Act. We cannot ignore sub-section (4) of section 10B which provides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business.

2.    In case of Pandain Chemicals Ltd which is rendered in favour of the Revenue, the Hon'ble Supreme Court has dealt with the provisions of section 80HH of the Act wherein no such formula was laid down for computing the profits derived by the undertaking which has specifically been provided under sub-section (4) of section 10B while computing the profits derived by the undertaking from the export. Thus, the decision of the Hon'ble Supreme Court is not applicable for determining the claim of deduction u/s 10B in respect of export incentives. Also the said judgements are pertaining to the year prior to A.Y 2001-02 and from A.Y 2001-02, Section 10B has undergone a significant change. Earlier, it was an exemption Section and income from the undertakings which were covered by this section did not form part of the total income. However, from A.Y 2001-02, though the Section appears in Chapter 3, a deduction from business income from the undertaking is to be granted by including the special provision. Another important feature of Sub-section (4) of Section 10B is that the methodology of arriving at the export profits of the business of the undertaking is given in a formula, as in the case of Section 80HHC. The mode of determining the eligible deduction u/s 10B is similar to the provisions of Section 80HHC in as much as both the Section mandates the determination of eligible profits as per the formula contained therein. The only difference is that Section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the “profits of the business” which is, however, conspicuous by its absence in Section 10B. On the basis of the aforesaid distinction, Sub-section (4) of Section 10A/10B of the Act is a complete code by itself. Further, it is submitted that Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits.

3.    The case of the assessee now gets squarely covered by the latest decision of Honourable Karnataka High Court dated 11.12.2013 in case of ACIT Vs. Motorola India Electronics. The copy of the order is attached herewith for your perusal. The order of Pandian Chemicals vs CIT (2003) 262 ITR 278 (SC) and Liberty India vs CIT (2009) 317 ITR 218 (SC) which are in favour of Revenue are both considered and distinguished and the decision has been rendered in favour of the assessee, being eligible u/s 10B and hence the case of the assessee is fully covered by the above judgement.

 

4.    Further reliance is also placed on the following judgements :

a.    Deepak Pandurang Gadre Vs. CIT [ITA No. 225/Pn/2007]

b.    Smt. Ambica Sadh Vs. CIT [ITA No. 3606/Del/2013]

c.    Kataria Shewani Developers Vs. CIT [ITA No. 1549/Pn/2007]

d.    CIT Vs. Lok Holdings [308 ITR 356(Bom)]

e.    CIT Vs. Paramount Premises Pvt Ltd. [190 ITR 259]

 

5.    Without prejudice to the above argument, it is submitted that even if the Interest income is treated as Income from other sources, a reasonable sum paid by way of remuneration to any other person for the purpose of realizing such income on behalf of the assessee should be allowed u/s 57.