IN THE ITAT DELHI BENCH ‘E’
Income-tax Officer, Ward 31(4),
v.
Vinod Chhabra
N.K. Karhail, Judicial Member
And K.D. Ranjan, Accountant Member
IT Appeal No. 5282(
[Assessment year 2001-02]
October 31, 2007
Section 10B read with section 80HHC of the Income-tax Act, 1961 -
Export oriented undertaking - Assessment year 2001-02 - For relevant assessment
year, assessee, a hundred per cent export oriented undertaking [EOU], claimed
exemption under section 10B - Assessing Officer denied exemption under section
10B for certain reasons - He, however, allowed deduction under section 80HHC to
assessee in respect of profits and gains derived from export of goods out of
India - Commissioner (Appeals), on basis of exemption allowed under section 10B
to assessee for assessment year 1994-95, allowed assessee’s claim for exemption
under section 10B - Whether since Commissioner (Appeals) had allowed exemption
under section 10B on basis of exemption allowed under section 10B for
assessment year 1994-95 and further since from assessment order it was not
clear as to whether in which year, the assessee started 100 per cent EOU and
further since neither Assessing Officer nor Commissioner (Appeals) had examined
matter in light of provisions of section 10B, issue required to be set aside to
file of Assessing Officer to examine claim of assessee in light of provisions
of section 10B - Held, yes - Whether since interest income earned by assessee
on FDRS could not be said to have been derived from export of eligible goods of
hundred per cent EOU, assessee would not be eligible for exemption under
section 10B in respect of interest income - Held, yes - Whether if exemption
under section 10B was to be allowed, assessee would not be eligible of
deduction under section 80HHC - Held, yes
For the relevant assessment year 2001-02, the assessee, a hundred per
cent export oriented undertaking [EOU] claimed exemption under section 10B. The
Assessing Officer having found that the assessee failed to furnish the
certificate in form 56G as per the provisions of section 10B(5), and that the
assessee also did not file any evidence in form of copy of certificate issued
by the Chief Controller of Import and Exports, Government of India as required
by clause (iv) of Explanation 2 to section 10B, disallowed the
assessee’s claim for exemption under section 10B. He, however, allowed
deduction under section 80HHC to the assessee in respect of profits and gains
derived from export of goods out of
On appeal, the Commissioner (Appeals), on the basis of the exemption allowed under section 10B to the assessee for the assessment year 1994-95, allowed the assessee’s claim for exemption under section 10B.
On revenue’s appeal to the Tribunal:
Section 10B was
inserted by the Finance Act, 1988 with effect from 1-4-1989. In case of a hundred per cent EOU any profits and gains derived by an
assessee shall not form part of total income if the assessee fulfills the conditions
specified in sub-section (2) of section 10B.
Further under section 10B(3)
the complete tax
holiday extends at the
option of the assessee
in respect of any
5 consecutive assessment years falling within the period of 8 years beginning with the
assessment year relevant to previous year in which the undertaking
begins to manufacture
or produce articles or things. The
period of tax holiday of 5 consecutive assessment years has been extended to 10 years with
effect from 1-4-1999 by the Income-tax (Second Amendment) Act, 1998. The
Commissioner (Appeals) had allowed exemption under section 10B for the relevant assessment year 2001-02 based on the exemption allowed under section 10B for the
assessment year 1994-95. Provisions of sub-section (3) of section 10B
specifically provide that nothing in that section shall be construed to extend
the period of 5 assessment years to cover any period after the expiry of the said
period of 8 years. Thus, an assessee following the financial year as its
previous year who begins to manufacture or produce articles or things within
the financial year 1988-89 can claim the benefit under section 10B for any of
the 5 consecutive assessment years in the block of assessment years 1989-90 to
1996-97. It cannot claim benefit of section 10B for the assessment year 1997-98
because this would fall beyond 8 years beginning with the assessment year
1989-90 relevant to the financial year 1988-89 in which the undertaking begins
to manufacture or produce articles or things. However, as provided in
sub-section 10B(5), where the undertaking has begun to manufacture or produce
articles or things in any previous year relevant to assessment year 1988-89 or
in earlier assessment year, the assessee can exercise his option by furnishing
before the due date his return of income under section 139(1) for the
assessment year 1989-90 to the Assessing Officer a declaration in writing that
the provisions of section 10B(1) may be made applicable to him for any 5
consecutive assessment years falling within a period of 8 years beginning for
the assessment year 1989-90. On his doing so, the provisions of section
10B(1) shall apply to him for each of such assessment years and the provisions
of section 10B(4) shall also apply in computing the total income of assessee
for the assessment year immediately succeeding the last of such assessment
years and any subsequent assessment year. The Commissioner (Appeals) had
allowed deduction on the basis of exemption allowed for the assessment year
1994-95. From that assessment order
it was not clear as to whether in which year the assessee started hundred per
cent EOU. Even if it was
assumed that the assessment year 1994-95 was the first year of manufacture or
production of hundred per cent EOU, the period
of consecutive 5 years would
expire in assessment year 1998-99.
Therefore, the assessee would not be
eligible for exemption under
section 10B. Since neither the
Assessing Officer; nor the Commissioner
(Appeals) had examined the matter in the light of provisions of section 10B,
the issue required to be set aside to the file of the Assessing Officer to
examine the claim of the assessee in the light of the provisions of section
10B. [
Under section 10B the expression ‘derived from’ has been used which has
narrower import than the expression ‘attributable to’. The difference between
the two was explained by the Supreme Court in the case of Cambay Electric
Supply Company Ltd. v. CIT (
) 113 ITR 84. Therefore in view of the judgment of the Supreme Court in
the case of Combay Electric Supply Co. Ltd. v. CIT (supra),
the interest income earned by the assessee on FDRS could not be said to have
been derived from export of eligible goods of 100 per cent EOU. Therefore, the
assessee would not be eligible for exemption under section 10B in respect of
interest income. Further when exemption under section 10B was to be allowed,
the assessee would not be eligible of deduction under section 80HHC on the
ground that profits and gains derived by a 100 per cent EOU would not be
included in the total income of the assessee for the purposes of deduction
under section 80HHC. [
Where the assessee, a hundred per cent export oriented undertaking, received interest from the bank on FDRS and also paid interest to the bank and the Assessing Officer while computing the deduction under section 80HHC had treated the entire interest income as income from other sources, while the Commissioner (Appeals) directed the Assessing Officer to allow interest paid to the bank as set off against interest received from FDRs and balance of the income was to be assessed as income from other sources, since the Delhi High Court in the case of CIT v. Shriram Honda Power Equipment 289 ITR 475/158 Taxman 474 has laid down the guidelines for assessment of interest income earned on FDRs, the said issue was to be set aside to the file of the Assessing Officer to decide the nature of interest earned on FDRs and then decide the issue in the light of decision of the jurisdictional High Court
Case review
Cambay electric Supply Co. Ltd. v. CIT [1978] 113 ITR 84
(SC) and CIT v. Shri Ram Hond Power Equipment [2007] 289 ITR 475
(