SECTION 10B/INCOME-TAX ACT

[2009] 185 TAXMAN 70 (RAJ.)

HIGH COURT OF RAJASTHAN

Commissioner of Income-tax v. Hycron India Ltd.*
N.P. GUPTA AND KISHAN SWAROOP CHAUDHARI, JJ. IT APPEAL NOS. 45 OF 2006 AND 111 OF 2007 AUGUST 20, 2008

Section 10B of the Income-tax Act, 1961 - Export-oriented undertaking - Assessment years 1993-94 and 1994-95 Whether language of section 10B provides for exemption with respect to any profits and gains derived by assessee and same is not confined to profits and gains of business and profession as provided under section 14(D) - Held, yes Assessee-company purchased goods from its sister concern and paid an advance amount to it - Said advance yielded interest income to assessee - Assessee claimed exemption under section 10B in respect of said interest income Whether interest income received by assessee from its sister concern would fall within expression profits and gains and assessee would be entitled to exemption under section 10B in respect of such interest income - Held, yes CASES REFERRED TO
Murli Investment Co. v. CIT [1987] 167 ITR 368/ 31 Taxman 410 (Raj.) [Para 2], Arthur Average Association for British, Foreign & Colonial Ships, Exp. Hargorove & Co., In re [1875] LR 10 Ch. App. 545 [Para 12], Stralton v. Cartmell 42 A. 2d. 419 [Para 12], Oliver v. Halstead 86 S.E. 2d. 858 [Para 12], George E. Warren Co. v. U.S.D.C. Mass 76F Supp. 587 [Para 12] and Gulf Refining Co. v. Stanford 30 So. 2d. 516 [Para 12].

K.K. Bissa for the Appellant. S. Johari for the Respondent.

ORDER
1. These two appeals filed by the revenue involve common question of law, and are therefore, being decided by this common order. Both the appeals have been admitted by different orders dated 30-7-2007 and 19-42006, but by framing the same substantial question of law. It is different story, that the question as framed in Appeal No. 45/2006, as such, does not arise in appeal No. 111/2007, inasmuch as Appeal No. 45/2006 arises out of appeal of the assessee filed before the Tribunal, against invoking of the powers under section 263 of the Income-tax Act, while Appeal No. 111/2007 arises out of the regular appeal, filed by the assessee, with respect to the different year. But then the central question, about the entitlement of the assessee, to claim exemption under section 10B, on the interest income, earned from M/s. Wolkem India Ltd. is involved in both the appeals, and therefore, these two appeals are involving common question of law. 2. Bereft of unnecessary details, the necessary facts of Appeal No. 45/2006 are, that the assessee and Wolkem India Ltd. admittedly are sister concerns. The assessee purchased the goods from Wolkem India Ltd., and for such purchase, amount is paid in advance to the seller, and that advance amount yields interest income to the assessee. It is with respect to this income of interest, that the assessee claimed exemption under section 10B, which was allowed by the Assessing Officer, holding that this income is attributable to the business of the undertaking, and was thus exempt under section 10B. Against that order, powers under section 263, being revisional powers were invoked, and vide order dated 12-2-1996, the order of Assessing Officer was set aside, and the matter was restored back to the Assessing Officer, for holding enquiries, and passing a fresh order. The revisional authority found, that there is nothing on record to show, that Wolkem India Ltd. had desired to deposit of any specific amount of advance prior to its agreeing to supply raw material to its own sisterconcern, nor there is anything to indicate that Assessing Officer examined the case from this angle, before allowing exemption under section 10B. Likewise, it was also considered, that even if there is a business practice, where supplier of certain goods do require advance for future purchase, the transactions of the assessee with its own sister concern is to be considered on different footing. Thus, it was found, that Assessing Officer could not be said to be right in taking the view, that interest received by the assessee, from Wolkem India Ltd. was materially different in nature, from the interest in respect of other parties, without due enquiries. Reliance was placed on judgment of this Court in Murli Investment Co. v. CIT [1987] 167 ITR 3681 (Raj.), wherein the income derived from surplus fund was not considered to be business income. With these findings, it was concluded, that while considering the total taxability in respect of the different items, erroneous view was taken, without due enquiry regarding income of Wolkem India Ltd., and it is prejudicial to the interest of revenue. 3. This order was challenged by the assessee before the learned Tribunal, on the ground, that the provisions of

section 263 could not be invoked. Learned Tribunal found, that the Assessing Officer has applied his mind to the facts of the case, and treated the income received from Wolkem India Ltd., as business income. Therefore, the Tribunal did not agree with the view of the CIT, that Assessing Officer had not made due enquiries, and had not applied its mind to the facts of the case. Reference was also again made to the judgment of this Court in Murli Investment Co.s case (supra), and it was held, that since the assessee is having regular business dealings of purchase from M/s. Wolkem India Ltd., which takes advance from the assessee, against the sales made by it to the assessee, and therefore, only this interest could be considered as income from the business undertaking, as the same has arisen during the course of regular business. Thus, it was held, that interest income amount received from Wolkem India Ltd., was rightly held to be income from business, by the Assessing Officer, and the order of the CIT was quashed. This matter related to the assessment year 1993-94. 4. Then regarding assessment year 1994-95, learned CIT relying upon the order of Tribunal dated 14-7-2003, allowed the exemption, which was affirmed by the learned Tribunal, and is under challenge in Appeal No. 111/2007. 5. It is contended by learned counsel for the revenue, that undisputedly, the amount of interest was received by the assessee from Wolkem India Ltd., and the income of the interest is always chargeable as "income from other sources" under section 56 of the Act, and since section 10B does not provide for exemption about income from other sources, the learned Tribunal was in error, in granting exemption. Reliance on decision in Murli Investment Co.s case (supra) was reiterated, to contend, that in the present case also, the interest was the yield of amount deposited by the assessee with the seller, and was independently received by the assessee, as interest, and therefore, it cannot be treated as business income, so as to entitle the assessee to exemption under section 10B. 6. Assessee on the other hand supported the impugned order, by contending, that the income was the result of business transactions between the assessee and seller, and therefore, it clearly falls within the definition of "profits and gains" and therefore, the assessee was entitled to exemption under section 10B, and the same has rightly been allowed by the learned Tribunal. 7. We have considered the submissions. 8. In our view, look at the language of section 10B shows, that exemption was admissible with respect to any profits and gains, derived by assessee, under the circumstances specified in the section. Since we are called upon to decide the question only, as to whether the amount received by the assessee, falls within the expression profits and gains, we need not to dilate on any other aspect of the matter. 9. The expression "profits and gains" as such has not been defined in the Income-tax Act (as the relevant provision existed at the relevant time). However, section 2(24) does define the "income" as including some nineteen items, and item No. (i) is "profits and gains". Then other items include in sub-clause (v) being any sum chargeable to income-tax under section 59, and according to section 59, the provisions of section 41(1) shall apply, so far as may be, in computing the income of an assessee under section 56. Section 56 as referred above, provides for income from other sources. Section 56(1)(id) covers income by way of interest on securities, but also excludes therefrom such income as well, if the income is chargeable to income-tax under the head "Profits and gains of business or profession". Then according to section 14, the computation of total income is to be made for the purpose of charge of income-tax. Section 14 as such does not separately classify income from interest, such income is sought to be covered only under section 14F which covers "income from other sources", which is defined as above under section 56. Thus, from the above provisions, it is clear, that income from other sources, if falling within the definition of income, is taxable by virtue of section 14, and thus it is taxable income, but then, it is only one of the species of income, as defined in section 2(24). Clause D of section 14 is about the head "Profits and gains of business or profession". 10. Thus it is clear, that for all purposes, profits and gains of business or profession, and income from other sources, are treated, by the Act to be different species of income. In this background, section 2(24) as such, does not categorise separately, profits and gains of business or profession. Thus expression "profits and gains" as used in section 2(24), is wider expression, and is not confined to "profits and gains of business or profession". 11. In this background, the language of section 10B, again, provides for exemption, with respect to any "profits and gains" derived by the assessee and is not confined to "profits and gains of business and profession" as provided under section 14D (sic). 12. Then for the definition of "profits and gains", we are left to seek assistance from other sources. Dictionary meaning, as such, does not provide much of assistance. Then in Re Arthur Average Assocn. for British, Foreign & Colonial Ships, Ex p. Hargorve & Co. [1875] L.R. 10 Ch. App. 545, the meaning of word "gain" has been given as acquisition, and has no other meaning. Gain is something obtained or acquired, and is not limited to pecuniary gain. Regarding "profit", in general, the profit means the price received over the cost of purchasing and handling the goods, it means pecuniary gain, as held in Stratton v. Cartmell 42 A.2d 419, 422, 114 Vt. 191. In Oliver v. Halstead 86 S.E.2d 858, 859, 196 Vz. 992, the word "profit", as ordinarily used, is held to mean, the gain made upon any business or investment, and does not include compensation for labour. Then in George E. Warren Co. v. U.S., D.C. Mass 76 F. Supp. 587, 591, it has been held, that "Profits" is capable of

numerous constructions, and for any given use, its meaning must be derived from the context. Likewise, in Gulf Refining Co. v. Stanford 30 So. 2d 516, 517, 202 Miss. 602, 173 A.L.R. 1099, it has been held, that profit is an elastic and ambiguous word, often properly used in more than one sense; its meaning in a written instrument is governed by the intention of the parties appearing therein, but any accurate definition thereof must always include, the element of gain. Similar definition has been given in various other judgments. 13. If considered from these standpoints, there is no escape for the conclusion, that the income derived by the assessee, from Wolkem India Ltd. does fall within the expression "profits and gains". 14. That being the position, on the aspect, as considered by the authorities concerned below, we do not find the order of the Tribunal to be suffering from any error, so as to interfere in our appellate jurisdiction. The question as framed, is required to be, answered against the revenue, and in favour of the assessee, and is accordingly answered. 15. The appeals thus have no force, and are dismissed.