Bajaj Auto Ltd. Vs. Joint Cit - Court Judgment

Excerpt:
this appeal is filed by the assessee. the relevant assessment year is 1995-96. this is a revision-appeal. the revision order has been passed by the cit mumbai city-1, which is dated 12-1-2000.2. on examination of the income tax records, the cit observed that the assessee-company has included rs. 2,54,34,278 as business income on account of technical know-how and while allowing deduction under section 80hhc, the ao has included the said amount as part of assessees business profit. the cit held the view that the income on account of technical know-how was not arising directly on account of export business and was falling under the category of commission, interest, rent, charges or any other receipts of similar nature, the same was liable for reduction of 90 per cent. the ao has failed to do so. the said failure of the ao has resulted in granting an excess allowance of deduction under section 80hhc to the extent of rs. 10,13,852. therefore he set aside the assessment order and directed the ao to recompute the deduction available under section 80hhc after excluding 90 per cent of the income accrued cut of technical know-how. it is against the above, that the assessee has come in appeal before us.we heard both sides in detail. the first set of ground raised by the assessee related to the validity of the order under section 263. the case of the assessee is that the assessment order under section 143(3) has already been merged into the appellate order passed by the cit (a) and therefore the assessment order could not be a subject matter of revision under section 263. this contention of the assessee cannot be accepted. even though certain aspects relating to the computation of deduction available under section 80hh were considered by the cit (a) in his order, the issue of income arising out of technical know-how whether required to be excluded to the extent of 90 per cent or not, was not considered by the cit (a). in fact the contention of the assessee on this point was accepted by the ao and the assessee did not again raise this issue before the cit (a) and obviously the cit (a) also did not take any action to adjudicate the matter. the assessment order as such might have been adjudicated in first appeal. but that does not mean that every item of assessment has become sub judice before the cit (a). these issues which were not considered in appeal could still be a subject matter of revision. this is a settled proposition of law. therefore, the legal objection raised by the assessee against the revision order is rejected.on merit of the issue, the contention of the assessee is that the technical know-how fees in the instant case were received by the assessee in connection with the manufacturing activity carried out by the assessee and hence the technical know-how fees are part of the business income.the cit has given his direction mainly on the ground that the income on account of technical know-how was not pertaining directly on account of export business. frankly speaking, it need not be. there is no rule that the business income of an exporter should invariably arise directly out of the export business, for the purpose of claiming the deduction under section 80hhc. the only condition is that the assessee should have made exports. he can have the profit out of export as well as profit out of local trade. there is a formula prescribed by the statute for working out export profit as against the total profit of the business pertaining to the total turnover. therefore, whether the profit has come out of main business or subsidiary business incidental business is not a matter to be considered in the context of section 80hhc. the only issue to be looked into is whether the income arose out of any of the business activities carried on by an assessee. here, the assessee is a manufacturing company possessing requisite technical know-how. the said technical know-how has been provided to a maharashtra state government undertaking and the assessee hereby earned income. the income earned by the assessee by way of technical know-how fees is absolutely its business income. the technical know-how is its business asset. its own manufacturing activities are carried-on on the strength of technical know-how, the assessee has in its possession. the deliberation of such technical know-how to other companies for a consideration is one of the business activities, incidental or ancillary carried on by the assessee-company. therefore, there is no force in arguing that the income that arose to the assessee out of deliberation of technical know-how is not business income.that apart another finding of the cit is that the technical know-how fees received by the assessee falls under the category of commission, interest, rent, charges or any other receipts of similar nature susceptible to exclusion to the extent of 90 per cent. this finding is also not legally valid. the technical know-how fees received by the assessee cannot be commission or interest or rent. the reminder is charges or any other receipts of similar nature. the word "charges" used in sub-clause (i) of clause (baa) is found in the company of expressions like "brokerage", commission", "interest", "rent", if we apply the principle of "ejusdem generis", the term "charges" has to be read in the company of the preceding words, such as brokerage, commission, interest, rent, etc. the brokerage or commission or interest or rent does not have any nexus with any manufacturing or processing or the core business activity that could be carried on by the assessee. similarly, the word "charges" appearing in the company of those words also will not have any nexus with manufacturing or processing or core business activity of an assessee. the word charges" appearing in the company of brokerage, commission, interest, rent etc.cannot be singled out and imputed with a different meaning alleging a nexus with manufacturing or processing or core business activities.ejusdem generis rule is the rule of generis words following more specific ones. the rule is that when general words follow specific words of the same nature, the general words must be confined to the things of the same kind as those specified. the specified words must form a distinct genesis or category. this rule reflects an attempt to reconcile incompatibility between specific and general words. in sub-clause (i) of clause (baa), the word "charges" are preceded by words of specific nature, such as brokerage, commission, interest, rent, etc. these specific words form a distinct genesis or category, inasmuch as all those items relate to receipts earned by an assessee other than for its regular and principal business activity. in such circumstances, the word "charges" also should be read along with the meaning of those specific words forming themselves into a special category. if so, the word "charges" should be confined to those charges which do not have anything to do with the business and the related activities carried on by the assessee.in the present case, rendering of technical know-how in the particular line of industry in which the assessee is engaged in, is undoubtedly an activity related to the business carried on by the assessee. therefore, the technical know-how income earned by the assessee-company cannot be dissociated with its business income. for the same reason, it cannot be brought under the items qualified in sub-clause (i) of clause (baa).therefore, the finding of the cit that the technical know-how need to be excluded to the extent of 90 per cent is again not sustainable in law.in the facts and circumstances, we find that the finding of the cit made in his revision order is legally unsustainable and therefore, the revision order passed by the cit is liable to be set aside.in result the impugned revision order is set aside and the appeal filed by the assessee is allowed. order accordingly.

Judgment:
This appeal is filed by the assessee. The relevant assessment year is 1995-96. This is a Revision-Appeal. The revision order has been passed by the CIT Mumbai City-1, which is dated 12-1-2000.

2. On examination of the Income Tax records, the CIT observed that the assessee-company has included Rs. 2,54,34,278 as business income on account of technical know-how and while allowing deduction under section 80HHC, the AO has included the said amount as part of assessees business profit. The CIT held the view that the income on account of technical know-how was not arising directly on account of export business and was falling under the category of commission, interest, rent, charges or any other receipts of similar nature, the same was liable for reduction of 90 per cent. The AO has failed to do so. The said failure of the AO has resulted in granting an excess allowance of deduction under section 80HHC to the extent of Rs. 10,13,852. Therefore he set aside the assessment order and directed the AO to recompute the deduction available under section 80HHC after excluding 90 per cent of the income accrued Cut of technical know-how. It is against the above, that the assessee has come in appeal before us.

We heard both sides in detail. The first set of ground raised by the assessee related to the validity of the order under section 263. The case of the assessee is that the assessment order under section 143(3) has already been merged into the appellate order passed by the CIT (A) and therefore the assessment order could not be a subject matter of revision under section 263. This contention of the assessee cannot be accepted. Even though certain aspects relating to the computation of deduction available under section 80HH were considered by the CIT (A) in his order, the issue of income arising out of technical know-how whether required to be excluded to the extent of 90 per cent or not, was not considered by the CIT (A). In fact the contention of the assessee on this point was accepted by the AO and the assessee did not again raise this issue before the CIT (A) and obviously the CIT (A) also did not take any action to adjudicate the matter. The assessment order as such might have been adjudicated in first appeal. But that does not mean that every item of assessment has become sub judice before the CIT (A). These issues which were not considered in appeal could still be a subject matter of revision. This is a settled proposition of law. Therefore, the legal objection raised by the assessee against the revision order is rejected.

On merit of the issue, the contention of the assessee is that the technical know-how fees in the instant case were received by the assessee in connection with the manufacturing activity carried out by the assessee and hence the technical know-how fees are part of the business income.

The CIT has given his direction mainly on the ground that the income on account of technical know-how was not pertaining directly on account of export business. Frankly speaking, it need not be. There is no rule that the business income of an exporter should invariably arise directly out of the export business, for the purpose of claiming the deduction under section 80HHC. The only condition is that the assessee should have made exports. He can have the profit out of export as well as profit out of local trade. There is a formula prescribed by the statute for working out export profit as against the total profit of the business pertaining to the total turnover. Therefore, whether the profit has come out of main business or subsidiary business incidental business is not a matter to be considered in the context of section 80HHC. The only issue to be looked into is whether the income arose out of any of the business activities carried on by an assessee. Here, the assessee is a manufacturing company possessing requisite technical know-how. The said technical know-how has been provided to a Maharashtra State Government Undertaking and the assessee hereby earned income. The income earned by the assessee by way of technical know-how fees is absolutely its business income. The technical know-how is its business asset. Its own manufacturing activities are carried-on on the strength of technical know-how, the assessee has in its possession. The deliberation of such technical know-how to other companies for a consideration is one of the business activities, incidental or ancillary carried on by the assessee-company. Therefore, there is no force in arguing that the income that arose to the assessee out of deliberation of technical know-how is not business income.

That apart another finding of the CIT is that the technical know-how fees received by the assessee falls under the category of commission, interest, rent, charges or any other receipts of similar nature susceptible to exclusion to the extent of 90 per cent. This finding is also not legally valid. The technical know-how fees received by the assessee cannot be commission or interest or rent. The reminder is charges or any other receipts of similar nature. The word "charges" used in sub-clause (i) of clause (baa) is found in the company of expressions like "brokerage", commission", "interest", "rent", If we apply the principle of "ejusdem generis", the term "charges" has to be read in the company of the preceding words, such as brokerage, commission, interest, rent, etc. The brokerage or commission or interest or rent does not have any nexus with any manufacturing or processing or the core business activity that could be carried on by the assessee. Similarly, the word "charges" appearing in the company of those words also will not have any nexus with manufacturing or processing or core business activity of an assessee. The word charges" appearing in the company of brokerage, commission, interest, rent etc.

cannot be singled out and imputed with a different meaning alleging a nexus with manufacturing or processing or core business activities.

Ejusdem generis rule is the rule of generis words following more specific ones. The rule is that when general words follow specific words of the same nature, the general words must be confined to the things of the same kind as those specified. The specified words must form a distinct genesis or category. This rule reflects an attempt to reconcile incompatibility between specific and general words. In sub-clause (i) of clause (baa), the word "charges" are preceded by words of specific nature, such as brokerage, commission, interest, rent, etc. These specific words form a distinct genesis or category, inasmuch as all those items relate to receipts earned by an assessee other than for its regular and principal business activity. In such circumstances, the word "charges" also should be read along with the meaning of those specific words forming themselves into a special category. If so, the word "charges" should be confined to those charges which do not have anything to do with the business and the related activities carried on by the assessee.

In the present case, rendering of technical know-how in the particular line of industry in which the assessee is engaged in, is undoubtedly an activity related to the business carried on by the assessee. Therefore, the technical know-how income earned by the assessee-company cannot be dissociated with its business income. For the same reason, it cannot be brought under the items qualified in sub-clause (i) of clause (baa).

Therefore, the finding of the CIT that the technical know-how need to be excluded to the extent of 90 per cent is again not sustainable in law.

In the facts and circumstances, we find that the finding of the CIT made in his Revision order is legally unsustainable and therefore, the Revision order passed by the CIT is liable to be set aside.

In result the impugned Revision order is set aside and the appeal filed by the assessee is allowed. Order accordingly.