2000 (8) TMI 75 - HC - Income Tax

High Court rules interest, commission not part of business profits under section 80HHC

The High Court of Bombay allowed the Department's appeal for the assessment year 1989-90, ruling that interest, commission, etc., cannot be considered as ... Computation of business profits for export profit deduction - exclusion of non-operating receipts from business profits - nexus requirement between receipts and export turnover - interpretation of the Explanation to section 80HHC (clauses (b) and (ba))Computation of business profits for export profit deduction - exclusion of non-operating receipts from business profits - nexus requirement between receipts and export turnover - interpretation of the Explanation to section 80HHC (clauses (b) and (ba)) - Whether receipts such as labour charges, assistance and service charges and interest can be included in 'business profits' for calculating the deduction under section 80HHC(3) by applying the formula Business profits x Export turnover/Total turnover - HELD THAT: - The Court applied its earlier decision in CIT v. K. K. Doshi and Co. and held that receipts like interest, commission, brokerage, rent or other similar receipts cannot be included in 'business profits' for the purpose of the formula under section 80HHC(3) because such items do not have the requisite nexus with the sale proceeds from export activities. A combined reading of clauses (b) and (ba) of the Explanation to section 80HHC leads to the conclusion that non-operating or similar receipts are excluded from the business profits used in the formula. The Tribunal's acceptance of the assessee's inclusion of labour charges, assistance and service charges and interest in business profits was therefore inconsistent with this interpretation and was set aside.The Department's appeal is allowed; receipts lacking nexus with export sales (such as interest, commission and similar receipts) are excluded from 'business profits' for computing the deduction under section 80HHC(3), and the Tribunal's contrary conclusion is set aside.Final Conclusion: Appeal allowed; the Court followed its prior decision in CIT v. K. K. Doshi and Co. and held that non-operating or unrelated receipts cannot be included in business profits for the formulaic computation of deduction under section 80HHC(3) for Assessment Year 1989-90. The High Court of Bombay allowed the Department's appeal concerning the assessment year 1989-90. The court held that interest, commission, etc., cannot be included in business profits under section 80HHC as they lack a nexus with export activities. The appeal was allowed with no costs.