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Issues: Whether the fee received towards developmental work from a foreign enterprise was liable to be reduced by ninety per cent under clause (1) of Explanation (baa) to section 80HHC of the Income-tax Act, 1961 while computing the profits of the business.
Analysis: The deduction under section 80HHC is computed on the profits of business after excluding only the receipts specifically covered by Explanation (baa), namely brokerage, commission, interest, rent, charges and receipts of a similar nature. The disputed amount was earned in the course of the assessee's export-related manufacturing activity and had a direct and immediate nexus with that business. It was not an independent income unconnected with exports, and the mere fact that the assessee also obtained relief under section 80-O did not make the receipt deductible under Explanation (baa). Since the receipt was not of the same character as the enumerated exclusions and was integrally linked to the export business, it could not be reduced by ninety per cent.
Conclusion: The receipt from developmental work was not liable to deduction under clause (1) of Explanation (baa) to section 80HHC, and the issue was decided in favour of the assessee.
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