Shopping commission not deductible under sec 80HHD as not from foreign tourist services. Upheld AO decision.

The court held that the shopping commission earned by the assessee did not qualify for deduction under section 80HHD as it was not directly derived from services to foreign tourists and was not received in convertible foreign exchange. The court upheld the Assessing Officer's decision, setting aside the orders of the Tribunal and the Commissioner of Income-tax (Appeals).

---

---

Issues Involved:
1. Eligibility of shopping commission for deduction under section 80HHD of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Eligibility of Shopping Commission for Deduction under Section 80HHD:

The assessee-company, engaged in tours and travel arrangements for foreign tourists, included shopping commission as part of its business receipts and claimed deduction under section 80HHD of the Income-tax Act, 1961. The Assessing Officer excluded the shopping commission from business profit and total business receipts, arguing that only profits derived from services provided to foreign tourists were eligible for deduction under section 80HHD. The shopping commission, earned from shops for sending tourists to buy goods, was deemed unrelated to services rendered to tourists.

The Commissioner of Income-tax (Appeals) reversed the Assessing Officer's decision, holding that shopping commission was incidental to the tour and travel arrangements and thus part of business receipts. However, since it was not received in convertible foreign exchange, it had to be excluded proportionately for deduction purposes under section 80HHD.

The Income-tax Appellate Tribunal concurred with the Commissioner of Income-tax (Appeals), emphasizing that section 80HHD did not have a provision similar to section 80HHC that excluded certain incomes from business profits. The Tribunal stated that commission income was business income and could not be excluded from profits of the business for computing eligible deduction under section 80HHD, but since it was not received in convertible foreign exchange, it should not be included in receipts of income in convertible foreign exchange.

The Revenue appealed, contending that the income should be received directly from foreign tourists and in convertible foreign exchange to qualify for deduction under section 80HHD. The court referred to a previous judgment (Lotus Trans Travels P. Ltd. v. CIT) that interpreted "derived from" to mean income should directly result from services provided to foreign tourists, and not beyond the first degree. Since the assessee received the commission from shopkeepers in Indian currency, it did not meet the conditions of section 80HHD.

The court concluded that the shopping commission earned by the assessee did not qualify for deduction under section 80HHD as it was not directly derived from services to foreign tourists and was not received in convertible foreign exchange. The court upheld the Assessing Officer's decision, setting aside the orders of the Tribunal and the Commissioner of Income-tax (Appeals).

---