Net conversion charges under Section 80HHC must be reduced by ninety per cent in business profit computation.

Net conversion charges received from job work are includible under clause (baa) of the Explanation to Section 80HHC of the Income-tax Act when computing adjusted business profits. Treating such receipts as independent income forming part of gross total income, the Court applied the Supreme Court's principles on processing charges and held that they do not escape the statutory reduction. Accordingly, for the Section 80HHC computation, ninety per cent of the net conversion charges must be reduced from the relevant receipts to arrive at business profits.

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Issues: Whether net conversion charges are to be included under clause (baa) of the Explanation to Section 80HHC of the Income-tax Act, 1961 while computing adjusted business profits for deduction.

Analysis: The conversion charges received on job work were treated as an independent income forming part of the gross total income. The Court applied the principles laid down by the Supreme Court on processing charges, holding that such receipts do not escape the statutory reduction prescribed under clause (baa). The computation of business profits under Section 80HHC therefore required reduction of ninety per cent of the net conversion charges from the relevant receipts.

Conclusion: Net conversion charges are includible under clause (baa) of the Explanation to Section 80HHC, and ninety per cent of such amount has to be reduced for arriving at business profits.

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