2007 (4) TMI 297 - AT - Income Tax

Tribunal Orders Adjustments to Deductions u/ss 80M and 80HHC, Clarifies Export Incentives and Expense Treatment.

Mmtc Limited. Versus Joint Commissioner Of Income-tax.

The Tribunal allowed the appeal in favor of the assessee, directing adjustments to deductions under Sections 80M and 80HHC. For Section 80M, the Tribunal ... Deduction claimed u/s 80M - Eligible for deduction 'Gross dividend or Net Dividend' income - HELD THAT:- From the record, we found that direct expenditure with respect to such investment works out to be Rs. 12,35,200. It is also a matter of record that assessee was in receipt of dividend once in a year in the form of 8 to 10 dividend vouchers, which were to be deposited in the bank account. Therefore, it cannot be said that any major administrative expenses was attributable to such deposit of dividend warrants in bank. Recently, in case of Punjab State Industrial Development Corporation Ltd. vs. Dy. CIT [2006 (4) TMI 187 - ITAT CHANDIGARH] has held that actual expenditure incurred has to be considered while allowing deduction u/s 80M and there is no question of taking expenditure on estimation or presumption basis. Thus, we direct the AO to allow deduction u/s 80M after reducing a sum of Rs. 12,35,200 from the amount of gross dividend. We direct accordingly. Computation of deduction u/s 80HHC - All indirect cost is to be apportioned between the export turnover and total turnover - Interest cost is indirect cost for deduction u/s 80HHC - HELD THAT:- From the record, we found that during the year, expenditure on account of interest payment amounting to Rs. 43.52 crores, was incurred. None of the interest was paid in connection with exports and was not, therefore, related to exports. Therefore, no part of interest paid was required to be considered for computing indirect cost while computing deduction u/s 80HHC of the Act. Thus, being agreeing the submission of ld AR, we do not find any merit in the order of lower authorities for apportioning the interest expenditure which are not attributable to the export of trading goods, while working out indirect cost liable to be reduced from the amount of export turnover of trading goods, for working out deduction eligible u/s 80HHC(3)(b) of the Act. Deduction u/s 80HHC - apportioning export incentive between export house and supporting manufacturer - HELD THAT:- Whenever, an export house surrenders part of its export turnover, in favour of the supporting manufacturer, it is required to issue a certificate as referred to in cl. (b) of sub-s. (4A), in respect of the amount of turnover specified therein, then the amount of deduction in the case of the assessee being export house shall be reduced by such amount which bears to the total profit derived by the assessee from export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods. Thus, in respect of the income which the assessee did not disclaim in favour of the supporting manufacturer which pertains to and is attributable to the export incentive, there is no reason to reduce the export incentive relatable to the disclaimed turnover in terms of proviso to s. 80HHC(1) of the Act. We, therefore, direct the AO not to apportion the export incentive in the ratio of export turnover disclaimed to the total export turnover of trading goods under proviso to s. 80HHC(1) of the Act. This ground is, therefore, allowed in favour of assessee. In the result, the appeal of the assessee is allowed in terms indicated hereinabove. Issues Involved:1. Deduction under Section 80M on dividend income.2. Computation of deduction under Section 80HHC(3)(b) related to indirect costs.3. Apportioning export incentive between export house and supporting manufacturer.Issue-wise Detailed Analysis:1. Deduction under Section 80M on Dividend Income:The assessee contested the disallowance of expenses towards earning dividend income from UTI. The AO had allowed only 50% of the gross dividend as a deduction under Section 80M, assuming that the other 50% constituted expenses incurred. The CIT(A) reduced the disallowance but still estimated administrative expenses. The Tribunal found no evidence supporting the AO's or CIT(A)'s conclusion that interest expenses were incurred for earning the dividend. The units were acquired from surplus funds, and the direct expenditure was only Rs. 12,35,200. The Tribunal directed the AO to allow the deduction under Section 80M after reducing this amount from the gross dividend.2. Computation of Deduction under Section 80HHC(3)(b) Related to Indirect Costs:The assessee argued that interest expenses should not be included in the indirect costs for computing the deduction under Section 80HHC(3)(b) as they were not related to the export of trading goods. The AO included gross interest paid in indirect costs, which the CIT(A) upheld. The Tribunal, however, agreed with the assessee, noting that the interest expenses were related to imports and other local debts, not exports. The Tribunal emphasized that only costs attributable to the export of trading goods should be considered. Since the assessee had not incurred interest expenses for exports, the Tribunal directed that such interest should not be included in the indirect costs for the deduction computation.3. Apportioning Export Incentive Between Export House and Supporting Manufacturer:The assessee did not issue a disclaimer certificate for the export incentive to the supporting manufacturer. The AO and CIT(A) apportioned the export incentive between the export house and the supporting manufacturer. The Tribunal held that export incentives should not be bifurcated if the assessee did not disclaim them. The Tribunal clarified that the profits from export of trading goods should be computed without including export incentives for the purpose of apportionment. The Tribunal directed the AO not to apportion the export incentive related to the disclaimed turnover under the proviso to Section 80HHC(1).Conclusion:The appeal was allowed in favor of the assessee. The Tribunal directed specific adjustments to the deductions under Section 80M and Section 80HHC, ensuring that only actual and attributable expenses were considered, and clarified the treatment of export incentives without a disclaimer certificate.