2004 (11) TMI 287 - AT - Income Tax

Tribunal Orders Recalculation of Deductions; DEPB Receipts Can't Be Excluded From Business Profits for Tax Purposes.

The Tribunal partially allowed the appeal, directing a recomputation of the deduction under section 80HHC of the Income-tax Act, 1961. It held that 90% of ... Interpretation of clause (baa) of Explanation after sub-section (4B) of section 80HHC - DEPB receipts assessable u/s 28(iv) - Whether 90% of such receipts can be excluded from the profits of business in view of Explanation (baa) to section 80HHC(4B) for the purpose of computing deduction u/s 80HHC(3) - HELD THAT:- The bare perusal of the same shows that the legislature has excluded 90% of certain items under two categories, i.e., (1) 'any sum referred to in clauses (iiia), (iiib) and (iiie) of section 28', and (2) 'of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature'. In the former category, it has used the word 'sum' while in the second category, it has used the word 'receipt'. In view of such distinction, we are of the view that the words 'any other receipts of a similar nature' would not apply to the first category. At this stage, we would like to mention that at the time when the legislature inserted clause (baa) in the Explanation to section 80HHC(4B), clause (iv) of section 28 was already on the Statute book in addition to clauses (iiia) to (iiic) of section 28. That clearly means that non inclusion of clause (iv) of section 28 in the first category referred to above was deliberate one on the part of legislature. Had the legislature intended to exclude 90 per cent of sum referred to in section 28(iv), it could easily include the same in the aforesaid first category. Thus, deliberate omission to include section 28(iv) in the first category clearly suggests that the legislature never intended to exclude 90% of the aforesaid sum. Whether clause (iv) of section 28 can be included within the ambit of the words falling in the second category - As already noted, the legislature has used the word 'receipt' at two places in the second category. Therefore, considering the rule of ejusdem generis, the words 'or any other receipt of a similar nature' would take its colour from the words 'brokerage, commission, interest, rent, charges', etc. The rule of ejusdem generis is well known principle for construction of a statute. Thus, it is held that 90% of DEPB receipts assessable u/s 28(iv) cannot be excluded from the profits of business as computed under the head 'Profits and gains of business or profession' for the purpose of computing profits of business under clause (baa) of the Explanation to section 80HHC(4B). Consequently, order of CIT(A) is modified to that extent and Assessing Officer is directed to recompute the deduction u/s 80HHC in accordance with our finding. In the result appeal is partly allowed. Issues involved:Interpretation of clause (baa) of Explanation after sub-section (4B) of section 80HHC of Income-tax Act, 1961.Summary:The appeal involved the interpretation of clause (baa) of Explanation after sub-section (4B) of section 80HHC of the Income-tax Act, 1961. The assessee, engaged in the export of leather garments, transferred credits under the Duty Entitlement Pass Book Scheme (DEPB Scheme) to other parties instead of importing goods. The Assessing Officer excluded 90% of the transferred credits while computing the deduction under section 80HHC, resulting in a loss. The CIT(A) upheld this decision, stating that DEPB receipts were revenue receipts assessable as business receipts under section 28(iv) and not eligible for deduction under section 80HHC. The Tribunal considered whether 90% of DEPB receipts could be excluded from the profits of business under Explanation (baa) to section 80HHC(4B) for the purpose of computing the deduction under section 80HHC(3).The Tribunal analyzed the legislative intent behind the introduction of clause (baa) and the distinction between the categories of excluded items. It noted that the deliberate omission of section 28(iv) from the first category indicated that the legislature did not intend to exclude 90% of such receipts. The Tribunal applied the rule of ejusdem generis to interpret the words 'any other receipts of a similar nature,' concluding that DEPB receipts falling under section 28(iv) did not fall within this category. Therefore, it held that 90% of DEPB receipts assessable under section 28(iv) could not be excluded from the profits of business for computing the deduction under section 80HHC(3.The Tribunal also addressed the treatment of award money and interest income. It upheld the CIT(A)'s decision on these matters, stating that no interference was warranted. The appeal was partly allowed, with directions to recompute the deduction under section 80HHC in accordance with the Tribunal's findings.