TaxTMI 
TaxTMI 
1999 (12) TMI 114
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....otal claim i.e. Rs. 12,125. b. Out of depreciation on Motor car to the extent of 1/5th of total claim. c. Out of telephone expenses to the extent of Rs. 20,306." The Revenue has raised the following ground in its appeal: "On the facts and in the circumstances of the case, the ld. CIT(A) has erred in directing to consider the receipts from sale of export licence commission from sale of STC export counter, commission of shipping freight and processing charges of job work for working out the quantum of deduction under section 80HHC, ignoring the provisions of section 80HHC(1) which approves deduction only on profit derived from export of goods and merchandise only." 3. The assessee claimed deduction under section 80HHC at Rs. 7,25,881. Such a claim was made for the first time while filing the revised return which was revised on account of treating the amount of CCS as revenue receipt. The assessee submitted auditor's report in the prescribed form. The Assessing Officer disallowed the aforesaid claim on the ground that following items of income/receipt will not form part of "profits and gains of business" for purposes of deduction under section 80HHC:- Rs. (a) (i) Receipts from....
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....ure/interest expenditure appearing in the audited profit and loss account for the previous year arid which as on 31-3-1989 which shows that total financial expenses of Rs. 13,06,081 was incurred by the assessee for the year under consideration. The details of financial expenses have been given at page 11 of the Paper Book which is reproduced hereunder: Interest paid: Rs. (a) To Relatives 2,70,980.55 (b) To Others (including Rs. 35,000 on its demands) 9,90,582.12 --------------- 12,61,562.67 Bank Commission 1,71,965.65 --------------- 14,33,528.32 Less: Interest received 1,27,446.00 --------------- Total 13,06,081.92 --------------- Shri Jhanwar submitted that there was no interest income as such but the interest receipt had a direct nexus with interest expenditure incurred during the year. The appellant had incurred a net interest expenditure of Rs. 13,06,081. Therefore, the gross amount of interest received by the assessee to tune of Rs. 1,27,446 has to be adjusted against the total interest expenditure including bank commission of Rs. 14,33,528. The net amount of interest has to be taken into consideration. The interest income received by the assessee o....
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.... will be treated as profits derived by the assessee from export of such goods. If the business carried on by the assessee does not consist exclusively of export out of India of the goods to which section 80HHC applies, the profit derived from export on goods shall be the proportionate amount which bears to the profits of the business as computed under the head "profits and gains of business" in the same proportion as the export turn over bears to total turnover of the business carried on by the assessee. The provision as it existed in the relevant year did not exclude any item of income assessable under the head "profits and gains of business" on the ground that it did not directly relate to the activity of exports. He, therefore, contended that the assessee's appeal with regard to interest receipt to be considered for grant of 80HHC should be allowed and the Revenue's appeal with regard to other items of business income credited in the profit and loss account should be rejected. 8.2 Shri Jhanwar submitted that interest income is required to be adjusted against interest expenditure and only the net interest income could be taken into consideration even after introduction of Explan....
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....me not being eligible, to be considered for purposes of grant of deduction under section 80HHC of the Act. 11. As regards the ground raised by the Revenue in its appeal, the ld. DR drew our attention to the amendment made in section 80HHC(1) wherein the word "profits" derived by the assessee from the export of such goods, was substituted for expression "whole of the income" derived by the assessee from the export of such goods w.e.f. 1-4-1989. The ld. DR pointed out that the appeal under consideration relate to assessment year 1989-90 and the amended provisions of section 80HHC(1) are also applicable from that year. Earlier, whole of the income assessable under the head "profits and gains of business" had to be taken into consideration for computing deduction under section 80HHC but from assessment year 1989-90, deduction can be allowed only in respect of the profits derived by the assessee from export of such goods. He submitted that sub-section (3) of section 80HHC can not override the main provisions contained in section 80HHC(1). The ld. DR pointed out that receipts by way of sale of import licences, commission received from STC on exports made by them, commission on shipping ....
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...., the profits of the business as computed under the head "Profits and gains of business or profession". (b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies the amount which bears to the profits of the business (as computed under the head "Profits and gains of the business or profession") the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee." Explanation (baa) of section 80HHC which was inserted by Finance (No. 2) Act, 1991 w.e.f. 1-4-1992 reads as under:- "(baa) profits of the business means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by- (1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India." The Explanation (baa) was inserted in sec....
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....of the Act, the assessee will be entitled to grant of 100 per cent deduction in respect of such profits derived from the business of the export of goods in a case where the business carried on by the assessee consisted exclusively of the export of eligible goods. In cases where the assessee's business did not consist exclusively of export of such goods out of India, the assessee will be entitled to grant of deduction of proportionate amount of such income from business computed under the head "profits and gains of business" in the ratio of export turnover with the total turnover. The item of business income derived by the assessee engaged in the business of exports, which do not directly relate to export business could not be taken out or reduced from such profits and gains of business for purposes of working the deduction allowable under section 80 HHC(1). 14. The Explanation (bad) was inserted in section 80HHC w.e.f. assessment year 1992-93 which provides that "profits and gains of the business" for the purposes of section 80HHC means the profits of the business as computed under the head "profits and gains of business" as reduced by 90 per cent of export incentives referred to ....
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....for as envisaged in clause (baa) of the Explanation to section 80HHC. 14.1 The I.T.A.T. Calcutta Bench in the case of Khimjee Hunsraj has also taken a similar decision in relation to interpretation of clause (bad) of Explanation (ii) to section 80HHC. 14.2 It may also be relevant here to refer to the decision of I.T.A.T. Delhi in the case of B.H.P. Engineers v. Dy. CIT [1998] 61 TTJ (Delhi) 503. The decision was rendered by Hon'ble Shri V. Dongzathang, Sr. V.P. sitting with Hon'ble Shri U.B.S. Bedi, J.M. The head note of the said decision is reproduced hereunder: "The assessee furnished the P&L a/c in which 'other income' was shown at Rs. 17,42,968 which consist of miscellaneous income of Rs. 1,24,711 interest from banks (gross) Rs. 6,44,587 and CCS received Rs. 9,73,670. Against his income the expenditure on account of financial expenses have been shown at Rs. 18,91,759. On the basis of these facts, it is seen that there is no income as such from interest which can be assessed as interest income as there is debit balance on account of interest. The order of the Assessing Officer itself is a clear testimony in this regard as there is no income from interest assessed under the he....
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....essee has earned foreign exchange from such exports and the assessee has derived net profit in its export business. Such a recourse will frustrate the object of granting incentive for promotion of exports. This can never be the intention of law makers. Therefore, the only reasonable and harmonious construction of an incentive provision like 80HHC is that the interest receipt which has a direct nexus with interest payments, should be adjusted against each other and only the net amount can be said to have been included in the amount of net profit. In the aforesaid illustration, the interest payments are Rs. 20.00 lakhs and the interest receipts are Rs. 15.00 lakhs. No interest income can therefore, be reduced from the amount of net profits eligible for grant of deduction under section 80HHC of the Act. 16. We are aware about the decision of Hon'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case. The facts of that case are entirely different. In that case the interest income which was sought to be adjusted against interest expenditure of capital nature relating to the period prior to commencement of business was held to be liable to tax under the head "income f....
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....(A) has confirmed such disallowance. He submitted that the residential telephone is normally used for business purposes in the night hours as STD charges are lower during night hours. He, therefore, submitted that the disallowance so confirmed by the CIT(A) should be deleted. 20. The ld. DR supported the order of the CIT(A) in relation to this ground. 21. After considering the submissions made by the ld. representatives of both the parties, we are of the view that it will be just and proper to direct the Assessing Officer to restrict the disallowance to Rs. 4,000 only out of telephone expenses claimed by the assessee. The Assessing Officer is directed to grant relief accordingly. 22. We will now deal with the ground raised by the Revenue in its appeal. As a matter of fact the entire discussion relating to interpretation of section 80HHC(1) read with section 80HHC(3) equally applies to the ground raised by the Revenue in their appeal. We have already held in the earlier part of this order while dealing with the Ground No. 1 of assessee's appeal that for the purpose of computing deduction under section 80HHC, the first requirement is to compute the profits of the business assessab....
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....eceived by the assessee on account of exports made by them has a direct nexus with the export business carried on by the assessee. The amount of sale proceeds of import entitlements is clearly assessable as profits and gains of business. The amount in question will, therefore, form part of the export profits within the meaning of section 80HHC(1) read with section 80HHC(3). The CIT(A) has rightly directed the Assessing Officer to take the said income into consideration for working out deduction under section 80HHC. 24. The next item of Rs. 2,19,190 being commission received from STC on export counter trade is also a part of business income of the assessee. Such commission was received by the assessee from State Trading Corporation in respect of export business carried out through the STC. Such a receipt is, assessable as business income under section 28. The CIT(A) has, therefore, rightly directed the Assessing Officer to take this item also into consideration for purpose of computing deduction allowable under section 80HHC. 25. Likewise the commission on shipping freight, aarth, claims and octroi refund to the tune of Rs. 51,241 are also receipts derived by the assessee in the o....