TaxTMI 
TaxTMI 
2010 (6) TMI 433
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....he business carried on by the assessee-company and therefore there was no justification to exclude 90 per cent. of the sundry income while com- puting eligible profits under section 80HHC of the Income-tax Act, even though the sundry receipts do not have any direct nexus with the pharmaceutical manufacturing activities of the assessee-company ? (C) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in holding that the rental income of Rs. 2,85,60,871 received by the assessee-company from sub-leasing of commercial premises is to be considered as `Income from house property' even though the renting out of the premises amounts to commercial exploitation for business purposes by the assessee-company and therefore was rightly held to be `business income' by the Assessing Officer ? (D) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in holding that retrenchment compensation paid to workmen was revenue expenditure ?" 2. The dispute in the present case relates to the assessment year 2000-01. Re : Question A 3. The assessee engages in the manufacture....
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....by the Revenue was as follows (page 432) : "Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that 90 per cent. of recovery of freight, insurance and packing receipts amounting to Rs. 49,14,076, sales tax set off/refund amounting to Rs. 38,33,148 and service income of Rs. 2,89,17,545 are not to be excluded from profits of business within the meaning of clause (baa) of Explanation to section 80HHC of the Act for the purpose of computation of deduction under section 80HHC of the Income-tax Act, 1961 ?" 6. This court by its decision held that in terms of the judgment of the Supreme Court in CIT v. K. Ravindranathan Nair [2007] 295 ITR 228 the issue of processing charges would stand covered by the decision. This court noted that the Supreme Court had held that the processing charges, though they form a part of the gross total income, constitute independent income like rent, commission and brokerage and that hence 90 per cent. of the same had to be reduced from the gross total income to arrive at business profits. The concluding paragraph of the judgment of this court records the concession of counsel appearing on....
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.... 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 outsideIndia." 9. Under Explanation (baa), the profits of business are defined to mean the profits of business as computed under the head of profits and gains of business or profession. This has to be reduced under clause (1) by ninety percent. of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 which are in the nature of incentive incomes or "of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits". Receipts by way of brokerage, commission, interest, rent or charges have been held, by the judgment of the Supreme Court in CIT v. K. Ravindranathan Nair's case [2007] 295 ITR 228 to constitute independent incomes. Being independent incomes unrelated to export, Parliament contemplated that ninety per cent. of such receipts would have to be reduced from the profits of business as defined in Explanation (baa).....
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.... 12. In the present case, the insurance claim, it must be clarified, related to the stock-in-trade and it is only an insurance claim of that nature which forms the subject-matter of the appeal. Now, it cannot be disputed that if the stock in trade of the assessee were to be sold, the income that was received from the sale of goods would constitute the profits of the business as computed under the head of profits and gains of business or profession. The income emanating from the sale would not be susceptible to a reduction of ninety per cent. for the simple reason that it would not constitute a receipt of a nature similar to brokerage, commission, interest, rent or charges. A contract of insurance is a contract of indemnity. The insurance claim in essence indemnifies the assessee for the loss of the stock-in-trade. The indemnification that is made to the assessee must stand on the same footing as the income that would have been realized by the assessee on the sale of the stock-in-trade. In these circumstances, we are clearly of the view that the insurance claim on account of the stock-in-trade does not constitute an independent income or a receipt of a nature similar to brokerage....
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....ission, interest, rent or charges. For the reasons which we have already indicated, we have come to the conclusion that the claim on account of insurance for the stock-in-trade did not constitute a receipt of a similar nature within the meaning of Explanation (baa) and was therefore not liable to be reduced to the extent of ninety per cent. The first question will therefore not raise any substantial question of law. Re : Question B 14. In so far as this question is concerned, it is common ground between counsel appearing on behalf of the Revenue and counsel appearing on behalf of the assessee that there is no discussion in the order of the Tribunal pertaining to the sundry receipts amounting to Rs. 28.17 lakhs or as regards the nature of those receipts. In these circumstances, we consider it appropriate to restore this issue back to the Tribunal for a decision afresh after hearing the parties. Re : Question C 15. The Tribunal has observed that during the course of the assessment year 1996-97 the Tribunal had by its decision datedOctober 24, 2005, restored the issue to the Assessing Officer to examine whether the income could be assessed as in....