TaxTMI 
TaxTMI 
TaxTMI 
2010 (12) TMI 944
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....planation (baa) in respect of receipts for rendering composite services consisting of procuring order supervising production and quality and ensuring shipment in time when the said Explanation deals only with the receipts in the nature of brokerage, commission, interest, rent, charges or any other receipt of a similar nature? 3) If the answer to question 2 is in the affirmative, whether on the facts and in the circumstances of the case, the Honourable Tribunal was right in law in not issuing directions to bifurcate the professional charges between procuring order and rendering other services so as to exclude only that part of professional charges as attributable to procuring order in computing profits of the business? 4) Whether on the facts and in the circumstances of the case, the Honourable Tribunal was right in law in rejecting the alternative plea of the appellant for exclusion of only net receipts so received in spite of its clear finding that the appellant had incurred certain definite expenses towards rendering the said professional charges? FACTS OF THE CASE 2. Assessee is the proprietor of M/s Tycoon International, which firm engaged in the....
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....Officer erred in applying explanation (baa) to Section 80HHC to the claim of assessee. He would also contend the principles of Ejesdum Generis would apply to the facts of the case since the amount received by the assessee in the instant case would not fall within the meaning of brokerage, commission, interest, rent, charges or any other receipt of a similar nature and in support of this proposition he relies upon the judgment of Sri. Chunilal V. Mehta and Sons Ltd., vs. Century, Spinning and Manufacturing Co. Ltd. AIR 1962 SC 1314. 7. He would also elaborate his submission to contend that Tribunal has not considered the fact that appellant was able to identify and establish the nexus between the expenses incurred and professional charges earned and thus assessee had clearly bifurcated the expenses incurred by him and Tribunal erred in upholding the order of the Commissioner that 90% of gross receipts should be deducted by computing the profits of the business without directing Assessing Officer to exclude only that part of professional charges as attributable to procuring order while computing business profits. He would contend that Kerala High Court in the case of Baby Mar....
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....d charges and thus assessee having not exported any goods or merchandise relating receipt of professional charges of Rs. 18,45,733/- claimed by assessee was not allowable as deduction under Section 80HHHC. He would submit that orders passed by the Assessing Officer as confirmed by the Appellate authority and the Tribunal does not call for any interference. In support of his submission he relies upon following decision: (1) (2007) 295 ITR 454 Hero Exports vs. CIT (2) ITA 25/2003 connected with ITA 298 and 327/2003 DD on 9.7.2008 by a co-ordinate Bench of this court. OUR FINDINGS 10. The narrow compass within which we will have to deal with the question in the instant case is whether the Assessing Officer was justified in denying the claim of the assessee under Section 80 HHC for deduction of Rs. 18,45,733/- said to have been received as professional charges and if so whether the gross charges is to be taken into consideration or the net charges. 11. Assessee is engaged in the business of manufacture and export of garments. For the assessment year 2001-02 return of income came to be filed on 31.12.2001 declaring total income of Rs.4,48,438. Dur....
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....as well as before this Court that the said amount of Rs.18,45,733/- received by the assessee was professional charges for the activity of getting the export order of readymade garments, supervising the production and quantity, ensuring its shipment on time and also ensuring that sale proceeds are received for the party and for such activity assessee had received charges at 7% of the export proceeds. 15. Section 80HHC and explanation thereto relevant to assessment year reads as under: Deduction in respect of profits retained for Export business. "80HHC: (1) Where on assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B) derived by the assessee from the export of such goods or merchandise: Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in....
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.... 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;] [(c)] "Export house Certificate" or "Trading House Certificate" means a valid Export House Certificate or Trading House Certificate as the case may be issued by the Chief Controller of Imports and Exports, Government of India; [(b)] "supporting manufacturer" means a person being an Indian company or a person (other than a company) resident in India, [manufacturing (including processing) goods] or merchandise and selling such goods or merchandise to an Export House or a Trading house for the purposes of export;] [(e)] "special economic zone" shall have the meaning assigned to it in clause (viii) of the Explanation 2 to section 10A". It would emerge from above that primary condition to claim deduction under Section, 80HHC would be that t....
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...., total turnover and 90 per cent of the sums referred to in cl.(baa) to the said Explanation. In the compititation of deduction under s.80HHC all four variables had to be taken into account. All four variables were required to be given weightage. The substitution of s. 80HHC(3) secures profits derived from the exports of eligible goods. Therefore, if all the four variables are kept in mind, it becomes clear that every receipt is not income and every income would not necessarily include element of export turnover. This aspect needs to be kept in mind while interpreting cl.(baa) to the said Explanation. The said clause stated that 90 per cent of incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in business profits had to be deducted from business profits computed in terms of ss. 28 to 44D of the IT Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from business profits under cl. (baa). A bare reading of cl. (baa) indicates that receipts by way of brokerage, commission, interest, rent, charges etc. formed part of gross total income bein....
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....had no nexus to export turnover, if included would result in ariving at a distorted figure of export profits. Thus, Assessing Authority and the Appellate Authority have not applied the principles of Ejesdum Generis which has been pressed into service to the facts of the case and if applied it would lead to a situation where the assessee would be entitled to project an erroneous figure relating to "Export Profits" which is not the intention of the law makers. This amount which is claimed as deduction under Section 80HHC by the Assessee would not constitute sale proceeds from exports. The assessee in question except procuring the export order has not carried on any activity which has nexus to the export in sofar as the receipt of amount of Rs. 18,45,733/- is concerned. Hence, question Nos.1 and 2 formulated hereinabove has to be answered in the affirmative i.e., in favour of the revenue and against the assessee and they are accordingly answered. 19. Re.Questions 3 and 4: The contention of Mr. Chaitanya Hegde is that the Tribunal ought to have issued direction to bifurcate professional charges between procuring the order and rendering other services so as to exclude only that ....
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....ve in our opinion the word "attributable in section 80HHC(3)(b) in the main section itself indicates that apportionment (principle of attribution) is not omitted from the said provision of section 80HHC(3)(b). As stated above the assessee has earned other income of Rs.1,60,000 apart from the FOB value of exports of Rs.6,50,000, Therefore, some expenses has to be attributed to earning of Rs.1,60,000. If so, the next question which arises is how to allocate the costs? As stated above the assessee has two incomes with one common pool of expenses and since the principle of attribution has been retained in the scheme of section 80HHC, both in terms of section 80HHC(3), clause (e) to the Explanation to section 80HHC (3)(a), (b) and (c) and in clause (baa) to the Explanation to section 80HHC instead of going into lengthy exercise of dividing such common expenses the assessee has estimated the reduction of export turnover by 10 per cent. of the other income of Rs.1,60,000 (in the above example). Ultimately, clause (baa) to the Explanation is itself based on the assumption that 10 per cent. of the income would be on expense. We make it clear that we are not reading explanation (baa) into se....