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2014 (10) TMI 503
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....eous Income Rs. 52,56,657/- (50,40,378 + 2,16,279) d. Compensation Rs. 33,32,065/- 2. On the facts and circumstances of the appellant's case and in law the Ld. CIT(A) erred in confirming the Ld. AO's action of reducing 9O% of compensation received of Rs. 33,32,065/- twice from the 'Profit of the business' for the purpose of computing deduction u/s. 8OHHF. 3. On the facts and circumstances of the appellant's case and in law the Ld. CIT(A)' erred in confirming the Ld. AO's action of not setting off sundry balances written off of Rs. 2,51,269/-against sundry balances written back of Rs. 35,52,880/-. 4. The Appellant crave leaves to add, amend, alter, modify and or withdraw any of the above grounds of appeal. Revenue's Grounds of Appeal in ITA No: 809/Mum/2010: "The following ground of appeal are without prejudice to one another. 1.On the facts and circumstances of the appellant's case and in law the Ld. CIT(A) erred in confirming the Ld. AO's action in reducing 90% of the other income of Rs. 1,16,34,773/- comprising of duty draw back, sundry balance written off, compensation received and miscellaneous income from the 'Profit of the business' for the purpose of comput....
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....3 on DD metro channel. 1,20,000 4. Cinematt Pictures 50% share of assignment of All India Terrestrial Telecast rights of film "Sarfarosh" for Delhi *LPTS (Hindi Best) Channel for one telecast only within a period of one 35,915 year from the date of agreement. 5. Indian Overseas Bank A/c. 1172 Govt. of Maharshtra Pay & Accounts Officer Court Refund. 39,915 6. Cinematt Pictures Films rights - Sarfarosh 28,72,950 7. Cinematt Pictures 30% share of Rs. 9,00,000/- for Sarfarosh Rights is accounted 2,70,000 TOTAL 34,77,330 Less: Priya Shine compensation given on the titles of DVDs and VCSs sold during the year, which were having manufacturing defect. 1,45,265 Net income credited under the head compensation 33,32,065 3.2 It may further be mentioned that detail of miscellaneous income of Rs. 50,40,378/- is also described in the order passed by Ld. CIT(A) and read as under: Compensation 33,32,065 Insurance Claim 1,71,739 Miscellaneous income 15,36,574 TOTAL 50,43,378 (Total has been wrongly mentioned. Actually it is 50,40,378/-) 3.3 Further, details of Rs. 15,36,574/- is as under: Further details of misc....
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.... highlight that all the judgements cited by the AO relate to deduction section other than 80HHF. Consequently, it is claimed that they do not apply in its case. This argument or reasoning is devoid of merits. The ratio of all the decisions cited by the AO would apply as they lay down the ground rules and ensure that only those incomes which are directly linked to exports get eligible for deduction. All the receipts cited by the appellant have an element of turnover and can be assessed under business head but they do not ipso facto qualify for deduction. More so when the specific provisions prohibit including all the receipts of these nature. Finally in the recent decision of the Supreme Court in Liberty India, it has been held that deduction sections like this one are a code by themselves as they contain both substantive as well as procedural provisions. The work "derived from" is narrower in connotation as compared to the words "attributable to". By using the expression derived from parliament intended to cover sources not beyond the first degree. On the facts of the present case, the duty drawback, sundry balances written off, compensation received and miscellaneous income do not....
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....on 80HHC, 90 per cent of sum referred to in clauses (iiia) to (iiie) of section 28 has also to be excluded from the profits of business while such amount is not required to be deducted in computing the profits of business under section 80HHF." (Emphasis ours) 4.1 He submitted that clauses (iiia) to (iiie) of section 28 inter-alia include DEPB benefits. Therefore, he submitted that receipts of DEPB cannot be excluded as they do not find mention in sub-clause(A) of clause (f) of explanation to section 80HHF. He further, referred to the aforementioned decision in the case of ACIT vs. Star India Pvt. Ltd. (supra), wherein after considering explanation- (c) to section 80HHF, it was observed that the amount of income earned in respect of software rights would have to be treated as turnover. The purpose behind production of such software is to view/exhibit programmes contained therein. Consequently, right to exhibit such programmes would certainly fall within the scope of software rights. He contended that while deciding that the receipts of the assessee in the shape of cable subscription were eligible for deduction under section 80 HHF the Tribunal has considered the decision of Hon'b....
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....eeds. Consequently, deduction under section 80HHC(IA) could not be allowed. On the other hand, the contention of the assessee was that under the contract between the assessee and the export house, the assessee was entitled to receive the export incentives as part of sale consideration and therefore, it was entitled to deduction in respect of such amount. Though the judgment of Bombay High Court in the case of Bangalore Clothing Co. (supra) was referred to by the learned Counsel for the assessee but the said judgment does not find any place in the operative part of the judgment of the Apex Court. The entire operative part of the judgment related to the interpretation of section 80HHC(1A). After interpreting the said provisions, the court held that the Tribunal was justified in holding that export incentive was integral part of sale price realised by the assessee. Therefore, it cannot be said that the said judgment of the Bombay High Court stands approved by the Apex Court. 47. In view of the above discussion, it has to be held that there is no judgment of the Apex Court on the scope of Explanation (baa) to section 80HHC. However, we find merit in the contention of the ld. Counsel....
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....s concerning with the business activity of the assessee and do not fall within the scope of sub-clause(A) of clause (f) of explanation to section 80 HHF. He in this regard referred to the decision of ITAT in the case of Extrusion Process Pvt. Ltd. vs. ITO 106 ITD 336, wherein it has been held that profits chargeable to tax under section 41(1) are profits of the business for the purpose of computing deduction under section 80HHC. It was held that section 41(1) provides for treating the assessment of liability as income, provided those liabilities were claimed as deduction in computing the taxable income for earlier assessment years. It shows that section 41(1) is not creating any income as such independently without any basis. On the other hand, the income is created under section 41(1) on the ground that the corresponding amounts were claimed as deduction in the earlier assessment years. The profits and gains of the assessee were reduced to that extent in the earlier assessment years. When those liabilities ceased to exist, it is very necessary to write back the liabilities as a result of which the amounts needs to be offered as income in the accounts under section 41(1). Thus, it ....
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....o (iiie) of section 28 inter-alia include duty draw back. Therefore, in absence of any express provision in section 80HHF duty draw back cannot be excluded with reference to sub-clause(A) of clause (f) of explanation to section 80HHF. 7.1 In the aforementioned decision it has also been analysed that receipts which are from independent activity and which found part of the profit of the business are to be considered as part of the total turnover. By holding so reliance has been placed by the Co-ordinate Bench on the decision of Hon'ble Supreme Court in the case of CIT vs. K. Ravindranathan Nair (supra) and decision of Hon'ble Bombay High Court in the case of CIT vs. Bangalore Clothing Company(supra). In the case of CIT vs. Bangalore Clothing Company (supra) it has been held that explanation (baa) (which is similar to sub-clause (A) of clause (f) to section 80HHF except the difference of exclusion of receipts referred in clauses (iiia) to (iiie) of section 28) cannot be invoked in every matter involving receipts by way of brokerage, commission, interest, rent, labour charges, etc. It was observed that these items of income have to be seen in the context of the business activity of ....
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....ise Duty amounting to Rs. 75,981/- also cannot be excluded as the same is not in the nature of items described in sub-clause (A) of clause (f) of explanation to section 80HHF. Therefore, applying the ratio of Hon'ble Bombay High Court in the case of CIT vs. Bangalore Clothing Company(supra) it is held that amount of Rs. 7,85,924/- being Duty Drawback; amount of Rs. 33,32,065/- being receipts in the nature of operating income and amount of Rs. 15,36,574/- being part of miscellaneous income relating to receipt of the assessee from Indian Film Export Association, refund of Central Excise Duty and credit note of Priya Shine do not fall within the ambit of sub-clause(A) of clause(f) of explanation to section 80HHF. These amounts are held not to be excludible from the computation of deduction under section 80HHF. The AO may recomputed the deduction under section 80HHF accordingly. 7.5 So far as it relates to Ground No.2 of the assessee's appeal, we found that the amount of Rs. 33,32,065/- has been added twice by the AO. However, this issue is restored back to the file of AO for verification of the contention of the assessee and if the said amount is taken twice by the AO while computi....
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....He submitted that what Ld. CIT(A) has done is netting of the interest income with the interest paid and this principle has been approved by Hon'ble Supreme Court in the case of ACG Associated Capsules vs. CIT, 247 CTR (SC) 372, wherein it has been held that 90% of the net interest or net rent which has been included in the profits of the assessee as computed under the head" profits and gains of business or profession" and not the gross interest or gross rent, is to be deducted under clause (i) of explanation (baa) to section 80 HHC for determining the profits of the business. 12. We have heard both the parties and their contentions have carefully been considered. It has been the contention of the assessee that FDRs were kept as margin money for securing export payment. This contention of the assessee has not been disputed . The fact that assessee had incurred interest expenditure of Rs. 3,40,39,517/- on borrowed capital is also not disputed. Therefore, we find no infirmity in the order of Ld. CIT(A) vide which it has been held that the interest earned by the assessee on FDR could not be separately assessed as income from other sources. We decline to interfere and this ground of ....