TaxTMI 
TaxTMI 
2015 (2) TMI 120
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....l fiction? (C) Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in law in directing against the exclusion of 90% of compensation in computing the deduction u/S.80HHC, without considering the residuary clause of "any other receipt of a similar nature" in Explanation (baa) when this compensation did not form part of turnover nor was included by the assessee in the total turnover while apportioning the profits in the ratio of export turnover to total turnover?" 2. The relevant facts are that AO vide order dated 14.12.2000, found that in the eligible deduction under the head of profit of business, limited the export incentive to the extent of Rs. 30,29,360/. The matter was carried in appeal and in appeal, CIT(Appeals) did not exclude the income of interest of overdue payment received of Rs. 25,795/and the compensation received from the supplier of windmill of Rs. 3,32,917/and partly allowed the appeal. The matter was further carried in appeal before the Tribunal wherein cross objections were also filed by the assessee. The Tribunal at paragraphs 11 to 14, observed thus by the impugned order dated 20.03.2007 : "11. As regards the intere....
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.... interest earned on the overdue payment received by the assessee on account of late payment of the sale consideration by the overseas customers to whom the export was made by the assessee. On the aspect of other interest not derived from export, the Tribunal directed the assessing officer to allow expenditure, which has the nexus of earning the interest while working out the deduction under section 80HHC of the Income Tax Act (hereinafter referred as to the "Act") and held in favour of the assessee to that extent. Further, it appears that the Tribunal for the compensation received by the assessee from the supplier on account of low generation of electricity than minimum required, found that such would be the business income and the deduction would be computed accordingly while working out deduction Page 4 under section 80HHC of the Act. Under the circumstances, the Revenue has preferred the present appeals before this Court. 4. We have heard Mr. K.M. Parikh, learned counsel for the Revenue and Mr. B.S. Soparkar, learned counsel or the assessee. 5. The above referred question (A) formulated at the time of admission in our view is squarely covered by the decision of this Court ....
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....g distinction between the source of sale proceeds and the source of interest is erroneous in law. In the case of Commissioner of Income Tax Vs. Govinda Choudhury And Sons (1993) 203 ITR 881 the Apex Court was called upon to decide as to the nature of interest received by the assessee therein. In the case before the Apex Court the assessee who was executing government contracts found itself involved in disputes with the State Government with regard to the payments due under the contracts and upon reference to Arbitrators, the award included the principal sum as well as the interest for delay in payment of the principal sum. The assessee claimed that the interest was of the same nature as other trading receipts, but it was held by the Tribunal that the same was 'Income from Other Sources'. The Apex Court laid down : "The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such inte....
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....ransaction remains the same and there is no distinction as to the source. It is incorrect to state that the source for interest is the outstanding sale proceeds. It is not the assessee's business to lend funds and earn interest. The distinction drawn by revenue is artificial in nature and is neither in consonance with law nor commercial practice." 6. We find that the language of section 80I and 80HHC for the income to be derived under the head of profit and gains of business is at par and therefore, there is no reason to take a different view. 7. Mr. Parikh, learned counsel appearing for the Revenue attempted to contend that the interest for the delayed payment cannot be made relatable to the export and since there is specific incentive for the exporters, this Court may consider the different situation and purpose behind providing such incentive and he submitted that this Court may take a different view. 8. We are not at all impressed by the submission and the reason being that as rightly considered by this Court in the above referred decision in the case of Nirma Industries Ltd. (supra), such interest has a direct nexus with the sale price of an item which is exported....
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....pts included in the profits of the business as computed under the head "Profits and Gains of Business or Profession" referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC. 12. If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with Sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In oth....
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....essee and not in favour of revenue. 13. We may record that it is an admitted position that the income is not directly provided by way of the sale consideration nor the interest for late payment received by the assessee, but the income is by way of compensation on account of less generation of electricity of the windmill which may be purchased by the assessee. 14. At this juncture, we may refer to the provisions of section 80HHC(4C) Explanation (baa), which reads as under: "The 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), (iiic), (iiid) and (iiie) 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;" (Emphasis supplied) As per language of aforesaid clause (baa) of sub section (4C) of section 80HHC provision is not exhaustive, but can be said as inclusive. The Apex Court in the above referred decision in case of Commissioner of Income Tax Vs. K. Ravindranathan Nair (supra) had to consider wheth....
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.... for third parties and, therefore, the said receipts did not constitute an element of total turnover. Therefore, according to assessees, the A.O. had erred in including the said charges in the total turnover. According to assessees, profits derived from local sales were includible in Business Profits but not in the total turnover. 22. At the outset, we may state that, in the present case, we are dealing with the law as it stood during assessment year 1993-94. At that time Section 80HHC(3) of the I.T. Act constituted a Code by itself. Subsequent amendments have imposed restrictions/qualifications by which the said provision has ceased to be a code by itself. In the above formula there existed four variables, namely, business profits, export turnover, total turnover and 90% of the sums referred to in clause (baa) to the said Explanation. In the computation of deduction under Section 80HHC all four variables had to be taken into account. All four variables were required to be given weight age. The substitution of Section 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 ....
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....e (baa) to arrive at Business Profits. Therefore, the said processing charges were includible in the total turnover in the formula under Section 80HHC(3) of the I.T. Act." 15. The examination of the facts of the present case in light of the above referred observations would go to show that the compensation received may be on account of improper functioning or less than the expected capacity of the windmill by the assessee would have a different category of the income received and it cannot be made corelatable to the profits and gains from business. In our view, so far as amount of compensation received is concerned, it has no element of export turnover of the assessee and therefore, a separate treatment would be required to be given. 16. The attempt on the part of the learned counsel for the assessee to rely upon the decision of the Bombay High Court in case of Commissioner of Income Tax Vs. PFizer Limited is of no avail to the assessee, because in the said decision, the amount paid towards the insurance claim related to stock in trade of the business. Such are not the fact situation in the present case. Further, in the very decision, the above referred decision of the Apex C....