TaxTMI 
TaxTMI 
2016 (5) TMI 318
X X X X Extracts X X X X
X X X X Extracts X X X X
.... house property. As the rental income arises out of business of manufacture and sale of paper (eligible business), the amount need not be excluded from the business profit of assessee and the entire amount is to consider computing deduction u/s.80HHC of the Act. Ld.A.R relied upon the judgement of Supreme Court in the case of M/s. ACG Capsules Ltd Vs. CIT reported in 343 ITR 0089 wherein held that only the net income from lease is liable to be taken into account while computing deduction u/s.80HHC of the Act and not the gross income so as to comply the clause (baa) to sec.80HHC of the Act. 4. On the other hand, ld.D.R submitted that the Tribunal in the case of assessee company in ITA No.860/Mds./2003 for assessment year 1997-98 relied on the decision of Bombay High Court in CIT Vs. Bangalore Clothing Co. in 260 ITR 371 and allowed the claim of assessee. However, the Hon'ble Bombay High Court in its later judgement in CIT Vs. Dresser Rand India P. Ltd in 323 ITR 429(Bom) has considered the matter. In this citation, the Bombay High Court disapproved the judgment in the case of CIT Vs. Bangalore Clothing, but have considered decision of Hon'ble Apex Court in CIT Vs. Ravindranathan ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Supreme Court. In there is nothing in the judgment of the Supreme Court to suggest that the judgment in was either expressly or impliedly approved. The ambit of Explanation (baa) has been considered by the judgment of the Supreme Court in . The legislative policy underlying the provision is that items which are unrelatable to the export activity must be excluded in the computation of business profits in order to prevent a distortion in the computation of the deduction under section 80HHC . What provision should be made consistent with the legislative policy underlying section 80HHC is a matter for Parliament to determine. The duty of the court is to interpret the language of the provision. The interpretation of the provision by the Supreme Court is binding and has to be followed." 5.1 We have heard both the parties and perused the material on record. Admittedly, the issue in dispute considered by the Supreme Court in the case of CIT Vs. Ravindranathan Nair reported in [2007] 295 ITR 228(SC) wherein held that: " 17. Section 80HHC had a headnote. That headnote said "Deduction in respect of profits retained for export business". The said headnote was inserted by the Fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng charges formed part of the gross total income being business profits. This has been clarified by clause (baa) to the said Explanation which inserted the definition of "profits from business" in the said section 80HHC(3) of the Income-tax Act. 19. In the present case, the Assessing Officer had worked out the business profits of Rs. 1,94,08,220 as the gross total income on the basis of income received from cashew business (see pages 50 and 52 of the SLP paper book). Even according to the assessee, in the above formula his business profits included the abovementioned processing charges. However, according to the assessees, the said charges were not to be included in the total turnover. We are not inclined to accept the contention of the assessees. The above discussion indicates that the formula in section 80HHC(3) of the Income-tax Act provided for a fraction of the export turnover divided by the total turnover to be applied to business profits calculated after deducting 90 per cent. of the sums mentioned in clause (baa) to the said Explanation. That, profit incentives and items like rent, commission, brokerage, charges, etc., though formed part of gross total income had t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....les were required to be given weightage. 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 not income and every income would not necessarily include element of export turnover. This aspect needs to be kept in mind while interpreting clause (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 sections 28 to 44D of the Income-tax Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from business profits under clause (baa). A bare reading of clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc., formed part of gross total income being business profits. But for the purposes of working out the formula and in order to avoid distortion of arriving at the export profits, clause (baa) stood inserted to say ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of business" of assessee could be deducted under clause (i) of Explanation (baa) to Sec.80HHC and not 90% of the quantum of gross of the above said income, which were allowed as expenses and therefore,, included in the profits of the business of the assessee. In view of the above, in our opinion, the judgement of Supreme Court in the case of M/s.ACG Capsules Ltd.(supra) is directly covered on the issue in dispute before us. Accordingly, we direct the AO to exclude net income of rental income and lease income if it is assessed as business income while applying the clause (i) of Explanation (baa) to Sec.80HHC of the Act. If it is not assessed as business income, then there is no question of considering the same for deduction u/s.80HHC of the Act. 5.5 The other argument of the ld.A.R is that ld. Assessing Officer travelled beyond his jurisdiction as the Tribunal has not directed the AO to re-decide the issue relating to rental income. As seen from the order of the Tribunal in ITA No.47/Mds./2001 for assessment year 1998-99 dated 17.06.2005, there is a categorical finding of the Tribunal in para-11 as follows:- "The fourth issue relates to assessing of the lease income am....