TaxTMI 
TaxTMI 
2001 (11) TMI 73
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.... Income-tax Act, 1961?" In the income-tax reference., I. T. R. No. III of 1997, the Tribunal has referred the following four questions for decision of this court: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that interest received by the assessee from fixed deposit and Magnum deposit with the bank is eligible for deduction under section 80HHC? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the words 'total turnover' for section 80HHC can only have reference -to the turnover by way of sales and cannot take in its stride the gross receipts received? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for the purpose of deduction under section 80HHC the turnover of the construction division should be adopted at Rs.61,26,097 being the difference between gross amount of Rs.4,65,50,906 received from the owners of the flats and the corresponding expenses thereto as against Rs.4,65,50,906 being the gross amount received and adopted in the assessment? 4. Whether, on the facts and in the circumstances of the cas....
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....------------------------------------------------------------------------------------------------------------------------------ Total adjusted income for computation of relief under section 60,46,782 80HHC as per the assessee's statement Total turnover of sea foods division as per the assessee's statement 1,88,23,993 Export turnover (assessee has only sea foods export) as per the 1,87,95,309 assessee's accounts Gross profit in sea foods business as per assessee's accounts 23,88,067 Gross profit from shipping business as per assessee's accounts 14,99,....
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....; ------------------ Total ....
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....p; = ---------------------------------------- X 60,46,782 = Rs. 42,64,590 2,66,20,238 ------------------------------------------------------------------------------------------------------------------------------- Accordingly, the assessee has claimed deduction under section 80HHC for an amount of Rs.42,64,590 towards eligible deduction of export profit from the sea foods export as against gross profit from sea foods business computed by the assessee at Rs.23,88,067. The Assessing Officer was of the view that the assessee cannot claim export profit over the gross profit from that line of business. Moreover, the Assessing Officer also felt that certain items of income, including interest from bank deposits and dividend from SBI Magnum do not come within the description of "business income" and, therefore, the assessee cannot claim deduction on export profit under section 80HHC of the ....
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....p; = -------------------------- X 23,88,067 = Rs. 13,35,236 10,01,321 ------------------------------------------------------------------------------------------------------------------------------- Thereafter, the Assessing Officer worked out export profit for deduction under section 80HHC by applying the following formula: ------------------------------------------------------------------------------------------------------------------------------- Eligible deduction Net adjusted income determined  ....
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....; 1,88,23,993 ------------------------------------------------------------------------------------------------------------------------------- Accordingly, the Assessing Officer disallowed the claim of deduction on export profit under section 80HHC in excess of what is computed as above. The Assessing Officer also in the course of computation of adjusted total income excluded a few items of income, including interest on fixed deposits and dividend from SBI Magnum. The assessee's appeal on the computation of relief under section 80HHC was not successful before the Commissioner Of Income-tax (Appeals). However, on second appeal filed by the assessee, the Tribunal reversed the order of the Commissioner of Income-tax (Appeals) and allowed the assessee's claim. While deciding the appeal by the Department, the Tribunal held as follows: "1. The Assessing Officer's manner of working out of relief under section 80HHC is incorrect because the Assessing Officer confined his working out only to the sea foods division of the assessee on the ground that the assessee has export only in sea foods. 2. The Assessing Officer's finding that the amou....
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....profits derived by the assessee from the export of such goods or merchandise: ... (3) For the purposes of sub-section (1), profits derived from the export of goods or merchandise out of India shall be the amount which bears to the profits of the business (as computed under the head 'Profits and gains of business or profession'), the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee ... (4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of the amount of export turnover ... Explanation.-For the purposes of this section,- (a) 'convertible foreign exchange' means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; (b) 'export turnover' means the sale proceeds receivable by the assessee....
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...., the Tribunal probably would have held that agricultural income arising from such land would also constitute 'business income" for the purpose of computation of eligible profit under section 80HHC of the Act. Similar is the nature of income in the form of dividend from SBI Magnum. Therefore, we are of the view that the Tribunal went wrong in reversing the exclusion of these items from business income made by the Assessing Officer, and affirmed by the Commissioner of Income-tax (Appeals). Following our decision in I. T. R. No. 29 of 1998-CIT v. Parekh Brothers [2002] 253 ITR 43, and the decisions of this court in Collis Line's case [1982] 135 ITR 390 and Traco Cable Company's case [1969] 72 ITR 503, we answer the sole question in 1. T. A. No. 60 of 2001 and the first question in I. T. R. No. 111 of 1997 in favour of the Revenue and against the assessee. Accordingly, we reverse the order of the Tribunal in both the cases on this point. With regard to computation of eligible deduction of export profit from business, we feel that the method adopted by the Assessing Officer is not correct, because it is not strictly in conformity with sub-section (3) of section 80HHC of the Act. The....
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.... total turnover as computed by the Assessing Officer and as offered by the assessee. Since the Assessing Officer has adopted a different method of computation, his finding on the total turnover did not have much significance. However, since we have found that the Assessing Officer has not strictly followed section 80HHC(3) in the computation of eligible deduction, it has become necessary for us to adjudicate on the correctness of the finding of the Tribunal with regard to the meaning of "total turnover". In this regard, the only dispute is whether the amount received by the assessee from the flat owners towards cost of construction of flats is to be treated as turnover. The amount involved is Rs. 4,04,24,809, which is completely excluded by the assessee while adopting "total turnover" for the purpose of computation of eligible deduction on export profit. The assessee has only taken the gross profit of the construction division as "turnover" and the same is upheld by the Tribunal. We have no doubt in our mind that the income from the construction division is not the "turnover" and, therefore, the finding of the Tribunal is patently untenable. The question to be addressed is what tur....
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.... turnover of this year. However, this does not appear to be the position, and such a question was not raised before the lower authorities. If the profit for the construction and sale of flats is fully accounted in this year, then the entire turnover including the amount received towards cost of construction of the flats, i.e., Rs. 4,04,24,809 has to be 'treated as turnover for the purpose of computation of eligible deduction of profit under section 80HHC(3) of the Act. The Tribunal has elaborately discussed the scope of turnover and gave a finding that the cost of construction does not form part of turnover. In this context, we find that the definition in the section is not helpful. Therefore, the reference to "turnover" as defined in the KGST Act pursuant to the Constitution (46th Amendment) Act has significance. The turnover on works contract defined in Explanation I(A)(i) to section 2(xxvii) is as follows : "turnover in respect of works contract shall be the aggregate amounts received or receivable by the dealer for the transfer of goods (whether as goods or in some other form) involved in the execution of such contract." Therefore, we are of the view that the Tribunal com....