TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 877
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....bstantial question of law for being answered:- "1.Whether on the facts and circumstances of the case, the Tribunal was right in holding that the assessment order is not erroneous or prejudicial to the revenue, since 90% of the interest was excluded from the business profits in accordance with the decision of this Court in the case of Chinnapandi? 2.Whether on the facts and circumstances of the case the Tribunal was right in holding that the assessment order was not erroneous as it had been rendered following a judicial pronouncement, even though it is clear that the assessing officer had not applied his mind as to the nature of the interest received to see if it is to be taxed as income from business or income from other sources? 4.Earlier for the assessment year 1998-99, the assessment was completed on 29.3.2001. Later, the said assessment was revised under Section 154 of the Income Tax Act, 1961. This order was appealed against and the effect to the said order was given on 04.08.2004. While passing the said revision order, it was noticed that the respondent had not considered certain amounts while determining profit under Section 15-JA of the Act. 5.Under these circumstance....
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....29,99,833 Less: Turnover of Trading goods 41675572 Less: Turnover of Trading goods 701,13,24,261 Revised Total Turnover Adjusted Export Turnover: 1352147543 Adjusted Profit of Business Business Profit computed 49,79,55,825 Less: 90% of the following: 1. Rent received 2. Interest received 3. Agency commission recd 90% of Rs. 4,91,69,545 6,26,449 3,36,97,516 38,14,072 -------------- 3,81,38,037 3,43,24,233 Profit of the Business 46,36,31,592 Less: Profit from Traded goods 77,33,896 Adjusted Profit of Business 45,58,97,696 Export Turnover of Traded Goods 41675572 Direct cost of Traded Goods 27516450 Indirect cost of Traded Goods:- Total Indirect Cost x ETO of Traded Goods ---------------------------------------------------- Total Turnover i.e. 1086790398 x 41675572 / 705,29,99,833 = 64,21,751 64,21,751 I Profit on Traded Goods: Export Turnover of Traded Goods 41675572 Less: Direct Cost I....
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....n of the impugned order of the tribunal reads as under:- We have considered the rival submissions carefully in the light of the material on record. We find that decisions are available on both sides to the effect that interest income should be assessed as income from other sources or business income. Depending upon these decisions, again there are lot of decisions available on both sides where deduction under sec . 80HHC should be available in respect of interest income or not. Netting of interest is also permissible as per the decision of the Special Bench of the Tribunal in the case of Lalsons Enterprises (supra). However, on the date when the Assessment Order was finalised the decision of the Hon'ble Jurisdictional High Court in the case of V. Chinnapandi (supra) was clearly available wherein it was held that 90 % of the interest income has to be excluded from business income in view of clause (baa) of Explanation to sec. 80HHC for the purpose of deduction under sec.80HHC. Later on the Hon'ble High Court has held in the case of Dollar Apparals (supra) that 100% of the interest income has to be reduced for the purpose of deduction under sec.80HHC. However, we find t....
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....s of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." In view of the above we are of the view that the Assessment Order cannot be called erroneous and prejudicial to the interest of the Revenue. Therefore, we quash the revisionary order passed by the CIT and restore that of the Assessing Officer. 16.Heard learned counsel Mr Swaminathan, Senior Standing Counsel for Income Tax for the appellant revenue and Mr. Surya Narayanan for M/s. King and Patridge for the respondent assessee. 17.The learned counsel for the appellant submits that the interest was to be treated as income from other sou....
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.... 18 to 28 the Court further held as under:- 18. This batch of civil appeals pertains to Assessment Year 1993-1994, therefore, we have quoted the said section as it stood on the material date. 19.Section 80-HHC of the IT Act was not a charging section. It was an incentive provision. Its object was not to ascertain real income. Section 80-HHC(3) provided for the following formula: Profits of the business X Export turnover -------------------- Total turnover 20. Section 80-HHC had a head note. That head note said "deduction in respect of profits retained for export business". The said head note was inserted by the Finance Act, 1985 w.e.f. 1-4-1986. Under the original section as inserted by the Finance Act, 1983, the head note stated "deduction in respect of export turnover". Therefore, the very basis shifted from "export turnover" to "retention of profits for export business". 21. Under Section 80-HHC(1) of the IT Act it was inter alia provided that in computing the "total income" a deduction of the profits derived by the assessee from the export of goods shall be made. That, that the words "profits derived from exports" in the said sub-section was substituted for the wo....
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....to accept the contention of the assessees. The above discussion indicates that the formula in Section 80-HHC(3) of the IT Act provided for a fraction of export turnover divided by total turnover to be applied to business profits calculated after deducting 90% of the sums mentioned in Clause (baa) of the said Explanation. That, profit incentives and items like rent, commission, brokerage, charges, etc. though formed part of gross total income had to be excluded as they were "independent incomes" which had no element of export turnover. That, the said items distorted the figure of export profits. 24. One point still remains for consideration. On behalf of the assessees it has been vehemently urged that the abovementioned processing charges, earned by the assessees by processing raw cashew nuts for third parties, had no nexus with the export business and, therefore, such charges were not includible in the total turnover. It was also further argued that export incentives were admissible only in respect of profits on export sales. In this connection, it was submitted that the assessees earned processing charges from an activity which had no connection with exports. According to the ....
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....eceipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the IT Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the Government, shall not be included in the total turnover in the above formula (see CIT v. Lakshmi Machine Works [(2007) 11 SCC 126 : (2007) 6 Scale 168] ). 27. In the present case, the processing charges were included in the gross total income from cashew business. That, even according to the assessee the said charges constituted an important component of gross total income from cashew business. This is not disputed. Therefore, in terms of Clause (baa), 90% of the "independent income" had to be deducted from gross total income to arrive at business profits to which the fraction had to be applied. Since, the processing charges constituted independent income similar to rent, commission, etc., which formed part of ....
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....ection S6, ir only such interest income is not chargeable to income tax under the head "Profits and gains of business or Profession". Thus, Interest Income earned in the ordinary course of business is excluded from Section 56 of the Act. An interest income earned by the Assessee or received by the Assessee during the year in question, in the ordinary and regular course of business is an integral part of business income itself. Like hundreds of business decisions taken by the Assessee in its business, the deposit of money with the bank either under compulsion like maintaining the margin money with the Bank or for opening of foreign letter of credit or for obtaining the loan itself or cash credit facility or the voluntary deposits made by it of the surplus funds, which would otherwise be lying idle, the Assessee, in its own business or commercial prudence, makes a deposit in Bank and incidentally earns an interest through it or interest from staff loans or custorners on the belated payments and such interest income is nothing but its regular business income. 24. Section 56 of the Act, providing for "Income from Other Sources". cannot be applied at all to such interest income. The i....