TaxTMI 
TaxTMI 
2020 (1) TMI 732
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.... was credited by the Appellant under the head "Factory labour charges". The Appellant also received an amount of Rs. 73,078/- as "Labour charges commission" since the Appellant had given a work of cutting and polishing diamonds on sub-contracts. 2. The Appellant filed the return of income on 31 October, 1991 declaring income of Rs. 2,23,810/- after claiming deduction of Rs. 14,60,274/- under Section 80 HHC of the Income Tax Act, 1961. The Assessing Officer by order dated 18 March, 1993 excluded the amount of Factory Labour Charges and Labour Charges Commission totaling Rs. 23,01,514/-. Having restricted the deduction under Section 80 HHC to Rs. 11,18,588/-, the Assessing Officer passed the order on 18 March, 1993. 3. The Appellant fil....
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....e export business, therefore, while calculating deduction U/s 80 HHC, it was held that the assessee was not entitled for the said claim. The assessee has claimed the deduction U/s 80 HHC at Rs. 14,18,224/- against which the Assessing Officer has allowed the deduction at Rs. 11,18,580/-. 3. In first appeal, learned CIT(A) has referred a Board's circular No.564.571 and 621 and observed that as per section 80(II)C(3), the profit derived from export of goods or merchandise outside India is to be the amount which bears to the profits and gains of the business the same proportion as the export turnover bears to the total turnover of the business. Accordingly, she has held that the profit of a business have to be computed on the proportio....
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....haveri Consultancy v. Commissioner of Income-Tax 248 ITR 854. Thus that is the foundation of the order. The Assessment Year in question is of importance. The Assessment Year is 1991-92. The Section 80HHC of the Act was amended with effect from 1 April 1992 and explanation was brought in the same. In the case of K.K. Doshi and Co. (supra), an issue arose whether the service charges constitute business income for the purposes of computing export profits under Section 80HHC. While deciding the question, the Division Bench made the following observations :- " The object of section 80HHC is to ascertain the export profits. It may be mentioned that in this case we are concerned with the law prior to the assessment year 1992- 93. Under se....
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....ws that the business profits in the above formula shall not include receipts by way of brokerage, commission, interest, rent charges or any other receipt of a similar nature as they do not have any nexus with the sale proceeds from export activities. Therefore, the service charges cannot be considered as part of the business profits while working out deductions under section 80HHC. The judgment of the Supreme Court in the case of CIT v. Sterling Foods (1999) 237 ITR 579, dealt with the provisions of section 80HH. In that judgment, the Supreme Court was required to construe the expression "derived from" in section 80HH. In that manner, the assessee was engaged in processing prawns. It earned import entitlements from the Central Gove....
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....owed the appeal of the Department. This judgment helps the case of the Department in this matter. Section 80HHC(1) clearly states that in computing the total income of the assessee, there shall be a deduction of the profits derived by the assessee from the export of goods. In other words, there should be a direct nexus between the profits on the one hand and the export activity on the other hand. Applying the ratio of the judgment of the Supreme Court to the facts of our case, the profits earned by the assessee on account of service charges cannot be said to have a direct nexus with the export activities of the assessee. Hence, to that extent, the assessee was not entitled to claim deduction under section 80HHC. " Thus, the Divi....