TaxTMI 
TaxTMI 
2020 (1) TMI 870
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.... amount of Rs. 10,67,350/- which was credited by the Appellant under the head "Reassortment Charges". The Appellant also received an amount of Rs. 1,48,909/- as "Labour Commission Charges" since the Appellant had given a work of cutting and polishing diamonds on sub-contracts. 2. The Appellant filed the return of income on 7 October 1991 declaring income of Rs. 1,57,660/- after claiming deduction of Rs. 30,43,279/- under Section 80 HHC of the Income Tax Act, 1961. The Assessing Officer by order dated 28 August 1992 excluded the amount of Reassortment Charges and Labour Commission Charges. Having restricted the deduction under Section 80 HHC to Rs. 19,96,710/-, the Assessing Officer passed the order on 28 August 1992. 3. The Appellant ....
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.... Year in question is of importance. The Assessment Year is 1991-92. The Section 80 HHC 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. v. Commissioner of Income-Tax 245 ITR 849, an issue arose before this Court whether the service charges constitute business income for the purposes of computing export profits under Section 80HHC. While deciding the question, the Court 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 section 80HHC(3), as it stood before April 1, 1992, profits derived from exp....
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....ds "total turnover" shall not include freight or insurance. On the other hand, vide clause (b) to the Explanation to section 80HHC, the Legislature has defined the words "export turnover" to mean the sale proceeds, but not freight or insurance. The combined meaning of clauses (b) and (ba) to the Explanation shows 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 ....
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....ved from the industrial undertaking". In that matter, on the facts, the Supreme Court held that since the export entitlements were made available under the Scheme of the Government the nexus between the profits and the industrial undertaking was only incidental and not direct. Accordingly, the Supreme Court allowed 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 jud....