TaxTMI 
TaxTMI 
2026 (10) TMI 408
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....business income on the grounds that the assessee is entitled to receive the aforesaid sum on the loss of agency under the agreement. The Assessee being distributor of Proctor and Gamble Hygiene Health care (PGHH) and Proctor and Gamble Home Products (PGHP) (engaged in the business of purchase and sale of their products on principal to principal basis) and not being their agent, the compensation received on termination of distribution agreement ought not to have been considered as income chargeable to tax u/s 28(ii) and addition made ought to be deleted. Without prejudice to the above, Learned CIT(A) has erred in holding that the sum of Rs. 5,00,00,000/- is chargeable to tax business income. In the event, it is held that the sum received on termination of the distributorship agreement is taxable, only a sum of Rs. 4,56,00,000/-, being the amount settled between the assessee and PHGG and PGHP and received by the Assessee on account of termination of the above agreement ought to be taxed. On the facts and in the circumstances of the case, the excess addition made ought to be deleted. Without further prejudice to the above, Learned CIT(A) has erred in not acc....
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....Status for the purposes of clause 13(ii) of this agreement." "PGHH and/or PGHP agree to sell and MARICO agrees to buy and distribute the products through MDN on a Principal to Principal basis on the terms and conditions listed in the agreement." 5.2 It was provided therein that the ownership of the product would be transferred from PGI and/or PGH to the assessee at the point when the goods were received by the Clearing and Forwarding agents of the assessee who shall be free to sell the products at a price lesser than the Maximum Retail Price (MRP).Pursuant to the above agreement, the assessee started purchasing the products of P & G and sold them to various distributors. As a result of the distributorship, the assessee had been able to earn substantial income over a period of time. Thus, the distributorship of P & G constituted a capital asset in the hands of the assessee. Consequent to the termination of the distributorship, the capital asset i.e. right to earn income by distributing the products of P & G got extinguished and the assessee received consideration for such extinguishment. Termination of the distributorship agreement constitutes a transfer as defined under....
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....from the principal and the sale thereof are not reflected in the books of the agent. The agent is only entitled to commission on the sales affected by him on behalf of the principal. Even if the agent receives any payment from the customers, it is on behalf of the Principal. d. The assessee has reflected the transaction with PGHH and PGHP as purchases in its books. The sale of the products purchased from these parties is reflected as sales in the books of the assessee. As already mentioned above the assessee was free to determine the price at which it eventually sold the product. Only the maximum price at which the product could be sold was determined by PGHH and PGHP. 5.5 It was submitted that all the above factors led to the conclusion that the arrangement between assessee and P&G was of distributorship of the goods on principal to principal basis. The assessee performed various functions which were the normal functions any distributors would do to promote the sales of the products for which they were appointed as distributor. Further, these were the commercial issues agreed between two independent parties. Sample details of transactions of sale of products of P & G b....
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....on of the income but commercial negotiations between the independent parties. The additional sum of Rs. 44 lakh not having accrued to the assessee, either by way of business income or as capital gains would not to be added to the income of the assessee. 6. The ld.CIT(A) taking into account the submissions of the assessee as also the findings of the AO observed that he had clearly brought out factors in establishing that the relationship between the assessee and PGHH and PGHP was, for all practical purposes, that of an 'agency' and not a principal to principal relationship. If the relationship was purely buying and selling, then the assessee would not be entitled to 'Margins' on the sales and there would be no restrictive covenants on the rates at which the products could be sold by it. The relationship between them, certainly had an element of agency referred to in Section 28(ii)(c) in as much as the assessee was also getting reimbursement of many statutory levies which were levied on products after delivery. Such levies included local /central sales tax, octroi, turnover tax and entry taxes etc. It was further noted that right to terminate the agreement without assignin....
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....e not applicable. Reliance was placed on the decisions in the cases of T.I.M. Sales and Seshayee Bros. (supra). 7.1 In so far as the quantum of compensation is concerned, it was submitted that as per the Termination letter, the amount stated was Rs 4.56 cr. as mutually agreed on negotiation between the two parties 8. The ld.DR on the other hand, relied on the orders of authorities below claiming that the nature of receipt was liquidated damages. There was element of agency involved and therefore, section 28(ii)(C) of the Act squarely applied to the instant case. It was further stated that there was no liability to fix price. It was further pleaded that all the clauses needed to be considered and not in isolation to ascertain the exact nature of the receipt. In the rejoinder, the ld.AR contended that even the loss would be of the assessee. Besides, the assessee had freedom to fix up prices. 9. We have carefully considered all the relevant facts of the heard rival arguments and perused the records. We have also gone through the various terms and condition of the agreement entered into by the assessee with the above named parties. It is evident from the above facts that the m....
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.... hold that the proceeds received by the assessee company from RDG on account of termination of agency and distribution of products in India falls under the provisions of section 28(ii)(c) read with section 28(va)(a) of the Income Tax Act, 1961 (for short 'the Act'). Explanation filed by the assessee to the show cause notice issued by the AO is summarized by the AO in para 6.5 of the order as under: "(i) The right lost by the assessee company vide agreement dated 20.10.2004 is a capital asset covered under the head 'Capital Gains' u/s 45(1) of the IT. Act (ii) The rights under the distribution and marketing agreement was an asset of enduring value and by its cancellation, the trading structure of the assessee is impaired and the assessee has lost its right to carry on a business. (iii) The assessee was not an agent of RGD and was carrying the distribution activity on its own behalf. (iv) The assessee has lost a source of income/income earning apparatus which is a capital asset and taxable under the head capital gains u/s 55(2) of the I.T. Act." 5. Declining the contentions raised by the assessee the AO proceeded to hold th....
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....the issue in question inter-alia that the assessee, earlier known as Nicholas Piramal India Ltd. (NPIL) had entered into an Agreement for Distribution, Manufacturing and Agency (ADMA 1997) with one Boehringer Mannheim Gmbh (BM Germany) in 1997; that by virtue of the agreement (supra) the assessee acquired right to carry on above business, earlier carried out by BM Germany and its subsidiaries namely BM India Ltd. (BMIL) and BML Laboratories Ltd. (BMK); that by virtue of agreement (supra) the assessee stepped into the shoes of BMIL and acquired its entire business by way of amalgamation of BMIL into NPIL as per article 2.1 of the (ADMA 1997); that in 2004 RDG had acquired BM group all over the world and in the same year RDG unilaterally terminated certain obligations under 1997 agreement, which was challenged by the assessee in UK court as per jurisdiction given by the agreement (supra); that thereafter assessee and RDG entered into agreement out of court settlement by entering into a settlement agreement available on record; that as per settlement agreement the assessee and RDG mutually agreed to terminate the (ADMA 1997) withdrawal of cases in court, thus agreement (supra) stood t....
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....the Ld. A.R. for the assessee that rights under the agreement are capital assets and relied upon the decision rendered by Hon'ble Bombay High Court in case of CIT vs. Tata Services Ltd. (1979) (1 Taxman 427) 14. However, on the other hand, the Ld. D.R. for the Revenue by relying upon the order passed by the AO as well as the Ld. CIT(A) stated that the assessee company has received the sum in question from RDG of Germany under a settlement agreement towards termination of agency and as such section 28(ii)(c) has been rightly invoked and further contended that the compensation has been paid to the assessee to compensate it for leaving all the prospective future profits from the agency business of products of RDG. In order to decide the issue as to whether the compensation received by the assessee is for termination of agency, we need to advert to the relevant recitals of Agreement for Distribution, Manufacturing and Agency (ADMA), 1997 and settlement agreement as under: (i) that the title of the ADMA, 1997 entered into between BM Company and assessee, which is a basic document reads as "agreement between BM Germany and Nicholas Piramal India Ltd. (assessee)" for....
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....to the delivery of products are agreed upon by stating therein that BM shall affect delivery of products ordered by NPIL in accordance with agreed upon ordering procedures as quickly as reasonably possible. 17. In the backdrop of the aforesaid terms and conditions the first question arises to be determined by the Bench is: "As to whether compensation received by the assessee from RDG on account of termination of agency and distribution of products of RDG in India and provisions contained under section 28(ii)(c) read with section 28(va) & (a) of the Act are attracted?" 18. The Ld. A.R. for the assessee challenging the findings returned by the AO contended that the compensation received by the assessee is not merely for termination of agency in order to invoke section 28(ii)(c) of the Act because the termination is not just termination of agency rights but also termination of distribution and manufacturing rights. 19. We have perused the impugned order passed by the Ld. CIT(A). In the light of the relevant clauses of Agency, Distribution and Manufacturing, Licence Agreement (ADMLA) between BM and NPIL particularly clause no.3.1, 3.2.1, 3.2.2, 3.2.2....
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....ious bulk products viz. Fine Chemicals, Biocatalyst, Bulk Diagnostics. 25. So in view of the matter, we are of the considered view that when the assessee company by virtue of the agreement (supra) got non transferable, non assignable license to manufacture, market, distribute and sell products otherwise owned by the BM for a satisfied commission as agent of the assessee in the face of the fact that the entire intellectual property qua distribution and manufacturing of the product will remain with BM and the assessee shall not be entitled for any such ownership or title to the same. 26. Furthermore, the Ld. CIT(A) has also referred to the joint press release by the assessee and RDG Germany as per schedule of the agreement dated 20.10.2004 wherein it is mutually agreed to discontinue the agreement vide which the assessee was exclusively distributing diagnostics and Patient Care products of RDG. The assessee has agreed to cease to act as RDG's distributor w.e.f. 1st January 2005 when Roche Diagnostics takeover the distribution. 27. The Ld. D.R. for the Revenue contended that the assessee being the second largest pharmaceutical sales in India and is ranke....
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....urt in case of Indo Foreign Traders (P) Ltd. vs. CIT (1987) 166 ITR 308 (Mad.) and Chemplant Engineers (P) Ltd. vs. CIT (234 ITR23). 32. Hon'ble Supreme Court in case of Kettlewell Bullen and Co. Ltd. (supra) held that where payment is made to compensate a person from cancellation of contract, as in the instant case qua agency distribution agreement dated 03.06.1997 terminated vide settlement agreement dated 20.10.2004 and such cancellation has left the assessee free to carry on his trade the receipt is revenue receipt. 33. Similarly, Hon'ble Supreme Court in case of CIT vs. Chari and Chari Ltd. (supra) has also held that when the termination of an agency did not impair the profit-making structure of the assessee, but was within the framework of the business, the receipt for termination of agency would be a revenue receipt. Hon'ble Madras High Court in case of Indo Foreign Traders (P) Ltd. vs. CIT (supra) held that when an assessee was appointed as a sales organizer of a drug company on commission basis and on termination of the said agreement compensation for termination of the agreement was income assessable to tax under section 10(va) of the Income ....
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....ion of agreement is a capital receipt. When it is nowhere case of the assessee that it has lost its livelihood on account of termination of the business agreement compensation received by it by virtue of the termination agreement is business income. 38. So in view of what has been discussed above, we are of the considered view that answer to questions framed in para 11 & 17 of the order is "compensation received by the assessee from RDG to the tune of Rs. 92,76,62,688/- in out of court settlement is a business income and not an income assessed to capital gains as claimed by the assessee" and as such provisions contained under section 28(ii)(c) read with section 28(va)(a) of the Act are attracted. Hence, the Ld. CIT(A) has rightly confirmed the addition of Rs. 92,76,62,688/- as business income. Consequently ground No.1 is determined against the assessee." 9.2 In the instant case, the ld.AR has failed to rebut the findings and the observation of the lower authorities as already discussed in the preceding paras. The Clauses of the agreement providing for margin, control over pricing, payment of statutory taxes, lack of freedom for termination of the agreement etc. indicate....
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....rminative of the actual nature of the business arrangement. Moreover, there being no loss to any capital structure of the assessee in the instant case, the question of amount being capital in nature does not inspire any confidence. The ld.AR has relied on the case of Spectra Shares and Scrip Ltd(2025) 180 taxmann.com182(Tel) w.r.t. applicability of section 28(ii)(c) of the Act does not apply to the facts of the case as in that case, the assesee sold the entire business as going concern on lump sum basis. Other case laws relied upon are distinguishable as they pertain to cases of Distributorship which in the present case is not established by the assessee. 9.5 Considering the above stated discussion, we hold that the lower authorities were justified in treating the impugned sum as business receipt in terms of section 28 of the Act. Therefore, we find no infirmity in the appellate order which is affirmed. 9.6 However, in so far as the quantum of the addition is concerned, the assessee has claimed that though the terms of agreement provided for compensation of Rs 5 cr. the actual amount paid was Rs 4.56 cr. which was the final outcome of mutual discussion between the two parties....
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.... sale, marketing the products or deal with the products under the Trademark or any other intellectual property right which is deceptively same or similar either visually or phonetically to the trademarks in the territory for a period of 20 years. Both the transactions of acquisition of the trademark, termination of registered user agreement and undertaking of non compete covenant were part of the same composite transaction. 11.2 The assessee had paid Rs. 26 lakhs for acquisition of the trademark to Plastochem and Rs. 1.56 cr. to Sonic towards non-compete fees and capitalised the same as intangible asset in the books. The Assessing officer allowed depreciation on the cost of acquisition of the trademark but disallowed the depreciation of Rs. 19,45,781/- on the non compete fees paid to Sonic by observing that the said sum of Rs. 1.56 cr. was towards non compete fees and from depreciation of the tangible assets given in section 32(1)(ii) as said fees did not qualify for depreciation. 11.3 In this connection, it was submitted acquisition of the trademark to the owner and payment of non compete fees to the registered user is part of the same composite transaction. The acquisition ....
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....and 2005-06 in ITA No/3533/3152 and 7044/Mum/2008 dated 11.04.2025 with following observations and findings: "Depreciation on Non-compete Fees 10. The assessee has acquired Trademark 'Meal Maker' from Plastomech during the Financial Year relevant to AY 2003-04. Along with the purchase of Trademark the assessee has entered into a non-compete agreement with M/s Sonic Biochem Extractions Pvt. Ltd. (Sonic Biochem) for a period of 20 years since the Trade Mark was earlier assigned by Plastomech to Sonic Biochem. The assessee in this regard made a payment of Rs. 1,55,66,250/- to Sonic Biochem towards non-compete fee. The assessee in the books of accounts capitalized the said amount as intangible asset and claimed deprecation on the same @ 25%. The AO while completing the assessment for AY 2003-04 held that the amount paid towards non-compete fees cannot be treated as intangible asset and therefore depreciation cannot be allowed under section 32(1)(ii) of the Act. However, the AO allowed 5% of the expenses to be claimed as a deduction considering the fact that the agreement is entered for a period of 20 years. For the year under consideration the AO followed its ....
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.... The AO disallowed the depreciation in AY 2003-04 for the reason that non-compete fee does not fall within the meaning of intangible asset as given in section 32(1)(ii) of the Act and that the assessee cannot claim depreciation on the same. The AO however allowed 5% of the amount capitalized as a deduction. Therefore, the issue for our consideration is whether the non-compete fee will fall within the definition of intangible asset qualified for depreciation under section 32 of the Act. In this regard we notice that the Hon'ble Bombay High Court in the case of Piramal Glass Ltd. (supra) has considered a similar question of law where it has been held that, "3. Question No. (a) noted above pertains to the decision of the Tribunal to grant depreciation on the Assessee's payment of non-compete fees. According to the Revenue, this being an intangible asset, no depreciation under Section 32 of the Income Tax Act, 1961 ('the Act' for short) was available. 4. We however notice that similar issue has been considered by the different High Courts and held in favour of the Assessee. A reference can be made to the decision of the Division Bench of the Gujarat Hi....
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....e not of the same kind and are clearly distinct from one another. The legislature thus did not intend to provide for depreciation only in respect of the specified intangible assets but also to other categories of intangible assets which may not be possible to exhaustively enumerate. It was concluded that the assessee who had acquired commercial rights to sell products under the trade name and through the network created by the seller for sale in India were entitled to deprecation. In the present case, Mr.Patel was erstwhile partner of the assessee. The assessee had made payments to him to ward off competence and to protect its existing business. Mr.Patel, in turn, had agreed not to solicit contract or seek business from or to a person whose business relationship is with the assessee. Mr. Patel would not solicit directly or indirectly any employee of the assessee. He would not disclose any confidential information which would include the past and current plan, operation of the existing business, trade secretes lists etc. M/s Marico Ltd It can thus be seen that the rights acquired by the assessee under the said agreement not only give enduring benefit, protected the assessee....
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....he earlier years similar disallowances made out of the said expenses was deleted by the CIT(A) in appeal for A.Y. 1999-00, Α.Υ. 2000-01 and A.Y. 2001-02. However in AY 2002-03 the CIT(A) had restricted the disallowance to 10% of the expenses. 20. The ld.CIT(A) observed that the assessee conceded that the facts were similar to those in A.Y.2002-03. It was also admitted by the A.R during the course of appellate proceedings that except giving broad categorical of expenses, no sub details were filed by the asssessee and no vouchers for test checking were produced before the A.O in respect of this heed of expenses. Following, the decision of his predecessor CIT(A) and after considering the facts mentioned by the AR of the appellant, he directed the AO to disallow the expenses 1/10th instead of 1/5th as has been made by him. 21. Before us, the ld.AR has contended that reiterated the contentions as made before the ld.CIT(A). The ld.DR on the other hand, relied on the orders of lower authorities. 22. On careful consideration of the above facts and also the findings of the ld.CIT(A) that the assessee conceded that the facts were similar to those in A.Y.2002-03. It was....
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....e case which is therefore upheld dismissing the ground of appeal. 27. Ground no.5 reads as under: "Learned CIT (A) has erred in confirming the action of the Assessing Officer that corporate office expenses and depreciation on assets installed at corporate office ought to be allocated on the basis of the turnover of the respective units to the total turnover while working out the profits of the Goa and Kanjikode undertaking for claiming deduction u/s. 80IB. On the facts and in the circumstances of the case, he ought to have held that the aforesaid expenses are not to be allocated while working out the profits of Goa and Kanjikode undertakings for the purpose of deduction u/s. 80IB of the Act. Without prejudice to the above, Learned CIT (A) has erred in not accepting the alternative contention of the Appellant that the corporate office expenses and depreciation on assets installed at the corporate office, if allocable, ought to be allocated on an incremental basis. The Learned CIT(A) ought to have allocated the corporate office expenses and depreciation on assets installed at the corporate office on the basis of the ratio laid down by the Income tax Appe....
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....rate expenses and depreciation relating to the assets installed at the corporate office, as discussed earlier these costs are not directly relating to the operation of eligible units. As per the provisions of section 80IA, income has to be derived from the eligible unit, that means the income has to be determined on the basis of revenue generated by the eligible unit and expenses incurred in the specific eligible unit and no other outside cost to be included unless there is direct nexus to it. In the given case, the assessee has already submitted stand alone revised profit and loss account to demonstrate that the eligible unit has already absorbed all the relevant expenses like manufacturing, marketing and relevant finance cost. The AO tries to allocate the general corporate expenses which has no direct nexus to the operation of the eligible units. Therefore, we direct the Assessing Officer to delete the allocation of corporate office expenses and depreciation. Accordingly, the ground raised by the assessee is allowed." 31. Respectfully following the above decision of the Co-ordinate Bench, we direct the AO to delete the allocation made towards corporate office expenses and head....
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....ion of interest on dealership deposits of 13,34,886/- and other interest of Rs. 16,12,450/- to the Goa and Kanjikode undertakings in the ratio of the turnover of the respective units. The AO allocated these amounts while computing deduction u/s 80IB of the Act stating that the dealers were handling the products manufactured by the Goa and Kanjikode Undertakings. The ld.CIT(A) observed that the issue was recurrent in nature and had been considered and adjudicated by the predecessor CIT(A) in appeals for in A.Y.99-00, 2000-01, 2001-02 and 2002-03 against the assessee and the order passed by the AO was confirmed. Accordingly, he upheld the action of the AO and ground of appeal was therefore, dismissed. 33.2 Similarly, the next sub-ground(b) is against the allocation of Research & Development Expenses of Rs. 96,36,940/-. The AO had allocated these amounts while computing deduction u/s 80IB stating that the benefit of R&D goes to all units of the assessee including the Goa and Kanjikode. Before the ld.CIT(A),it was contended by the assessee that it had not allocated any expense on the ground that research was primarily for new products, which were not manufactured in the New Undertak....
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.... the ITAT in its appeal for AY 2004-05 and 2005-06 in ITA No/3533/3152 and 7044/Mum/2008 dated 11.04.2025 stated as below: "Allocation of finance cost to undertakings eligible for deduction under section 80IB 18. During the year under consideration the assessee has incurred total finance charges of Rs. 2,29,74,317/- out of which an amount of Rs. 1,89,64,156/- is allocated to the undertakings in Dehradun, Goa, Pondicherry and Daman. The AO noticed that the balance amount of Rs. 40,10,151/- is not allocated and in this regard called on the assessee to provide reasons as to why the same should not be allocated in proportion to their turnover. The assessee submitted that out of the unallocated amount of Rs. 4,71,995/- pertains to interest paid on dealership deposits and that the dealership deposits are not utilized by these undertakings and therefore the interest M/s Marico Ltd paid thereon is not claimed as a deduction. The assessee further submitted that the undertakings eligible for 80IB are having cash surplus and therefore no finance cost is attributable to these undertakings. The AO did not accept the submissions of the assessee and proceeded to allocate the bal....
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.... decided to respectfully follow the order of the ITAT of the earlier year in principle in this year also. But, the Ld. AO is directed to verify these units are generating surplus in this year also and if so, the order of Hon'ble ITAT of earlier year had to be followed by him. Accordingly, Ld. AO may take a decision based on facts." 20. Respectfully following the above decision of the Co-ordinate Bench, we direct the AO to examine the claim that these units are generation cash surplus and delete the allocation of finance cost accordingly." Allocation of Research & Development Expenses (R&D) to eligible for deduction under section 80IB 21. The AO during the course of hearing noticed that the assessee has incurred R & D Expenses to the tune of Rs. 68,74,015/- and that the said expenses have not allocated to eligible undertakings. The assessee submitted that no part of the R&D Expenses are related to the products manufactured in the eligible units and that the expenses entirely relates to new products. The assessee accordingly submitted that the R&D Expenses do not pertain to the eligible undertakings and therefore not allocated to them. However, the AO d....
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.... Allocation of Foreign Travelling Expenses 24. The AO during the course of hearing allocated the Foreign Travel Expenses to the tune of Rs. 12,57,998/- to the Goa Unit for the reason that the Goa Unit has made exports for an amount of Rs. 7,30,53,572/-. The ld. AR in this regard submitted that a similar addition was made by the AO during the AY 1999-2000 and M/s Marico Ltd that the CIT(A) has deleted the said addition. The ld AR drew our attention to the relevant observations of CIT(A) in the appellate order for AY 1999-2000 which is extracted below - "In my considered opinion, the assessing officer is not justified in ignoring the allocation of expenses under the above stated heads on actual basis as incurred by the two eligible units. As the appellant company is maintaining accounts for each and every item of expense separately for all its businesses and service divisions, allocation made on the basis of actuals cannot be rejected without pointing out any manipulation and defect in the accounts of the two eligible undertakings. So far as the expenses of Health Care Division are concerned, in my opinion, there is no need to allocate the same to the two elig....
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....ation of Rs. 12,57,998/-. In our considered view making allocation of foreign expenses merely for the reason that eligible unit has made exports cannot be accepted more so when the foreign travel expenses actually incurred by the undertaking is already allocated to the eligible unit. The AO other than taking the proportion of export turnover of the undertaking to the total export turnover of the assessee did not bring any other factual finding with regard to the allocation. In view of this discussion, we are of the view that the additional allocation of foreign travel expenses made by the AO cannot be sustained and we direct the AO to delete the same." 34.1 We find all the above grounds have been dealt with the ITAT in the above stated order either by deleting the disallowance or setting aside the issues to the AO. Since the basis issue and the facts remain the same, respectfully we direct the AO examine the issue in the light of the said ITAT order making necessary compliance, thus allowing the grounds for statistical purposes. 35. In the sub-ground(c)has agitated confirming the action of the AO in allocating Head office expenses at Rs. 805.68 lakhs in the ratio of total sal....
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.... export sales for the purposes of Section 80IB of the Act. 36. We find that the issue needs revisit by the assessee as the facts of the case are not very clear as it requires factual verification of the contentions of the assessee. Accordingly, we remit the issue for necessary verification by the AO. The AO would provide necessary details in this regard before him for arriving at correct conclusion. The ground is therefore, allowed for statistical purposes. 37. The next sub-ground(d)confirming the action of AO in allocating was against the allocation of Sales promotion expenses of Rs. 162.77 lakhs to the Goa Undertaking. The ld. CIT (A) ought to have directed that no additional amount of export expenses ought to be allocated to the Goa Undertaking. 37.1 The AO observed that assessee had incurred advertisement and sales promotion expenses of Rs. 1266.07 lakh in respect to parachute coconut oil which had been allocated by the assessee and Rs. 706.54 lakh in respect of export which had not been allocated. The total export turnover of the assessee was Rs. 24,28,78,473/- out of which Parachute coconut oil exported from Goa unit was Rs. 11,68,06,308/- which was 48.09% of the tot....
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....ess, and not being in the nature of brokerage, commission, interest or other receipts as specified in explanation (baa) to section 80HHC, ought not to have been reduced from the profits of the business while computing deduction under section 80HHC of the Act. b) Rs. 5 cr. received on termination of the distribution agreement. 90% of the aforesaid said sum of Rs. 5,00,00,000 ought not to have been reduced from the profit of the business. 42.1 This ground has been modified by the assessee during the instant proceedings as under: "7.a) Learned CIT(A) has erred in confirming the action of AO in reducing 90% of the Misc. Income of Rs. 6,08,539/- from the profit of the business for the purpose of computing deduction u/s. 80HHC on the ground that aforesaid income is not derived from the export business of the assessee. b) Without prejudice to additional ground and in the event said additional ground is decided against the appellant, the learned CIT(A) has erred in reducing 90% of the discount on deferred sales tax liability of Rs. 3,16,61,102/- from the profit of the business for the purpose of computing deduction u/s. 80HHC on the ground that the af....
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....tax liability was received in the ordinary course of the business and is part of the income from the business. The Assessing officer in his order assessed the said income under the head "Income from Business or Profession". On assessing the income under the head Income from Business and Profession" it should not be reduced from the profit of the business for the purpose of calculating the deduction u/s 80HHC, assessee relies on the decision of Alfa Laval India Ltd Vs. DCIT (2003) 186 CTR 390 (Bom).In view of above, the Assessing Officer may be directed to include 90% of discount on deferred sales tax liability in the profit of the business while computing deduction u/s 80HHC of the Act. 45.1 With regard to the amount received on termination of distribution agreement, it was submitted as follows: "We may also mention that aforesaid receipt is not in the nature of brokerage, commission, interest or other receipts as specified in explanation (baa) to Section 80HHC. The expression "other receipts" follows the words brokerage, commission, etc. which means that only those receipts which are akin to brokerage, commission, etc are to be reduced under explanation (baa). ....
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....re dismissed. 47. Before us, the ld.AR has reiterated the same contentions as made before the lower authorities. 48. On careful consideration, we find that the issue is no more res integra in view of the law settled n by the hon'ble Apex in several of its decisions. In a recent landmark judgment, the hon'ble Supreme Court, in the case of Shah Originals v. Commissioner of Income-tax-24 dated 21-11-2023, provided crucial clarity on the interpretation of Section 80HHC concerning the deduction of profits for export-oriented units (EOUs).he Supreme Court highlighted two critical expressions in the section: (a) being engaged in the business of export, and (b) deduction to the extent of profits derived from the export of such goods/merchandise. The court emphasized the importance of the expression 'derived from' in interpreting Section 80HHC. It asserted that for a deduction to be claimed as profits of a business, the income or profit must be directly derived from the export of goods or merchandise. The section allows deductions only for profits directly linked to the export business of the assessee. The court underscored that the legislative intent behind Section 80HHC is to encour....
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....nd the exports of Goa unit was Rs. 8.14 cr. Thus, export turnover of Goa unit was 7% of the turnover of the Goa unit. The profits of the Goa unit was assessed at Rs. 4,70,31,126/-. 7% of such profits works out to Rs. 32,92,179/, which could only be reduced while applying provisions of section 80IA(9). 51.1 In this connection attention of the ld.CIT(A) was drawn to the case of Toshica Creation v. Income Tax Officer (96 TTJ page 651) in which it has been held that 80AB has an overriding effect over all other sections given in Chapter VI-A and deduction under Chapter VI-A should be given on the amount of income of that nature as computed in accordance with the provisions of this Act before making any deduction under Chapter VI-A. "Therefore, we set aside both the orders of the lower authorities and direct the AO to allow the deduction under s 80HHC at Rs. 20,92,136 on the income included in gross total income before making any deduction under Chapter VI-A, however, the total deduction under S. 80-IB and 80HHC should be restricted upto gross total income. In view of the above deduction u/s. 80HHC of the Act ought to be allowed on the gross profit without reducing the profit....
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.... profits derived from Goa and Kanjikode Units and independent of this deduction, the appellant company is entitled to deduction u/s. 80HHC also of the Act in respect of profits derived from export of goods outside India. The Ld. AR of the appellant company had argued that without any discussion in the assessment order, the Ld. AO has simply reduced profits eligible for deduction u/s. 80HHC of the Act. 8.1) The Ld. CIT(A) relied on the provisions of section 80IA(9A) of the Act to uphold the position taken by the Ld. AO. Aggrieved by this reduction of deduction claimed by the appellant company, Ld. AR of the appellant has placed reliance on the Judgment of Hon'ble Bombay High Court in the case of Associated Capsules (P) Ltd. Vs. DCIT 332 ITR 42. 8.2) During the course of hearing before the ITAT, Ld. AR of the appellant relied on this decision. Hon'ble Bombay High Court has held in this case that section 80IA(9A) of the Act will not have any application at the stage of computation and it will come into application only at the stage of allowing deduction. In other words, Hon'ble Bombay High Court has held that combined deduction u/s. 80IA & 80HHC cannot ex....
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....harashtra notified a scheme under which the appellant could prepay the entire liability on a discounted basis. Consequently, the appellant availed this scheme and prepaid sales tax liability of Rs. 4,94,05,478/- at the present value of Rs. 1,77,44,376/-.Accordingly, the pre-payment resulted in a one-time saving of Rs. 3,16,61,102/-, which was credited by the assessee to its profit and loss account. While computing its business income, it did not make any adjustment for the above amount. Further, during the course of assessment, the Assessing Officer also did not make any adjustments in respect of the above amount. Accordingly, the said amount stands assessed to tax as business income of the assessee. 56.2 It is submitted that as per the provisions of section 41 of the Act, where assessee has claimed a deduction for any loss, expenditure or trading liability and; i. in respect of such loss or expenditure, the assessee has obtained any amount or, ii. in respect of such trading liability, the assessee has received any benefit, by way of remission or cessation thereof, the amount obtained or the value of the benefit shall be taxable as business income of the ass....