HIGH COURT OF DELHI
Commissioner of Income-tax
versus
Anil Chanana
IT Reference No. 4 of 1997
AUGUST 6, 2012
JUDGMENT
R.V. Easwar, J.
This is a reference made at the instance of the Commissioner of Income Tax, Delhi-VII under Section 256(1) of the Income Tax Act (hereinafter referred to as “the Act”). The following questions of law were referred to us for opinion :
“1. Whether, on the facts and in the circumstances of the case, the I.T.A.T was right in law in holding that section 80-HHC(3)(b) would be applicable even where assessee’s local business consists of dealing in goods different from the ones exported.
2. Whether the ITAT was right in law in holding that section 80 AB is not relevant for the purpose of computing deduction u/s 80-HHC.
3. Whether the ITAT was right in law in holding that interest earned by assessee was in the nature of business income.
4. Whether the ITAT was right in law in holding domestic business need not have any nexus with the export business for the purpose of deduction u/s 80-HHC.
5. Whether ITAT was right in law in holding that for deduction u/s 80-HHC, the domestic business need not have any turnover and it need have only profit.”
2. The brief facts giving rise to the reference may be noticed. The assessee is an individual engaged in the export business. In the return of income filed for the assessment year 1991-92, he claimed deduction of Rs. 33,63,149/- under Section 80HHC of the Act. While completing the assessment under Section 143(3), the Assessing Officer noticed that the assessee had claimed deduction under the aforesaid Section even in respect of rent and interest. These items of receipt were also treated as part of the turnover. He was of the opinion that deduction under Section 80HHC could only be allowed to the extent of the profits from the export business as envisaged by Section 80AB of the Act and accordingly, proposed to exclude the rent and interest receipts from the computation of the deduction. The assessee however, submitted that the proposal of the Assessing Officer would be contrary to the scheme of the deduction envisaged by Section 80HHC. According to him the formula to be applied for determining the export profits was the one prescribed in sub-section (3) of Section 80HHC, which was as under :
Export Profits = Profits of Business x (Export Turnover ÷ Total Turnover)
It was the contention of the assessee that he was carrying on the business of money lending and the interest from this activity would amount to “profits of the business” and since sub-section (3) of Section 80HHC prescribed a formula which was mandatory, those profits cannot be excluded while applying the formula. The Assessing Officer did not accept the assessee’s contention and re-worked the deduction at Rs. 15,97,672/- in the following manner :
