Case Law Details
M/s. Ashok Leyland Ltd Vs DCIT (Madras High Court)
Issue- Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the appellant is not entitled to deduction under section 80HHC of the Income Tax Act, in respect of the interest, rent and miscellaneous income earned out of business operations?
Hon’ble High Court held in favour in favour of the Revenue and against the assessee in the light of the decision, in the case of Commissioner of Income Tax Vs. K. Ravindranathan Nair reported in (2007) 295 ITR 0228. The operative portion of the judgement reads as follows:-
“21. At the outset, we may state that, in the present case, we are dealing with the law as it stood during assessment year 1993-1994. At that time Section 80HHC(3) of the IT Act constitute a code by itself. Subsequent amendments have imposed restrictions/qualifications by which the said provision has ceased to be a code by itself. In the above formula three existed four variables, namely, business profits, export turnover, total turnover and 90 per cent of the sums referred to in cl. (baa) to the said Explanation. In the computation of deduction under section 80HHc all four variables had to be taken into account. All four variables were required to be given weightage. The substitution of Section 80HHC(3) secures profits derived from the exports of eligible goods. Therefore, if all the four variables are kept in mind, it becomes clear that every receipt is not income and every income would not necessarily include element of export turnover. This aspect needs to be kept in mind while interpreting cl. (baa) to the said Explanation. The said clause stated that 90 per cent of incentive profits or receipts by way of brokerage, commission, interest, rent charges or any other receipt of like nature included in business profits, had to be deducted from business profits computed in terms of sections 28 to 44D of the IT Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from business profits under cl. (baa). A bare reading of cl. (baa) (1) indicates that receipts by way of brokerage, commission, interest, rent, charges etc., formed part of gross total income being business profits. But, for the purposes of working out the formula and in order to avoid distortion of arriving export profits cl. (baa) stood inserted to say that although incentive profits and ‘independent incomes’ constituted part of gross total income, they had to be excluded from gross total income because such receipts 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 an on behalf of the Government, shall not be included in the total turnover in the above formula (see: CIT Vs. Lakshmi Machine Works (supra).
FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-
Please become a Premium member. If you are already a Premium member, login here to access the full content.
