TMI Blog2014 (7) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... of other manufactures. The question arose as to whether the charges levied for job work can be treated on par with the items mentioned in the clause. The answer was in the negative. If the amount has anything to do with the activity of manufacturing though not of export goods, deduction thereof cannot be made. Otherwise, the proportion of the profit earned through export to the total profit gets disturbed. Amounts that can be treated as falling in the category of brokerage, commission, interest, rent, charges occurring in the clause are only those items, which are unrelated to, and other than the amounts forming part of the total turnover of the business carried on by the assessee occurring in sub-section (3) of section 80HHC of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch activity, the applicant undertakes to process the raw-material supplied to it by the other manufacturing companies and hands over the end products to such companies, by levying, what are known as conversion charges . The Parliament provided for incentive to the exporters of various products. Section 80HHC of the Income-tax Act, 1961 (for short the Act ) was added through the Finance Act, 1985, in this behalf. It provides for deduction in respect of profits retained for export business . Sub-section (3) thereof is to the effect that the profits of a manufacturing company, referable to export of the merchandise or manufactured goods shall bear the same proportion, as does the export turnover, to the total turnover of the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C of the Act and the clause are only the amounts that are received by an assessee in an activity unrelated to the manufacture and that there was no justification in treating the conversion charges, as falling in that category. He submits that mere use of the word charges to describe the amount levied for conversion of the raw material supplied by a third party into product and handing over the same, would not bring it on par with the category of amounts mentioned under that provision. Learned senior counsel further submits that any amount, which is derived or earned through the process of manufacture, irrespective of the fact whether the end product is marketed by the assessee or was handed over to the customer, must be treated as part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Sections 80A to 80D of the Act were introduced through the Finance Act, 1965, providing for certain deductions from income. As and how the industrial and business activity has grown, categories of deductions have also increased. One just cannot state with precision, the total categories of deductions that are permissible under Chapter VI-A. The Chapter undergoes phenomenal change in every financial year. Section 80HHC of the Act itself runs into six closely printed pages and it reflects almost a comprehensive code in the context of deduction in respect of profits retained for export business . One of the reasons for the bulk of the section is that many manufacturing units undertake export of part of their products and a substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits ; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India. From a perusal of both the provisions referred to above, it becomes clear that the ratio between the turnover in respect of the exported goods on the one hand and the total turnover of the business carried by the assessee on the other hand would reflect the ratio between the profits of export and the rest of the business. This method appears to have been evolved with a view to cushion the uncertainity in one sector, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted. The whole controversy is as to whether the conversion charges earned by the applicant can be deducted from the profits and gains of the business to arrive at the profits of the business mentioned under the clause. To our mind, the common factor that warrants the grouping of the items mentioned in the clause is their being unrelated to the activity of the business of manufacture, which is exclusively or partly of export items. In other words, if the amount has anything to do with the activity of manufacturing though not of export goods, deduction thereof cannot be made. Otherwise, the proportion of the profit earned through export to the total profit gets disturbed. CIT v. Bangalore Clothing Co. [2003] 260 ITR 371 (Bom) w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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