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2014 (6) TMI 906 - HC - Income TaxComputation of deduction under Section 80HHE - whether 90% of net interest income had to be reduced when computing the profits of business and not the gross interest income as held by the Assessing Officer and confirmed by the CIT - Held that:- As decided in CIT v. Krone Communication Ltd [2010 (7) TMI 631 - Karnataka High Court] the law on the point is fairly well-settled. Tax under the Act is upon income, profits and gains. It is not a tax on gross receipts. Under section 2(24) the word "income" includes profits and gains. The charge is not on gross receipts but on profits and gains. Gross receipts or sale proceeds, however, include profits. The very basis for computing section 80HHC deduction was "business profits" as computed under section 28, a portion of which had to be apportioned in terms of the above ratio of export turnover to total turnover. Therefore, before giving deduction under section 80HHC, the gross total income of the assessee being profits from business had to be arrived at in terms of clause (baa) to the Explanation. While calculating "business profits" the same had to be done in terms of section 28 to section 44D alone. The idea of section 80HHC is to ensure that the exporter gets the benefit of the profits derived from export and not to depress the profit further. Therefore, it can only be the net commission, interest, rent, etc., which can be included in the profits. - Decided in favour of the assessee Purchase of software - revenue v/s capital expenditure - Held that:- As decided in the case of CIT v. IBM India Ltd. [ 2013 (10) TMI 1225 - KARNATAKA HIGH COURT ] The application software enables the assessee to carry out his business operation efficiently and smoothly. However such software itself does not work on stand-alone basis. The same has to be fitted to a computer system to work. Such software enhances the efficiency of the operation. It is an aid in manufacturing process rather than the ' tool itself. Thus, for payment of such application software, though there is an enduring benefit, it does not result into acquisition of any capital asset. The same merely enhances the productivity or efficiency and hence to be treated as revenue expenditure. In fact, this Court had an occasion to consider whether the software expenses is allowable as revenue expenses or not and held, when the life of a computer or software is less than two years and as such, the right to use it for a limited period, the fee paid for acquisition of the said right is allowable as revenue expenditure and these softwares if they are licensed for a particular period, for utilizing the same for the subsequent years fresh licence fee is to be paid. Therefore, when the software is fitted to a computer system to work, it enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself. Though certain application is an enduring benefit, it does not result into acquisition of any capital asset. It merely enhances the productivity or efficiency and therefore, it has to be treated as revenue expenditure - Decided in favour of the assessee
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