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TMI Blog2005 (10) TMI 424X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the sum of Rs. 10,42,800 representing Employer's contribution to PF and FPD etc., under section 43B of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). He ought not to have done so. 2.Without prejudice to Ground No. 1 above, the ld. CIT(A) has erred in confirming the disallowance of PF, administrative charges of Rs. 67,364, EDLI payments of Rs. 38,296 and Rs. 767 included in Rs. 10,94,920 by holding this to be contribution to PF, EPF etc. He ought not to have done so. 3.On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of the sum of Rs. 9,32,548 under section 36(1)(va) by holding the same as representing employee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise." From the above it is clear that if the payments are made beyond the due date prescribed under the relevant Act, such payments are not deductible by virtue of the provisions of section 36(1)(va). Admittedly, these payments have been made beyond the prescribed time limit. Therefore, the disallowance with regard to payment of employees' contribution is confirmed. 4. Ground No. 4 reads as under :- "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 80HHC shall give a distorted figure of export profit, if receipts of service charges are included as profits of the business therein. It is also admitted that service charges received by the assessee-company has no direct nexus with the export activity. The CIT(A) accordingly following the decision of the Bombay High Court in the case of CIT v. Kantilal Chhotalal [2000] 246 ITR 439 upheld the action of the Assessing Officer in excluding 90% of the service charges, for determining deduction under section 80HHC. The other contention of the assessee regarding non-exclusion of 90% of interest is also rejected by the CIT(A) relying on the decision of the Bombay High Court in the case of CIT v. Ravi Ratna Exports (P.) Ltd. [2000] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover. Both the numerator and the denominator show that they refer to sale proceeds. Any receipt which does not form part of sale proceeds cannot come within the ambit of the above ratio. This is also in view of the fact that proration applies to business profits in order to work out the export profits. Therefore, the numerator and the denominator are required to have a common element which is the sale proceeds. In fact by the proviso in clause (ba) to the Explanation, it is further provided that the expression 'total turnover' shall have effect so as to exclude section 28(iiia), (iiib) and (iiic ) which refer to, inter alia, profits on sale of a licence granted under the Import (Control) order, cash assistance, duty drawback, etc. This exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roadly, the department will have to consider the memorandum and articles of association of the company, the nature of the business, the nature of the activity and such other tests. The department will also have to ascertain as to what is the dominant business of the company and whether the receipts like interest, commission, etc., accrue as a part of the main business activity or whether they accrue out of incidental business." It is pertinent to note that the Hon'ble Bombay High Court in the case of CIT v. K.K. Doshi & Co. [2000] 245 ITR 849 held that service charges of Rs. 19.64 lakhs did not have the element of turnover because the charges were received for seizural activity which was not an integral part of manufacturing activity. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case and in law, the ld. CIT(A) has erred in confirming the disallowance of the deduction under section 80-I which refers to following income : (a )service charges of Rs. 8,32,458 (b)Interest of Rs. 5,48,714" 10. Having heard both the sides, we have carefully gone through the orders of the authorities below. In our view, the CIT(A) rightly held that service charges and interest income is not derived from industrial undertaking. For this reliance can be placed on the judgment of the Apex Court in the case of Sterling Foods (supra). The interest income of the assessee consists of two parts. The assessee-company is getting interest income on F.D.'s of Rs. 5,12,780 and interest from employees of Rs. 35,936. Both these comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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