TMI Blog2010 (10) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... labour charges to be part of operational income and not to be excluded under Explanation (baa) to section 80HHC. The Explanation (baa) to section 80HHC of the Act was inserted by the Finance No.2) Act, 1991 with effect from 1.4.2 - Decided in favour of assessee. As regard to the CIT(A)'s stand in directing the AO to exclude 90% of net interest receipts from the business profits for the purposes of deduction u/s 80HHC of the Act - The Ld. Delhi High Court in the case of Shri Ram Honda Power Equip (2007 -TMI - 2891 - HIGH COURT, DELHI) has held that the word 'interest' in clause (baa) of Explanation connotes net interest and not gross interest. If the AO has treated the interest receipts as business income, then deduction in terms of Explanation (baa) should be with reference to net interest - Decided in favour of assessee. - ITA Nos. 706 and 707/Bang/2010 - - - Dated:- 22-10-2010 - George George K, A. Mohan Alankamony, JJ. Meera Srivastava, JCIT for the Appellant P.J. Pardiwala, Sr. Adv., for the Respondent ORDER George George K: These two appeals of the Revenue are directed against the orders of the CIT (A)-LTU, Bangalore, in ITA No: 57/CIT(A)LTU/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the AYs 2000-01 and 01-02 in the assessee's own case, directed the AO to exclude the same from the total turnover of the assessee. (c) Before us, it was hotly contested by the Revenue that the jurisdictional Hon'ble High Court had, in the assessee's own case for the AY 1993-94 [reported in (2010) 326 ITR 358 (Kar)] decided the issue against the assessee. (d) The Ld. A.R present was duly heard. (e) With due respect, we have perused the ruling of the Hon'ble Court cited supra wherein the Hon'ble Court was pleased to observe that while computing the total turnover for the purposes of s. 80HHC, the amounts received by sale of scraps in domestic market are 'includible'. Respectfully following the ruling of the Hon'ble Court referred supra, we decide the issue in favour of Revenue. (2) (a) With regard to the second issue, we find that the AO had included the cost of raw materials from the total turnover for the purposes of deduction u/s 80HHC of the Act. (b) On appeal, the Ld. CIT (A) had decided the issue in favour of the assessee in conformity with the finding of the Hon'ble Tribunal referred supra in the assessee's own case. (c) Before us, the contention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc., in total turnover.' In view of the aforesaid finding of the Tribunal, this ground of appeal is allowed.' Hence, following the order of this Bench, the issue is decided in favour of the assessee." (f) In consonance with the observations of the Hon'ble Bench supra, we direct the AO not to include the sale of raw materials in total turnover of the assessee. (3) (a) The next grievance of the Revenue was with regard to the CIT(A)'s direction to exclude 90% of the fees received from Robert Bosch from the business profits for deduction u/s 80HHC of the Act. (b) The Ld CIT (A), by following the decisions of the Hon'ble Bench in the assessee's own case in ITA No.399/B/98 dated: 31.5.2004 and in ITA No:653/B/99 dated: 29.3.2006 for the AYs 94-95 and 96-97 respectively, directed the AO not to exclude 90% of the fees received for the purpose of computing deduction u/s 80HHC of the Act. (c) Disenchanted with the stand of the Ld. CIT(A), the Revenue's submission before us was revolved around that the CIT (A) had failed to notice that the fees received during the AY 94-95 was in the nature of royalty which was eligible for deduction u/s 80-O of the Act and as such it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und the labour charges to be part of operational income and not to be excluded under Explanation (baa) to section 80HHC. The Explanation (baa) to section 80HHC of the Act was inserted by the Finance No.2) Act, 1991 with effect from 1.4.2. the Hon'ble Court held that the receipt accrued from manufacturing activity and in view of the finding of the Tribunal that "The Tribunal was right in holding that 90% of the labour charges ought not to have been excluded from such business profits while computing deduction u/s 80HHC'. The Hon'ble Court distinguished from the view taken by the Hon'ble High Court of Bombay in the case of CIT v. K.K.Doshi and Co., (2000) 245 ITR 849". (e) This issue was taken up by the Revenue before the Hon'ble High Court with a prayer to allow the appeal and set aside the order of the ITAT in ITA No.399/B/1998 dated: 31.5.2004. After extensively analyzing the issue coupled with judicial pronouncements of various judiciary which included in the cases of (i) CIT v. Ravindranathan Iyer (sic) Nair (295 ITR 228 - SC), (ii) K.R.M.Marine Exports Ltd. v ACIT (2007) 288 ITR 151 (Mad); (iii) CIT v. M/s. Pfizer Ltd. (Income-tax Appeal (LODG.No.128/2009 Dt:18.6.2010 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then, such income should be excluded." (f) Respectfully following the ruling of the Hon'ble Court referred supra, we decide the issue in favour of the assessee on this count and, thus, this ground of the Revenue fails. (4) (a) Another issue raised by the Revenue was that of the stand of the CIT (A) to exclude 90% of net interest receipts from the business profits for the purposes of deduction u/s 80HHC of the Act. The stand of the Ld. CIT (A) was rather in conformity with the finding of the Hon'ble Tribunal in its finding in ITA Nos: 335 and 336/B/05 referred supra. (b) The Revenue's grievance, however, chiefly was that the CIT(A) should have appreciated the very fact that the various High Courts, notably, the Hon'ble High Court of P and H in the cases of (i) Rani Paliwal v. CIT 268 ITR 220 (P and H) and (ii) CIT v. Liberty Footwear Company reported in 287 ITR 339 (P and H) and (iii) the Hon'ble Madras High Court in the case of CIT v. V.Chinnapandi reported in 282 ITR 389 (Mad) have expressed contrary views on this issue. It was, further, submitted that the Hon'ble Delhi High Court in its recent ruling in the case of Delhi Brass and Metal Works reported in 313 ITR 352 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) As the jurisdictional Tribunal had decided the issue in favour of the assessee for the reasons reproduced supra, we are inclined to agree with the finding of the Ld. CIT(A). It is ordered accordingly. (f) Before parting with the issue, we would like to emphasis that one of the issues raised by the Revenue before the Hon'ble jurisdictional High Court [Division Bench], in ITA Nos: 25 of 2003 C/W I.T.A. No.298/2002 and I.T.A. No.327/2003 in the cases of (i) CIT v. M/s. Gokuldas Exports, (ii) CIT v. Paprika Wear; and (iii) CIT v. Monumental Memorials was that- "Whether on a true construction of the Explanation (baa) appended to sub-section 4(A) of section 80 HHC of the Act, interest, rent, commission earned by the assessee are to be deducted from the export profits or only net receipts, if any, after taking into account the payments made by the assessee for the purposes of computing deductions under section 80HHC of the Act?" After analyzing the issue elaborately, keeping in view the Revenue's urge that the judgments of (i) P and H Court reported in (2004) 268 ITR 220 [Rani Paliwal v. CIT], (ii) Madras High Court reported in (2006) 282 ITR 389 [CIT v. Chinnapandi] s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examining the facts of the case which were clearly brought out in the order u/s 263 of the Act for that assessment year. (c) The Ld. A R in his submission urged that the very issue was examined by the earlier Bench and came to a conclusion that the assessee was entitled to claim depreciation under the category of 'other identifiable intangibles (goodwill)' and, therefore, pleaded that the ratio laid down by the earlier Bench is directly applicable to the issue on hand. (d) We have duly considered the submissions of either party. As rightly urged by the Ld. A.R, the earlier Bench in its wisdom, on a similar issue for the AY 2004-05 in ITA No.329/B/09 dated: 31.8.2009 in the assessee's own case, by extensively quoting the finding of the Hon'ble ITAT, Mumbai Bench 'SMC' reported in (2008) 20 SOT 266 (Mum), had arrived at a conclusion that the assessee was entitled to claim depreciation on 'business information' under the category of 'other identifiable intangibles [goodwill]. (e) Applying the same ratio, we are of the firm view that the assessee was entitled to claim depreciation on intangible assets. It is ordered accordingly. (2). (a) The next issue agitated was wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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