TMI Blog2010 (9) TMI 780X X X X Extracts X X X X X X X X Extracts X X X X ..... pal, JJ. C.S. Aggarwal and Prakash Kumar for the Appellant. Ms. Prem Lata Bansal for the Respondent. JUDGMENT A.K. Sikri, J. (ORAL) Admit. 2. The following substantial question of law arises for consideration: "Whether on true and correct interpretation of the provisions contained in Section 80HHC(3)(b) of the Act read with Clause (e) to the Explanation, the Income-tax Appellate Tribunal was justified in law in not allowing reduction (of Rs. 1,35,422 and Rs. 1,16,897 being 10% of the export incentives and interest income respectively) being "indirect costs attributable to incomes other than exports" from the total indirect expenses debited in the profit and loss account for computing "indirect costs attributable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e indirect expenses in the Profit and Loss account in the sum of Rs. 38,65,447 and out of these indirect expenses attributable to exports for the purpose of Clause (b) of sub-section (3) of Section 80HHC of the Act were claimed to Rs. 36,05,649. The calculation given by the assessee is in the following manner: "Selling administrative expenses Rs. 30,15.769 Interest financial expenses (after set off of interest received on Bank FDRs Rs. 7,92,204 Rs. 5,91,630 Depreciation Rs. 2,58,048 Total indirect expenses as Per Profit and Loss Account Rs. 38,65,447 Less: Expenses attributable to other income @10% of such income Export Incent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act so as to compute the deduction of the claim. These provisions are as under: "Deduction in respect of profits retained for export business 80HHC (3) For the purposes of sub-section (1), (a) Where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) Where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover; (f) trading goods means goods which are not manufactured or processed by the assessee." 9. Bare perusal of the aforesaid provisions would make it evident that in cases falling under Section 80HHC(3)(b), direct and indirect costs attributable to such exports have to be deducted from the export turnover to arrive at export profits. Clause (e) of the Explanation defines 'indirect costs' and stipulates that it is the cost which is not direct cost as defined in clause (d). Moreover, clause (d) defines 'direct costs' to mean cost attributable to trading cost. The word 'attributable' in Section 80HHC(3)(b) of the Act in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f attribution" has been retained in the scheme of Section 80HHC, both in terms of Section 80HHC(3), Clause (e) to the Explanation to Section 80HHC(3)(b) (a), (b) and (c) and in Clause (baa) to the Explanation to Section 80HHC, instead of going into lengthy exercise of dividing such Common Expenses, the assessee has estimated the reduction of export turnover by 10% of the other income of Rs. 1,60,000 (in the above example). Ultimately, Clause (baa) to the Explanation is itself based on the assumption that 10% of the income would be an expense. We make it clear that we are not reading Explanation (baa) into Section 80HHC(3)(b). What we say is as a Guidance Value/Factor, 10% of the total. Other income of Rs. 1,60,000 would be fair estimate. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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