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TMI Blog2011 (9) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... from an industrial undertaking which manufactures articles was only allowable as per the said section? (2) Whether the appellate authorities were correct in holding that the deduction under Section 35D of the Act is allowable despite the assessee not satisfying that an expenditure incurred before the commencement of the business or after the commencement of business in connection with the expansion of industrial undertaking or in connection with the setting up of a new industrial unit, as contemplated under Section 35D of the Act had not been complied with? 2. In so far as the first substantial question of law is concerned, a Division Bench of this Court in the case of CIT v. Gokuldas Exports [IT Appeal No. 25 (Kar.) of 2003] and Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of section 80HHC(1) read with section 80HHC(3) are, the nexus test has to be applied to exclude that which does not partake of profits that can be said to have been derived from the business of exports, (ii) In the specific context of clause (baa) of the Explanation to Section 80HHC, while determining the "profits of the business", the Assessing Officer has to undertake a two step exercise in the following sequence. He has to first "compute" the profits of the business under the head "Profits and gains of business or profession". In other words, he will have to compute business profits, in terms of the Act, by applying the provisions of Sections 28 to 44 thereof. (iii) In arriving at the profits of the business by the above met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iiic) and section 28, i.e., export Incentives: (b) 90 per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (c) profits of any branch, office, warehouse or any other establishment of the assessee situate outside India (viii) The word "interest' in clause (baa) of the Explanation connotes "net interest" and not "gross interest". Therefore, in deducting such interest, the Assessing Officer will take into account the net interest i,e., gross interest as reduced, by expenditure incurred for earning such interest. (ix) Where, as a result of the computation of profits and gains of business and profession, the Assessing Officer treats the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held that the payment made to the Registrar of Companies is to be treated as a capital expenditure. 5. There is no quarrel with the said legal position. In the instant case deduction was not claimed on the ground that it is a revenue expenditure. The deduction was claimed on the ground that Section 35D provides for amortization of preliminary expenses in respect of fees paid to the Registrar of Companies and expenditure incurred towards public subscription of shares. Once the condition of Section 35D is fulfilled, the assessee is entitled to the deduction. That is precisely what, the Tribunal has held. We do not see any error in the finding of the Tribunal. 6. For the aforesaid reason, the second substantial question of law framed is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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