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2015 (5) TMI 190 - MADRAS HIGH COURT

2015 (5) TMI 190 - MADRAS HIGH COURT - TMI - Stickering income received from MRF for labeling 'MRF' on the toys and packing - Eligibility of business income for the purpose of deduction under Section 80HHC - Held that:- In the case on hand, it is evident from the records that the nature of activity carried on by the respondent/assessee and the receipts realised therefrom by the assessee/respondent does not fall under any of the heads mentioned in Explanation (baa) to Section 80HHC and, t .....

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Tribunal held that in para-20 of the said decision, it has been categorically held that operational activity is one of the parameters for grant of benefit under Section 80HHC. In the case on hand, the activity of the assessee in carrying out labelling 'MRF' on toys using its machinery would squarely fall within the ambit of operational activity. Tribunal was right in holding that the stickering income received from MRF for labeling 'MRF' on the toys and packing, as eligible busin .....

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the Revenue for the assessment year 2002-2003, the Revenue is before this Court by filing the present appeals. This Court, vide order dated 19.11.07, while admitting the appeals, framed the following substantial question of law for consideration :- "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the stickering income received from MRF for labeling 'MRF' on the toys and packing, as eligible business income for the purpose of deductio .....

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ng of "MRF" letters in various forms/designs on the boxes of the toys and the last activity is purchasing the stickers with the letters "MRF" and pasting the same on the boxes that contain the toys. In regard to the said activities, for the assessment years 2001-2002 and 2002-2003, the assessee claimed deduction under Section 80HHC on the income received for stickering the label 'MRF' on the toys. The assessing officer excluded the stickering income from business prof .....

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e business profits for the purpose of deduction under Section 80HHC. 4. Aggrieved by the said orders, before the Tribunal, while the assessee preferred appeal in respect of the assessment year 2001-2002, the Revenue filed appeal in respect of the assessment year 2002-2003. Before the Tribunal, physical demonstration was made by the assessee showing the toys with stickers as also without stickers and it was submitted by the assessee that the activities are done with the help of various machines i .....

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. It was the further stand of the Department that the assessee was receiving this income as advertisement and, therefore, not eligible for the benefit as claimed by them. It was further contended on behalf of the Department that putting the stickers does not involve any element of turnover and, therefore, not entitled for deduction under Section 80HHC. However, on consideration of the entire gamut of facts as also the the case laws relied on by the parties, the Tribunal found that the decision o .....

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demonstration of toys, it becomes clear that the assessee's manufacturing apparatus was used for the purpose of stickering activity. We are of the opinion that it is very difficult to say that stickers put on various parts of toys like tyres, will not enhance the value of the toy, because by putting such stickers, they become more attractive. In the process, if the assessee has received some money, then same is definitely part of the turnover also. In CIT v. Bangalore Clothing Co. (260 ITR .....

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rts Ltd. v. ACIT (201 CTR (Mad.) 1), relied on by the ld. DR, it is clearly observed in paragraph 20 that if an activity is done with the help of industrial undertaking of the assessee, then same is an operational activity. Therefore, we are of the view that stickering activity is operational activity of the assessee and is entitled to deduction u/s 80HHC." Aggrieved by the abovesaid order of the Tribunal, the Revenue is before this Court by filing the present appeals on the above substanti .....

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therefore, has to be excluded from business income for the purpose of deduction under Section 80HHC. It is the further submission of the learned standing counsel for the appellant that the income has to be construed more in the nature of advertisement charges received by the assessee and, therefore, the said receipts have to be excluded in terms of Explanation (baa) to Section 80HHC of the Act. 6. Per contra, learned counsel appearing for the respondent submitted that the Tribunal, on considerat .....

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ions on which reliance has been placed by the Tribunal in arriving at its finding. 8. Before proceeding to analyse the case on hand, it would be useful to refer to Explanation (baa) to Section 80HHC of the Act, on which much stress has been placed by the learned standing counsel appearing for the appellant. For better clarity, Explanation (baa) to Section 80HHC of the Act is extracted hereinbelow :- "80HHC. .............. Explanation. - For the purposes of this section, - ............. (baa .....

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hment of the assessee situate outside India;" 9. For better appreciation of the matter, it would also be useful to refer to the decision of the Bombay High Court in Bangalore Clothing Co. case (supra), on which reliance has been placed by the Tribunal for arriving at its finding. The relevant portion of the judgment is extracted hereinbelow for better clarity :- "....... Explanation (baa) was introduced into the Act by the Finance (No. 2) Act, 1991, with effect from April 1, 1992. Unde .....

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ot include receipts which do not have an element of turnover like rent, commission, interest, etc. However, as some expenditure might be incurred in earning such incomes an ad hoc 10 per cent deduction from such incomes is provided to account for those expenses. However, learned counsel for the Department cannot invoke Explanation (baa) in every matter involving receipts by way of brokerage, commission, interest, rent, labour charges, etc. These items of income have got to be seen in the context .....

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d in such a case, receipts like interest, will not attract Explanation (baa). The point which we would like to make, therefore, is that in every matter the Assessing Officer will have to ascertain whether receipt of interest, commission, labour charges, etc., were a part of operational income. We cannot lay down any standard test for deciding what would constitute operational income. Broadly, the Department will have to consider the memorandum and articles of association of the company, the natu .....

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fits and gains of business or profession" specified under Section 28 to 44D of the Income Tax Act. The amount so computed should be reduced by 90% of the incentive income referred to in clauses (iiia), (iiib) and (iiic) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profits and the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India. The Tr .....

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