TMI Blog2008 (2) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... on this ground fails and it is dismissed. 4. Ground No.2 reads as under:- 2a) The learned Commissioner of Income-tax (Appeals) erred in law in upholding the action of the Assessing Officer in deducting 90% of receipts on account of sundry balances written back, sundry receipts, machine hire charges/lease rent, octroi/BPT/insurance premium and excise/sales tax refunds from the business profits as contemplated in Explanation (baa) to section 80HHC while calculating the deduction under section 80HHC of the Act. The appellant submits that these receipts are so linked with the carrying on of the appellant's business as to provide sufficient perceptible link with the business activities of the appellant and accordingly, no reduction as aforesaid was called for. b) The learned Commissioner of Income-tax (Appeals) erred in holding that receipts in the nature of dividend income, profit on sale of assets and profit on sale of investments are required to be entirely excluded from the business profits for the purposes of deduction under section 80HHC. The appellant submits that dividend income and profit on sale of investment do not form part of the business income at all and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional business income, which comes out of export turnover while the second limb refers to non-operational business income, which is in the nature of independent income having no element of export turnover. Explanation (baa) also makes it quite clear that any income which is not assessable under section 28 or which does not arise out of export business cannot be taken into account for working out the profits of the business for availing the relief under section 80HHC. The view that we are taking in the matter is supported by the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Bangalore Clothing Co., reported in 260 ITR 371 (Bom). 8. Next issue that comes for adjudication is as to whether 90% of net receipts falling under clause (baa)(1) should be excluded or 90% of gross receipts should be excluded. In this connection also the judgment of the Hon'ble Bombay High Court in the case of Bangalore Clothing Co. (supra) is relevant. In the case of Bangalore Clothing Co. supra, it has been held that as some expenditure might be incurred in earning the incomes referred to in clause (baa)(1), an adhoc 10% deduction from such incomes has been provided for, to accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... next ground [Ground No. 3. a) and b)] of objection taken by the assessee, it is directed against the order of the CIT(A) in upholding the action of the AO in restricting the claim of the assessee for deduction under sections 80HH, 80-I and 80-IA to ₹ 2,61,43,688/- as against a sum of ₹ 8,61,99,493/- claimed by the assessee. According to the assessee, CIT(A) went wrong in upholding the action of the AO in working out deduction under sections 80HH, 80-I and 80-IA by holding that depreciation has to be taken into consideration to arrive at the correct picture of profits earned by the units and deduction under section 32 of the Act is mandatory. 11. Learned counsel for the assessee conceded that the issue has to go against the assessee in the light of the Special Bench decision of the Tribunal in the case of Vahid Paper Converters vs. ITO, reported in 98 ITD 165 (Ahd) (SB). Hence, the appeal of the assessee on this ground fails and it is dismissed. 12. Coming to next ground [Ground No.3.c)] of objection taken by the assessee, it is directed against the order of the CIT(A) in upholding the action of the AO in determining deduction under sections 80HH, 80-I and 80-IA a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection taken by the assessee, it is directed against the order of the CIT(A) in upholding the action of the AO in disallowing deduction of corporate dividend tax amounting to ₹ 71,01,282/-while computing income under section 115JA of the Income Tax Act, 1961. 17. Before the AO, while computing the income under section 115JA, assessee reduced the impugned amount on account of corporate dividend tax. This claim of the assessee, while computing income under sections 115JA, AO held, not justifiable. He held, corporate dividend tax is charged under section 115-O of the Income Tax Act. He further held, as per sub-section (1) of section 115-O, the claim of the assessee is not justified since any additional income tax other than income tax chargeable could be considered. Aggrieved by the above order, assessee approached the first appellate authority. 18. It was contended before the CIT(A) that the corporate dividend tax paid under section 115-O is a separate and distinct charge of tax on domestic companies distributing dividends and that the same falls beyond the scope of tax as defined in sections 2(43) and (4) of the Act. It was further contended that the tax paid under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to section 4, which reads as under: CHARGE OF INCOME-TAX 4.(1). Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of this Act in respect of the total income of the previous year of every person; Provided that where by virtue of any provision of this act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. Learned counsel submitted, the perusal of the above sections make it clear that Legislature has sought to distinguish the term income tax to mean tax on the total income as computed under the Act and to treat it differently from super tax additional income charge charged under other provisions of the Act. Learned counsel further submitted, section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Act shall be allowed, no deduction on account of corporate dividend tax has to be allowed to the assessee company. Section 115JA is very much part of the provisions of Income Tax Act. In support of the above, learned DR relied upon the decision of the Tribunal in the case of DCIT vs. Dhanlaxmi Paper Mills Ltd., reported in 105 ITD 123 (Chennai), for the assessment year 1997-98. Learned DR submitted, perusal of Para 10 of the order makes the point very clear. Para 10 reads as under:- 10. As we have already discussed, tax on distribution of profit by domestic companies is nothing but an income-tax. Furthermore, sub-section (5) of section 115-O clearly says that no deduction under any other provisions of Income-tax Act shall be allowed to a company or to a shareholder in respect of the amount which has been charged to tax under section 115-O(1) of the Income-tax Act. Furthermore, for the assessment year 1997-98, the CIT(A) disallowed similar claim of the assessee against which admittedly, no appeal was filed. In those factual circumstances, in our opinion, tax on distribution of profit or dividend by domestic companies is nothing but income-tax, therefore, it shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's Circular No. 8 dated 29.08.2005, when the said circular relates to Fringe Benefit Tax, not on tax on dividend'. Considering this point, the Tribunal, vide Para 35 of its order, observed as under: 35. In this case, as per the objection of revenue the specified addition to be made to the net profit to arrive at book profit on which the tax on profit distributed as dividend to the profit and loss account can be covered under clause (a) to the Explanation to sub-section (2) of section 115JB. However, observing the nature of payment, we are of the considered opinion that such tax on distributed profit as dividend could not be covered under the said clause as there are basis fundamental differences between income tax paid or payable and tax on profit distributed. Since income tax is payable on the income earned by the assessee, tax on dividend as per the provision of section 115-O is paid at the time of distribution of profit in the form of dividend i.e., at the time of application of the income on which income tax has already been paid. Furthermore as per sub-section (2) of section 115-O makes it clear that tax on distribution of profit has to be paid by a domestic c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate authority rejected the appeal of the assessee on this ground. Aggrieved, assessee is in appeal before the Tribunal. 29. Learned counsel for the assessee submitted, under section 115JA, assessee is required to prepare its Profit and Loss Account in accordance with provisions of Parts II and III of schedule VI to the Companies Act, 1956. Accordingly assessee prepared its Profit and Loss Account as stipulated by the Companies Act. The provisions require that profit/loss shall be worked out without considering any adjustment on account of short/excess provision for income tax, depreciation, etc. After arriving at the said profit/loss, adjustment for such short/excess provision is made only to arrive at the balance to be carried to the Balance Sheet. For working out the book profit under section 115JA, the profit is to be considered before such adjustment. Thus the excess profit written back in respect of depreciation for earlier years cannot be added to arrive at the book profit for the purpose of section 115JA. 30. The learned DR, on the other hand, supported the orders of the revenue authorities and submitted that in the light of the decision of Hon'ble Karnataka Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us with the activity of export. The amendments made from time to time indicate that they became necessary in order to make the formula workable. If so, excise duty and sales tax also cannot form part of the 'total turnover' under section 80HHC(3); otherwise the formula becomes unworkable . 35. In view of the above, we dismiss the appeal of the revenue on this point. 36. Coming to the second ground of objection taken by the revenue, it is directed against the order of the CIT(A) in deleting the disallowance of ₹ 2,55,73,787/- incurred towards payments made to employees under VRS, relying upon the decision of the jurisdictional High Court in the case of CIT vs. Bhor Industries Ltd., reported in 264 ITR 180 (Bom), without appreciating that the revenue has filed SLP against the order of the Hon'ble High Court. 37. The issue was decided in assessee's favour by the learned CIT(A), following the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Bhor Industries Ltd., reported in 264 ITR 180 (Bom), wherein the Hon'ble High Court held that since VRS expenses were incurred by the company to save the expense, it should ordinarily be revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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