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2016 (5) TMI 318 - ITAT CHENNAI

2016 (5) TMI 318 - ITAT CHENNAI - TMI - Relief u/s.80HHC - denial of claim on rental income received by the assessee from housing provided to its employees as well as the income from leasing activity - Held that:- The judgement of Supreme Court in the case of M/s.ACG Capsules Ltd.(2012 (2) TMI 101 - SUPREME COURT OF INDIA ) is directly covered on the issue in dispute before us. Accordingly, we direct the AO to exclude net income of rental income and lease income if it is assessed as business inc .....

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Shri Duvvuru RL Reddy, JUDICIAL MEMBER For The Appellant : Dr.Anita Sumanth, Advocate For The Respondent : Mr.A.V.Sreekanth, JCIT, D.R ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal is filed by the Assessee is directed against the order of the Learned Commissioner of Income Tax(A), Salem dated 29.01.2015 pertaining to the assessment year 1998-99. 2. The assessee has raised the grounds with regard to denying relief u/s.80HHC of the Act in full with respect to the rental income receive .....

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ess profit of assessee and the entire amount is to consider computing deduction u/s.80HHC of the Act. Ld.A.R relied upon the judgement of Supreme Court in the case of M/s. ACG Capsules Ltd Vs. CIT reported in 343 ITR 0089 wherein held that only the net income from lease is liable to be taken into account while computing deduction u/s.80HHC of the Act and not the gross income so as to comply the clause (baa) to sec.80HHC of the Act. 4. On the other hand, ld.D.R submitted that the Tribunal in the .....

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pex Court in CIT Vs. Ravindranathan Nair reported in [2007] 295 ITR 228(SC). The decision of CIT Vs. Dresser Rand India P. Ltd (supra) wherein held that : Sub-section (1) of section 80HHC of the Income-tax Act, 1961, contemplates a deduction to an assessee being an Indian company or a person resident in India and engaged in the business of the export out of India of any goods or merchandise to which the section applies. The deduction is to be allowed in computing the total income of the assessee .....

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was inserted by the Finance Act of 1991 defines the expression profits of the business . Profits of the business, as Explanation (baa) would postulate, have to be first computed under the head Profits and gains of business or profession under the provisions of sections 28 and 44D of the Act. They have to be reduced by (i) ninety per cent. 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, cha .....

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of the Supreme Court is that profit incentives and items which constitute independent incomes have no element of export turnover and are consequently liable to be excluded to the extent that is stipulated in Explanation (baa) . The decision in to the extent to which it lays down a principle of law at variance with the subsequent judgment of the Supreme Court in would not therefore hold the field under the judgment of the Supreme Court. In there is nothing in the judgment of the Supreme Court to .....

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section 80HHC is a matter for Parliament to determine. The duty of the court is to interpret the language of the provision. The interpretation of the provision by the Supreme Court is binding and has to be followed. 5.1 We have heard both the parties and perused the material on record. Admittedly, the issue in dispute considered by the Supreme Court in the case of CIT Vs. Ravindranathan Nair reported in [2007] 295 ITR 228(SC) wherein held that: 17. Section 80HHC had a headnote. That headnote sai .....

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ided that in computing the "total income" a deduction of the profits derived by the assessee from the export of goods shall be made. That, that the words "profits derived from exports" in the said sub-section was substituted for the words "whole of the income" by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989. The expression "derived from" in the said sub-section is narrower than the expression "attributable to", theref .....

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deduction, under section 80HHC(3)(a), (b) or (c) of the Income-tax Act, the gross total income of the assessee being profits from business had to be arrived at in terms of clause (baa) of the said Explanation. However, one point needs to be noted, namely, while calculating "business profits" the same had to be done in terms of section 28 to section 44D of the Income-tax Act alone. Other provisions like sections 70 and 71 of the Income-tax Act were excluded. Therefore, in our view, if t .....

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her receipt of a similar nature included in such profits. The said expression "included in such profits" indicated that the said processing charges formed part of the gross total income being business profits. This has been clarified by clause (baa) to the said Explanation which inserted the definition of "profits from business" in the said section 80HHC(3) of the Income-tax Act. 19. In the present case, the Assessing Officer had worked out the business profits of ₹ 1,9 .....

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-tax Act provided for a fraction of the export turnover divided by the total turnover to be applied to business profits calculated after deducting 90 per cent. of the sums mentioned in clause (baa) to the said Explanation. That, profit incentives and items like rent, commission, brokerage, charges, etc., though formed part of gross total income had to be excluded as they were "independent incomes" which had no element of export turnover. That, the said items distorted the figure of exp .....

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n terms of clause (baa) to the said Explanation. 21. One point still remains for consideration. On behalf of the assessees it has been vehemently urged that the abovementioned processing charges earned by the assessees by processing raw cashew nuts for third parties, had no nexus with the export business and, therefore, such charges were not includible in the total turnover. It was also further argued that the export incentives were admissible only in respect of profits on export sales. In this .....

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from local sales were includible in the business profits but not in the total turnover. 22. At the outset, we may state that, in the present case, we are dealing with the law as it stood during assessment year 1993- 94. At that time section 80HHC(3) of the Income-tax Act constituted a code by itself. Subsequent amendments have imposed restrictions/qualifications by which the said provision has ceased to be a code by itself. In the above formula there existed four variables, namely, business prof .....

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not necessarily include element of export turnover. This aspect needs to be kept in mind while interpreting clause (baa) to the said Explanation. The said clause stated that 90 per cent. of incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in business profits, had to be deducted from business profits computed in terms of sections 28 to 44D of the Income-tax Act. In other words, receipts constituting independent in .....

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t; constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the Income- tax Act and every income may not be attributable to exports. This was the reason for this court to hold that in .....

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mputing deduction. 5.3. Further, Hon ble Kerala High Court in the case of Vallabhadas & CO., Vs. CI reported in 76 CCH 38 wherein held that sub lease rentals received by the assessee are assessable as income from other sources and cannot be reckoned in the computation of business income and deduction u/s.80HHC had to be computed accordingly. 5.4. Further, Hon ble Kerala High Court in the case of M/s.Parry Agro Industries Vs. JCIT reported in [2007] 292 ITR 542 (Kerala) wherein held that rent .....

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(supra). Alternate to this,ld.A.R relied on the judgement of Supreme Court in the case of M/s.ACG Capsules Ltd. (343 ITR 89) wherein it was held that only 90% of net receipts by way of brokerage, commission, interest, rent charges or any other receipts of similar nature included in such profits computed under the head Profits and Gains of business of assessee could be deducted under clause (i) of Explanation (baa) to Sec.80HHC and not 90% of the quantum of gross of the above said income, which .....

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