TMI Blog2016 (8) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the total profits to work out total turnover and qualifying profit and treating the same as business income, and the Income Tax Appellate Tribunal was not right in allowing the assessee's claim regarding rebate under Section 80HHC of the Act by holding that the receipts such as interest on deposits, export incentive, octroi refund, and sales in India would form part of the total profits and to work out the total turnover and qualifying profits. - Decided against assessee - TAX APPEAL NO. 1682 of 2008 With TAX APPEAL NO. 2451 of 2009 With TAX APPEAL NO. 1683 of 2008 - - - Dated:- 27-7-2016 - MR. KS JHAVERI AND MR. G.R.UDHWANI, JJ. FOR THE APPELLANT : MR KM PARIKH, ADVOCATE FOR THE OPPONENT : RULE SERVED ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of these appeals, the appellant has challenged order dated 28.9.2007 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench C , Ahmedabad in ITA No.3271/Ahd/2002 C.O. No.167/Ahd/2003, ITA No.1526/Ahd/2001 and order dated 6.2.2009 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench A , Ahmedabad in ITA No.2318/Ahd/2005 ITA No.2608/Ahd/2005. 2. At the time of ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 (SC). (ii) ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income-Tax reported in [2012] 343 ITR 89 (SC). (iii) Commissioner of Income-Tax v. Packworth Udhyog Ltd. reported in [2011] 331 ITR 416 (Ker) [FB] . (iv) Pandian Chemicals Ltd. v. Commissioner of Income Tax reported in [2003] 262 ITR 278 (SC). (v) Commissioner of Income Tax v. Gaskets and Radiators Distributors reported in [2008] 296 ITR 440 (Guj). 5. So far as issue with regard to negative profit is concerned, with regard to said issue, it has been observed by the Supreme Court in the case of IPCA Laboratory Ltd. (supra), as under:- It was next submitted that even when the profits are to be reduced by the losses in cases where an export house has disclaimed its turn over in favour of a supporting manufacturer, the turn over of the exporter gets reduced to the extent disclaimed. It is submitted that as the turnover, which is disclaimed, is reduced it cannot then be taken into consideration for the purposes of computing profits under sub-section 3(c)(ii). In our view this is an argument which merely needs to be stated to be rejected. If such an argument is accepted it would lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove observations are against the Appellants. They show that in computing income profits and gains, losses must also be taken into consideration. Mr. Dastur relied on a format of Form No. 10CCAC and a Circular of the Board wherein it is stated as follows: With the adoption of the dual system for computing export profit, the computation of the disclaimed export turnover also required modification. The Finance Act has therefore amended section 80HHC in order to provide that, where the Export or Trading House disclaims the tax concession in favour of the supporting manufacturer, the concession to the Export or Trading House will be reduced by the amount which bears to the total export profits of trading goods the same proportion as the disclaimed export turnover bears to the total export turnover of trading goods. The formula in such cases will now be - 80HHC concession = export profit - [export profits on trading goods x disclaimed export turnover ] total export turnover Mr. Dastur submitted that if even both profits and losses are to be taken into account the, on a disclaimer the losses will also have to be considered as negative profits and as per the Board Circular the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessee. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (for short `the Tribunal') and the Tribunal allowed the appeal of the assessee and held that the assessee was entitled to deduct the expenses from the interest received and only ninety per cent of the net amount of interest could be excluded under Explanation (baa) to Section 80HHC and remitted the matter to the Assessing Officer to examine whether there is factually an excess between the interest paid and interest received and take a fresh decision. The Revenue filed an appeal against the order of the Tribunal before the High Court, but by the impugned order the High Court following its decision in Commissioner of Income-Tax v. Shri Ram Honda Power Equip (supra) sustained the order of the Tribunal and dismissed the appeal. 3. We have held in our judgment in the case of M/s ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income Tax that ninety per cent of not the gross interest but only the net interest, which has been included in the profits of the business of the assessee as computed under the heads `Profits and Gains of Business or Profession' is to be deducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is only an alternative scheme of assessment and what is clear from clause (iv) above is that even in the alternative scheme of assessment under Section 115JB assessee is entitled to deduction of export profit under Section 80HHC. In other words, export profit eligible for deduction under Section 80HHC is allowable under both the scheme of assessment. So much so, assessees are certainly entitled to deduction under Section 80HHC but it is only by following the method provided under sub-section (3) and (3A) of Section 80HHC. However, by virtue of the decision of the Supreme Court above referred, we feel the restriction contained in Section 80AB or Section 80B(5) could not be applied inasmuch as carry forward of business loss or depreciation should not be first set-off leaving gross total income nil, which disentitles the assessee for deduction under other provisions of Chapter VIA-C which includes Section 80HHC also. But assessees' contention that export profit has to be computed with reference to the Profit and Loss Account prepared under the Companies Act is equally unacceptable because there is no such provision in Section 80HHC to determine export profit with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the said deduction under Section 80HH. In G.T.N. Textiles Ltd., vs. Deputy Commissioner of Income-Tax (Assessment) And Another, [supra], the Kerala High Court held that interest on Bank deposits was not profit derived from export of goods. The Kerala High Court has further held that the interest earned by the assessee on fixed deposits, commission received on sale of machinery, etc., were not business income and consequently the assessee was not entitled to computation of eligible deduction under Section 80HHC of the Act by including those receipts under business income. Therefore, considering the aforesaid two decisions, we must hold that the Tribunal as well as the Commissioner of Income Tax (Appeals), both committed an error in treating the interest on deposits as 'business income' and granting the assessee the deduction under Section 80HHC of the Act. 8. In Commissioner of Income-Tax vs. Sterling Foods, [supra], the assessee was engaged in processing prawns and other s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80HHC of the Income Tax Act only an assessee being an Indian Company or a person resident in India can claim the benefit/deduction under Section 80HHC. Admittedly, the assessee, in the present case, is not an 'Indian Company'. Under the circumstances, for the sales in India by the assessee and the income earned by the assessee for sales in India, the assessee would not be entitled to deduction under Section 80HHC of the Act. Under the circumstances, the Tribunal committed an error in holding that the income from sales in India by the assessee are forming part of the total profits to work out the total turnover and qualifying profit. Therefore the assessee would not be entitled to the deduction under Section 80HHC of the I.T. Act for the income earned by it by sales in India. 10. Thus, considering the aforesaid decisions and Section 80HHC of the Income Tax Act, the Tribunal as well as the C.I.T. (Appeals) both have committed an error in treating the income of interest on deposits, export incentive, octroi refund and sales in India to be part of the total profits to work out total turnover and qualifying profit and treating the same as business income, and the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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