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COMMISSIONER OF INCOME TAX-V Versus SURESH ZAVERI EXPORTS

Deduction under section 80HHC - Whether the Income Tax Appellate Tribunal is right in law and on facts in holding that 90% of profit of sale of licence computed in the proportion of export turnover to the total turnover should be added to the profit of business for computation of deduction u/s 80HHC? - Held that:- We have also gone through the judgment cited by learned advocate for the respondent. In the case of ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income-Tax reported in [2012 (2 .....

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JHAVERI AND MR. G.R.UDHWANI, JJ. FOR THE APPELLANT : MRS MAUNA M BHATT, ADVOCATE FOR THE OPPONENT : MR TEJ SHAH, ADVOCATE, MR. DEEPAK R SHAH, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, the appellant has challenged order dated 25.07.2008 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench D , Ahmedabad in ITA No.1397/Ahd/2004. 2. At the time of admitting present appeal, following question of law was framed:- Whether the Income Tax Appellate .....

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be set aside. 4. Learned advocate for the respondent submitted that the issue involved in this appeal is covered by decision of the Honourable Apex Court in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income-Tax reported in [2012] 343 ITR 89 (SC). It is submitted that present appeal may be disposed of as per the observations made in the aforesaid decision. 5. We have heard learned counsel for both the side and also perused the record. We have also gone through the judgment cited by lea .....

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s of the business. In the aforesaid decision, it is observed as under:- 10. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head Profits and Gains of Business or Profession . The expression included any such profits in clause (1) of the Explanation (baa) would mean only such .....

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of Business or Profession , ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining profits of the business of the assessee under Explanation (baa) to Section 80HHC. 11. For this interpret .....

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dance with and subject to the provisions of this Section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends an amount equal to a certain percentage of the income mentioned in this Section. The Constitution Bench held that the Court must construe Section 80M on its own language and arrive at its true interpretation according to the plain natural meaning of the words used by the legislature and so construed the words such income by way of d .....

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ure of receipts but also the quantum of receipts included in the profits of the business as computed under the head Profits and Gains of Business or Profession referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head Profits and Gains of Business or Profession , ninety per cent of such quantum of the receip .....

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the assessee as computed under the head Profits and Gains of Business or Profession , ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head Profits and Gains of Business or Profession , is to be deducted .....

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rected the Assessing Officer to dispose of the issue in accordance with the judgment of the Bombay High Court in Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra). We must, thus, examine whether reasons given by the High Court in its judgment in Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra) were correct in law. 14. On a perusal of the judgment of the High Court in Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra), we find that the reason which weighed with the High Co .....

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se. In that case, the assessee owned a factory in which he processed cashew nuts grown in his farm and he exported the cashew nuts as an exporter. At the same time, the assessee processed cashew nuts which were supplied to him by exporters on job work basis and he collected processing charges for the same. He, however, did not include such processing charges collected on job work basis in his total turnover for the purpose of computing the deduction under Section 80HHC (3) of the Act and as a re .....

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rising from processing charges had to be deducted under Explanation (baa) to arrive at the profits of the business. In this case, this Court held that the processing charges received by the assessee were part of the business turnover and accordingly the income arising therefrom should have been included in the profits and gains of business of the assessee and ninety per cent of this income also would have to be deducted under Explanation (baa) under Section 80HHC of the Act. In this case, this C .....

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utation of deduction and while excluding such items which are unrelated to export for the purpose of Section 80HHC, Parliament has taken due note of the fact that the exporter assessee would have incurred such expenditure in earning the profits and to avoid a distorted figure of export profits, ninety per cent of the receipts like brokerage, commission, interest, rent, charges are sought to be excluded from the profits of the business. In our considered opinion, it was not necessary to refer to .....

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ncluded in the profits of business of the assessee. 16. In the result, we allow the appeal and set aside the impugned order of the High Court and remand the matter to the Assessing Officer to work out the deductions from rent and interest in accordance with this judgment. No costs. Civil Appeal No.4534 of 2008 2. The facts of this case very briefly are that Bharat Rasayan Limited (for short the assessee') filed a return of income tax claiming a deduction of ₹ 72,76,405/- under Section .....

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