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TMI Blog2016 (9) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... hers of Rs. 1,05,50,306/-, the interest from IDBI of Rs. 4,14,375/-, the rent receipt of Rs. 2,07,584/- and the dividend income of Rs. 19,52,108/-, form part of the "Profit of eligible business"? The answer to either of the questions would also answer the other question. 2. Section 80HHC in so far as it is relevant and as it stood at the relevant time read as under:- "Deduction in respect of profits retained for export business. ..... ..... ..... ..... (3) For the purpose of sub-section (1), profits derived from the export of goods or mechandise out of India shall be:- (a) In a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or mechandise to which this section applies, the profits of the business as computed under the head 'profits and gains of business of profession': (b) In a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business as computed under the head 'profits and gains of business or profession' the same proportion as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was excluded while computing the deductions claimed under sections 32AB and 80HHC. 6. Mr. Alok Mittal, the learned counsel appearing on behalf of the respondent relied upon para 4(i) of this appeal where it is stated that by mistake in the computation of income, the said interest was not assessed under the head "income from other sources". It is averred that the mistake cannot override the specific finding. This, he submitted, is an admission that the said income was assessed under the head "Profits and gains of business". 7. We will assume this to be so. The position then would be that the amount received towards interest was assessed under the head "Profits and gains of business" while computing the income but was excluded only for the purposes of considering the deductions under sections 32AB and 80HHC. 8. The question that arises is if in view of the assessment order having computed the interest under the head "Profits and gains of business", we are precluded from considering whether the interest falls under the head "Income from other sources". Mr. Mittal contended that the Assessing Officer having computed the income on the basis that it falls under the head "Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not follow that it, in fact, does so. The Memorandum of Association only entitles a company to carry on activities mentioned therein. A company is not bound to carry on all the activities mentioned in its Memorandum of Association. It is well known that usually the Memorandum of Association entitles a company to carry on various activities, although the company has no intention of doing so at the time of the preparation of the Memorandum of Association. Such objects are included for convenience in the event of the company deciding in future to undertake such activities for otherwise it would require the company to go through the procedure of making an application before the Court or the Company Law Board for amending its Memorandum of Association. Thus, even assuming that the assessee's Memorandum of Association entitles it to carry on the business of money lending, the income by way of interest on amounts lent and advanced would not be considered as business income unless the assessee establishes that it in fact carries on the business of money lending. There is nothing on record that establishes that the assessee carries on the business of money lending. The income received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and assessed as income from business or profession, there is no reason for reducing the same out of the income from business or profession for the purpose of calculation of deduction under Section 80HHC of the Act, as after including the same in the income from business or profession, the reduction, as envisaged under that provision, would be carried out. This is clear even from what the Tribunal has directed. Accordingly, we do not find any merit in this contention of the Revenue and hold that once the income is assessed as income from business or profession, the same has to be taken as such for the purpose of calculation of profits of the business in terms of Clause (baa) of Section 80HHC of the Act after reducing therefrom 90 per cent of the amount, so referred in the clause." 13. In CIT Vs. M/s Avery Cycles Industries Limited, [2008] 296 ITR 393, while dealing with the deduction under section 80HHC, the interest received was held to be not connected with the business activity and the assessing officer treated the same as income from other sources, but, while computing the income from business or profession the same was taken as a part of the business income and was not reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gains of business or profession". To put it differently, the Assessing Officer has not assessed the interest income from customers, sales tax set off, etc. under the head "Income from other sources" or under any other head. Having assessed these incomes under the head "Profits and gains of business or profession", it was not open to the Assessing Officer to treat these incomes as if assessed under the head "Income from other sources", so as to exclude the same from the business profits while computing the deduction under section 80HHC of the Income-tax Act. A Perusal of the assessment order clearly shows that the amounts in question have not been assessed under the head "Income from other sources", but, the same have been assessed under the head "Profits and gains of business or profession". Under section 80HHC(3) relevant to assessment year 1989-1990, the deduction was to be computed with reference to the profits of the business as computed under the head "Profits and gains of business or profession". In the present case, the interest income from customers and sales tax set off have been computed and assessed under the head "Profits and gains of business or profession" as part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase before us itself demonstrates. On account of the income being computed under the wrong head of income in the computation of income, the error is carried forward while computing the deductions under sections 32AB and 80HHC. Moreover it is possible that the assessment could have an impact in the event of there being any amendment to the law. It is desirable, therefore, that the assessment order should reflect the correct position. 19. This view is not contrary to or in conflict with the judgment of the Division Bench in CIT vs. Avery Cycles Industries Limited (supra). At the cost of repetition, the Department in that case did not make an application similar to the one made by Mr. Klar before us. Nor did the Department in that case agree that a fresh assessment order would be passed in accordance with the correct position in all respects relating to the assessment. There is no warrant for knowingly including amounts under a wrong head. To insist upon an error being continued invites the authorities and the court to endorse the error. There is nothing in law or in principle that requires or even permits this. There is nothing in law or in principle that prohibits the authorities u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under Section 72) of- (i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or (ii) a sum equal to twenty per cent of the profits of eligible business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5), whichever is less: Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the case may be, any member of such firm, association of persons or body of individuals. (2) For the purposes of this section, - (i) "eligible business or profession" shall mean business or profession, other than- (a) the business of construction manufacture or production of any article or thing spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows is in respect of income chargeable to tax under the head "Profits and gains of business or profession". Clearly, therefore, it is business income only that is dealt with under sub-section (1). 27. Mr. Mittal's reliance upon sub-section (2) is not well-founded. Indeed the assessee's business is an eligible business within the meaning of sub-section (2). Sub-section (2) only specifies what an eligible business is. Every eligible business is, however, not entitled to a deduction under Section 32AB. An eligible business is entitled to a deduction only in respect of its income chargeable to tax under the head "Profits and gains of business or profession". 28. Mr. Mittal then relied upon sub-section (3)(b). He contends that the total profits of an assessee's business must be as computed in accordance with Parts-II and III of the VIth Schedule of the Companies Act. He relies upon the opening words of sub-section (3): "The profits of eligible business or profession of an assessee for the purpose of sub-section (1) shall, -". He then relies upon the fact that clause (a) of sub-section (3) provides that where separate accounts are maintained the profit is to be computed in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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