TMI Blog2008 (3) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... Krishnan and K. Anand for the assessee. P. K. R. Menon and George K. George for the Commissioner JUDGMENT The judgment of the court was delivered by C. N. Ramachandran Nair, J. - These connected tax reference cases and appeal arise from orders ofthe Income-Tax Appellate Tribunal confirming exclusion of 90% of incomeof various nature from the total profits of the assessee in the computation ofexport profit under Section 80HHC of the Income Tax Act, 1961. Besidesmanufacturing and exporting of products, the assessee was engaged indoing job works for others, particularly exporters, the income wherefromwas also included as business profit in the computation of proportionateexport profit for deduction under Section 80HHC of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same was rightly made in the computation of eligible export profit for deduction. In order to appreciate the contentions raised, we have to refer to the relevant provisions of the Act and for this purpose we extract the relevant provision hereunder : Explanation to Section 80HHC (4B) : …. "...... (baa) profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by- (1) ninety percent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits ; and (2) the profits of any branch, office, ware ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y virtue of inclusion clause contained in Section 28 of the Act, is to ensure that in the course of working out the eligible export profit on a proportionate basis with reference to the total turnover and export turnover, the net result should not be a distorted figure. In other words, the formula seeks to achieve determination of export profit as realistic and as near as possible. The purpose of clause (baa) is to exclude such items of receipts which are not derived from business turnover. Brokerage, commission, interest and rent etc. are obviously items which are essentially in the nature of net receipts and are not derived out of the total turnover of the assessee. In fact besides these four items enumerated in clause (baa)(1), charges o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt 90% of which has to be excluded as "charges" under clause (baa). Strangely, none of the authorities considered the claim of the assessee that they were purchasing raw materials in their own account and used them in manufacture of final product leading to value addition at the assessee's cost on the awarder's raw material like door mats and coir carpets. In fact a single document namely, sales tax assessment for the relevant year would have proved this fact in as much as if the assessee has purchased rubber latex in their own account and used it in the embellishment work on the product of the awarder, then assessee would have incurred sales tax leading to liability for sales tax on purchase of raw material namely, rubber and sales tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assesssee in raw material, labour etc. and if the Assessing Officer finds that assessee has borne cost of raw material and engaged in improvement or value addition of the raw materials and the total turnover includes cost of raw material, labour charges and profit and sales tax, then the Officer is directed to include the entire receipts in total profit i.e. without exclusion under clause (baa) of the Act. The Assessing Officer is directed to find out the eligible profit in terms of the above direction and issue fresh orders after giving an opportunity to the assessee, within a period of three months from the date of receipt of copy of this judgment. The Reference Cases as well as the Appeal are disposed of as above. 5. A copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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