2005 (1) TMI 76 - HC - Income Tax

Deduction u/s 80HHC - whether while computing the deduction under section 80HHC the assessee is entitled to take into consideration the (i) interest said to have been paid by them on export packing credit limit, (ii) interest said to have been paid on term loan obtained for setting up of project, and lastly-depreciation calculated on computer installed - whether the amount spent by the assessee in the aforementioned three heads can be said to be direct cost or indirect cost as defined in the Explanation to section 80HHC of the Act, dealing with the manufactured item exported by the assessee so as to entitle them to claim deduction under section 80HHC - This court cannot for the first time and without there being a factual finding recorded by the Tribunal in the light of the two Explanations examine the case in its appellate jurisdiction. It is for the Tribunal to first examine the facts of the case and give a finding whether a particular amount can be said to be a direct costs or indirect costs or neither of them appeal allowed by way of remand

Summary

Issues Involved:
Appeal under section 260A of the Income-tax Act, 1961 regarding deduction under section 80HHC for direct cost of exported goods.

Analysis:

The judgment pertains to an appeal filed by the Revenue (Commissioner of Income-tax) under section 260A of the Income-tax Act, 1961, against an order passed by the Income-tax Appellate Tribunal. The substantial question of law in this case was whether the Tribunal was required to direct the Assessing Officer to work out the direct cost of the finished goods of exported items for the purpose of claiming deduction under section 80HHC. The main contention was whether certain expenses like interest on export packing credit limit, interest on term loan, and depreciation on computer installation could be considered as direct costs under section 80HHC.

The Tribunal held that the expenses under consideration could be included in the cost of manufactured goods for claiming deduction under section 80HHC. However, the High Court observed that the Tribunal did not adequately consider the definitions of direct costs and indirect costs as per the Explanation appended to section 80HHC. The High Court emphasized that the determination of whether an expense qualifies as a direct or indirect cost is crucial before allowing the deduction under section 80HHC.

The High Court concluded that the Tribunal failed to properly analyze the expenses in light of the definitions provided in the Explanation to section 80HHC. Therefore, the case was remanded back to the Tribunal for a fresh hearing to determine whether the expenses in question could be classified as direct costs or indirect costs as defined in the statute. The High Court highlighted the importance of factual findings by the Tribunal before appellate courts can review such matters, emphasizing the need for a thorough examination of the facts to determine the eligibility for deductions under section 80HHC.

In summary, the High Court allowed the appeal, set aside the Tribunal's order, and remanded the case for fresh consideration based on a proper analysis of whether the expenses in question qualified as direct or indirect costs under section 80HHC. The judgment underscored the significance of adhering to the statutory definitions and factual determinations in tax matters to ensure accurate application of the law and entitlement to deductions.