2003 (2) TMI 15 - HC - Income Tax

Whether, while computing the relief under section 80HHC of the Income-tax Act, 1961, the processing charges (received by the assessee for processing cashew kernels belonging to third parties in the factory of the assessee) could be excluded from the turnover of the business? - that the processing charges received by the assessee cannot be included in the definition of total turnover in clause (ba) of the Explanation to section 80HHc. We are also of the view that the provisions of clauses (iiia), (iiib) and (iiic) of section 28 do not alter the position Assessee s appeal allowed

Issues Involved:

1. Inclusion of processing charges in the total turnover for section 80HHC relief.
2. Definition of total turnover under section 80HHC and its scope.
3. Assessment of interest on deposit accounts as income from other sources.
4. Applicability of previous High Court decisions on the assessment of interest income.
5. Characterization of interest income as business income when maintaining margin money for imports.

Detailed Analysis:

Issue 1: Inclusion of Processing Charges in Total Turnover

The primary issue is whether processing charges received by the assessee for processing cashew kernels belonging to third parties should be included in the total turnover for the purpose of relief under section 80HHC of the Income-tax Act, 1961. The assessee argued that processing charges, though part of the income, should not be included in the total turnover while computing the deduction under section 80HHC. The Assessing Officer and the Commissioner of Income-tax (Appeals) included the processing charges in the turnover. However, the Income-tax Appellate Tribunal accepted the assessee's contention and directed the exclusion of processing charges from the total turnover. The High Court upheld the Tribunal's decision, concluding that processing charges do not constitute turnover as they are not related to the sale of goods.

Issue 2: Definition of Total Turnover

The court examined the definition of "total turnover" under section 80HHC, which excludes freight or insurance attributable to the transport of goods beyond the customs station. The court noted that the definition is not exhaustive and that "total turnover" generally means the aggregate amount for which goods are sold. The court emphasized that turnover must relate to the purchase or sale of goods and not to other receipts like processing charges. The court cited various dictionaries and legal lexicons to support this interpretation, concluding that processing charges do not form part of the total turnover as they are not related to the sale of goods.

Issue 3: Assessment of Interest on Deposit Accounts

In I.T.A. Nos. 86 and 105 of 2000, the issue was whether interest on deposit accounts made not for the purpose of the business should be assessed separately as income under the head "Other sources." The court referred to previous judgments (K. Ravindranathan Nair v. Deputy CIT and CIT v. G. Satheesh Nair) and concluded that such interest income should be assessed as income from other sources, not business income.

Issue 4: Applicability of Previous High Court Decisions

The court noted that the issues regarding the assessment of interest income were covered by previous High Court decisions, which were against the assessee and in favor of the Revenue. Therefore, the court upheld these decisions and ruled in favor of the Revenue on this issue.

Issue 5: Characterization of Interest Income

The court also addressed whether the character of interest income changes if the assessee is required to maintain margin money for imports. Referring to the case of Nanji Topanbhai and Co. v. Asst. CIT, the court concluded that the interest income does not become business income merely because it is related to margin money for imports. The interest income should still be assessed as income from other sources.

Conclusion:

The High Court concluded that processing charges received by the assessee for processing raw cashew nuts belonging to third parties should not be included in the total turnover for the purpose of section 80HHC relief. The court also ruled that interest on deposit accounts made not for business purposes should be assessed as income from other sources, in line with previous High Court decisions. The court directed the Assessing Officer to modify the assessment orders accordingly.

← Previous Next →