1995 (11) TMI 18 - HC - Income Tax

Business Income, Cash Compensatory Support, Commercial Profit, Deduction From Profits And Gains, Investment Allowance, New Industrial Undertaking In Backward Area, Profits And Gains Of Business, Revenue Receipt

Summary

Issues:
1. Interpretation of deduction under section 80HH of the Income-tax Act, 1961.
2. Taxability of cash compensatory support receipt for export.

Interpretation of deduction under section 80HH:
The High Court was presented with the issue of whether the Income-tax Appellate Tribunal was justified in directing the Income-tax Officer to allow the deduction under section 80HH without deducting investment allowance, deduction under section 35B/80J, etc. The court referred to a previous case and highlighted that for the purpose of determining relief under section 80HH, the gross total income should be calculated after deducting unabsorbed losses and unabsorbed depreciation. The net income, as per the provisions of the Act, is eligible for deduction under section 80HH, not the gross income. Consequently, the court ruled in favor of the Revenue and against the assessee on this issue.

Taxability of cash compensatory support receipt for export:
Regarding the taxability of cash compensatory support (CCS) receipts for exports, the court noted that amendments were made to the law after the reference was made by the Tribunal. An Explanatory Note issued in this regard clarified that CCS, drawback of duty, and profit on sale of import entitlement licenses were considered revenue receipts and hence taxable. The court highlighted that new clauses were inserted in section 28 of the Income-tax Act to specify that profit on sale of import entitlement licenses, CCS, and drawback of duty shall be chargeable to income-tax under the head "Profits and gains of business or profession." These amendments were made effective retrospectively from the dates these incentives were introduced. Consequently, due to the amended provisions, the court ruled in favor of the Revenue and against the assessee on this issue as well.

In conclusion, the High Court answered both questions in favor of the Revenue and against the assessee based on the interpretation of the relevant provisions and amendments made to the Income-tax Act, 1961.