2015 (4) TMI 1110 - HC - Income Tax

Revision u/s 263 - deduction u/s 80 HHC - whether the lease hire charges and refund of duty on export proceeds on other services, received by the assessee was operational income attributable to the business of the Assessee or not ? - Held that - Commissioner of Income Tax in exercising his powers in revision has sought to revise the same on the ground that the aforesaid income has for the purposes of Section 80 HHC of the Act has to be excluded from business income and considered as income from other sources. This for the purposes of arriving at export profits under Section 80 HHC of the Act. It is not disputed that the respondent - assessee s income from hire / lease from vessels / barges etc. were a part of its business income under the head of profit and gain of business as a part of its composite business. The order in revision of the Commissioner of Income Tax, seeks to reclassify income from profit and gain of business as income from other sources merely on the ground that such income is not connected with export business and does not qualify for export business. This view of the Commissioner of Income Tax is not correct in law and the view taken by the Assessing Officer cannot be said to be erroneous. This is for the reason that undisputedly to take care of such contingencies that the parliament has prescribed a formula in Section 80 HHC (3) of the Act to arrive at the profits derived from the export business. The above formula which enables arriving at the profits attributable to export business after taking into account the profit of the business as a whole subject to clause (baa) of the explanation to Section 80 HCC of the Act. Thus the Assessing Officer s view was not erroneous for the exercise of powers of revision under Section 263 of the Act. In fact, on the contrary, if the Commissioner s reasoning is to be adopted that all income which is not connected with export business even if it is a part of profits and gain of business has to be reclassified as income from other sources, then clause (baa) of the explanation to Section 80 HHC of the Act would be rendered redundant. This is for the reason that then there would be no occasion to reduce the profits and gains of business by 90% of any income which falls therein. It is well settled principle of law that a statute should not be so interpreted that any part of statute is rendered redundant. Besides, in any view of the matter, the view taken by the Assessing Officer on the basis of the law as it then stood is a possible view. Thus, the exercise of jurisdiction under Section 263 of the Act by the Commissioner of Income Tax is not justified. - Decided in favour of assessee

Summary

Issues:
- Interpretation of Section 80 HHC of the Income Tax Act, 1961
- Jurisdiction under Section 263 of the Act
- Classification of income as business income or income from other sources

Analysis:

Interpretation of Section 80 HHC of the Income Tax Act, 1961:
The case involved appeals against two orders of the Income Tax Appellate Tribunal (ITAT) for assessment years 1995-1996 and 1996-1997. The key question was whether the income received by the assessee in the form of lease hire charges and refund of duty on export proceeds should be classified as operational income attributable to the business or as income from other sources. The Commissioner of Income Tax had revised the assessment order, contending that such income should be classified as income from other sources, not connected with the export business. However, the ITAT held that in a composite business, income from lease/hire of vessels should be considered as part of business income under Section 80 HHC of the Act. The ITAT relied on the decision in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax to support the view that if the Assessing Officer has taken a possible view, it cannot be considered erroneous solely based on a different view by the Commissioner.

Jurisdiction under Section 263 of the Act:
The Commissioner's exercise of jurisdiction under Section 263 of the Act was challenged by the appellant, arguing that the Assessing Officer's view was not erroneous in law. The appellant contended that the Commissioner's reclassification of income from business income to income from other sources was not justified as it would render certain provisions of the Act redundant. The appellant relied on the principle that a statute should not be interpreted in a way that renders any part redundant. The court emphasized that the power under Section 263 is to be exercised when the order is both erroneous in law and prejudicial to the interest of revenue, which was not the case here.

Classification of income as business income or income from other sources:
The court upheld the ITAT's decision, stating that the income from lease charges and export proceeds refund was attributable to the profits and gains of the business of the assessee. Therefore, it could not be classified as income from other sources. The court found that the Assessing Officer's view was not erroneous, especially considering the formula provided in Section 80 HHC(3) of the Act to calculate profits derived from export business. The court concluded that the Commissioner's exercise of jurisdiction under Section 263 was not justified, and the income in question should be treated as business income, not income from other sources.

In conclusion, the court dismissed the appeals, ruling in favor of the respondent-assessee and against the revenue for both assessment years involved. No costs were awarded in the case.