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2010 (6) TMI 433 - HC - Income TaxExport Special deduction Insurance claim on stock-in-trade Not independent income nor receipt of a nature similar to Brokerage, Commission, Interest, or charges Insurance claim part of Business income Not liable to be reduced to the extent of 90% while calculating eligible profits. Rental income of ₹ 2,85,60,871 received by the assessee-company from sub-leasing of commercial premises is to be considered as Income from house property even though the renting out of the premises amounts to commercial exploitation for business purposes by the assessee-company Retrenchment compensation paid to workmen - Three units - None of the manufacturing units functioned as independent profit centres. All purchases for the manufacturing units were centralized at the head office. The sales and marketing function was also centralized. The working capital requirements and capital commitments with regard to plant operations were also centralized. - The closure of the unit at Ankleshwar did not involve the closure of the business. The retrenchment compensation paid to the workmen was therefore an allowable deduction within the meaning of section 37(1) since there was no closure of the business.
Issues Involved:
1. Insurance claim related to stock-in-trade and its exclusion under section 80HHC. 2. Sundry receipts and their exclusion under section 80HHC. 3. Classification of rental income from sub-leasing as 'Income from house property' or 'business income'. 4. Treatment of retrenchment compensation as revenue expenditure. Issue-wise Detailed Analysis: Re: Question A (Insurance Claim and Section 80HHC) The Tribunal held that the insurance claim related to the stock-in-trade of the assessee-company and should not be excluded by 90% while computing eligible profits under section 80HHC. The Tribunal reasoned that the insurance claim formed part of the business income and was not similar to brokerage, commission, interest, rent, or charges as specified in Explanation (baa) to section 80HHC. The Revenue argued that the insurance claim was independent income unrelated to export turnover and should be excluded by 90%. The court referred to the Supreme Court's judgment in CIT v. K. Ravindranathan Nair, which stated that independent incomes like rent, commission, and brokerage should be excluded from business profits to avoid distortion. However, the court concluded that the insurance claim indemnified the assessee for the loss of stock-in-trade and was not an independent income similar to brokerage or commission. Therefore, the insurance claim should not be reduced by 90% under Explanation (baa). Re: Question B (Sundry Receipts and Section 80HHC) The Tribunal's order lacked discussion on the nature and treatment of sundry receipts amounting to Rs. 28.17 lakhs. Both parties agreed that the issue should be remanded to the Tribunal for fresh consideration after hearing both sides. Re: Question C (Rental Income Classification) The Tribunal found that the rental income from sub-leasing commercial premises should be classified as 'Income from house property.' The Tribunal's decision was based on the Assessing Officer's finding during the remand for the assessment year 1996-97, which was accepted by the Revenue. The court upheld the Tribunal's view, stating that it did not raise any substantial question of law. Re: Question D (Retrenchment Compensation as Revenue Expenditure) The assessee paid retrenchment compensation to workmen following the closure of its Ankleshwar unit. The Tribunal found that the assessee's business operations were centralized and interdependent, with no closure of the overall business. Therefore, the retrenchment compensation was considered revenue expenditure allowable under section 37(1). The court agreed with the Tribunal's view, finding no error and concluding that no substantial question of law arose. Conclusion: The appeal was disposed of with no order as to costs, with the following determinations: - The insurance claim related to stock-in-trade should not be excluded by 90% under section 80HHC. - The issue of sundry receipts was remanded to the Tribunal for fresh consideration. - The rental income from sub-leasing should be classified as 'Income from house property.' - The retrenchment compensation paid to workmen qualifies as revenue expenditure under section 37(1).
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