2010 (1) TMI 618 - HC - Income Tax

Export- Computation - deduction of export profit u/s 80HHC(3)- - The assessee has local sales as well as export sales - the Assessing Officer noticed that business profit arrived at by the assessee includes income from sale of scrap and insurance claim received which according to the Assessing Officer falls under any other receipt of similar nature requiring exclusion of 90 per cent. thereof by virtue of Explanation (baa)(i) to section 80HHC - As regards of sale of scrap the assessee contended that there is no finding by any other authorities in this regard hence it is treated as a part of business income. Regards insurance claim - there is no discussion as to the nature of insurance claim received by the assessee in the orders of any of the authorities below - Prima facie it falls under the Explanation clause - If the claim received is on account of loss of goods which form part of the total turnover then it has to be treated as business profit and the corresponding turnover will form part of the total turnover in the computation of export profit for deduction - Hence the Assessing Officer should re-examine the matter after verifying the facts.

Issues:
Challenge to order of Tribunal regarding computation of deduction of export profit under section 80HHC(3) of the Income-tax Act, 1961 by excluding 90% of income on sale of scrap and insurance claim received.

Analysis:
The appeal before the Kerala High Court involved a challenge by the Revenue against the Tribunal's decision regarding the computation of deduction of export profit under section 80HHC(3) of the Income-tax Act, 1961. The dispute centered around the exclusion of 90% of income on the sale of scrap and insurance claim received by applying Explanation (baa)(i) to section 80HHC. The assessee, engaged in manufacturing and selling automotive parts both within and outside India, was entitled to deduction of export profit under section 80HHC. The Assessing Officer contended that income from scrap sales and insurance claim should be excluded as "any other receipt of similar nature" under Explanation (baa)(i) to section 80HHC. However, the assessee argued that these items should not be excluded as they formed part of the turnover and profit from business. The court considered the Supreme Court's decision on processing charges and the formula for computation of eligible deduction of export profit. It was noted that the issue was not on the denominator but on whether income from scrap sales and insurance claim should be excluded under Explanation (baa)(i).

The court analyzed the nature of receipts covered by Explanation (baa)(i) and emphasized that exclusion of 90% from business profit was only applicable if the item of profit was included in business profit. It was highlighted that items like brokerage, commission, interest, and rent were separate from turnover and needed to be excluded for accurate computation of export profit. The court concluded that income from the sale of scrap was part of business profit and its sales turnover should be included in the total turnover for determining eligible deduction of export profit. However, if the scrap sales turnover was not included in the total turnover, it should be added as the denominator. Regarding the insurance claim, the court directed the Assessing Officer to re-examine the matter to determine if the claim received was on account of loss of goods forming part of the total turnover.

In conclusion, the court disposed of the appeal by holding that income from scrap sales should not be excluded under Explanation (baa)(i) to section 80HHC, but the scrap sales turnover should be included in the total turnover. The court also directed a re-examination of the insurance claim by the Assessing Officer for further verification.

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