2011 (2) TMI 178 - HC - Income Tax

Computation of deduction u/s 80HHD - Money-changer activity - When there is a reasonable dispute as to whether this facility of money changer, which is provided on no-profit-no-loss basis, can even be treated as business activity of the assessee and thus find part of total turnover - the judgment of the Supreme Court in CIT v. Lakshmi Machine Works 2007 -TMI - 6557 - SUPREME Court , the Tribunal while holding that since the receipts with the money changer would not be eligible for computation of the deduction admissible under section 80HHD and deserves to be excluded from the total turnover as a whole. As regards Expenditure tax - The order of the Tribunal would demonstrate that the Tribunal has not even addressed this issue though it was specifically raised before the Tribunal - Thus, in the first instance, the Tribunal should bestow its consideration on this aspect of the matter on merits - Accordingly remit this appeal to the Tribunal for its decision on that issue.

Summary

Issues:
1. Computation of benefit under section 80HHD of the Income-tax Act for a hotel business.
2. Inclusion of specific sums in the total turnover for computing deductions under section 80HHD.
3. Treatment of money-changing activity receipts in the total turnover.
4. Exclusion of expenditure tax in the computation of deductions under section 80HHD.

Analysis:

1. The respondent, engaged in the hotel business, qualified for benefits under section 80HHD of the Income-tax Act. The dispute arose when the Assessing Officer reopened the assessment for the year 1998-99, claiming that the benefit was incorrectly computed, resulting in escaped income assessment. The issue centered around the computation of deductions under section 80HHD based on earnings in convertible foreign exchange.

2. The Assessing Officer contended that specific sums, such as money-changing business receipts and expenditure tax, were not included in the total turnover for computing deductions under section 80HHD. This exclusion led to a reduction in the available deduction for the assessee. The CIT(A) later excluded these sums from the denominator, following which the Income-tax Appellate Tribunal upheld the decision, dismissing the Revenue's appeal.

3. Regarding the money-changing activity receipts, the Tribunal noted that the assessee provided this service on a no-profit-no-loss basis, thus not qualifying for deduction under section 80HHD. The Tribunal relied on precedent and the assessee's fiduciary capacity argument to exclude these receipts from the total turnover, emphasizing the absence of profit in this specific activity.

4. The issue of expenditure tax was not directly addressed by the Tribunal in its decision. The Court decided to remit this specific issue back to the Tribunal for further consideration and a decision based on merits, highlighting the need for a comprehensive review of this aspect.

In conclusion, the Court upheld the Tribunal's decision regarding the treatment of money-changing activity receipts in the total turnover, emphasizing the lack of interference required due to the reasonable dispute surrounding this specific business activity. However, the Court directed the Tribunal to reconsider the issue of expenditure tax for a more thorough examination and decision.