2011 (11) TMI 195 - HC - Income Tax

Determination of profits of business in terms of Explanation (baa) to Section 80HHC - 90% of the net commission or gross commission receipts to be deducted while such determination Held that - In view of the consistent stand taken by this Court, by following the ratio laid down in The CIT vs V.Chinnapandi (2006 (1) TMI 65 - MADRAS High Court) for the purpose of giving deduction under Section 80HHC of the Act, the same must be from the gross interest received by the assessee. Accordingly, the impugned order of the Tribunal stands set aside and the substantial question of law is answered in favor of the Revenue.

Summary

Issues:
1. Interpretation of Explanation (baa) to Section 80HHC - whether 90% of net commission or gross commission receipts should be deducted while arriving at the "profits of business."

Analysis:

Issue 1: Interpretation of Explanation (baa) to Section 80HHC
The primary issue in this case revolves around the interpretation of Explanation (baa) to Section 80HHC concerning the deduction of commission receipts for determining the profits of the business. The assessing officer initially deducted 90% of the net commission, while the assessee contended that only net commission receipts should be considered for deduction. The Commissioner of Income Tax (Appeals) supported the assessee's position, directing a reevaluation. However, the Revenue challenged this decision before the Income Tax Appellate Tribunal, which relied on a previous Delhi Bench decision and held that only 90% of the net commission should be deducted. The Tribunal's decision was further contested by the Revenue in the High Court.

Issue 1 Analysis:
Upon reviewing the case law, the High Court referred to a previous judgment in THE COMMISSIONER OF INCOME TAX V. V.CHINNAPANDI (2006) 282 ITR 389 (MAD), where it was established that for claiming deductions under Section 80HHC, the deduction should be from the gross interest received by the assessee. This ruling was reinforced by the Division Bench in THE COMMISSIONER OF INCOME TAX VS. DEVARAJ NENSEE AND CO, (2010) 322 ITR 430(MAD), reiterating the importance of considering gross receipts for deductions. The Court emphasized the principle of "netting" to ensure that income is not taxed without accounting for the expenses incurred in earning that income. Consequently, the High Court ruled in favor of the Revenue, setting aside the Tribunal's decision and affirming the importance of considering gross commission receipts for deductions under Section 80HHC.

Conclusion:
The High Court's judgment clarifies the application of Explanation (baa) to Section 80HHC, emphasizing the significance of deducting 90% of gross commission receipts for determining the profits of the business. The decision aligns with established legal principles and previous court rulings, ensuring consistency and adherence to statutory provisions in tax assessments.