2010 (10) TMI 855 - HC - Income Tax

Whether deduction u/s 80 HHC is admissible on compensation received by the assessee in lieu of loss arising from tax payment in the absence of disclaimer certificate - Held that - mere fact that the amount received by the assessee did not fall under Clauses (iiia), (iiib) or (iiic) of Section 28, was not enough to attract Section 80 HHC of the Act. Section 80 HHC of the Act was not attracted to every business income but only to income derived from export, as specified in the said Section. The amount received by the assessee was not shown to be covered by Section 80 HHC of the Act as the same was not from export as required therein. assessee has not been able to show how the compensation received by it will fall under Section 80 HHC of the Act. He only submits that the said income was a business income. Mere fact that the assessee derived business income not falling under Section 80 HHC(4B) explanation (baa)(1), which refers to income covered under Section 28(iiia), (iiib), (iiic) of the Act, is not enough to attract Section 80 HHC of the Actquestion of law raised by the revenue has to be answered in its favour and against the assessee. The appeal is allowed.

Summary

Issues:
Interpretation of Section 80 HHC of the Income Tax Act, 1961 regarding the admissibility of deduction on compensation received in lieu of loss arising from tax payment without a disclaimer certificate.

Analysis:
The appeal before the High Court pertained to the admissibility of a deduction under Section 80 HHC of the Income Tax Act, 1961. The appellant, the revenue, challenged the order of the Income Tax Appellate Tribunal allowing the deduction on the compensation received by the assessee from M/s Pepsico India Holding (P) Ltd. The primary issue was whether the said compensation could be considered as income derived from export, as required by Section 80 HHC for claiming the deduction. The Assessing Officer had disallowed the exemption, contending that the income did not fall under Section 80 HHC. However, the CIT(A) ruled in favor of the assessee, stating that the income did not fall under Section 28 (iiia), (iiib) or (iiic) and thus qualified for the deduction.

The High Court analyzed the provisions of Section 80 HHC and emphasized that the exemption was applicable only to income derived from export activities. The revenue argued that the compensation received did not meet the criteria specified under Section 80 HHC as it was not related to export income. The Court noted that the mere fact that the income did not fall under Section 28 (iiia), (iiib), or (iiic) was insufficient to qualify for the deduction under Section 80 HHC. It was highlighted that for any exemption to apply, it must specifically meet the requirements of the provision, and the burden of proof lies with the assessee to demonstrate the eligibility for the deduction.

On the other hand, the counsel for the assessee failed to establish how the compensation received could be categorized under Section 80 HHC. The argument that the income was business income was deemed insufficient to justify the claim for the deduction under Section 80 HHC. Consequently, the High Court ruled in favor of the revenue, stating that the compensation received did not qualify for the deduction under Section 80 HHC as it did not meet the criteria of income derived from export activities as mandated by the provision. Therefore, the appeal by the revenue was allowed, overturning the decision of the lower authorities and denying the deduction on the compensation received by the assessee.