2011 (4) TMI 846 - HC - Income Tax

Receipts from job work - whetehr would fall within the clause (baa) of the explanation below section 80HHC(4b)- Held that - Explanation (baa) refers to receipts by way of brokerage commission interest rent charges or any other receipt of a similar nature included in such profits - They are the types of income which has no bearing insofar as the manufacturing activity of the assessee is concerned or the income derived from such manufacturing activity - However the assessee has earned these receipts from job work utilizing the very same machinery and men and as a part of his manufacturing activity - Therefore there is a direct nexus between the job work and the manufacturing activity carried on by the assessee insofar as the export of manufacturing items is concerned - Therefore this income does not fall within the definition of (baa) and therefore the said receipt has to be included in the total profits - Decided in favour of assessee

Summary

Issues:
1. Interpretation of section 80HHC(4b) of the Income-tax Act, 1961 regarding receipts from job work.
2. Whether receipts from job work charges are eligible for inclusion in the total turnover for claiming benefits under section 80HHC.
3. Determining the nexus between job work receipts and manufacturing/export activities.

Analysis:
The High Court of Karnataka addressed an appeal by the revenue challenging a Tribunal order regarding the classification of receipts from job work under section 80HHC(4b) of the Income-tax Act, 1961. The Tribunal had ruled that such receipts do not fall within the clause (baa) of the explanation below section 80HHC(4b). The substantial question of law considered was whether the appellate authorities were correct in granting relief to the assessee concerning the inclusion of job work receipts in the total turnover for claiming benefits under section 80HHC.

The assessee, engaged in manufacturing and exporting ready-made garments, received job work charges as part of its business activity. The assessing authority disallowed the inclusion of income from job works in the taxable turnover under (baa). However, the Commissioner of appeals and the Tribunal both held that the job work income had a direct nexus with the export business, making it eligible for inclusion in the total profits. The Court observed that the job work was carried out using the same machinery and men involved in the manufacturing activity, establishing a clear connection between job work and the manufacturing/export process.

Explanation (baa) pertains to receipts like brokerage, commission, interest, rent, charges, or similar receipts unrelated to manufacturing activities. In contrast, the job work receipts in this case were directly linked to the manufacturing and export operations of the assessee. As a result, the Court upheld the decisions of the Tribunal and the appellate authority, ruling in favor of the assessee and against the revenue. The Court dismissed the appeal, emphasizing the direct nexus between job work receipts and the manufacturing/export activities as the basis for the decision.