2012 (9) TMI 401 - HC - Income Tax

Denial of deduction u/s 80HHD - convertible foreign exchange earned - Held that - While computing the deduction u/s 80HHD as per the formula the commission receipt was treated as profits of the business . There cannot be any dispute that the income from the money exchange business is a business income as the assessee has, by the said activity, earned profits. It is clear that the assessee had never claimed the aforesaid income as income entitled to deduction under Section 80HHD and the only effect of that was to treat it as part of the profits of the business so that this component is included in the profits of business in the formula provided under Section 80HHD for the purpose of calculating deduction under the said provision - no grievance left of the department as the only apprehension was that this income derived from the money exchange business be not treated as the income which qualifies for deduction under Section 80HHD.

Summary

Issues:
1. Claim of deduction under Section 80HHD of the Income-Tax Act for convertible foreign exchange earnings.
2. Discrepancy in treatment of commission receipt from M/s LKP Merchant Finance Company.
3. Clarification on the treatment of income from money exchange business for deduction under Section 80HHD.

Analysis:
1. The judgment addressed the issue of the appellant claiming a deduction under Section 80HHD of the Income-Tax Act for convertible foreign exchange earnings during the Assessment Year 2003-04. The Assessing Officer rejected the claim, stating that the receipts did not qualify for the deduction as prescribed in the said Section. The assessee company included the foreign exchange encashed as a money changer licensee in the total foreign exchange earnings. The CIT (A) allowed the claim only for a specific commission receipt from M/s LKP Merchant Finance Company, which was upheld by the Income Tax Appellate Tribunal based on a previous decision for the Assessment Year 2001-02.

2. The discrepancy arose in the treatment of the commission receipt from M/s LKP Merchant Finance Company. The ITAT had directed this receipt to be treated as business income, which was then considered while computing the deduction under Section 80HHD of the Act. The commission was treated as "profits of the business" in the formula provided under Section 80HHD. The income from the money exchange business was acknowledged as business income, and the appellant had never claimed this income as entitled to deduction under Section 80HHD.

3. The judgment provided clarification on the treatment of income from the money exchange business for the purpose of deduction under Section 80HHD. It was emphasized that the income derived from the money exchange business should be considered as part of the profits of the business for calculating the deduction under the said provision. The Revenue's counsel acknowledged that there was no grievance left from the department, as the only concern was ensuring that the income from the money exchange business was not incorrectly treated as income qualifying for deduction under Section 80HHD. Consequently, the appeal was disposed of based on this clarification.