2015 (1) TMI 427 - HC - Income Tax

Deduction u/s 80HHC - Whether in the facts and circumstances of the case, the Appellate Tribunal was right in law in allowing claims for deduction u/s 80HHC of the Income Tax Act, 1961 holding that service charges, interest, delivery and distribution charges cannot be excluded while computing the profit of business for the purpose of deduction - Held that - From a perusal of the orders of the CIT(A) as well as the Tribunal, it appears that while answering the issue raised in these appeals in favour of the assessee, both the authorities below placed reliance on a decision of the Kerala High Court in BABY MARINE EXPORTS VS. ACIT (Supra), wherein, the Kerala High Court laid down that the service charge is a part of the price for sale of the merchandise and that it is neither brokerage, commission, interest charges or collection or any amount of similar nature and on the basis of the same, CIT(A) and the Tribunal held that the 90 per cent of the export premium cannot be deducted while computing the deduction u/s.80HHC of the Act. - High Court of Kerala has now been confirmed by the Apex Court vide its decision in CIT VS. BABY MARINE EXPORTS (Supra), wherein, the Apex Court has held that according to Section 80HHC(1), the export house in computing its total income is entitled to deduction to the extent of the profit derived by the assessee from the export of the goods or merchandise, whereas, according to section 80HHC(1A), the assessee being supporting manufacturer shall be entitled to a deduction of profit derived by the assessee from the sale of goods or merchandise. Thus, we do not find that the the Tribunal committed any error in passing the impugned order. - Tribunal was right in law in allowing claim of the assessee for deduction u/s 80HHC of the Act, holding that service charges cannot be excluded while computing the profit of business for the purpose of deduction under the aforesaid section - Decided against Revenue.

Summary

Issues Involved:
Challenge to order of the ITAT regarding deduction u/s 80HHC of the Income Tax Act, 1961.

Analysis:

1. Common Issue: The High Court heard and disposed of two appeals challenging the ITAT's order for A.Ys. 1996-97 and 1997-98 regarding the deduction u/s 80HHC of the Income Tax Act, 1961.

2. Question of Law: The Court framed the common question of law: Whether the Tribunal was correct in allowing claims for deduction u/s 80HHC, specifically regarding the exclusion of service charges, interest, delivery, and distribution charges while computing business profit.

3. Appellant's Argument: The appellant-Revenue challenged the exclusion of service charges only, not interest, delivery, or distribution charges. The appellant contended that the Tribunal erred in not considering Section 80HHC provisions for deductions from export-derived income.

4. Respondent's Argument: The respondent supported the CIT(A) and Tribunal's orders, citing concurrent findings in their favor. Referring to the Kerala High Court's decision in "BABY MARINE EXPORTS VS. ACIT," the respondent argued for dismissal of the appeals, noting the Supreme Court's confirmation of the Kerala High Court's decision.

5. Court's Analysis: The Court reviewed the orders of the CIT(A) and Tribunal, noting their reliance on the Kerala High Court's decision. The Court found that service charges are part of the sale price and not brokerage or commission. Citing the Supreme Court's decision in "CIT VS. BABY MARINE EXPORTS," the Court upheld the Tribunal's decision, stating that service charges cannot be excluded while computing business profit for deduction u/s 80HHC.

6. Judgment: The Court dismissed both appeals, affirming the Tribunal's decision to allow the deduction u/s 80HHC, specifically regarding service charges. The question raised was answered in favor of the assessee and against the Revenue.

This detailed analysis of the judgment highlights the key arguments presented by both parties, the Court's assessment of the legal provisions, and the final decision rendered by the High Court.