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2015 (5) TMI 190 - HC - Income TaxStickering income received from MRF for labeling 'MRF' on the toys and packing - Eligibility of business income for the purpose of deduction under Section 80HHC - Held that - In the case on hand, it is evident from the records that the nature of activity carried on by the respondent/assessee and the receipts realised therefrom by the assessee/respondent does not fall under any of the heads mentioned in Explanation (baa) to Section 80HHC and, therefore, the provisions of Explanation (baa) to Section 80HHC does not stand attracted to the receipts received by the respondent/assessee. The decision of the Bombay High Court in Bangalore Clothing Co. case (2003 (1) TMI 89 - BOMBAY High Court ), relied on by the Tribunal is squarely applicable to the facts of the present case. Further, the decision in K.R.M. Marine Exports Ltd. - Vs - ACIT (2006 (1) TMI 116 - MADRAS High Court), on which reliance was placed by the Department, the Tribunal held that in para-20 of the said decision, it has been categorically held that operational activity is one of the parameters for grant of benefit under Section 80HHC. In the case on hand, the activity of the assessee in carrying out labelling 'MRF' on toys using its machinery would squarely fall within the ambit of operational activity. Tribunal was right in holding that the stickering income received from MRF for labeling 'MRF' on the toys and packing, as eligible business income for the purpose of deduction under Section 80HHC - Decided in favour of assessee.
Issues:
Appeal against Tribunal's order allowing assessee's appeal for AY 2001-2002 and dismissing Revenue's appeal for AY 2002-2003 - Substantial question of law on stickering income eligibility under Section 80HHC. Detailed Analysis: Issue 1: Stickering Income Eligibility under Section 80HHC - The respondent, engaged in toy export business, claimed deduction under Section 80HHC for stickering income on toys for AY 2001-2002 and 2002-2003. - Assessing Officer excluded stickering income invoking Explanation (baa) to Section 80HHC. - CIT (Appeals) upheld the exclusion for AY 2001-2002 but allowed the appeal for AY 2002-2003, considering stickering part of business profits. - Before the Tribunal, assessee demonstrated stickering process showing value enhancement and operational nature, citing relevant case laws. - Department argued stickering not affecting turnover and akin to advertisement income, thus not eligible for deduction. - Tribunal, citing Bombay High Court precedent, held stickering an operational activity enhancing toy value and part of turnover, making it eligible for Section 80HHC deduction. Issue 2: Interpretation of Explanation (baa) to Section 80HHC - Explanation (baa) defines "profits of business" for Section 80HHC, excluding certain receipts from business profits calculation. - Bombay High Court's Bangalore Clothing Co. case clarified that operational income, not mere receipts, should be considered for deduction. - Tribunal found stickering activity involving machinery, labor, and material as part of manufacturing, not falling under excluded categories in Explanation (baa). - Each case must be examined for operational income and turnover element, with stickering income in this case not attracting Explanation (baa). Issue 3: Application of K.R.M. Marine Exports Ltd. Decision - Tribunal referenced K.R.M. Marine Exports Ltd. case, emphasizing operational activity as key for Section 80HHC benefit. - Assessee's stickering activity using machinery deemed operational, aligning with the parameters for deduction under Section 80HHC. Conclusion: - High Court upheld Tribunal's decision, finding stickering income eligible for Section 80HHC deduction due to operational nature and value enhancement. - Explanation (baa) not applicable as stickering income did not fall under excluded categories. - Decision aligned with Bombay High Court precedent and K.R.M. Marine Exports Ltd. ruling, warranting no interference with Tribunal's well-considered order. - Appeals by Revenue dismissed with no costs awarded.
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