2008 (3) TMI 259 - HC - Income Tax

Computation of export profit for deduction u/s 80HHC manufacture export and job works for others authorities below failed to consider the claim of assessee that it purchased raw materials in its own account and used them in manufacture of final product leading to value addition at the assessee s cost matter remanded to AO to find out whether the transaction really represented investment by assessee in raw material labour etc. and the eligible profit in terms of direction

Summary

Issues:
1. Exclusion of 90% of income from total profits of the assessee under Section 80HHC of the Income Tax Act, 1961.
2. Interpretation of the term "profits of the business" under Explanation to Section 80HHC (4B).
3. Comparison of charges received by the assessee with items like brokerage, commission, interest, or rent for exclusion under clause (baa).
4. Determination of eligible export profit for deduction under Section 80HHC.

Analysis:
1. The judgment addressed the exclusion of 90% of income from the total profits of the assessee under Section 80HHC. The assessee was involved in manufacturing, exporting products, and doing job works for others. The Assessing Officer excluded 90% of certain receipts from profit in the computation of export profit under Section 80HHC. The contention was whether these charges received were in the form of income partaking the character of brokerage, commission, interest, or rent as per the relevant provision.

2. The interpretation of the term "profits of the business" under Explanation to Section 80HHC (4B) was crucial. The court examined the scheme of Section 80HHC, which aims to determine export profit realistically based on total turnover and total profit. The purpose of excluding certain items of income, such as brokerage, commission, interest, or rent, was to ensure a non-distorted calculation of eligible export profit. The court emphasized that charges or any other receipt should be excluded only if they are comparable to the specified items under clause (baa).

3. The comparison of charges received by the assessee with items like brokerage, commission, interest, or rent for exclusion under clause (baa) was a key point of contention. The court analyzed various decisions of High Courts and the Supreme Court to determine the nature of charges received. It was established that charges should only be excluded if they are akin to brokerage, commission, interest, or rent, and not merely any receipt of a similar nature.

4. The judgment focused on the determination of eligible export profit for deduction under Section 80HHC. The court emphasized the need for a factual assessment of whether the assessee bore the cost of raw materials and engaged in value addition. If the raw material costs were borne by the assessee and formed part of the total turnover, the entire receipts should be included in total profit without exclusion under clause (baa). The matter was remanded to the Assessing Officer for further investigation and fresh orders.

In conclusion, the judgment provided a detailed analysis of the issues related to the exclusion of income from total profits under Section 80HHC, interpretation of relevant provisions, comparison of charges with specified items, and the determination of eligible export profit. The decision highlighted the importance of factual assessment in determining the inclusion or exclusion of receipts for calculating export profit under the Income Tax Act.