2007 (5) TMI 172 - HC - Income Tax

Deduction u/s 80HHC Sales tax and CST not includible in the total turnover of the assessee for the purpose of deduction u/s 80HHC Interest income and portfolio income was not part of the business income for the purpose of deduction u/s 80HHC.

Summary

Issues:
1. Inclusion of sales tax and central sales tax in total turnover for deduction under section 80HHC of the Income-tax Act, 1961.
2. Inclusion of interest income, portfolio income, and rental income in the profits and gains of business for deduction under section 80HHC of the Act.

Issue 1:
The High Court addressed the first issue concerning the inclusion of sales tax and central sales tax in the total turnover for calculating deductions under section 80HHC of the Income-tax Act, 1961. Initially, the Assessing Officer treated these taxes as part of turnover, but the Tribunal reversed this decision, stating that sales tax and central sales tax should not be included in the total turnover for deduction purposes. The Court cited a previous judgment to support this conclusion, highlighting that such taxes should not be considered part of the turnover for calculating deductions under section 80HHC.

Issue 2:
The second issue revolved around the inclusion of interest income, portfolio income, and rental income in the profits and gains of business for deduction under section 80HHC of the Act. The assessee had classified these incomes as non-trade income but included them as "Income from business" to avail higher deductions. However, the Assessing Officer rejected this claim, assessing the income under "Income from other sources." The Commissioner of Income-tax (Appeals) upheld this decision. The Tribunal accepted that only 10% of such income should be excluded for deduction under clause (baa) of the Explanation to section 80HHC. The Court discussed similar cases where the treatment of interest income was crucial. It emphasized that if income is not part of business income but assessed under a different category, it should not be included in business income for deduction purposes. The Court cited precedents to support its decision, emphasizing that income not forming part of business income should not be considered for calculating deductions under section 80HHC.

In conclusion, the Court ruled in favor of the Revenue for the second issue, stating that since interest income and portfolio income were not part of business income but assessed under a different category, they should not be included in business income for deduction under section 80HHC of the Act. The appeal was disposed of accordingly.