2018 (4) TMI 715 - HC - Income Tax

Deduction u/s 80HHC disallowed in respect of the interest, rent and miscellaneous income earned out of business operations - Held that - This question is to be answered in favour of the Revenue and against the assessee in the light of the decision, in the case of Commissioner of Income Tax Vs. K.Ravindranathan Nair reported in (2007 (11) TMI 10 - Supreme Court of India) Whether Tribunal was right in law in holding that 90% of the gross receipts should be excluded from the profits of the business under clause (baa) of Explanation to section 80HHC of the Act? - Held that - This issue has been decided by the Hon ble Supreme Court in the case of ACG Associated Capsules (P) Ltd. Vs. Commissioner of Income Tax 2012 (2) TMI 101 - SUPREME COURT OF INDIA asheld Ninety per cent of the net interest or net rent which has been included in the profits of the assessee as computed under the head profits and gains of business or profession and not the gross rent, is to be deducted under c;.(1) of Expln. (baa) to Section 80HHC for determining the profits of the business. - thus the matter should be remanded back to the Assessing Officer to take note of the legal position and redo the assessment under the said head.

Summary

Issues:
1. Entitlement to deduction under section 80HHC of the Income Tax Act for interest, rent, and miscellaneous income earned from business operations.
2. Exclusion of 90% of gross receipts from profits of the business under clause (baa) of Explanation to section 80HHC of the Act.

Analysis:

Issue 1:
The High Court analyzed the first issue regarding the entitlement to deduction under section 80HHC of the Income Tax Act. Referring to the case of Commissioner of Income Tax Vs. K.Ravindranathan Nair, the court emphasized the importance of considering all variables in the computation of deduction under section 80HHC. The court highlighted that not every receipt constitutes income attributable to exports and that certain receipts, like processing charges, needed to be excluded from gross total income to arrive at business profits. The judgment clarified that receipts without a nexus to export turnover should be excluded from the formula to avoid distortion in calculating export profits. Ultimately, the court decided in favor of the Revenue based on the principles outlined in the aforementioned case.

Issue 2:
Regarding the second issue of excluding 90% of net interest or net rent from the profits of the business under clause (baa) of Explanation to section 80HHC, the court referred to the case of ACG Associated Capsules (P) Ltd. Vs. Commissioner of Income Tax. The court concurred with the Supreme Court's conclusion that only net interest or net rent should be deducted, not the gross amounts. As a result, the court directed the matter to be remanded back to the Assessing Officer for reassessment in line with the legal position established by the Supreme Court's decision. The Tax Case (Appeal) was partly allowed, and the second substantial question of law was remanded for fresh consideration without imposing any costs.

In conclusion, the High Court's judgment provided detailed analyses of both issues, relying on relevant legal precedents to determine the entitlement to deductions under section 80HHC and the correct method of excluding certain receipts from business profits for the purpose of calculating tax liabilities.