2018 (5) TMI 155 - HC - Income Tax

Computation of deduction u/s 80HHC - Whether Machine Charges and other income should be treated as income derived out of business - Held that - The assessee is not carrying on machining activity as its main line of business. This fact has been admitted by the CIT(Appeals) as well as before the Tribunal. The activity of machining done by the assessee is when the machinery, which is used for manufacturing activities for export, was lying idle. When the machineries are not put to use for manufacturing activity, the assessee has engaged in machining work, undertaking it as a job work. Commissioner of Income Tax (Appeals) as well as the Tribunal rightly held that the assessee had used plant and machinery to get income and that has to be considered as business income only. Further, with regard to a sum of ₹ 26,000/- representing other income, the Commissioner of Income Tax (Appeals) as well as the Tribunal held that it has to be treated as business profit. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of income derived out of business for computation of deduction under Section 80HHC.
2. Treatment of machining charges and other income as business income.

Issue 1: Interpretation of income derived out of business for computation of deduction under Section 80HHC

The appeal before the Madras High Court concerned the interpretation of income derived out of business for the computation of deduction under Section 80HHC of the Income Tax Act, 1961. The assessing officer had excluded machining charges and other income from the business profits while granting deduction under Section 80HHC. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal, considering the income earned from job work of machining as business income. The Tribunal also upheld this decision, stating that when the same machinery used for manufacturing activities is utilized for other income, it should be treated as business income. The High Court affirmed this interpretation, emphasizing that the assessee's use of plant and machinery to generate income constituted business income, in line with the Tribunal's decision.

Issue 2: Treatment of machining charges and other income as business income

The High Court analyzed the nature of the assessee's activities related to machining charges and other income. It was noted that the assessee did not primarily engage in machining activity as its main line of business, as acknowledged by the Commissioner of Income Tax (Appeals) and the Tribunal. The assessee undertook machining work when the machinery used for manufacturing activities for export was idle, treating it as job work. The Court concurred with the lower authorities' findings that the assessee's use of plant and machinery to earn income, including the other income of ?26,000, should be considered as business income and profit. Consequently, the High Court dismissed the tax case appeal, ruling in favor of the assessee and against the Revenue, based on the factual findings and legal interpretation provided by the Commissioner of Income Tax (Appeals) and the Tribunal.

In conclusion, the Madras High Court upheld the decision regarding the treatment of machining charges and other income as business income for the purpose of computation under Section 80HHC. The Court emphasized the use of plant and machinery by the assessee to generate income, affirming that such earnings should be considered as business income. The judgment highlighted the factual circumstances where the machinery was utilized for job work when not engaged in manufacturing activities, leading to the income being classified as business profit.