2020 (2) TMI 582 - HC - Income Tax

Eligible profits of business for section 80HHC - gross rent receipts from employees without adjusting expenses incurred by the employer on running and maintenance of such accommodations - HELD THAT - The explanation provides for reduction from the profits and gains of business or profession , receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature. Depreciation is not receipt of a similar nature as mentioned in the explanation. Supreme Court in Acg Associated Capsules P. Ltd.'s case 2012 (2) TMI 101 - SUPREME COURT held that the explanation is to be construed as per the plain natural meaning of the words in it. The receipts mentioned in the explanation are the actual payments received like brokerage etc. The phrase receipt of similar nature will not increase its scope to include depreciation which is not on same footing as brokerage, commission etc. The finding recorded by the Tribunal on the said issue is upheld. The question is answered against the assessee. Whether tribunal has erred in holding that report turnover of the unit whose profits are allowed a deduction under Section 10B of the Income Tax Act is not to be included in the export turn over for the purpose of calculating the deduction under Section 80HHC ? - The issue is covered in favour of the assessee by a decision of the Division Bench of this Court in M/s Mahavir Spinning Mills Ltd. v. Commissioner of Income Tax, Ludhiana and another, 2016 (9) TMI 156 - PUNJAB AND HARYANA HIGH COURT Non-allowance of exemption under Section 10B - HELD THAT - Sub-section (4) to Section 10B of the Act gives a formula for working out the profits from export of articles. Once it is held that interest on delayed payment relating to export is eligible under Section 10B of the Act, thereafter the calculation is to be done as per sub-section (4) to Section 10B of the Act. The decision of the Tribunal allowing only interest relating to export sales under Section 10B of the Act is upheld, however, the directions for verification are modified to the extent that the Assessing Officer shall assess the interest received on delayed payments as per provisions of Section 10B(4) of the Act. The question is answered in favour of the assessee. Apportioning the Head Office expenses amongst various units claiming deduction U/s 10-B/80-IA/80-IB - HELD THAT - Sub-section (7) of Section 10B of the Act provides that the provisions of sub-sections (8) and (10) of Section 80-IA shall apply. Subsection (10) of Section 80-IA of the Act empowers the Assessing Officer to consider a reasonable profit derived by the eligible business, in case there is a close connection between the eligible assessee and another person or the business is so arranged that the business transacted between them produces higher profit than expected. The contention raised by learned counsel for the revenue deserves acceptance that the expenditure incurred by the head office is a common expenditure for eligible and non-eligible units run by the appellant-company, the same needs to be apportioned to determine the actual profits of both the types of units. The finding recorded by the Tribunal on the said issue warrants no interference. The question is answered against the assessee.

Summary

Issues Involved:
1. Interpretation of Section 80HHC regarding gross rent receipts from employees.
2. Inclusion of report turnover under Section 10B in export turnover for Section 80HHC calculation.
3. Exclusion of profits under Section 80-IB while calculating eligible profits for Section 80HHC.
4. Exclusion of gross interest received from suppliers for deduction under Section 10B.
5. Apportionment of Head Office expenses among units claiming deduction under Sections 10-B/80-IA/80-IB.

Detailed Analysis:

Issue 1: Interpretation of Section 80HHC regarding gross rent receipts from employees
The assessee contended that depreciation on buildings owned by the company should be allowed under Section 80HHC. The Tribunal rejected this, relying on the Supreme Court decision in Acg Associated Capsules P. Ltd. v. C.I.T., which stated that Explanation (baa) to Section 80HHC should be construed according to its plain natural meaning. Depreciation is not a receipt similar to brokerage, commission, interest, rent, or charges. The Tribunal's finding that depreciation is not included in the phrase "receipt of similar nature" is upheld. The question is answered against the assessee.

Issue 2: Inclusion of report turnover under Section 10B in export turnover for Section 80HHC calculation
Both parties agreed that this issue is covered in favor of the assessee by the Division Bench decision in M/s Mahavir Spinning Mills Ltd. v. Commissioner of Income Tax, Ludhiana and another. Therefore, the question is answered in favor of the assessee.

Issue 3: Exclusion of profits under Section 80-IB while calculating eligible profits for Section 80HHC
This question does not arise from the Tribunal's order, and hence no adjudication is necessary.

Issue 4: Exclusion of gross interest received from suppliers for deduction under Section 10B
The assessee received interest on delayed payments for both exported and locally sold goods. The Tribunal directed the Assessing Officer to allow deduction under Section 10B for interest received on delayed payments related to exports. The Tribunal's decision is upheld, but the directions are modified to ensure that the Assessing Officer assesses interest on delayed payments according to Section 10B(4). The question is answered in favor of the assessee.

Issue 5: Apportionment of Head Office expenses among units claiming deduction under Sections 10-B/80-IA/80-IB
The appellant had various units, some eligible for deductions under Section 10B and others not. The authorities directed the apportionment of head office expenses among these units to ensure that more than ordinary profits do not arise to eligible units. Sections 10B(7) and 80-IA(10) empower the Assessing Officer to determine reasonable profits if the business arrangement produces higher than expected profits. The Tribunal's finding on apportioning head office expenses is upheld. The question is answered against the assessee.

Conclusion:
The appeal is disposed of with the Tribunal's findings on issues (i) and (v) upheld against the assessee, issue (ii) in favor of the assessee, issue (iii) not requiring adjudication, and issue (iv) in favor of the assessee with modified directions for the Assessing Officer.