1997 (10) TMI 88 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of claim u/s 80HHC of the IT Act, 1961.
2. Inclusion of certain items within the term "turnover" for the purposes of calculation of deduction u/s 80HHC.

Summary of Judgment:

Issue 1: Disallowance of claim u/s 80HHC of the IT Act, 1961
The assessee, an exporter of both manufactured and trading goods, claimed deductions u/s 80HHC for the assessment years 1992-93 and 1993-94. The AO rejected these claims, stating that the assessee's method of calculation was incorrect and resulted in negative figures, which should not be treated as Nil. The AO argued that the statutory formula must be strictly followed, leading to the conclusion that no deduction was permissible if the resultant working ends in a minus figure.

The CIT(A) upheld the AO's decision, asserting that the only possible view was the one taken by the AO. The assessee contended that the interpretation of s. 80HHC by the authorities was erroneous and that a liberal interpretation should be applied to incentive provisions. The assessee relied on various judicial precedents, including the decision of the Tribunal Cochin Bench in A.M. Moosa vs. Asstt. CIT, which supported a liberal interpretation.

The Tribunal considered the rival submissions and held that the authorities below had misinterpreted s. 80HHC. The Tribunal emphasized that the object of s. 80HHC is to promote exports and earn foreign exchange, and thus, a liberal interpretation should be applied. The Tribunal concluded that the assessee is entitled to the deduction claimed u/s 80HHC, reversing the findings of the authorities below.

Issue 2: Inclusion of certain items within the term "turnover" for the purposes of calculation of deduction u/s 80HHC
The assessee contested the inclusion of interest income in the turnover for the purpose of calculating the deduction u/s 80HHC. The AO included the interest amount as part of the turnover, which was upheld by the CIT(A) based on the decision of the Supreme Court in Cambay Electric Supply & Industrial Co. Ltd. vs. CIT.

The Tribunal, however, agreed with the assessee's contention that only the net interest (interest received minus interest paid) should be considered for inclusion in the "profits of business" as per sub-cl. (baa). The Tribunal directed the AO to adopt only the net figure of interest as part of the turnover, relying on the judgment of the Supreme Court in Keshavji Raowjee & Co. vs. CIT.

Conclusion:
Both appeals were allowed in part, with the Tribunal ruling in favor of the assessee on both issues.