2001 (5) TMI 138 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of local conveyance expenses as guest house expenditure under Section 37 of the Act.
2. Inclusion/exclusion of brokerage, commission, and other selling charges within "export turnover" for the purpose of computation of deduction under Section 80HHC.
3. Deduction under Section 80HHC to be allowed at the stage of computation of composite income from agricultural and non-agricultural operations.
4. Levy of additional tax.

Issue-wise Detailed Analysis:

1. Disallowance of Local Conveyance Expenses:
The first issue pertains to the disallowance of Rs. 10,041 as local conveyance expenses, considered under Section 37 of the Act as guest house expenditure. The AO noted that the total expenditure on guest house maintenance was Rs. 24,96,062, including local conveyance expenses. The CIT(A) disallowed the appeal, stating that local conveyance was for the staff of the guest house. The assessee contended that local conveyance expenses should not be considered as guest house maintenance expenses. However, the Tribunal upheld the lower authorities' decision, noting that the local conveyance expenses were closely connected with the maintenance of the guest house, as admitted by the assessee.

2. Inclusion/Exclusion of Brokerage and Commission in Export Turnover:
The second and third issues involve the inclusion/exclusion of brokerage, commission, and other selling charges within "export turnover" for the purpose of deduction under Section 80HHC. The AO and CIT(A) considered that the "export turnover" should be the net sale proceeds after deducting brokerage and commission. The assessee argued that the gross sale proceeds should be considered, citing the Supreme Court judgment in J.B. Boda & Co. (P) Ltd. vs. CBDT and the CBDT Circular No. 731. The Tribunal concluded that "export turnover" denotes gross sale proceeds, excluding only freight and insurance. The Tribunal rejected the Department's contention and directed the AO to recompute the deduction under Section 80HHC based on gross sale proceeds.

3. Deduction under Section 80HHC for Composite Income:
The fourth and fifth issues concern whether deduction under Section 80HHC should be allowed at the stage of computation of composite income from agricultural and non-agricultural operations or from the non-agricultural component alone. The AO and CIT(A) held that the deduction should be from the non-agricultural component. The assessee referred to a Tribunal order in Warren Tea Ltd., which held that deduction under Section 80HHC should be allowed before allocating the composite income into agricultural and non-agricultural components. The Tribunal agreed with this position, stating that the introduction of sub-section (4B) to Section 80HHC does not alter the legal position, and directed the AO to allow the deduction at the stage of computation of composite income.

4. Levy of Additional Tax:
The sixth and seventh issues relate to the levy of additional tax. The assessee submitted that these grounds had become infructuous in light of a previous Tribunal order. Consequently, these grounds were dismissed.

Conclusion:
The appeal filed by the assessee is partially allowed. The Tribunal upheld the disallowance of local conveyance expenses as guest house expenditure, directed the AO to compute the deduction under Section 80HHC based on gross sale proceeds, and allowed the deduction under Section 80HHC at the stage of computation of composite income. The grounds related to the levy of additional tax were dismissed as infructuous.