2007 (4) TMI 295 - AT - Income Tax

Deduction u/s 80HHC - Export Profits - 100 per cent Export Oriented Unit (EOU) - double deduction - whether turnover of an EOD for which deduction u/s 10-IB has been claimed, can be included in the turnover for claiming deduction u/s 80HHC - HELD THAT - In the instant case also the turnover of sales made by the assessee for which deduction under section 10B has been claimed did not answer the description of turnover eligible for deduction under section 80HHC. Therefore, the Assessing Officer rightly excluded such turnover from export turnover while computing relief available to the assessee under section 80HHC of the Income-tax Act. It is also relevant to point out that as per clause (iii) of sub-section (6) of section 10B, no deduction shall be allowed u/s 80HH or 80HHA, 80-IB or 80-IA in relation to the profits and gains of the undertaking who claimed deduction u/s 10B of Income-tax Act. Therefore, to ensure that no assessee should claim any benefit over and above the benefits u/s 10B in respect of same industrial undertaking, the said provision has indicated separately and exclusively to clear that double deduction should not be claimed for the same income. Moreover for claiming the deduction under the said sections condition to make the export is not mandatory while claiming the deduction u/s 10B and 80HHC of the Income-tax Act. It is mandatory that the income to be derived from export. In our opinion, non-mentioning section 80HHC in the aforesaid clause (iii) of sub-section (6) of section 10B will not entitle the assessee to claim deduction u/s 80HHC for the reason that the deduction u/s 80HHC is otherwise also not available to the units claiming exemption u/s 10B, because the profits of the unit claiming deduction u/s 10B is not to be included with the profits eligible for deduction u/s 80HHC and since in such type of industrial undertaking no eligible profit can be derived without having export turnover, therefore, export turnover which earned profit eligible for deduction u/s 10B should also not be included in the turnover to claim deduction u/s 80HHC of the Income-tax Act. Thus, we set aside the order of ld. CIT(A) on this issue and restore that of the Assessing Officer. In the result, the appeal of the department is partly allowed.

Issues Involved:
1. Computation of deduction under Section 80HHC with respect to interest income.
2. Inclusion of excise duty and sales tax in the total turnover for deduction under Section 80HHC.
3. Inclusion of turnover from units exempt under Section 10B in the total turnover for deduction under Section 80HHC.

Issue-wise Detailed Analysis:

1. Computation of Deduction under Section 80HHC with Respect to Interest Income:
The assessee contested the CIT(A)'s decision to reduce 90% of interest income from the profits of the business for deduction under Section 80HHC, arguing that the interest received from customers on delayed payments and from suppliers on advance payments should be considered part of the business income. The Tribunal referenced the judgment in CIT Ludhiana v. Malwa Cotton Spinning Mills Ltd., which held that interest income, regardless of its source, retains its character as interest and must be reduced by 90% from the business profits for the purpose of Section 80HHC. Consequently, the Tribunal decided against the assessee and in favor of the department.

2. Inclusion of Excise Duty and Sales Tax in the Total Turnover for Deduction under Section 80HHC:
The assessee argued that excise duty and sales tax should be excluded from the total turnover for the purpose of computing the deduction under Section 80HHC. The Tribunal noted that the issue was covered by the judgment in CIT v. Vardhman Polytex Ltd., which held that excise duty and sales tax should not be included in the total turnover for the purpose of Section 80HHC. The Tribunal, therefore, decided in favor of the assessee and against the department on this issue.

3. Inclusion of Turnover from Units Exempt under Section 10B in the Total Turnover for Deduction under Section 80HHC:
The assessee claimed deduction under Section 80HHC for the export turnover of units exempt under Section 10B. The Assessing Officer rejected this claim, arguing that allowing such a deduction would result in a double benefit. The CIT(A) disagreed, stating that Sections 10B and 80HHC provide different benefits and that there is no restriction in the Act preventing the inclusion of turnover from Section 10B units in the total turnover for Section 80HHC. The Tribunal, however, sided with the Assessing Officer, referencing the principle that a statute should be construed to avoid double benefits and that turnover related to profits exempt under Section 10B should not be included in the total turnover for Section 80HHC. The Tribunal set aside the CIT(A)'s order and restored the Assessing Officer's decision.

Conclusion:
The Tribunal's final decision resulted in a partial allowance of the department's appeal. The key rulings were:
- The reduction of 90% of interest income from business profits for Section 80HHC was upheld.
- Excise duty and sales tax were excluded from the total turnover for Section 80HHC.
- Turnover from units exempt under Section 10B was excluded from the total turnover for Section 80HHC.

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