1994 (12) TMI 115 - AT - Income Tax

Summary

Issues Involved:
1. Classification of export earnings premium and freight brokerage.
2. Computation of profits for deduction under section 80HHC.
3. Inclusion of export earnings premium and freight brokerage in total turnover.
4. Applicability of section 80HHC(4A)(baa) and related clauses.

Issue-wise Detailed Analysis:

1. Classification of Export Earnings Premium and Freight Brokerage:
The primary issue was whether the export earnings premium and freight brokerage should be classified as service charges or as export-related profits. The assessee argued that these earnings were directly attributable to exports and thus should be fully exempt from tax under section 80HHC. The Assessing Officer, however, concluded that these represented remuneration for services rendered and should be considered as service charges. The CIT (Appeals) upheld this view, stating that these amounts were in the nature of receipts enumerated in clause (baa) of the Explanation below sub-section (4A) of section 80HHC, justifying their exclusion to the extent of 90% in computing the profits of the business.

2. Computation of Profits for Deduction Under Section 80HHC:
The assessee contended that since their business activity was solely related to exports, the income as per the profit and loss account represented only the profits derived from exports. However, the CIT (Appeals) and the Appellate Tribunal held that the sum of Rs. 5,93,072 credited as "Export earnings premium" and Rs. 66,971 as "Freight brokerage" were indeed service charges. Therefore, these amounts were rightly excluded by 90% in computing the profits for deduction under section 80HHC. The Tribunal upheld the computation of the Assessing Officer in this regard.

3. Inclusion of Export Earnings Premium and Freight Brokerage in Total Turnover:
The assessee argued that the export earnings premium and freight brokerage should not be included in the total turnover. The CIT (Appeals) agreed with this contention and revised the total turnover accordingly. However, the revenue contended that these items should be included in the total turnover as they were not explicitly excluded in clause (ba) of the Explanation to sub-section (4A) of section 80HHC. The Tribunal upheld the CIT (Appeals) decision to exclude freight brokerage from the total turnover, stating that it effectively reduced the cost of freight and did not form part of the "total turnover" as defined. However, the Tribunal agreed with the revenue that export earnings premium should be included in the total turnover.

4. Applicability of Section 80HHC(4A)(baa) and Related Clauses:
The Tribunal examined the applicability of section 80HHC(4A)(baa) and related clauses. The assessee's counsel argued that the export earnings premium and freight brokerage should not fall under the categories mentioned in clause (baa). However, the Tribunal disagreed, interpreting that the term "any receipt of a similar nature" included these amounts as they were incentives or subsidies to cover charges incurred by the assessee. The Tribunal concluded that the export earnings premium and freight brokerage were indeed receipts towards "charges" and thus fell within the scope of clause (baa).

Conclusion:
The appeal of the assessee was dismissed, and the cross-objection by the revenue was partly allowed. The Tribunal upheld the computation of the Assessing Officer in reducing the profits by 90% of the export earnings premium and brokerage for the purpose of deduction under section 80HHC. The Tribunal also held that while the export earnings premium should be included in the total turnover, the freight brokerage should not, as it effectively reduced the cost of freight and did not form part of the "total turnover."