1996 (11) TMI 115 - AT - Income Tax

Applied To Assessing Officer Assessment Year Business Income Business Loss Entertainment Expenditure Export Business Income From Other Sources Income Tax Interest On Income Investment Allowance Profits And Gains Of Business Sale Proceeds

Issues Involved:
1. Meaning of 'turnover' for the purposes of section 80HHC.
2. Inclusion of interest income from income-tax refund and loans to sister concern in 'profits of the business' for section 80HHC.
3. Computation of 'profits of the business' for section 80HHC.
4. Placement of section 80HHC under Chapter VI-A.
5. Computation of disallowance under section 37(2A).
6. Disallowance under Rule 6D.
7. Consideration of additional grounds regarding interest under section 234B and carry forward relief under sections 80J and 80G.
8. Benefit of carry forward and set off unabsorbed losses and allowances.

Issue-wise Detailed Analysis:

1. Meaning of 'turnover' for the purposes of section 80HHC:
The primary issue was the definition of 'turnover' under section 80HHC. The assessee, a dealer in iron ore, claimed relief under section 80HHC based on export turnover. The Assessing Officer included various service-related receipts in the total turnover, which was confirmed by the CIT (Appeals). The Tribunal, however, ruled that 'turnover' should only include sale proceeds of goods and not service charges unrelated to the sale of goods. The decision was based on the common commercial understanding of 'turnover' and supported by case law, including the decision in International Research Park Laboratories Ltd.

2. Inclusion of interest income from income-tax refund and loans to sister concern in 'profits of the business' for section 80HHC:
The Tribunal held that interest on income-tax refund and loans to sister concern should be assessed under 'Income from other sources' and not 'Profits and gains of business or profession'. The Tribunal rejected the assessee's argument that such interest should be considered business income, citing lack of nexus between the interest income and the business activities. This decision was supported by case law, including Dr. Shamlal Narula v. CIT.

3. Computation of 'profits of the business' for section 80HHC:
The Tribunal ruled that 'profits of the business' for section 80HHC should be computed as per the head 'Profits and gains of business or profession', which includes deductions for depreciation and investment allowance but excludes unabsorbed business losses and deductions under sections 80G and 80J. This interpretation aligns with the legislative intent and the Special Bench decision in International Research Park Laboratories Ltd.

4. Placement of section 80HHC under Chapter VI-A:
The Tribunal dismissed the argument that section 80HHC should be part of Chapter VI-D, stating that the section explicitly requires computation of business profits under 'Profits and gains of business'. The Tribunal found no merit in the contention and upheld the placement of section 80HHC under Chapter VI-A.

5. Computation of disallowance under section 37(2A):
The Tribunal modified the CIT (Appeals) order, stating that for disallowance under section 37(2A), only deductions under sections 32A, 33, and 33A should be excluded from the business profits. Deductions under sections 80HHC and 80G, and unabsorbed business losses should not be considered.

6. Disallowance under Rule 6D:
The Tribunal followed the judgment of the Andhra Pradesh High Court in CIT v. Coromandel Fertilisers Ltd., deciding the issue in favor of the revenue and against the assessee.

7. Consideration of additional grounds regarding interest under section 234B and carry forward relief under sections 80J and 80G:
The Tribunal restored the matter to the CIT (Appeals) for consideration, as it had not been addressed in the original order.

8. Benefit of carry forward and set off unabsorbed losses and allowances:
The Tribunal directed the Assessing Officer to provide necessary relief regarding the carry forward and set off unabsorbed losses and allowances arising from pending appeals/rectifications for prior years.

Conclusion:
The appeal was partly allowed, with specific directions given to modify the computation of relief under section 80HHC, reassess interest income, and address additional grounds raised by the assessee.

← Previous Next →