2024 (8) TMI 975 - HC - Income Tax

Deduction u/s 80HHC - exclusion of 90% interest received from customers for the eligible profits of business while calculating deduction u/s 80HHC - HELD THAT - As decided in Atul Ltd. 2017 (2) TMI 224 - GUJARAT HIGH COURT as in complete agreement with the view that the interest earned/charged by the assessee on the delayed payment of sale consideration (for 90 days) is not required to be excluded for the purpose of computation of deduction u/s 80HHC. Exclude the export turnover and total turnover of 100% EOU for the eligible export turnover and total turnover of the company while calculating deduction under Section 80 HHC - As decided in M/s Mahavir Spinning Mills Ltd. 2016 (9) TMI 156 - PUNJAB AND HARYANA HIGH COURT assessee and the profits of the business. None of these components has reference to the expression total income. The deduction has to be computed on the basis of these components. A literal reading of the provisions and literal application of the formula does not enable us to exclude the export turnover of the unit in the EPZ from the export turnover of such goods nor from the total turnover of the business. The profit arising out of these units in the EPZ is also not excludable from the profits of the business. We may note that Section 80HHC is a beneficial provision for the purposes of encouraging exports. Although in this case, there is no doubt with regard to the interpretation or the manner in which the deduction under Section 80HHC is to be computed, even if there were any such doubts, the provision would have to be interpreted to fulfill the objective of giving a benefit to the assessee who indulges in exports. We are of the opinion that the export turnover from the unit in the EPZ is not to be excluded while computing the deduction under Section 80HHC. The deduction that is to be computed is without reference to the total income. Once the deduction is computed in terms of the formula prescribed in Section 80HHC (3), the amount so arrived at is to be deducted from the total income. However, while computing the deduction, reference to total income' is not called for - Also see Ambatture Clothing Ltd. 2010 (8) TMI 633 - MADRAS HIGH COURT

Summary

Issues:
1. Exemption under Section 10B of the Act for conversion of manufacturing unit into 100% EOU.
2. Exclusion of interest received from customers for eligible profits under Section 80HHC.
3. Exclusion of export turnover of 100% EOU for deduction under Section 80HHC.

Analysis:
1. The initial question of law regarding exemption under Section 10B for the conversion of a manufacturing unit into a 100% EOU was rendered infructuous and amended questions of law were allowed. The amended questions focused on the exclusion of interest received from customers and export turnover for deduction under Section 80HHC. The appellant did not press the initial question, and the amended questions were considered for adjudication.

2. The issue of excluding 90% interest received from customers for eligible profits under Section 80HHC was extensively discussed. The Gujarat High Court's judgment in Principal Commissioner of Income Tax vs. Atul Ltd. was cited, upholding that such interest is to be included in profits for deduction under Section 80HHC. The court agreed with this view, emphasizing that interest earned on delayed payments should not be excluded for deduction purposes.

3. Regarding the exclusion of export turnover of a 100% EOU for deduction under Section 80HHC, the court referred to the judgment in M/s Mahavir Spinning Mills Ltd. vs. Commissioner of Income Tax. The court held that the export turnover of the unit should be included in the calculation of deduction under Section 80HHC, aligning with the Delhi High Court's interpretation. The court also referenced similar views from the Madras High Court and the Bombay High Court, ultimately deciding in favor of including the export turnover for deduction.

4. The court concluded that the amended questions of law were resolved in favor of the assessee based on the precedents and interpretations provided by the Gujarat High Court and other relevant judgments. The appeals were allowed, and the orders of the ITAT and CIT(A) were quashed and set aside to grant the assessee the benefit of deduction under Section 80HHC of the Act, 1961. The pending miscellaneous applications were also disposed of accordingly.