2009 (12) TMI 363 - HC - Income Tax

Export-Special Deduction- The assessee-company had claimed deduction under section 80HHC of the Income-tax Act amounting to Rs. 1, 32, 63, 089 and filed a report from the auditor in Form 10CCAC. Held that- the interest earned on FDR and interest on security deposits with government could not be excluded from the total turnover for the purpose of special deduction under section 80HHC of the Act.

Summary

Issues:
1. Whether the Income-tax Appellate Tribunal correctly confirmed the deletion of royalty expenses as revenue expenditure.
2. Whether the Income-tax Appellate Tribunal correctly held the entire payment of royalty as revenue expenditure.
3. Whether the Income-tax Appellate Tribunal correctly directed the exclusion of certain interest amounts from total turnover for computing deduction under section 80HHC of the Act.

Analysis:
1. The first issue concerns the deletion of royalty expenses as revenue expenditure. The court referred to previous judgments favoring the assessee, establishing that the view taken was supported by legal precedents. The appeal was admitted and heard solely on the third question of law, as the first two questions were already decided in favor of the assessee by previous judgments.

2. The second issue revolves around whether the entire payment of royalty should be considered as revenue expenditure. The court noted that this issue was also covered in favor of the assessee in a previous judgment. The appeal was thus focused on the third question regarding the exclusion of interest amounts from total turnover.

3. The final issue pertains to the exclusion of interest earned on fixed deposits and security deposits from the total turnover for computing deduction under section 80HHC of the Act. The Assessing Officer contended that these amounts should be included in the turnover, but the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal ruled in favor of the assessee. The court relied on the judgment in the case of Liberty India v. CIT to determine that interest earned on fixed deposits and security deposits should not be excluded from the turnover for the purpose of special deduction under section 80HHC of the Act.

In conclusion, the court decided in favor of the Revenue and against the assessee on the third issue, partially allowing the appeal. The judgment provided a detailed analysis of the legal principles and precedents governing the treatment of various expenses and income for the purpose of computing deductions under the Income-tax Act.