2013 (10) TMI 1180 - HC - Income Tax

Explanation (baa) of section Section 80HHC of the Income Tax Act Computation of profit from business for deduction u/s 80HHC Held that - Reliance has been placed upon the case of K. Ravindranathan Nair, 2007 (11) TMI 10 - Supreme Court of India , wherein it was held that formula in section 80HHC(3) provides for a fraction of export turnover divided by the total turnover to be applied to business profits calculated after deducting 90% of the sums mentioned in clause (baa) of the Explanation. Hence, profit incentives and items such as rent, commission, brokerage charges etc., though they form part of the gross total income have to be excluded as they are independent incomes which have no element of export turnover. In K. Ravindranathan Nair, the Supreme Court has held that where charges, though part of the gross total income, constitute independent incomes like rent, commission and brokerage 90% of the said sum has to be reduced from gross total income to arrive at business profits and has to be included in the total turnover in the said formula to arrive at the business profits in terms of Explanation (baa) Relying upon the above judgment, the instant case has been decided against the Assessee.

Summary

Issues:
1. Liability to pay additional barge freight under mercantile system of accounting.
2. Higher rate of depreciation for trucks given on lease basis.
3. Interpretation of Explanation (baa) to section 80HHC regarding receipts linked with export business.

Liability to pay additional barge freight under mercantile system of accounting:
The appellant, engaged in mining and export of ore, claimed additional barge freight paid as a provision in its accounts for Assessment Year 1997-98. The Assessing Officer disallowed the claim stating that the amount was not paid or due by 31.03.1997. The CIT(A) and Tribunal held that the liability accrued on 09.05.1997, making it allowable only for Assessment Year 1998-99. The Tribunal's decision was upheld, stating the liability arose during the financial year 1997-98 relevant to Assessment Year 1998-99.

Higher rate of depreciation for trucks given on lease basis:
The appellant leased out trucks to a company for five years, with drivers transporting ore. The Assessing Officer allowed normal depreciation of 25% instead of the claimed 40%. The Tribunal differentiated between hiring and leasing, stating that higher depreciation is only for the hirer, not the lessor. Referring to a Supreme Court judgment, it was clarified that as long as the asset is used for the business, depreciation can be claimed. The Tribunal's decision was in favor of the assessee due to the enhanced depreciation provision.

Interpretation of Explanation (baa) to section 80HHC regarding receipts linked with export business:
The assessee received various receipts linked to export business during the financial year relevant to Assessment Year 1997-98. Claiming these receipts were intricately linked with export business, the assessee argued against disallowance under Explanation (baa) to section 80HHC. However, the Tribunal confirmed the disallowance. Referring to a Supreme Court judgment, it was held that independent incomes like rent, commission, and brokerage must be excluded from gross total income under Explanation (baa). The Tribunal's view was consistent with the law laid down by the Supreme Court, making the disallowance valid.

In conclusion, the High Court upheld the Tribunal's decisions on all issues, disposing of the appeal accordingly with no order as to costs.