2014 (8) TMI 559 - HC - Income Tax

Deduction u/s 80HHC - Receipt of insurance claim Receipts on sale of raw materials, tools, stores, scraps - Held that - Following the decision in Commissioner of Income Tax Vs. Punjab Stainless Steel Industries and Others 2014 (5) TMI 238 - SUPREME COURT - The term turnover would show the sale effected by a business unit - It may happen that in the course of the business, in addition to the normal sales, the business unit may also sell some other things - the word turnover would mean only the amount of sale proceeds received in respect of the goods in which an assessee is dealing in - the sale proceeds of the scrap cannot be included in the term turnover for the reason that the assessee s-unit is engaged primarily in the manufacturing and selling of steel utensils and not scrap of steel - the proceeds of scrap would not be included in sales in the Profit and Loss Account of the assessee - insurance claim, sale of raw materials, tools, stores, scraps cannot form part of turnover for the purpose of computation of deduction u/s 80HHC of the Act Decided against Revenue. Reduction of net interest income or gross interest income Held that - Following the decision in Commissioner of Income Tax and Another Vs. Krone Communication Ltd. 2010 (7) TMI 631 - Karnataka High Court - in the definition in sub-section (4C) of section 80HHC of the Income-tax Act, 1961, it is specifically mentioned that what is to be reduced in 90 per cent of any receipts by way of commission included in such profits - clause (baa) to the Explanation is itself based on the assumption that 10 per cent of the income would be an expense Decided against Revenue. Deduction u/s 80HHE - Expenses in foreign currency for providing technical services outside India Held that - The consideration in respect of computer software received in or brought into India by the assessee in convertible foreign exchange is deducted from the profits of the business - the assessee is not liable to pay any income tax on such consideration received from export of computer software - the export turnover does not include freight, telecommunication charges or insurance attributable to the delivery of computer software outside India or expenses if any incurred in foreign exchange in providing technical service outside India. The services are technical in nature it does not fall within clause (ii) of subsection (1) of section 80HHE of the Act of providing technical services outside India in connection with the development or production of computer software - It falls under sub-clause (1) of sub-section (1) of Section 80HHE of the Act - the expenditure cannot be excluded in computing export turn over Decided against Revenue.

Summary

Issues:
1. Inclusion of insurance claim in total turnover for deduction u/s.80HHC of the Act.
2. Inclusion of receipts on sale of raw materials, tools, stores, scraps in turnover for deduction u/s.80HHC of the Act.
3. Treatment of 'net interest income' for deduction u/s.80HHC of the Act.
4. Reduction of interest received from customers on overdue bills from profits for computing deduction u/s.80HHC and 80HHE of the Act.
5. Deduction of expenses in foreign currency for providing technical services outside India from sales of software exports for computing deduction u/s.80HHE of the Act.

Analysis:

1. The Hon'ble Apex Court clarified the meaning of 'turnover' in commercial parlance, stating that turnover includes sale proceeds of goods dealt with by the business unit. Sale of items like scrap or raw materials not directly related to the business's core activities should not be included in the turnover for deduction purposes under Section 80HHC of the Act. The Tribunal's decision aligns with this interpretation, favoring the assessee and rejecting the Revenue's claim.

2. Regarding the treatment of interest income, the court referred to previous judgments emphasizing that only receipts by way of commission, interest, rent, or similar nature included in profits are subject to deduction under Section 80HHC of the Act. The 90% reduction should apply to such receipts included in the profits, not the entire receipt amount. This interpretation supports the assessee's position, and the substantial questions of law are answered against the Revenue.

3. The judgment also addressed the deduction of expenses incurred in foreign currency for providing technical services outside India from sales of software exports. The court differentiated between technical services related to export of software and technical services for software development outside India. Expenses incurred for the former should not be excluded from export turnover calculation. The decision favored the assessee, holding that such expenses are part of the export turnover and should not be deducted for computing deduction under Section 80HHE of the Act.

4. Considering the comprehensive legal analysis and alignment with previous judgments, the High Court dismissed the Revenue's appeal. The judgment provided clarity on the interpretation of turnover, treatment of interest income, and deduction of foreign currency expenses for technical services, ensuring consistency with established legal principles and benefiting the assessee in each issue raised.