2022 (6) TMI 902 - HC - Income Tax

Deduction u/s. 80HHC - retrospective applicability of the amendment of the year 1991 by the Finance Act of 1991 - Whether Appellate Tribunal was justified in reversing the order of the CIT(A) allowing the claim of deduction? - HELD THAT - In the case of P.R. Prabhakar 2006 (7) TMI 121 - SUPREME COURT considered the question as to whether the amendment of the year 1991 was prospective or retrospective. The Supreme Court observed that the amendment of the year 1991 was prospective in nature. In the light of decision P.R. Prabhakar, the view taken by the Tribunal that the amendment is retrospective in nature and therefore, the commission would not entitle the Appellant Assessee for exemption does not survive This finding of the Tribunal was the foundation of its decision. In the case of P.R. Prabhakar, the Supreme Court also observed that since the amendment to Section 80HHC of the year 1991 was prospective, the commission for export constituted export profits and the assessee would be entitled to deduction under Section 80HHC for the Assessment Year 1991 that is prior to the amendment. The Supreme Court has settled these two questions in its decision. Both grounds on which the Tribunal passes the impugned order therefore do not survive. We have perused the orders of the Assessing Officer, Commissioner of Income Tax (Appeals) and the Tribunal. There was no debate that the commission claimed by the Appellant Assessee was not related to export. In fact, the authorities have observed that, in law the Appellant Assessee was not entitled to claim commission, of any kind, in respect of claim under Section 80HHC and there was no differentiation made as regards the type of commission. Even otherwise, the learned Counsel for the Appellant Revenue has placed on record the audited account by way of praecipe wherein it is shown that the commission was received by the Appellant Assessee in foreign exchange and was relatable to export. This being the position wherein the questions of law framed in this Appeal having been answered in favour of the Appellant Assessee by the decision of the Supreme Court as above, the Appeal will have to be allowed and the question framed will have to be answered accordingly.

Summary

Issues:
- Retrospective applicability of the amendment of the year 1991 by the Finance Act of 1991
- Eligibility of commission for exemption of tax under Section 80HHC

Analysis:
1. The judgment involves an Income Tax Appeal challenging the decision of the Income Tax Appellate Tribunal regarding the eligibility of a private limited company trading in wattle extracts to claim deduction under Section 80HHC for the Assessment Year 1991-92. The Appellant claimed deduction under Section 80HHC, but the Assessing Officer disallowed it, leading to an appeal before the Commissioner of Income Tax (Appeals), who allowed the deduction. The Revenue then appealed to the Income Tax Appellate Tribunal, which held that the commission income should be excluded from business profit for claiming the deduction under Section 80HHC.

2. The Tribunal considered the retrospective applicability of an amendment to Section 80HHC by the Finance Act of 1991, which excluded certain incomes from the deduction. However, the High Court referred to the Supreme Court decision in the case of P.R. Prabhakar v/s. Commissioner of Income Tax, where it was clarified that the amendment was prospective, not retrospective. Therefore, the Tribunal's decision on the retrospective applicability of the amendment was incorrect.

3. The High Court further analyzed the nature of the commission claimed by the Appellant. The Respondent argued that not all types of commission would lead to a claim under Section 80HHC and that only commissions related to export activities should be considered. However, the High Court noted that all authorities, including the Assessing Officer and the Commissioner of Income Tax (Appeals), had acknowledged that the commission received by the Appellant was related to export activities.

4. Consequently, the High Court held that the questions of law raised in the appeal were answered in favor of the Appellant based on the Supreme Court decision in the case of P.R. Prabhakar. The High Court allowed the appeal, quashed the Tribunal's order, and directed the concerned Assessing Officer to recalculate the tax liability in accordance with the judgment and applicable law.

5. In conclusion, the High Court's judgment clarified the retrospective applicability of the amendment to Section 80HHC and affirmed that the commission income related to export activities was eligible for deduction under the said section. The decision provided clarity on the interpretation of the law and directed the proper authorities to proceed accordingly.