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TMI Blog2012 (2) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... L APPEAL No. 1914 OF 2012 & 4534 OF 2008 (Arising out of SLP (C) NO. 32450 OF 2010) - - - Dated:- 8-2-2012 - S. H. Kapadia, A. K. Patnaik, Swatanter Kumar JJ JUDGMENT A. K. PATNAIK, J. Leave granted. 2. This is an appeal against the judgment and order dated 06.08.2010 of the Bombay High Court in ITA(L) No. 1276 of 2010 deciding two issues against the assessee. On the first issue, the High Court has held, relying on its judgment in Commissioner of the Income Tax vs. Kalpataru Colours and Chemicals (ITA(L) 2887 of 2009), that the entire amount received by an assessee on sale of the Duty Entitlement Pass Book (for short the DEPB ) represents profit on transfer of DEPB under Section 28(iiid) of the Income Tax Act, 1961 (for short the Act ). We have already decided this issue in favour of the assessee in a separate judgment in M/s Topman Exports vs. Commissioner of Income Tax, Bombay, and other connected matters and we have held that not the entire amount received by the assessee on sale of DEPB, but the sale value less the face value of the DEPB will represent profit on transfer of DEPB by the assessee. The first issue is, therefore, decided accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80HHC of the Act. 4. Learned counsel for the appellant submitted that it will be clear from the Explanation (baa) that ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits will be excluded for determining the profits and gains of business or profession. He argued that as the net receipts and not the gross receipts towards interest and rent are included in profits and gains of business or profession, ninety per cent of such net interest and net rent and not ninety per cent of gross interest and gross rent are to be excluded for determining the profits of the business under Explanation (baa) to Section 80HHC of the Act. 5. In support of this argument, learned counsel for the appellant relied on the decision of this Court in Distributors (Baroda) P. Ltd. v. Union of India and Others [(1985) 155 ITR 120] in which a Constitution Bench of this Court has held that only the dividends computed in accordance with the provisions of the Act, which is included in the gross total income of the domestic company, shall be taken into account for working out the relief under Section 80M of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins of business or profession as reduced by- (1) ninety per cent of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India . 9. Explanation (baa) extracted above states that profits of the business means the profits of the business as computed under the head Profits and Gains of Business or Profession as reduced by the receipts of the nature mentioned in clauses (1) and (2) of the Explanation (baa). Thus, profits of the business of an assessee will have to be first computed under the head Profits and Gains of Business or Profession in accordance with provisions of Section 28 to 44D of the Act. In the computation of such profits of business, all receipts of income which are chargeable as profits and gains of business under Section 28 of the Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, a deduction from such income by way of dividends an amount equal to a certain percentage of the income mentioned in this Section. The Constitution Bench held that the Court must construe Section 80M on its own language and arrive at its true interpretation according to the plain natural meaning of the words used by the legislature and so construed the words such income by way of dividends in sub-section (1) of Section 80M must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. Similarly, Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head Profits and Gains of Business or Profession referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness would result in a distortion of the figure of export profits. The High Court has relied on a decision of this Court in Commissioner of Income-Tax v. K. Ravindranathan Nair [(2007) 295 ITR 228 (SC)] in which the issue raised before this Court was entirely different from the issue raised in this case. In that case, the assessee owned a factory in which he processed cashew nuts grown in his farm and he exported the cashew nuts as an exporter. At the same time, the assessee processed cashew nuts which were supplied to him by exporters on job work basis and he collected processing charges for the same. He, however, did not include such processing charges collected on job work basis in his total turnover for the purpose of computing the deduction under Section 80HHC (3) of the Act and as a result this turnover of collection charges was left out in the computation of profits and gains of business of the assessee and as a result ninety per cent of the profits of the assessee arising out of the receipt of processing charges was not deducted under clauses (1) of the Explanation (baa) to Section 80HHC. This Court held that the processing charges was included in the gross total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VIL APPEAL No. 4534 OF 2008 This is an appeal against the order dated 19.01.2007 of the Delhi High Court in I.T.A. No. 541 of 2006. 2. The facts of this case very briefly are that Bharat Rasayan Limited (for short the assessee ) filed a return of income tax claiming a deduction of ₹ 72,76,405/- under Section 80HHC of the Act. In the assessment order, the Assessing Officer held that ninety per cent of the gross interest has to be excluded from the profits of the business of the assessee under Explanation (baa) to Section 80HHC of the Act and deducted ninety per cent of the gross interest of ₹ 50,26,284/- from the profits of the business of the assessee. The assessee preferred an appeal contending that only ninety per cent of the net interest should have been deducted from the profits of the business of the assessee under Explanation (baa) to Section 80HHC, but the Commissioner of Income Tax (Appeals) rejected this contention of the assessee. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (for short the Tribunal ) and the Tribunal allowed the appeal of the assessee and held that the assessee was entitled to deduct the expenses fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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