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TMI Blog2013 (12) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded to the extent of 90%, it must be a receipt of a nature similar to brokerage, commission, interest, rent or charges. The income emanating from services rendered, would not be susceptible to a reduction of 90% for simple reason that it would not constitute a receipt of nature similar to brokerage, commission, interest, rent or charges - Decided against Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... has rendered services for the parent company's personnel who are delegated to India. The intent is very clear and there is no scope to 'deem' any such services rendered in India as rendered outside India, by using the specific words 'outside India' which gives no option to assessee or the department to interpret the provision otherwise. Therefore, I am of the considered view that the assessee's case is outside the scope of the provision. This sum is therefore considered for exclusion while computing the deduction." 4. The AA, vide orders dated 9.9.2004 and 13.10.2005, reversed the assessment orders. The relevant observations made by the AA reads thus: "As per the provisions of Sec.80HHE the eligible profit has to be determined by taking into account global business profit, total turnover and the export turnover. The appellant has not included service income in the export turnover while claiming the deduction u/s 80HHE. Further there is no dispute regarding the fact that service income is an integral part of the business income. Further the service income is also not covered by Explanation (d) of Sec.80HHE. In the circumstances and in view of the Bangalore Tribunal's decision ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the provisions of Section 80HHE provides for benefit only for the income derived from the activity contemplated by the Section namely export of computer software and rendering of technical services outside India. The income from services rendered in India cannot be treated as has been derived from the above activities. Next, he submitted the category of incomes referred to in the explanation are incomes having no nexus with exports as held by the Supreme Court in Ravindranathan Nair's case and by the Division Bench of this Court in COMMISSIONER OF INCOME TAX -vs- MOTOR INDUSTRIES CO. LTD. (for short 'MICO') in 2011 331 ITR 79 (Karn). He submitted that the contention of the assessee that the service income does not fall within the catagory of 'income' referred to in Explanation (d), and therefore, cannot be excluded deserves to be rejected. After inviting our attention to the expression/word 'derived' in Sub-section(1) of Section 80HHE, he submitted that it is only first degree of income derived from the activities referred to as eligible business are alone liable for deduction and since the service income is beyond the first degree, it has formed a part of the business profits, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t while dealing with the provisions contained in Section 80HHC of the Act which is pari materia with Section 80HHE, in paragraph 21, observed thus: "The substitution of s. 80HHC(3) secures profits derived from the exports of eligible goods. Therefore, if all the four variables are kept in mind, it becomes clear that every receipt is not income and every income would not necessarily include element of export turnover. This aspect needs to be kept in mind while interpreting cl.(baa) to the said Explanation. The said clause stated that 90 per cent of incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in business profits, had to be deducted from business profits computed in terms of ss. 28 to 44D of the IT Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from business profits under cl. (baa). A bare reading of cl. (baa) (1) indicates that receipts by way of brokerage, commission, interest, rent, charges etc. formed part of gross total income being business profits. But, for the purposes of working out the formula and in order to avoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich have no direct nexus with the export turnover are liable to be deducted in arriving at the profits of the business. It was only when the assessee has an independent income which has no nexus with the income derived from export, which is in the nature of brokerage, commission, interest, rent or charges, and by inclusion of that income to the profits of the business result in distortion, then, such income should be excluded." (emphasis supplied) 13. The Bombay High Court in PFIZER LIMITED while dealing with Section 80HHC observed thus: "In determining in each case as to whether a receipt which forms part of the profits of business is liable to undergo a reduction of ninety per cent as stipulated in clause (1) of Explanation (baa), it is necessary for the court to consider whether the receipt is "of a similar nature included in such profits". The rationale for excluding ninety per cent of the receipts by way of brokerage, commission, interest, rent or charges, is that these are independent incomes and their inclusion in the profits of business would result in a distortion. In determining whether any other receipt is liable to undergo a reduction of ninety per cent the basic p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision is not a charging section, but an incentive provision. That is the reason why the apex court in unequivocal terms held in the aforesaid K. Ravindranathan Nair's case (2007) 295 ITR 228 (SC) that, every receipt may not constitute sale proceeds from exports. Every receipt in not income under the Income-tax Act and every income may not be attributable to exports." 15. The arguments advanced by learned counsel appearing for the parties were centered around Clause(d) of the Explanation appended to Section 80HHE, which in our opinion, deserves to be reproduced for better appreciation of the submissions. Clause (d) of the Explanation reads thus: "(d) "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 - (1) 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; and (2) the profits of any branch, office warehouse or any other establishment of the assessee situate outside India;" Under Explanation (d), the profits of business are defined to mean the profits of the business as comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange, such income is not deductible and the benefit of that income has to be given to the assessee. The expression "any receipt of a similar nature", has to be understood in the context of the words preceding the said expression namely brokerage, commission, interest, rent or charges. Such receipts have no nexus with the income earned by way of foreign exchange. Every receipt is not income and every income would not necessarily include element of export turnover. (see Ravindranathan Nair) . 18. In the present case, the income in question is the 'service income', which the assessee earned by rendering services to Robert Bosch GmbH, a German Company. The assessee rendered services to this Company in India like attending to Bosch personnel delegated to India, exchange of technical and economic information between the said Company and the Licensees. 19. There is no dispute that the assesee is engaged in the export and domestic sale of computer software, provision of technical services in and outside India and manufacture and sale of fuel injection pumps. This being so, the question is whether 'service income' would also fall in the category of receipts by way of brokerage, commi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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