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TMI Blog2014 (7) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... words forming themselves into a special category - If so, the word 'charges' should be confined to those charges which do not have anything to do with the business and the related activities carried on by the assessee. The charges credited by the assessee in its turnover were the proceeds of the manufacturing and job work charges carried on by the assessee which is part of its principal business - the charges received by the assessee-company for the job works undertaken as in the nature understood could not be held as similar to the word 'charges' provided in sub-clause (1) of clause (baa) of the Explanation given under Section 80 HHC - the word 'charges' appearing in clause (baa) of Explanation given under Section 80HHC needs to be read as charges similar to receipts in the nature of brokerage, commission, interest, rent. etc. - Relying upon CIT Vs. K. Ravindranathan Nair [2007 (11) TMI 10 - Supreme Court of India] - job work charges is the integral part of the business activity of the assessee and charges received by the assessee for the job work undertaken by him cannot be held similar to the word "charges" provided in Explanation (baa) - The job work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... job charges are integral part of main business and charges received for job undertaken cannot be held as similar to word Charges provided in sub-clause (baa) of sub-section (4B) of Section 80 HHC. 2. Whether on the facts and in the circumstances of the case, ITAT was correct in law and on facts in relying upon the ITAT Cochin Bench decision of the case of ACIT vs. Herbal Isolates (P) Ltd. (89 ITD 310) which is not applicable in the facts of the present case and, thereafter cancelling of the order passed under Section 263 for the assessment year 1997-98 and 1998-99 altogether ignoring the decision of the Hon'ble Bombay High Court in CIT vs. K.K. Doshi Co. (245 ITR 859 (2009) before arriving at the above finding. 3. Whether on the facts and in the circumstances of the case, ITAT was correct in law and on facts directing to include job receipts in total turnover particularly when such job receipts were earned for rendering services within country and have no nexus with export activity. The core issue in this appeal is how export incentive under Section 80 HHC (3) of the Act is to be computed. Section 80 HHC has been the subject matter of frequent amendments. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1st day of April, 1991, the expression total turnover shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) section 28. (baa) 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 sum referred to in clauses (iiia), (iiib) and (iiic) 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 ;] Section 80 HHC is an incentive provision and is not a charging section. It provides that in computing the total income , a deduction of the profits derived by the assessee from the export of goods shall be made. Therefore, profits derived from the export of goods becomes the basis for working out the formula in Section 80 HHC(3) of the Act. By the Finance Act No.2 of 1991, w.e.f. 1.4.1992, the expression profits of the business was defined to mean the profits of the business as computed under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with profits from the business of exports of goods manufactured by the assessee. Therefore, the exports profits were required to be computed in the ratio of export turnover to total turnover. The Assessing Officer will have to ascertain whether receipt of interest, commission, charges, etc. is part of operational income and, for this purpose, the Assessing Officer will have to consider the nature of the business and its dominant activity, namely, whether receipts such as interest, commission, charges, etc. accrue as a part of the main business activity or whether they accrue out of incidental business. In the instant case, there is no difference in the activity relating to export business and job work carried out by the assessee. There is no difference between manufacture and export of jewellery on one hand and manufacture of jewellery for others on job work basis. Therefore, the receipt by way of job work is an integral part of the dominant business activity. The only difference between regular manufacturing and processing for others is that the assessee did not own the goods processed by it in the case of job work. The expenses and efforts for the job charges were the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission, interest, rent, etc. These specific words form a distinct genesis or category, inasmuch as all those items relate to receipts earned by an assessee other than for its regular and principal business activity. In such circumstances, the word 'charges' also should be read along with the meaning of those specific words forming themselves into a special category. If so, the word 'charges' should be confined to those charges which do not have anything to do with the business and the related activities carried on by the assessee. In the present case, the charges credited by the assessee in its turnover were the proceeds of the manufacturing and job work charges carried on by the assessee which is part of its principal business. Therefore, the charges received by the assessee-company for the job works undertaken as in the nature understood in this case could not be held as similar to the word 'charges' provided in sub-clause (1) of clause (baa) of the Explanation given under Section 80 HHC. Therefore, the word 'charges' appearing in clause (baa) of Explanation given under Section 80HHC needs to be read as charges similar to receipts in the natu ..... 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