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TMI Blog2015 (2) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... T OF INDIA] while calculating the amount of interest, the net interest income is to be considered and not the gross interest income. Under the circumstances, we find that the answer to question (B) shall be in affirmative in favour of the assessee. Exclusion of 90% of compensation in computing the deduction u/S.80HHC - Held that:- The compensation received may be on account of improper functioning or less than the expected capacity of the windmill by the assessee would have a different category of the income received and it cannot be made corelatable to the profits and gains from business. In our view, so far as amount of compensation received is concerned, it has no element of export turnover of the assessee and therefore, a separate treatment would be required to be given.Rational for excluding 90% of the receipt by way of brokerage, commission, interest, rent or charges is that these are independent income and their inclusion in the profit of business would result into distortion.the income by way of compensation received by the assessee cannot be made directly relatable to the regular course of business as sought to be canvassed. Hence, we find that question (C) needs to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d year, we find that the matter stands covered in favour of the assessee by the decision of the Gujarat High Court in the case of Nirma Industries Ltd. Vs. DCIT [283 ITR 402]. Respectfully following the same, we hold that the interest income on overdue payment is part of profit derived from it, however, this interest on overdue payment is received by the assessee on account of late payment of sale consideration by the overseas customers to whom the export have been made by the assessee. Subject to this, the Assessing Officer may verify this aspect and allow the claim of the assessee in accordance with the decision of the Gujarat High Court in the case of Nirma Industries Ltd.(Supra). 12. The other interests are not the income derived from export and in view of the decision of the Supreme Court in the case of Pandian chemical Ltd. Vs. CIT (262 ITR 278) as well as of the decision of the Tribunal in the case of DCIT Vs. Mira Industries (87 ITD 475) we uphold the order of the Revenue authorities. The alternate contention of the assessee, however, that it should be net of expenditure, which should be excluded from the export profit. We find force in this contention of the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar question no.2 in respect of the provisions of section 80I, it was observed at paragraphs 31 to 33 as under: 31. In so far as Question No.2 is concerned, according to the Tribunal Section 80I of the Act uses the phrase 'derived from' and hence the interest received by the assessee from its trade debtors cannot be taken into consideration for the purpose of computing profits derived from an industrial undertaking. The Tribunal has failed to appreciate that it is not the case of the assessing officer that the interest income is not assessable under the head 'profits and gains of business'. It is only while computing relief under section 80I of the Act that the revenue changes its stand. When one reads the opening portion of section 80I of the Act it is clear that words used are gross total income of an assessee includes any profits and gains derived from an industrial undertaking . Once this is the position then, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the prescribed percentage is to be allowed. That, in fact the gross total income of the assessee included profits and gains from such busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well settled that interest can be assessed under the head 'Income from other sources' only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In our view, the interest payable to him certainly partakes of the same character as the receipts for the payment of which he was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts granted to the assessee under the awards and treated as 'income from other sources' . 33. However, the parties having made elaborate submissions the matter may be examined from a slightly different angle. When the assessee enters into a contract for sale of its products it could either stipulate (a) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of assessee against the revenue. 9. On second question (B), after the admission of the present appeals, the Apex Court had an occasion to consider and interpret the provisions of section 80HHC read with the explanation in the case of ACG Associated Capsules Pvt. Ltd. vs. Commissioner of Income Tax reported at 343 ITR page 89 (SC). In the said case, the question formulated was as under: Whether the Incometax Appellate Tribunal was correct in law in holding that the assessee was entitled to reduce interest paid by it against the interest received by it while calculating the deduction under section 80HHC read with the Explanation (baa) of the Income Tax Act The Apex Court in the above referred decision, observed at paras 11 to 12, as under 11. For this interpretation of Explanation (baa) to Section 80HHC of the Act, we rely on the judgment of the Constitution Bench of this Court in Distributors (Baroda) P. Ltd. v. Union of India and Others (supra). Section 80M of the Act provided for deduction in respect of certain inter corporate dividends and it provided in subsection (1) of Section 80M that where the gross total income of an assessee being a company includes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head Profits and Gains of Business or Profession , is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business. 10. The aforesaid observations made by the Apex Court in the above referred decision makes it clear that while calculating the amount of interest, the net interest income is to be considered and not the gross interest income. Under the circumstances, we find that the answer to question (B) shall be in affirmative in favour of the assessee against the revenue. 11. On question (C), the learned counsel appearing for the Revenue by relying upon the decision of the Apex Court in the case of Commissioner of Income Tax vs. Ravindranathan Nair reported in 295 ITR 228 (SC) submitted that the processing charges are to be given separate treatment and therefore, deduction to the extent of 90% when to be computed, such amount will have to be excluded and a separate treatment will be given. It was also submitted by the learned counsel for the Revenue that the payment received by way of compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which had no element of export turnover. In para Nos.19,20,21,22 and 23, it was observed thus: 19. In the present case the A.O. had worked out Business Profits of ₹ 1,94,08,220 as gross total income on the basis of income received from cashew business (See: pages 50 and 52 of the SLP Paper book). Even according to assessees, in the above formula his Business Profits included the abovementioned processing charges. However, according to assessees, the said charges were not to be included in the total turnover. We are not inclined to accept the contention of the assessees. The above discussion indicates that the formula in Section 80HHC(3) of the I.T. Act provided for a fraction of export turnover divided by total turnover to be applied to Business Profits calculated after deducting 90% of the sums mentioned in clause (baa) to the said Explanation. That, profit incentives and items like rent, commission, brokerage, charges etc. though formed part of gross total income had to be excluded as they were independent incomes which had no element of export turnover. That, the said items distorted the figure of export profits. 20. In our view, for the above reasons, the said pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... element of export turnover. This aspect needs to be kept in mind while interpreting clause (baa) to the said Explanation. The said clause stated that 90% 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 Sections 28 to 44D of the I.T. Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from Business Profits under clause (baa). A bare reading of clause (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 distortion of arriving export profits clause (baa) stood inserted to say that although incentive profits and independent incomes constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anathan Nair (supra) has been considered and after considering the observations made by the Apex Court in the above referred decision at para 21, it was observed that in determining in each case as to whether a receipt forms part of the profit or business is liable to undergo a reduction of 90% as stipulated in clause (i) of Explanation (baa), it is necessary for the Court to consider whether receipt is of a similar nature included in such profits . Rational for excluding 90% of the receipt by way of brokerage, commission, interest, rent or charges is that these are independent income and their inclusion in the profit of business would result into distortion. It is also observed that in the said decision at para 13, it was inter alia observed that in determining profit derived from the export of goods or merchandise the proportion of export turnover to the total turnover of the business is applied to the profits or business, because, the Parliament by formula under section 3 of section 80HHC has provided for the purpose of sub section (1) to compute the profit derived from the export of goods. As we have observed earlier, the income by way of compensation received by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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