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TMI Blog2016 (5) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... a Sumanth, Advocate For The Respondent : Mr.A.V.Sreekanth, JCIT, D.R ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal is filed by the Assessee is directed against the order of the Learned Commissioner of Income Tax(A), Salem dated 29.01.2015 pertaining to the assessment year 1998-99. 2. The assessee has raised the grounds with regard to denying relief u/s.80HHC of the Act in full with respect to the rental income received by the assessee from housing provided to its employees as well as the income from leasing activity. 3. The brief facts of the case are that the assessee has earned rental income of ₹ 20,24,710/-from housing provided to its employees. According to the assessee, this rental income was assessed as business income and not income from house property. As the rental income arises out of business of manufacture and sale of paper (eligible business), the amount need not be excluded from the business profit of assessee and the entire amount is to consider computing deduction u/s.80HHC of the Act. Ld.A.R relied upon the judgement of Supreme Court in the case of M/s. ACG Capsules Ltd Vs. CIT reported in 343 ITR 0089 wherein held that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any other establishment of the assessee situate outside India. In the Supreme Court held that independent income like rent, commission, brokerage, etc., though it formed part of the gross total income had to be reduced by 90 per cent. as contemplated in Explanation (baa) in order to arrive at business profits. The rationale for this which is indicated in the judgment of the Supreme Court is that profit incentives and items which constitute independent incomes have no element of export turnover and are consequently liable to be excluded to the extent that is stipulated in Explanation (baa) . The decision in to the extent to which it lays down a principle of law at variance with the subsequent judgment of the Supreme Court in would not therefore hold the field under the judgment of the Supreme Court. In there is nothing in the judgment of the Supreme Court to suggest that the judgment in was either expressly or impliedly approved. The ambit of Explanation (baa) has been considered by the judgment of the Supreme Court in . The legislative policy underlying the provision is that items which are unrelatable to the export activity must be excluded in the computation of business profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 44D of the Income-tax Act alone. Other provisions like sections 70 and 71 of the Income-tax Act were excluded. Therefore, in our view, if the said processing charges were a part of the gross total income of the taxpayer being profits from business then it had to be included in the total turnover in the above formula. It is important that deduction has to be from profits as understood in the commercial sense. Moreover, under clause (baa)(1), 90 per cent. of any amount referred to in clauses (iiia), (iiib) and (iiic) of section 28 of the Income-tax Act or any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits. The said expression included in such profits indicated that the said processing charges formed part of the gross total income being business profits. This has been clarified by clause (baa) to the said Explanation which inserted the definition of profits from business in the said section 80HHC(3) of the Income-tax Act. 19. In the present case, the Assessing Officer had worked out the business profits of ₹ 1,94,08,220 as the gross total income on the basis of income receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the assessees, profits derived from local sales were includible in the business profits but not in the total turnover. 22. At the outset, we may state that, in the present case, we are dealing with the law as it stood during assessment year 1993- 94. At that time section 80HHC(3) of the Income-tax Act constituted a code by itself. Subsequent amendments have imposed restrictions/qualifications by which the said provision has ceased to be a code by itself. In the above formula there existed four variables, namely, business profits, export turnover, total turnover and 90 per cent. of the sums referred to in clause (baa) to the said Explanation. In the computation of deduction under section 80HHC all four variables had to be taken into account. All four variables were required to be given weightage. The substitution of section 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 clause (baa) to the said Explanation. The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of export and therefore,, such receipts cannot be included for the purpose of deduction u/s.80HHC of the Act. Thus, in our opinion, when the above income i.e. rental/lease rentals assessed as business income of assessee, 90% of that income be considered so as to apply the provisions of Explanation (baa) to Sec.80HHC of the Act and in this issue, our view is supported by the Supreme Court decision in the case of Ravindranathan Nair (supra). Alternate to this,ld.A.R relied on the judgement of Supreme Court in the case of M/s.ACG Capsules Ltd. (343 ITR 89) wherein it was held that only 90% of net receipts by way of brokerage, commission, interest, rent charges or any other receipts of similar nature included in such profits computed under the head Profits and Gains of business of assessee could be deducted under clause (i) of Explanation (baa) to Sec.80HHC and not 90% of the quantum of gross of the above said income, which were allowed as expenses and therefore,, included in the profits of the business of the assessee. In view of the above, in our opinion, the judgement of Supreme Court in the case of M/s.ACG Capsules Ltd.(supra) is directly covered on the issue in dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X
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