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TMI Blog2005 (3) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Appeals Nos. 7 and 38 of 1999 relate to the assessment year 1991-92 which arises out of an order in I.T.A. No. 748/Coch/1994 and I.T.A. No. 881/Coch/1994, and I.T.A. No. 80 of 2002 relates to the assessment year 1992-93 which arises out of the order in I.T.A. No. 427/Coch/1996. The issue involved in all these appeals is the same. Hence, we are disposing of these cases by a common judgment. The assessee is engaged in the business of running a textile mill. For the year 1991-92, while claiming deduction under section 80HHC, the assessee included bank interest and interest on income-tax refund and commission received on sale of machinery and cotton canvassing under the head "Business". The assessing authority did not agree with the claim and assessed all the items under the head "Other sources". Aggrieved by the same, the assessee preferred an appeal before the Appellate Assistant Commissioner and contended that interest received on deposit of surplus money earned during the course of business operation for short periods was business income and taxable under the head "Business". With regard to interest on income-tax refunds, it was contended there was a direct business conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, the Appellate Tribunal was correct in its interpretation of section 80HHC for the assessment year in question especially by relying on sub-sections (3)(a) and (b) of the Income-tax Act?" Before examining the questions of law raised, we may extract the statutory provision for easy reference. "80HHC. Deduction in respect of profits retained for export business.- (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise .... (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any export house or trading house in respect of which the export house or trading house has issued a certificate under the proviso to sub-section (1), there shall, in accordance with and subject to the provisions of this section, be allowed in compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such goods bears to the total turnover of the business carried on by the assessee; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall,- (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods: ... Explanation.- For the purposes of this sub -section,- (a) 'adjusted export turnover' means the export turnover as reduced by the export turnover in respect of trading goods; (b) 'adjusted profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y other law. Explanation.- For the purposes of this section,- (a) 'convertible foreign exchange' means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act. 1973 (46 of 1973), and any rules made thereunder; (aa) 'export out of India' shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962); (b) 'export turnover' means the sale proceeds received in or brought into India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962); (ba) 'total turnover' shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erived from' a wider meaning to cover every receipt connected with the industrial undertaking. It is not all business receipts that would qualify for the deduction and the Legislature has apparently not intended to give the benefit of deduction to all business income. If the intention of the Legislature was to grant relief to all business income, it could have used the expression, 'profits and gains of industrial undertaking'." In CIT v. Bangalore Clothing Co. [2003] 260 ITR 371 (Bom) the court had occasion to consider the question whether receipts like rent, commission, etc., would fall within the expression "profits of the business" and whether labour charges found would be part of operational income. The court held that they are not to be excluded under Explanation (baa) to section 80HHC of the Income-tax Act, 1961. While holding so, the court held that the test to be applied in all such matters is, whether interest, service charges, commission accrued out of the main business activity of the company and whether they were operational income. This court in CIT v. K. Rajendranathan Nair [2004] 265 ITR 35 held that the income earned by processing goods belonging to third persons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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