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TMI Blog2001 (11) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... l has referred the following four questions for decision of this court: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that interest received by the assessee from fixed deposit and Magnum deposit with the bank is eligible for deduction under section 80HHC? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the words 'total turnover' for section 80HHC can only have reference -to the turnover by way of sales and cannot take in its stride the gross receipts received? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for the purpose of deduction under section 80HHC the turnover of the construction division should be adopted at Rs.61,26,097 being the difference between gross amount of Rs.4,65,50,906 received from the owners of the flats and the corresponding expenses thereto as against Rs.4,65,50,906 being the gross amount received and adopted in the assessment? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in working out the proportionate income eligible for ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction division, contract fee-choice garden 61,26,097 Income from building management 72,700 Other sources 11,74,708 Income from software 1,28,400 ------------------ Total 1,13,88,720 ------------------ Total turnover adopted by the assessee without including the amount of Rs. 4,04,24,809 being the cost of flats constructed and given to customers for the purpose of computation of eligible export profit under section 80HHC(3) of the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... food division = income X division --------------------------- Gross profit from business 55,98,671 = -------------------------- X 23,88,067 = Rs. 13,35,236 10,01,321 ------------------------------------------------------------------------------------------------------------------------------- Thereafter, the Assessing Officer worked out export profit for deduction under section 80HHC by applying the following formula: ------------------------------------------------------------------------------------------------------------------------------- Eligible deduction Net adjusted income determined = in sea food business X Export turnover --------------------------------------- under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of computation of relief under section 80HHC of the Act is correct. In order to consider these questions, we have to reframe the questions as follows: "1. Whether the Tribunal was justified in holding-that the method and manner of computation of eligible deduction under section 80HHC(3) of the Income-tax Act by the Assessing Officer is not correct? 2. If the answer to the above question is in the affirmative, was the Tribunal justified in upholding the method adopted by the assessee for the computation of relief under section 80HHC(3) and in further holding that the amount received by the assessee from the customers for construction and delivery of flats in the land owned by the assessee is not part of 'total turnover' for the purpose of computation of eligible deduction under section 80HHC of the Act?" We therefore proceed to answer the reference on these questions reframed by us and also on the common question referred to in paragraphs Nos. 1 and 2. In order to appreciate the issues, it is necessary to refer to the relevant portion of section 80HHC which is extracted hereunder: '80HHC.-(1) Where an assessee, being an Indian company or a person (other than a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the income in the form of dividend from SBI Magnum, and interest income from bank deposits would constitute "business income" of the assessee for the purpose of computation of deduction under section 80HHC. We have already taken a decision in 1. T. R. No. 29 of 1998 by judgment dated November 13, 2001 -- CIT v. Parekh Brothers [2002] 253 ITR 43 (Ker), to the effect that interest income on bank deposits is only income from 'other sources" and does not constitute business income for the purpose of computation of relief under section 80HHC of the Income-tax Act. Similar is the view taken by this court in Traco Cable Company Ltd. v. CIT [1969] 72 ITR 503 and in Collis Line P. Ltd. v. CIT [1982] 135 ITR 390 (Ker). The Tribunal, on the other hand, has stated that the bank deposits and SBI Magnum certificates were offered as security for availing of packing credit facility and therefore there is connection between the bank deposit and the business activities of the assessee. In that view of the matter, the Tribunal held that the interest earned by the assessee on such bank deposits would constitute business income. We are unable to accept this logic of the Tribunal. The income generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to export business. In other words, the assessee's working out of export profit at Rs. 42,64,590 which is obviously more than the gross profit from the sea foods division is patently untenable. However, we feel the Assessing Officer did not strictly comply with the formula provided under section 80HHC(3) of the Act for the purpose of computation of eligible profit from export business. This is because the Assessing Officer has applied the formula : Export turnover Proportionate adjusted income ---------------------------------- X from sea foods division Total turnover of sea foods division On the other hand, section 80HHC(3) provides for the following formula : Profit as computed under the head 'Business income" --------------------------------------------------- X Export turnover Total turnover As already mentioned, the only dispute with regard to business income computed under the provisions of the Act is only on the exclusion of two items of income, namely, interest and dividend which we have confirmed. There is also no dispute on the export turnover which is adopted by the Assessing Officer from the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice charges from the customers along with the reimbursement of actual cost. The assessee obviously made huge margin in the construction and sale of flats and the same is evident from the fact that the assessee has earned a gross profit of Rs. 61,26,097 from the construction division. Learned counsel appearing for the assessee contended that the amount received from the flat owners towards cost of flats should not be treated as turnover of the assessee and in any case, according to him, the assessee has not received the entire amount of Rs. 4,04,24,809 in the relevant previous year. So much so, the contention of learned counsel is that the amount does not form part of turnover at least for this year. As already observed above, it is a question of finding out the turnover from which the assessee has derived the gross profit of Rs. 61,26,097 under the construction division. Since the assessee has made a margin on the construction of the flats, the sale price of the flats has to be the turnover of the assessee. If the assessee is to account for the profit in the subsequent years from the construction and sale of flats, then certainly the collections in the subsequent years towards the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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