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TMI Blog2021 (2) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted on the following substantial question of law: " Whether the Appellate Tribunal was justified in reversing the order of the first appellate authority and restoring that of the Assessing Officer for excluding receipts arising in the core business and not specified in Explanation (baa) to Section 80 HCC ?" 4. The appellant company is engaged in the business of manufacture of cloth. For the assessment year 2002-03, the appellant filed its return of income on 28.10.2002 admitting total income of Rs. 4,57,83,603/- after claiming deduction under section 80HHC to the extent of Rs. 2,98,17,261/-. The return was processed under section 143(1). Subsequently, the appellant filed a revised return on 24.03.2004 admitting total income of Rs. 3,44,96,795/- after claiming deduction under section 80HHC at Rs. 4,11,04,069/-. The revised return was filed for the purpose of claiming higher deduction under section 80HHC on the ground that the export sales and domestic sales were to be considered separately as if there were separate books of account maintained by the appellant. In the mean time, the Assessing Officer reopened the assessment under section 148 on 17.1.2005, in response to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly when separate books of accounts are maintained, the appellant would be entitled to claim deduction under section 80-HHC. In the absence of separate books of accounts, the Commissioner of Income Tax did not accept the contention of the appellant-assessee. The Assessing Officer included sales tax, sale of yarn (raw materials) and sale of condemned materials to the total turnover. 8. Relying upon the appellant's own case reported in 97 ITR 309, the Income Tax Appellate Tribunal, Madras Bench, held that if an assessee had generated profits on sale of raw materials and sale of condemned materials and if the said profits are included in the business income, then, these elements have to be included in the total turnover. The Commissioner of Income Tax directed the Assessing Officer to exclude sales tax from the total turnover following the decision of this court reported in 272 ITR 652 (Commissioner of Income Tax v. Sundaram Fasteners). So far as the sale of yarn and sale of condemned materials are concerned, since there was element of profit, the inclusion of the same in the total turnover were confirmed by the Commissioner of Income Tax. So far as the insurance claim and the mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt 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;] 11. Mr. R. Srinivasan, learned counsel appearing for the appellant, in support of his contention, has relied upon the following judgments:- (i) (2019) 103 Taxman.com 250 (SC) [Principal Commissioner of Income Tax v. Atul Ltd.], wherein the Hon'ble Supreme Court held as follows:- " ... 4.1 Now so far the reliance placed upon the decision of the Hon'ble Supreme Court in the case of Ravindranathan Nair [(2007) 295 ITR 228/165 Taxman 285] is concerned on considering the facts of the case before the Hon'ble Supreme Court, we are of the opinion that the said decision would not be applicable to the facts of the case on hand. In the case before the Hon'ble Supreme Court the assessee claimed the deduction with respect to the charges paid for purchasing material of the purchasers. To that it was held that the same cannot be permitted to be deducted and the same cannot be said to be as income earned by business. As observed hereinabove, the issue is directly covered by the decision of the Division Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is carrying on the business of financing because in the case of financing, the interest income which accrues to the assessee will have the element of turnover and in such a case, receipts like interest, will not attract Explanation (baa). The point which we would like to make, therefore, is that in every matter the Assessing Officer will have to ascertain whether receipt of interest, commission, labour charges, etc., were a part of operational income. We cannot lay down any standard test for deciding what would constitute operational income. Broadly, the Department will have to consider the memorandum and articles of association of the company, the nature of the business, the nature of the activity and such other tests, The Department will also have to ascertain as to what is the dominant business of the company and whether receipts like interest, commission, etc., accrue as a part of the main business activity or whether they accrue out of incidental business. In the case of CIT v. K. K. Doshi and Co. MANU/MH/0679/2000 : [2000] 245 ITR 849 (Bom), the assessee had received Rs. 19.60 lakhs as service charges. It was held that the service charges of Rs. 19.60 lakhs did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case that the receipt of labour charges was not in the nature of brokerage, commission, rent, interest or charges as mentioned in Explanation (baa) to Section 80HHC. Further, the assessee received Rs. 66,35,083 as processing charges. This can be seen from the profit and loss account. The company is engaged in manufacture and sale of garments, both domestically and by way of exports. The processing charges earned was by using the entire undertaking of the company which also manufactured garments for domestic sales and export sales and which processing charges were earned by incurring expenditure for the factory like wages, electricity charges, etc., debited in the profit and loss account. That, the income of Rs. 66,35,083 was only an income from business and the expenditure for earning this income is included in several items of expenditure debited in the profit and loss account. In these circumstances, we do not wish to interfere with the finding of fact recorded by the Tribunal. As stated above, if the receipt of labour charges (job work charges), interest, commission, etc., accrues by way of operating income then it falls outside Explanation (baa). In the present case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , learned Senior Standing Counsel appearing for the respondent-Revenue submitted that the issue involved in the above appeals are covered by the decision of the Hon'ble Supreme Court reported in (2007) 295 ITR 0228 [Commissioner of Income Tax v. K. Ravindranathan Nair) wherein the Hon'ble Supreme Court held as follows:- " ... 21. 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 I.T. 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% 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness profits computed in terms of Sections 28 to 44D of the Income Tax Act. In other words, receipts constituting independent income had 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. On a reading of all the variables, it becomes clear that every receipt may not constitute sale proceeds from exports and every receipt is not income under the Income Tax Act and every income may not be attributable to exports. 14. In the case on hand, the insurance claim and miscellaneous income have no nexus with the assessee's business. Since there is no nexus, the Tribunal rightly reversed the order of the appellate authority restoring that of the Assessing Officer for excluding receipts arising in the core business and not specified in Explanation (baa) to Section 80 HCC. The insurance claim and miscellaneous income are not directly attributable to the business, hence, they are liable for 90% deduction. 15. The ratio laid down by the Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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