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TMI Blog1998 (7) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 15,45,551 in computing admissible deduction under section 80HHC. 2. That the learned CIT(A) erred in confirming non-allowance of deduction of Rs. 1,34,417 representing the cost of Import Entitlement against gross import premium of Rs. 22,05,466 in computing admissible deduction under section 80HHC." 2. In this appeal the point at issue for consideration is whether the deduction of 90 per cent as per Explanation (baa) at the end of sub-section (4A) to section 80HHC of the items mentioned therein should be of the gross amount or of the net amount. In order to deal with the grounds of appeal it is useful to refer the relevant facts of the case. 3. The assessee is a partnership firm. It carries on business of manufacture of leather goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any expenses for earning this type of income. There is no justification for further deducting the expenditure incurred for earning this type of income. Accordingly, the Assessing Officer recomputed the deduction under section 80HHC by taking gross amount instead of the net amount as taken by the assessee. 5. In the appeal filed by the assessee before the CIT(A), the action of the Assessing Officer has been held as reasonable and justified. Hence the assessee is in appeal before us. 6. We have already produced the grounds of appeal, and as may be observed the question involved is common as to whether the 90 per cent of the amount referred to in Explanation (baa) of section (4A) of section 80HHC of the Act in respect of the items mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is to be deducted. Sri Mondal further mentioned that the intention of insertion of clause (bad) of the Explanation to section 80HHC is to exclude brokerage, commission, etc. which do not have element of turnover but included in the profit & loss account, but there is nothing to show that there was any intention to ignore the direct expenses necessary to earn such income, a part of the common expenses was also considered as attributable to the earning of such income and deduction of 10 per cent is considered as part of the common expenses. By providing for deduction of 10 per cent for common expenses it was not the intention not to allow the deduction of the direct expenses incurred to earn any such income. Sri Mondal further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of qualified goods in toto while computing the total income. In the light of the above background we should understand the scope and object of section 80HHC. This section must be interpreted keeping in view the object of the intention of the legislature, i.e. to confer a benefit on profits accruing to an assessee with reference to export turnover. Under sub-section (3) of section 80HHC a mechanism is provided to determine how the quantum of profits derived from exports under section 80HHC is to be determined. There are three possibilities which are envisaged, viz.:- (a) Where the assessee exports only such goods or merchandise as are manufactured or processed by him. (b) Where the assessee exports outside India only trading goods, i.e. go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80HHC which provides the mechanism to determine the quantum of profits derived from exports which are eligible for deduction we have examined the Explanation (baa) to section 80HHC of the Act. It is observed that the reason for exclusion of 90 per cent of brokerage, commission, rent, etc. is that these do not have an element of turnover which is involved in the computation of the profit under section 80HHC(3). As the turnover cannot include commission, brokerage, etc. the amount of brokerage and commission in full could be excluded, but to give benefit to the assessee exporter 10 per cent of the brokerage, commission, etc. is included in the profits of the business which is allowed as a deduction on account of common expenditure. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of the direct expenses incurred by an assessee to earn such income. 10. In the light of the above discussion, we are of the view that under Explanation (baa) of section 80HHC of the Act 90 per cent of the net amount referred in clauses (iiia), (iiib) and (iiic) of section 28, viz. profit on sale of licence, cash assistance and duty drawback receivable or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in the profit is to be deducted. Therefore, decision of the authorities below that out of the receipts the ad hoc 10 per cent deduction is made to account for expenditure necessary to earn these incomes and there is no need for further deduction of any expenses f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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