Madras High Court
M/S. Stanco Traders vs The Deputy Commissioner Of Income ... on 21 December, 2021
TCA No.1218 of 2009
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 21.12.2021
CORAM :
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
and
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
Tax Case (Appeal) No.1218 of 2009
---
M/s. Stanco Traders,
132, Patti Street,
Sivakasi. ... Appellant
Versus
The Deputy Commissioner of Income Tax
Circle I, Katcheri Road,
Virudhunagar. ...
Respondent
Appeal preferred under Section 260A of the Income Tax Act, 1961,
against the order of the Income Tax Appellate Tribunal, “B” Bench Chennai,
dated 06.02.2009 in I.TA.No.2114/Mds/2007.
For Appellant : Mr.S.Sridhar
For Respondent : Mr.M.Swaminathan,
Senior Standing Counsel
assisted by Mrs. S.Premalatha
Junior Standing Counsel
1/8
https://www.mhc.tn.gov.in/judis
TCA No.1218 of 2009
JUDGMENT
(Judgment of the Court was delivered by R.MAHADEVAN, J.)
This tax case appeal has been filed by the appellant/assessee,
challenging the order dated 06.02.2009 passed by the Income Tax Appellate
Tribunal, 'B' Bench Chennai, in I.T.A.No.2114/Mds/2007, relating to the
assessment year 2002-03.
2. By order dated 24.11.2009, this court admitted the aforesaid tax
case appeal on the following substantial questions of law:
“1. Whether the Appellate Tribunal is correct in law in
concluding that the re-assessment framed was correct and valid
on the facts and in the circumstances of the case even though
there was no escapement of income as well as the computation
of deduction u/s 80 HHC of the Act was in accordance with the
provisions of the Act while filing the return of income disclosing
the total taxable income for the Assessment year under
consideration?
2. Whether the Appellate Tribunal is correct in law in
sustaining the action of the respondent in framing the re-
assessment for the purpose of re-computing the deduction
u/s 80HHC of the Act while excluding the hire charges as well
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TCA No.1218 of 2009
as the interest from the purview of profits of business being the
one limb of the statutory formula prescribed for such
quantification especially overlooking the live nexus as well as
the nature of income earned which were subjected to
exclusion?”
3. Today, when the appeal is taken up for consideration, the learned
counsel for the appellant/assessee as well as respondent/Revenue jointly
submitted that the first question of law raised in this appeal has already been
considered and decided by the Supreme Court in favour of the Assessee in the
case of ACG Associated Capsules (P) Ltd. Vs. Commissioner of Income –
tax, Central – IV, Mumbai reported in (2012) 18 taxmann.com 137 (SC),
the relevant passage of which, is usefully extracted hereunder:
“ 3. For appreciating the second issue, we may refer
very briefly to the facts of the case. For the assessment year
2003-04, the assessee filed a return of income claiming a
deduction of Rs.34,44,24,827/- under Section 80HHC of the
Act. The Assessing Officer passed the assessment order
deducting ninety per cent of the gross interest and gross rent
received from the profits of business while computing the
deduction under Section 80HHC and accordingly restricted
the deduction under Section 80HHC to Rs.2,36,25,053/-.
The assessee filed an appeal against the assessment order
before the Commissioner of Income – Tax (Appeals), who
confirmed the order of the Assessing Officer excluding
ninety per cent of the gross interest and gross rent received
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TCA No.1218 of 2009
by the assessee while computing the profits of the business
for the purposes of Section 80HHC. Aggrieved, the assessee
filed an appeal before the Income Tax Appellate Tribunal
(for short 'the Tribunal'). The Tribunal held, relying on the
decision of the Delhi High Court in CIT v. Shri Ram Honda
Power Equip (2007) 289 ITR 475 / 158 Taxman 474, that
netting of the interest could be allowed if the assessee is able
to prove the nexus between the interest expenditure and
interest income and remanded the matter to the file of the
Assessing Officer. The Tribunal also remanded the issue of
netting of the rent of the Assessing Officer with the direction
to find out whether the assessee has paid the rent on the
same flats against which rent has been received from the
staff and if such rent was paid then such rent is to be
reduced from the rental income for the purpose of exclusion
of business income for computing the deduction under
Section 80HHC. Against the order of the Tribunal, the
Revenue filed an appeal before the High Court and the High
Court has directed that on remand the Assessing Officer will
decide the issue in accordance with the judgment of the High
Court in CIT v. Asian Star Co.Ltd. (2010) 326 ITR 56
(Bom.) in which it has been held that while determining the
profits of the business as defined in Explanation (baa) to
Section 80HHC, ninety per cent of the gross receipts towards
interest and not ninety per cent of the net receipts towards
interest on fixed deposits in banks received by the assessee
would be excluded for the purpose of working out the
deduction under Section 80HHC of the Act.
“14. On a perusal of the judgment of the High Court in
Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra),
we find that the reason which weighed with the High Court
for taking a different view, is that rent, commission, interest
and brokerage do not possess any nexus with export turnover
and, therefore, the inclusion of such items in the profits of the
business would result in a distortion of the figure of export
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TCA No.1218 of 2009
profits. The High Court has relied on a decision of this Court
in Commissioner of Income-Tax v. K.Ravindranathan Nair
[(2007) 295 ITR 228/165 Taxman 282 (SC)] in which the
issue raised before this Court was entirely different from the
issue raised in this case. In that case, the assessee owned a
factory in which he processed cashew nuts grown in his farm
and he exported the cashew nuts as an exporter. At the same
time, the assessee processed cashew nuts which were
supplied to him by exporters on job work basis and he
collected processing charges for the same. He, however, did
not include such processing charges collected on job work
basis in his total turnover for the purpose of computing the
deduction under Section 80HHC (3) of the Act and as a result
this turnover of collection charges was left out in the
computation of profits and gains of business of the assessee
and as a result ninety per cent of the profits of the assessee
arising out of the receipt of processing charges was not
deducted under clauses (1) of the Explanation (baa) to
Section 80HHC. This Court held that the processing charges
was included in the gross total income from cashew business
and hence in terms of Explanation (baa), ninety per cent of
the gross total income arising from processing charges had to
be deducted under Explanation (baa) to arrive at the profits
of the business. In this case, this Court held that the
processing charges received by the assessee were part of the
business turnover and accordingly the income arising
therefrom should have been included in the profits and gains
of business of the assessee and ninety per cent of this income
also would have to be deducted under Explanation (baa)
under Section 80HHC of the Act. In this case, this Court was
not deciding the issue whether ninety per cent deduction is to
be made from the gross or net income of any of the receipts
mentioned in clause (1) of the Explanation (baa).
15. The Bombay High Court has also relied on the
Memorandum explaining the clauses of the Finance Bill,
1991 contained in the circular dated 19.12.1991 of the
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TCA No.1218 of 2009
Central Board of Direct Taxes to come to the conclusion that
the Parliament intended to exclude items which were
unrelated to the export turnover from the computation of
deduction and while excluding such items which are
unrelated to export for the purpose of Section 80HHC,
Parliament has taken due note of the fact that the exporter
assessee would have incurred such expenditure in earning the
profits and to avoid a distorted figure of export profits, ninety
per cent of the receipts like brokerage, commission, interest,
rent, charges are sought to be excluded from the profits of the
business. In our considered opinion, it was not necessary to
refer to the explanatory Memorandum when the language of
Explanation (baa) to Section 80HHC was clear that only
ninety per cent of receipts by way of brokerage, commission,
interest, rent, charges or any other receipt of a similar nature
included in such profits computed under the head profits and
gains of business of an assessee could be deducted under
clause (1) of Explanation (baa) and not ninety per cent of the
quantum of any of the aforesaid receipts which are allowed as
expenses and therefore not included in the profits of business
of the assessee.”
4. Following the aforesaid judgment, which squarely applies to the
facts of the present case, the first substantial question of law is answered in
favour of the Assessee and against the Revenue and the order of the Tribunal
stands set aside to that extent.
5. In view of the above, the second substantial question of law is left
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TCA No.1218 of 2009
open for consideration in an appropriate case.
6. Accordingly, the Tax Case Appeal stands allowed. No costs.
(R.M.D., J.) (M.S.Q., J.)
21.12.2021
av/rsh
Internet : Yes / No
Index : Yes / No
To
1. The Income Tax Appellate Tribunal,
'B' Bench Chennai,
2. The Deputy Commissioner of Income Tax
Circle I, Katcheri Road,
Virudhunagar.
https://www.mhc.tn.gov.in/judis
TCA No.1218 of 2009
R. MAHADEVAN, J
and
MOHAMMED SHAFFIQ, J
av/rsh
T.C.A.No.1218 of 2009
21.12.2021
https://www.mhc.tn.gov.in/judis
