LexCOMMISSIONER, INCOME TAX, THIRUVANANTHAPURAM versus K. RAVINDRANATHAN NAIR
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1 f COMMISSIONER, INCOME TAX, THIRUV ANANTHAPURAM A v. K. RA VIND RANA THAN NAIR NOVEMBER 13, 2007 B [S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.) Income Tax Act, 1961: s.80HHC(3)(a), (b) and (c) and Clause (baa) to the Explanation c to s.80HHC-Assessment Year 1993-94-Processing charges-, Inclusion of, in the 'total turnover '-Held: Processing charges forlfl part of gross total income hence includible in total turnover in th~ formula under s.80HHC. s.80HHC(3)-Assessment Year 1993-94-Export of both self-: D manufactured goods and trading goods-Deduction under s.80HHC(3)(c)-Entitlementfor-Held: Losses suffered by assessee in export of trading goods can be set ofjl adjusted against profits from export of manufactured goods and vice versa-If after such adjustments, there is positive profits, assessee is entitled to deduction-- E If there is loss, he is not entitled to any deduction. The questions for consideration in these appeals are whether processing charges earned by assessee were includible in the "total turnover" in the formula in s.80HHC(3) oflncome Tax Act, 1961, F for the assessment year 1993-94, for computing deduction under s. 80HHC and whether in the computation of deduction, under, s.80HHC(3)(c) losses suffered by the taxpayer in the export of trading goods can be set off/adjusted against profits from export of manufactured goods and vice versa and whether the assessee would' G be entitled to deduction if after such adjustments/set off the net figure is a loss. Allowing the appeals filed by the Department except CA 1097 H 1098 _SUPREME COURT REPORTS [2007] 11 S.C.R. A No.3167 of 2007 and remitting the matter to the A.O. for fresh disposal and dismissing CA No.3167 of2007, the Court HELD: 1. The formula in s.80HHC(3) of the Income Tax Act provided for a fraction of export turnover divided by total turnover B to be applied to Business Profits calculated after deducting 90% of the sums mentioned in clause (baa) to the Explanation to s.80HHC. The profit incentives and items like rent, commission, brokerage, charges etc. though formed part of gross total income bad to be excluded as they were "independent incomes" which had no element C of export turnover. (Para 18) (1112-F-G] 1.2. Under s.80HHC(l) it is provided that in computing the "total income" a deduction of the profits derived by the assessee from the export of goods shall be made. The words "profits derived from exports" in the said sub-section was substituted for the words D ''whole ofincome" by Direct Tax Laws (Amendment) Act, 1989 w.e.t: 1.4.89. The expression "derived from" in the said sub-section is narrower than the expression "attributable to", therefore, it is only "profits derived from exports" which become the basis for working out the said formula in s.80HHC(3) of the Act. E [Para 17) (1111-E-G] 1.3. Before giving Deduction, under s.80HHC(3)(a), (b) or (c), the gross total income of the assessee being profits from business had to be arrived at in terms of clause (baa) to the said Explanation. F While cakulating "Business Profits" the same bad to be done in terms of s. 28 to s.44D of the I. T. Act alone. Other provisions like ss. 70 and 71 of the I. T. Act were excluded. Therefore, if the said processing charges were part of gross total income of the taxpayer being profits from business then it had to be included in the total turnover in the above formula. The deduction has to be from profits G as understood in the commercial sense. Moreover, under clause (baa)(l), 90% of any amount reforred to in clause (iiia), (iiib) and (iiic) of s.28 of the l.T. Act or any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits. The said expression "included in such H J I I t C.I.T., THIRUVANANTHAPURAM v. K. 1099 RA VINDRANATHANNAIR profits" indicated that the said processing charges formed part of A the gross total income being business profits. (Para 17) (1111-H; 1112-A-D], 1.4. The processing charges, which was part of gross total' income, was an independent income like rent, commission, brokerage ' ..; etc. and, therefore, 90% of the said sum had to be reduced from the B gross total income to arrive at the Business Profits and since the ' said processing charge was an important component of Business 1 Profits, it also had to be included in the total turnover in the said formula to arrive at
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