Case Note & Summary
The case involved an appeal by the Commissioner of Income Tax-6 against an order of the Income Tax Appellate Tribunal dated 6th June 2008 for Assessment Year 2002-03. The respondent, M/s. Dresser Rand India Pvt. Ltd., was an Indian company engaged in export business and claimed deduction under Section 80HHC of the Income Tax Act, 1961. The Revenue contended that 90% of certain receipts, namely recovery of freight, insurance and packing receipts (Rs.49,14,076), sales tax set off/refund (Rs.38,33,148), and service income (Rs.2,89,17,545), should be excluded from the profits of business as per Explanation (baa) to Section 80HHC. The Tribunal had held that these receipts were not liable to be excluded. The High Court framed the question of law and heard submissions. The Court analyzed Explanation (baa), which defines 'profits of the business' as profits computed under the head 'Profits and gains of business or profession' as reduced by 90% of any sum referred to in clauses (iiia), (iiib), (iiic) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature. The Court noted that the receipts in question were not of the nature specified in those clauses nor were they similar to brokerage, commission, interest, rent, or charges. The Court held that the Tribunal was correct in not excluding 90% of these receipts. Consequently, the appeal was dismissed with no order as to costs.
Headnote
A) Income Tax - Export Deduction - Section 80HHC Explanation (baa) - Exclusion of 90% of Certain Receipts - The issue was whether 90% of freight, insurance, packing receipts, sales tax set-off/refund, and service income should be excluded from 'profits of the business' under Explanation (baa) to Section 80HHC. The Court held that these receipts are not of the nature specified in clauses (iiia), (iiib), (iiic) of Section 28 nor are they 'receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature'. Therefore, 90% thereof is not to be excluded. (Paras 1-5)
Issue of Consideration
Whether 90% of recovery of freight, insurance and packing receipts; sales tax set off/refund; and service income are liable to be excluded from the profits of business within the meaning of clause (baa) of explanation to Section 80HHC of the Income Tax Act, 1961 for the purpose of computation of deduction under Section 80HHC.
Final Decision
Appeal dismissed with no order as to costs. The Tribunal's order is upheld.
Law Points
- Interpretation of Explanation (baa) to Section 80HHC
- Income Tax Act
- 1961
- Exclusion of 90% of certain receipts from profits of business
- Meaning of 'receipts by way of brokerage
- commission
- interest
- rent
- charges or any other receipt of similar nature'
- Freight
- insurance
- packing receipts
- sales tax set-off/refund
- service income not covered by Explanation (baa).
Case Details
2010 LawText (BOM) (04) 70
Income Tax Appeal No.2186 of 2009
Dr. D.Y. Chandrachud, J.P. Devadhar
Mr. Suresh Kumar for the Appellant, Mr. F. V. Irani with Mr. A.K. Jasani for the Respondent
The Commissioner of Income Tax-6
M/s. Dresser Rand India Pvt. Ltd.
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Nature of Litigation
Appeal by Revenue under Section 260A of the Income Tax Act, 1961 against order of Income Tax Appellate Tribunal.
Remedy Sought
Revenue sought to set aside Tribunal's order and to hold that 90% of certain receipts should be excluded from profits of business under Explanation (baa) to Section 80HHC.
Filing Reason
Revenue aggrieved by Tribunal's decision that 90% of freight, insurance, packing receipts, sales tax set-off/refund, and service income are not to be excluded from profits of business.
Previous Decisions
Income Tax Appellate Tribunal order dated 6th June 2008 for Assessment Year 2002-03 held that the receipts are not liable to be excluded.
Issues
Whether 90% of recovery of freight, insurance and packing receipts; sales tax set off/refund; and service income are liable to be excluded from the profits of business within the meaning of clause (baa) of explanation to Section 80HHC of the Income Tax Act, 1961 for the purpose of computation of deduction under Section 80HHC.
Submissions/Arguments
Revenue argued that the receipts in question fall within the ambit of Explanation (baa) and 90% thereof should be excluded from profits of business.
Respondent argued that the receipts are not of the nature specified in Explanation (baa) and hence not liable to be excluded.
Ratio Decidendi
The receipts of freight, insurance, packing, sales tax set-off/refund, and service income are not sums referred to in clauses (iiia), (iiib), (iiic) of Section 28 nor are they receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature. Therefore, 90% of such receipts is not to be excluded from 'profits of the business' under Explanation (baa) to Section 80HHC.
Judgment Excerpts
The question of law which has been formulated by the Revenue in this Appeal under Section 260A of the Income Tax Act, 1961 is as follows : 'Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that 90% of recovery of freight, insurance and packing receipts amounting to Rs.49,14,076/, sales tax set off/refund amounting to Rs.38,33,148/ and service income of Rs. 2,89,17,545/ are not to be excluded from profits of business within the meaning of clause (baa) of explanation to Section 80HHC of the Act for the purpose of computation of deduction u/s.80HHC of the Income Tax Act, 1961?'
Explanation (baa) which was inserted by the Finance Act of 1991 defines the expression 'profits of the business' as follows : '(baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by (1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature...'
Procedural History
The Income Tax Appellate Tribunal passed an order on 6th June 2008 for Assessment Year 2002-03. The Revenue appealed against that order under Section 260A of the Income Tax Act, 1961 before the Bombay High Court. The High Court admitted the appeal and heard the matter, ultimately dismissing the appeal.
Acts & Sections
- Income Tax Act, 1961: 80HHC, 260A, 28
