Delhi H.C : Miscellaneous income and interest income being part of business income to be excluded from eligible profits under section 80HHC

High Court Of Delhi

CIT-(C)-III vs. Flex Foods Ltd.

Assessment Years : 2003-04 And 2004-05

Section : 80HHC, 115JB

Badar Durrez Ahmed And Vibhu Bakhru, JJ.

IT Appeal Nos. 20 & 21 Of 2013

May 10, 2013


Badar Durrez Ahmed, J. – These appeals by the revenue are in respect of the assessment years 2003-04 and 2004-05 and arise out of the common order passed by the Income Tax Appellate Tribunal on 17.04.2012 in ITA Nos. 4880-4881/Delhi/2011, respectively. Limited notice had been issued in this matter on the previous occasion. The only issue sought to be raised in the present appeals relate to the submissions made by the learned counsel for the appellant/revenue that miscellaneous income and interest income should have been reduced while computing the deduction of eligible profits under Section 80HHC which would also be the same amount for the purposes of Section 115JB of the Income-tax Act, 1961 (hereinafter referred to as ‘the said Act’)

2. We have heard the counsel for the parties at length. There appears to be a misunderstanding on the part of the revenue. It is abundantly clear that for the purposes of computing the profits derived from the export of goods as referred to in Section 80HHC, the same has to be computed under sub-section (3) or sub-section (3A) of Section 80HHC. In the present case, clause (a) of sub-section (3) of Section 80HHC would be applicable. Therefore, the profits derived from exports would have to be computed by multiplying the profits of business with the ratio of export turnover to total turnover. Or, in other words:-

                                                                                Export turnover

Profits derived from Exports = Profits of business ×   ———————– 

                                                                                 Total Turnover

The profits of business have to be computed in the manner given in Explanation (baa) after sub-section (4) of Section 80HHC. The contention of the revenue is that in computing the deduction under section 80HHC, the same should have been reduced by the extent of miscellaneous income and interest income as the same cannot be considered to be part of export profits. This is where the misunderstanding on the part of the revenue lies. The so-called miscellaneous income and interest income, in the present case, have never been regarded as part of the export turnover. They constitute part of the profits of business. The Assessing Officer, in the present case, has accepted the fact that the miscellaneous income and the interest income were part of the business income of the assessee. Once that is accepted, they would constitute part of the profits of business, of course, to a limited extent as provided in Explanation (baa) referred to above. That is exactly what has been done by the Assessing Officer as would be apparent from the computation, which we are reproducing herein below:-

“Subject to these observations, the total income of the assessee is assessed as follows-

Business income as declared by the assessee 9,23,71,923/-
Add: On account of foreign exchange loss as discussed above 4,95 736/-
Less: B/f losses/depreciation 7,90,26,260/-
Less: Deduction u/s 80HHC as discussed above.  
  Profit as above 1,38,41,399/-
Less: 90% of other income of Rs. 29,83,818/- 26,85,436/-
Deduction u/s 80HHC = Profit × Export turnover/Total turnover  
  = 1,11,55,963 × 8,18,29,489/25,03,74,251  
  = 81,01,803/-  
30% of above = 24,30,541/- 24,30,541/-
Computation of book profit u/s 115JB  
Book profit as taken in the computation of income 2,21,01,867/-
Add: Claim for deduction u/s 80HHC not allowed as per discussion (supra) 6,37,08,462/-
Book profit u/s 115JB 8,58,10,329/-
Rounded off u/s 288A


3. In respect of the above computation, there was no grievance on the part of the assessee up to the point the deduction under Section 80HHC has been computed at Rs. 81,01,803/-. The grievance of the respondent/assessee was only with regard to limiting the deductions to 30% of the above figure of Rs. 81,01,803/- by invoking Section 80HHC (1B) while computing the book profit under Section 115JB. That issue is no longer in dispute in view of the decision of the Supreme Court in the case of Ajanta Pharma Ltd. v. CIT [2010] 327 ITR 305/194 Taxman 358, where it was made clear that 100% of the deduction would be allowable. Therefore, the Assessing Officer was wrong in allowing only 30% of the deduction allowable under Section 80HHC for the purposes of computing book profits under Section 115 JB.

4. It is, therefore, apparent that with regard to the issue of miscellaneous income and interest income, there was no dispute with the Assessing Officer’s treatment of the same as being part of business income. Consequently, the contention sought to be raised on behalf of the revenue that the miscellaneous income and interest income should be excluded does not arise at all. This is so because the Assessing Officer had treated the same as part of business income of the assessee.

5. As such no question of law, what to speak of a substantial question of law, arises for our consideration.

6. The appeals are dismissed.

[Citation : 360 ITR 359]

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