Madras H.C : 90 per cent of gross interest and commission without deducting expenses incurred has to be excluded from the business profits while computing deduction under s. 80HHC

High Court Of Madras

Ambattur Clothing Co. Ltd. vs. Assistant Commissioner Of Income Tax

Section 80HHC, 50C

Asst. Year 2004-05

K. Raviraja Pandian & P.P. S. Janarthana Raja, JJ.

Tax Case (Appeal) No. 1164 of 2008

11th August, 2008

Counsel appeared :

R. Venkatanarayanan, for the Appellant : J. Narayanasamy, for the Respondent

JUDGMENT

K. RAVIRAJA PANDIAN, J. :

The assessee is on appeal, aggrieved by the order of the Tribunal dt. 22nd Feb., 2008 made in ITA No. 1298/Mad/2007.

2. The facts culled out from the statement of facts, are as follows : The appellant/assessee is the manufacturer and seller of garments. The assessee filed return of income for the asst. yr. 2004-05 on 30th Oct., 2004 admitting total income of Rs. 16,72,21,3030 (sic). The return was processed under s. 143(1) of the Act on 24th Sept., 2005. The case was selected for scrutiny and notice under s. 143(2) of the Act was issued on 7th Oct., 2005. The assessment under s. 143(3) was completed on 31st Oct., 2006 determining the total income at Rs. 17,62,36,100. While completing the assessment, the AO, inter alia, rejected the claim of deduction under s. 80HHC of the Act by excluding 90 per cent of the gross interest and commission from the profits of the business. The assessee claimed long-term capital loss in a sum of Rs. 52,38,048. The AO restricted the same to Rs. 15,19,248. The reduction in the loss was due to the increase in the deemed sale consideration in a sum of Rs. 37,17,900 in respect of the properties sold at Kodaikanal and Chennai by adopting the value determined by the stamp duty authorities under s. 50C of the IT Act. Aggrieved by the order of the AO, the assessee carried the matter on appeal to the CIT(A), who by his order dt. 16th March, 2007 confirmed the order of the AO in respect of the abovesaid two claims. However granted certain benefits in respect of other claims, which are not relevant to the case on hand. As against that order, the assessee filed an appeal before the Tribunal. The Tribunal dismissed the appeal by reason of the impugned order. The correctness of the same is now canvassed in this appeal before us by formulating the following substantial questions of law :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that 90 per cent of gross interest and commission without deducting expenses incurred has to be excluded from the business profits while computing deduction under s. 80HHC of the IT Act ?

2. Whether on the facts and in the circumstances of the case, the Tribunal was right in confirming the order of lower authorities in invoking the provisions of s. 50C of the Act and thereby reducing the capital loss to be carried forward ?”

3. We heard the learned counsel for the assessee and perused the materials available on record.

4. The first question of law is covered by the decision of this Court in the case of CIT vs. V. Chinnapandi (2006) 201 CTR (Mad) 13 : (2006) 282 ITR 389 (Mad) and K.S. Subbiah Pillai & Co. (India) (P) Ltd. vs. CIT (2003) 179 CTR (Mad) 522 : (2003) 260 ITR 304 (Mad). In Chinnapandi’s case it is held as follows : “Sec. 80HHC of the IT Act, 1961 stipulates that ‘profits of the business’ for the purpose of s. 80HHC of the Act mean the profits of the business as computed under the head ‘Profits and gains of business or profession’. While computing such profits under the head ‘Profits and gains of business or profession’ if any receipt by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is included in such profits, the same has to be reduced by 90 per cent from the profits computed as aforesaid. The deductions to be made are from the amount of profits so computed and not from the amount computed under any other head of income of that assessee. No reference of net interest mentioned in cl. (baa) of the Explanation to s. 80HHC(4B). Sec. 80HHC stipulates a deduction in respect of export profits. Instead of enjoining the AO to compute such export profits from out of the consolidated amount of income of the assessee, which may involve income by way of interest, rent, commission, etc., the legislature has provided a simple procedure under which 90 per cent of the receipts such as interest, rent, commission, brokerage, etc., shall be excluded as profits not attributable to exports. The intention is therefore clear that there should be no attempt to deduct any expenditure from the receipts, however related such expenditure may be to the receipts. It is in this sense that the expression ‘receipt by way of’ has been used in the section and not ‘income’ of that nature. Ninety per cent, that is deductible for the claim under s. 80HHC of the Act is from the gross interest received by the assessee and the amount of interest paid by the assessee should not be deducted therefrom.”

5. In respect of the second question of law, the Constitutional validity of s. 50C of the IT Act has been upheld by this Court recently by order dt. 5th Aug., 2008 made in Writ Petn. No. 4387 of 2003, and batch, K.R. Palanisamy & Ors. vs. Union of India & Ors. [reported at (2008) 219 CTR (Mad) 323—Ed.].

6. The explanation offered by the assessee before the assessing authority in respect of the deemed value of the two properties was that while registering, the Sub-Registrar refused to release the documents except on payment of higher stamp duty on enhanced valuation. Since the buyers wanted the title document to be released at the earliest, they have chosen to pay the stamp duty without contesting the same and without consulting the assessee. The assessee, as seller, did not have any locus standi in the proceedings and hence the assessee should not be made to suffer by enhancing the assessment. That explanation offered by the assessee was rejected on the premise that s. 50C of the Act makes it obligatory on the part of the AO to treat the value adopted by the stamp valuation authority as the deemed sale consideration received/accrued as a result of transfer.

7. We are of the view that there cannot be any exception to the finding arrived at by the AO, which has been confirmed by the appellate authorities as well as by the Tribunal. The assessee was provided with the valuable opportunity under sub-ss. (2) and (3) of s. 50C in addition to the opportunity given under the Stamp Act. Even that opportunity has not been availed by the assessee. The reasoning given that the assessee has no locus standi to question the value determined by the stamp authority is also not in accordance with law. Hence, on both the grounds, we are not able to agree with the contention of the learned counsel for the appellant. The appeal is dismissed as the issues are covered against the assessee in view of the judgments cited above. No costs.

[Citation : 326 ITR 245]