High Court Of Madras
CIT -I, Coimbatore Vs. Kadri Mills Ltd.
Assessment Year : 1997-98
Section : 80HHC
Mrs. Chitra Venkataraman And T.S. Sivagnanam, Jj.
Tax Case (Appeal) No. 697 Of 2009
September 24, 2013
JUDGMENT
Mrs. Chitra Venkataraman, J. – The Revenue is on appeal as against the order of Income Tax Appellate Tribunal, Chennai ‘A’ Bench dated 09.09.2008 in ITA.No.744/Mds/2007 relating to the assessment year 1997-98 raising the following question of law:
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that ‘net conversion charges’ has to be included under clause (baa) of Explanation to Section 80 HHC of the Act in the adjusted business profits for computation of deduction is valid?”
2. The assessee herein is a manufacturer of yarn out of purchase of cotton and cotton waste on its own and it had also done conversion, on job work basis by converting the raw materials into yarn. The Assessing Officer excluded such conversion charges from the profits of the business for arriving at the adjustable book profits as per clause (baa) of Explanation to Section 80HHC of the Income Tax Act, 1961.
3. Aggrieved by the same, the assessee unsuccessfully canvassed the issue before the Commissioner of Income Tax (Appeals) and thereafter before the Income Tax Appellate Tribunal, which remitted the matter back to the Assessing Officer with a direction to examine the aspect as to whether the conversion charges could be construed to be part of the operational income of the assessee, in the light of the decision of the Bombay High Court in [CIT v. Bangalore Clothing Co. [2003] 260 ITR 371/127 Taxman 637 ]. On remand, the Assessing Officer made a fresh assessment and confirmed the original assessment order. Aggrieved by the same, the assessee once again preferred the appeal before the Commissioner of Income Tax (Appeals), who relying on the earlier decision of the Income Tax Appellate Tribunal in the assessee’s own case for earlier years decided the issue in favour of the assessee. Aggrieved by the same, the Revenue preferred appeal before the Income Tax Appellate Tribunal, which confirmed the findings of the Commissioner of Income Tax (Appeals).
4. Aggrieved by this order, the Revenue is on appeal contending that for the purpose of computing deduction with regard to conversion on job work basis, whether it should be done on the gross income or net income, the matter has to be remitted back to the Assessing Officer.
5. Learned Counsel for the assessee submitted that the contention of the assessee practically rests on the decision of the Apex Court in CIT v. K. Ravindranathan Nair [2007] 295 ITR 228/165 Taxman 282 (SC), wherein it is held that the processing charges received by the assessee exporter, being an independent income, has to be given full application of the formula for reducing the total receipts by way of 90% from the gross total income to arrive at the business profits.
6. Even from the reading of the order of the Income Tax Appellate Tribunal, it is clear that the issue raised herein is only as to whether ‘net conversion charges’ has to be considered under clause (baa) of Explanation to Section 80HHC of the Act in the adjusted business profits for computation of deduction and the question is not on the gross conversion charges.
7. In the decision in ACG Associated Capsules (P.) Ltd. v. CIT [2012] 343 ITR 89/205 Taxman 136 (Mag.)/18 taxmann.com 137 (SC) the Apex Court after referring to the decision of the Apex Court in the case of K. Ravindranathan Nair (supra) held that the processing charges formed part of the gross total income as an independent income like Rent, Commission, brokerage, etc. Consequently, the Apex Court held that the 90% of the said sum has to be reduced from the gross total income, to arrive at the business profits.
8. Since the processing charges was an important component of the business profits, it has to be included in the total turnover in the said formula to arrive at the business profits for computing deduction under clause (baa) of Explanation to section 80HHC of the Act.
9. Thus going by the Apex Court’s judgment in K. Ravindranathan Nair (supra) and ACG Associated Capsules (P.) Ltd. case (supra), we hold that the net conversion charges would also form part of the gross total income. Therefore, 90% of the said sum has to be reduced in the total turnover of the assessee for arriving at the business profits.
10. In the result, the appeal preferred by the Revenue fails and the same is dismissed. No costs.
[Citation : 360 ITR 595]
