High Court Of Madras
CIT vs. Kiran Processors
Sections 80HHC, Expln. (BAA)
P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) No. 5 of 2006
31st January, 2006
Counsel Appeared :
N. Muralikumaran, for the Appellant
JUDGMENT
P.D. Dinakaran, J. :
The above tax case appeal is directed against the order of the Tribunal in ITA No. 191/Mad/2000, dt. 7th March, 2005.
2. The Revenue is the appellant. The assessee is a textile processor and exporter of hosiery fabric. The assessee filed a return of income on 29th Nov., 1996, and after completing assessment on 9th March, 1999, the AO excluded the dyeing charges in terms of Expln. (baa) to s. 80HHC of the Act, and held that when 90 per cent of the dyeing charges were excluded from the profits, the deduction under s. 80HHC became negative and accordingly, disallowed the same. The assessee went on appeal before the CIT(A), who partly allowed the appeal by directing the AO to exclude the dyeing charges from the total turnover and also to exclude only the profit element of the dyeing charges from the profit of the business for the purpose of computation of deduction under s. 80HHC. The Tribunal, on appeal by the Revenue, held that even though there was a nexus between the business of the assessee and the dyeing charges received, as the order of the CIT(A) has not been challenged by the assessee, there is no merit in the appeal and accordingly, dismissed the same.
3. Hence, the present appeal by the Revenue raising the following substantial questions of law : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that only 90 per cent of the profit element in the dyeing charges received by the assessee could be reduced from the profits of business for computation of deduction under s. 80HHC ignoring the plain terminology of Expln. (baa) to s. 80HHC under which 90 per cent of the miscellaneous receipts had to be reduced from the profits of business in arriving at the deduction under s. 80HHC ?”
4. In the case on hand, it is not in dispute that the dyeing charges are received in the course of the manufacturing activity of the goods exported and therefore, there is a nexus between the dyeing charges received by the assessee and the goods exported.
5. When a similar issue came up for consideration, this Court by order dt. 3rd Jan., 2006 made in Tax Case (Appeal) No. 37 of 2003 [Southern Sea Foods Ltd. vs. Jt. CIT (2006) 201 CTR (Mad) 1 : (2007) 288 ITR 151 (Mad)], held that the income derived for freezing and processing of marine products—but for that operation the export cannot be made—is an income earned by using the entire undertaking of the company, i.e., machinery and power and other manufacturing and administrative set up and therefore, the freezing and processing charges would definitely form part of one of the components of business profits, as the activity of freezing and processing would have a direct and immediate nexus to the activity of export.
6. As rightly held by both the authorities below, the dyeing charges were received by the assessee company in their capacity as both a textile processor and an exporter of hosiery fabric and hence, the dyeing charges are one of the main trading receipts and it employs special machinery and incurs substantial expenditure in the form of inputs like dyes, chemicals, fuel, wages, etc., and therefore, it cannot be treated as something in the nature of brokerage, commission or other receipts, which are not related to the main activity of the business attracting Expln. (baa) to sub-s. (4A) of s. 80HHC.
7. Further, it is seen from the order of the CIT(A) that the AO was directed to exclude the dyeing charges from the total turnover and to exclude only the profit element of the dyeing charges from the profit of the business for the purpose of computing deduction under s. 80HHC. Since that order of the CIT(A) has not been challenged by the assessee, as rightly held by the Tribunal, the Revenue may not have any grievance at all and hence, we find no merit in this appeal.
8. Accordingly, following the ratio laid down by this Court in the above decision, finding no substantial question of law arises for our consideration, the appeal stands dismissed.
[Citation : 288 ITR 165]
