Punjab-Haryana High Court
Liberty Footwear Co. vs Cit on 22 July, 2004
Equivalent citations: (2004)191CTR(P&H)398, [2004]141TAXMAN592(PUNJ, HAR)
Author: N.K. Sud
Bench: Adarsh Kumar Goel, N.K. Sud
JUDGMENT N.K. Sud, J.
Assessee has filed this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act) against the order of the ITAT, Delhi Bench B, Delhi (hereinafter referred to as the Tribunal) dated 30-5-2002, whereby appeal of the revenue against the order of the Commissioner (Appeals) dated 12-5-1994 has been allowed.
2. Assessee is a partnership concern engaged in the manufacture of footwear/shoe uppers which are mostly exported abroad and these exports entitled it to deduction under section 80HHC. While completing the assessment for assessment year 1992-93, the assessing officer excluded machinery, hire charges and building rent from the business income of the assessee and consequently reduced the claim for deduction under section 80HHC of the Act.
3. Assessee preferred an appeal before the Commissioner (Appeals) who, by following the orders of his predecessors in the earlier years, held that the assessing officer was not justified in excluding the receipts of hire charges, machinery, plant and building rent from the purview of business income and thereby reducing the claim for deduction under section 80HHC of the Act.
4. On further appeal by the revenue, the Tribunal observed that the issue about the hire charges for letting out the assets of the assessee being business income stood settled in the earlier years in favour of the assessee and as such the said income was rightly assessable as business income. However, the Tribunal held that in view of the provision of Explanation (baa) below clause (b) of section 80HHC(4C) of the Act, 90 per cent of the hire charges and rent were still to be excluded from the business income for the purpose of computation of deduction under section 80HHC. Accordingly, the Tribunal reversed the findings of the Commissioner (Appeals) and restored the order of the assessing officer on this issue. The necessary findings recorded in para 14 of the order are as under :
"We have heard the rival submissions and carefully examined the relevant provisions of the Act. We have also carefully considered the judgments in the cases of (1) CIT v. Jose Thomas (2002) 253 ITR 553 (Ker), (2) CIT v. Raw Ratan Exports (P) Ltd. (2000) 246 ITR 443 (Bom) and (3) CIT v. K K Doshi & Co. (2000) 245 ITR 849 (Bom). There is no dispute about the nature of receipt of hire charges of the plant and machinery let out to the sister-concern of the assessee. The main controversy before us is whether the receipt of hire charges is eligible for deduction under section 80HHC or not prior to 1-4-1992 every receipt which formed part of the business and gains of the assessee was eligible for deduction under section 80HHC of the Act, but after the insertion of Explanation (baa) the profit of the business has been defined under this Explanation according to which it should be the profits and gains of business or profession as reduced by 90 per cent of any sum referred to sub-section 3(a)(b) and (c) of section 28 or any receipts by way of brokerage, commission, rent, charges or any other receipt of a similar nature included in such profits. No doubt, the hire charges receipt in the present case may be part of the profits and gains of the business of the assessee but for computing the profit of the business in order to determine the legible deductions under sub-section (3) of section 80HHC, 90 per cent of the same will be reduced from the profits and gains of the business. Accordingly, we are of the considered opinion that the profits of business shall be computed as per Explanation (baa) below sub-section 4(b) of section 80HHC in order to compute deduction under section 80HHC. We, therefore, do not find ourselves in agreement with the findings of Commissioner (Appeals). Accordingly, the order of the Commissioner (Appeals) is set aside and the order of assessing officer is restored."
5. We have heard the counsel for the appellant.
6. It is not in dispute that for the purpose of computation of deduction under section 80HHC, "Profits of the business" have to be computed. Now the profits of the business have been defined in Explanation (baa) below sub-clause (b) under sub-section (4C) of section 80HHC of the Act and reads as under :
"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 any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India."
This Explanation had been inserted by Finance (No. 2) Act, 1991 with effect from 1-4-1992 and, therefore, was made applicable for the first time for assessment year 1992-93 which is the year under consideration in the present appeal.
7. A plain reading of the aforementioned Explanation clearly shows that the Tribunal was right in holding that even though the rent and hire charges were assessable as business income, 90 per cent of the same had yet to be excluded for computing profits of the business for the purpose of section 80HHC.
8. Mr. Sanjay Bansal, learned counsel for the appellant, has not been able to controvert this position. However, he pointed out that the Tribunal even after holding that 90 per cent of amount of hire charges and rent was to be excluded out of the profits of the business, has reversed the findings of the Commissioner (Appeals) and restored the order of the assessing officer. This has once again resulted in the exclusion of the entire income on account of hire charges and rent whereas even as per the Tribunal, only 90 per cent of the same had to be excluded. This contention of the learned counsel is correct and to this extent, the assessee deserves to succeed.
9. Accordingly, we partly allow this appeal and modify the order of the Tribunal by holding that for the purposes of computing deduction under section 80HHC, only 90 per cent of income from rent and hire charges be excluded from the profits of business as computed under the head "Profits and gains of business or profession". No costs.