Karnataka High Court
The Commissioner Of Income Tax vs M/S Krone Communication Ltd on 7 July, 2010
Equivalent citations: 2011 (1) AIR KANT HCR 227, 2011 TAX. L. R. 4 (2011) 333 ITR 497, (2011) 333 ITR 497
Bench: N.Kumar, B.V.Nagarathna
IN THE HIGH COURT OF KARNATAKA AT
Dexted this the 7*" day oI'Ju1y. C.
PRESEN'i{
THE HON'BLE MR. N
THE I-ION'BLE ms; zB'.iL.jmoARATHNA
1 1TA"N'o.s 1." oi'.C"%0o5,.." 2
if V
BETwE_.I;:_N_;_ .
1 The Co1I1.mis.sic)f1Ct o*§_l1'1c0II1e Tax
Central C'irc1e._ ' '
j C R Builtfzing' V
1.: ""<.Q;1_ée3:;s Road... ..... 14 v " Béxfiigalore &'C1"}'1é'V}f)C6pi;:1},r Commissioner of Income T ax . cm51~e";--~ ms) C v_F<'Bo}ilding QQQCHS Road Balxigalore ...Common Appellants {By Sri M V Seshachala, Advocate) /.
5g,/ M) AND:
M/s. Krone Communication Ltd.
Hosto Centre 111 Floor 43, Millers Road ..
Bangalore iC'o_nimon' --Respo.nde1at ' 2 ._ (By Sri Kurnar, Senior Cou11sel*for_; 0 l lVi/ s. King 8:. Paniidge, Advocates} ITA No. 141 of 2005ilis, lilpedplt2nde'rxSection 260--A of 1.1".
Act, 1961 arising out of Order dated 1.~'Z--'O8j.-20.04 passed in ITA No.1062/Bng/2002, forythe» Agssessrnent year 1998-99 praying to formulate the'stibsta_ntial..xquestions of? law stated therein and allow th4el*.app_iea_i and "set aside theworder passed by the Income Tax=i'App=ellate._ Triljuna1,"e_B'aingalore Bench in ITA No. 1062/Bang/2.002Tdate-_i '17'.'8.2.004 confirming the order of the Appellate'Corrgiifnissiéiiierand confi1"rn the order passed by the Dy. CoIlnmi_ssiori.;;r..Qi"<Incon*ie__TaX; Circle--11(3). Bangalore, etc., ITA "of is filed under Section 260~A of 1.1'. 4..A(i't,,1961.__arisin'g out of Order dated 17-08-2004 ' passeid in Cr.Objl.N~a--.--«1'9/B/2001 in ITA No.98/Bang/2001 forthe Assessment year 1996-97 praying to formulate the _st1ibs'taIitial.'questions of law stated therein and allow the app'e__al "an"d,__set'V'aside the order passed by the Income Tax Appellatefl 'T'1"""b'LlI'1E:1l. Bangalore Bench in Cr.Obj. No. 1.9/Bang'/2001 in ITA No. 98/Bang/2001 dated 17.8.2004 and lgconfirm the order of the Appellate Commissioner confirming the order passed by the Dy. Commissioner of Income Tax, Circle- A *1 i(3'}~,~. Bangalore, eic., \¥//..
These ITAS Coming on for hearing N. KUMAR J., deiivered the foiiowing: " - " _ 1 1 mI,_ As these two appeals arise outlof against a common assessee fo'r9_t'he assessmentb.yes_rs...1.9--96-9'? and 1998-1999, they are taken___1_;up..VI'or_Veons'id«eratior1 together and disposed ofby this eo-rhinolt _
2. The facts 1ead1r1gVtVo'9'thVese z§ppeais'»~:§él:r.e«V*'as under : -
"me assessee...i_s'earzyirzg on business in the manufacture and sale A of tscon}.mur1ieéi=tio'r1J products. In respect of the assessrne1j1t ye-0:-rh 91998-91999 the assessee filed a return of 'i1";i:<V)ri'ie C:i'§1V'iII1V"if]tg the following:
duty and sales tax should be deducted 'xv.-hen computing totai tumover under Section SOHHC of the Act. E'//.
(b) 90% of net agency commission considered to compute 'profits of bttsiriess'-iti+vh€n".
allowing deduction under" »Secti.on the' Act.
{c) Bad debts of Rs.22.,si..lV55o/'> Vs_1"1o_t1ld_Abe_:'al1o'»x}ed as!' a dedu.cti0n.__ .
3. The assessing dated 25.1.2001 held that excise (h:1ty_ 'added back when computing ..lal1ot~ifiigVclednction under Section 80HHCv'tVof::f:j1'i1at* gross agency commission should Q/business'. The bad debts written offlwas"disa.llokyed~.-"as the assessee had failed to prove was a tradedebt, it had become bad and it was written off as i'r.recove'rable in its accounts. Aggrieved by the said ordeif t:he'.V~"fassessee preferred an appeal. The Appellate At1thlority.luphe1d the contention of the assessee who allowed it the appeal and granted the relief sought for by setting aside the ' order of the assessing at1t.horit:y to that extent. Aggrieved by N?
the said erdel', the 1'evem.:e p1"efer1'ed an appeal to en:
'i'h<: 'i'ribunz1I by its (JI'd(3.'{' defied }7.8.2004 ,3 order of the Appekiate T1.'ibu112'-11 Aggrieved by the same, the 1'eve11 1;:.1e was adxnitted to C011SiCi('31' i:h<--:'jiei-Eexviaig Iawr ' (1) Whether u}'x«aV:L':f11:'1:()e:'£i_ies were correct in 1'IolCZz.ng t:":I.:l1"';.].'rj:I'f compur:a1"ion of 80'HHC of the Act, the """ should be deleted?
r " {I'ie,:g\ppeIE'al;e Authorities d.i.reet.ion that the ' 4' the gross coimnission shoulcifirsi Ureeziuced :c.md then 90% Qf the net, commission A.s}1oi"Lid"'beV given credit' to, was in CC)I'lSOI'ICUlC£;' wiI'.h (ion {baa} to section SOHH C Q!' the Act"?
{3] «."_"L:.. 'A/'T.?j'V1.'VeII'1er the Tribunal was correct in holdirzg that the "'elairn Qf bad. debt. wrmen Qff' (:0 {he extent" Q/' Rs.2.2.51,550/~ is an aHou.!c1I:2le deduction as it. has (1 been incurred in the normal trade the provisions for wniien off has without actually exam:'n'inge« corresponding evider1.oé;V "sapp'o.*i_ conclusion. _ V
4. In the connected appe~a_1"nfA ':37/2905 which relates to the assessi_rie'nt yleart assessee claimed deductions in ._s;%.§:_«:'a _'_'.--1,62,029/- and Rs.i,04,268/-,;~'te:~;3o;1'eRs.i2,6e,~297<,rg:"eeeeiyéible from M/s. R.G. E1ect1"oi1vics__asxfi3}rit--terieiot1f._:Tl1e assessing authority rejected the said reqaestl; . Iri'=ai§;:{ea,l;"'*i§ie::Appel1ate Authority upheld the said ;Cl'a;'§11 andulallowed the said claim which order was "Elle 'i'rilotinal by its Order dated 17.8.2004. It is order, the said appeal is filed which was aclin~i._t_te(1v1o efiafisider the following substantial question of law:--
ii " s 4_ Wllether the Tribunal was Correct in holding that the claim obj' bad debt' written o_)f]'"to the extent o]'Rs.2.66.297/- is an allowable deduction as it has been incurred in the normal 'it/* trade transactions and the provtston.s for tt:ritt.'s2n"-ogfjf been satisfied zvithout: actually exan1tn1'ng t'h-e..ttefn- corresponding evidence to support such a.conict;tston.,
5. in so far as the first stltistan-t.ja"Iiv c1'L1e'stior1"ot'a1_;a1 concerned, the legal position' -is 11o'wV'"we11;settEe'd the':
judgment of the Apex Court in 1-t{'ev..§as¢ of OF INCOME TAX vs LAKsi;irx:rI WORKS" [(2007) 290 ITR 667] where it has been taatcifié, :t1n--'tiet" 1, ficial section.
It .ava:=.._tntend'<3d. to, providevstncerttives to promote eicportrs. VThe»._»tncer1tfve_ 'was to exempt profits retatabte to *~ .,,___ H " ' « '"
. Jttst ascorndmtsston received by an assessee
- felatatate tohekphovrts and yet it cannotform part' of ~V.'ftcuvzffiot;erg;'; -excise duty and sales-tax atso cannot V".._joffnx_'vp_at*t5'of' the "turnover". Just as interest, convirwtisston. etc., did not emanate from the "t':tt'nover". so atso excise duty and sates-tax did AA ._notemanate from such turnover. Since excise duty and sales--tax did not involve any such turnover, such. taxes had to be excluded. Commission, kw/4, interest, rent. etc. do yield profits, but they partaice of the character of turnover and. '7' they were not inciudible in the "total so, then excise duty and sales¥to}c"aIso Part of the "totat turnover" it otherwise the formula beconjtes urzworkabie'; A.Svct_le§--_:§ tax and excise duty also tdoidhot havVe~.c1hyV-Zeteigient of "turnover" whicfh. ilterpoeitiodeoen of rent, convntssioh; :rin_!.'erfest;Veétcfijz flflporiant to bear in mind thC1tA..€)t.C'iL9€ '"an'd:f$ates~tax are indirect qmT..+ec¢i;¢&er1 the assessee on behalf GGi:)_t?_7__+Im£h:t_itffherefore, if they are
6 {ea-iettziblett to the formula under "unworkable. This reasoning _ 2 to h the workability of the fomittzgun 5; eogecgésj as it stood at the material ; time the hhhhh fight of the aforesaid authoritative the Apex Court, the Appellate Authority and the were justified in setting aside the order passed by V"t.}A1e aseeseing authority and holding that the excise duty and do not form part of tu.rr1over. In that View of the 9 matter, that question of iaw is answered against" L}'ie"reVe11i1e and in favour of the assessee.
7. In so far as the second SL1bSfaE1U8:}' --q11estio:i of iaiw, namely, the receipts by way ofcomn,1_issi.onfio7'oe ifeduoed ithe profits of business is concerned.,_it was-_ eontencde-don behalf of. the revenue that the objects a:oV1C1'V.._i'*e;~1sons"e.1eii'1f§'in§§ the intent of legislature makes it' iihaitit :.i_s,:ih.e gross income from commission which is to ('be "."i~_'a1f§en.i.,,iirii:;'g __?:0nside1'ati0n for deduction and;'noii.ihe net eornmissio.i1»;_I1'ii the said objects and reasons it has been_ siatedas under : -
_ 2 "'~".Iit * is proposed to clarify that "pro_fits oxjlihe bLisi.ness"for the purpose of section will include receipts by way of commission, interest, rent, charges or receipt of 0: similar nature. As some €:<CV_.i).€fizL"1:iILiFe might be incurred in earning these ineorries, which in the generality of cases is part of common expenses, it is proposed to provide ad hoc 'fit /' L,/ 10 per cent, decrfuciion from such incor71esfi"iaf"*<.V accountfor these expenses".
Therefore, he contends while»ea1eu1a1'jn.g "the ;5V'rojf.i"§.S'j'v0I'V' business, 90% of the gross a:110°L111ia_Tfeeeii/ed' -.'Qy: v{r'ay"'--0.t"
commission is to be deducted_V_"'ar}d nhciythe V11ei'V.__ha';*;10Lint of' commission.
8. In order to apgaéfehciate it is necessary to look into the 1feieyant:"f5i*ovisiQhsV:*andV-thehpronouncement of the various tI*1*.°:/.:;_)_«_c.)1'ir..1t. 7' V 8;'; SeL:t.iVof1V':'8f}}£H€_:(«>%C) (baa) defines what profits of business n*1*e4ar1s. it i1nder:-
' the pufpo.ses. of this sec£i.on--«~ __{baa}a prEy";:'s of the business" means the profits Qf hh as computed under the head 'Profits " and ghaxms Qf business or prQ]'ession' as reduced by - 'V. (1 } m'n.ei.y per cent: of any sum re 'erred clauses (iiia), (nib). rm-c)_. (ma) andg:i'zizg§}::§,i* Section 28 or of any vreeeipis brokerage, com mission. i' L rent. -. , . at T A or any other receipt-'o#f:a..zsimi'lar inetudecii in such profits; and (2) the profits of aiify;'bran?:~h;; ojf]'s'ird:e.V_dtL2arehouse or any other e'st'abEish_rrzeri.--I;V_ of ;.the assessee situate bytsidce.:.Tn.é£ia".--.." V 8.2 Inoi'der~.fo,iir1ed'*otii.__ "profits of business", under the aforesaid p'roj.risvion.-__first,=ni'ofits of the business as computed
- V. undeis. the head 'AApr'ofi1s.and gains of profession' is to be arrived ..SeC_tien'«.2"8.._dea1s with profits and gains of business or proHfes'sion.u--"."L:._In:=arriving at the profits and gains Section 28 'V stip14iiaztéis'V that the income referred to in Section 28 shall be if.cornp.uted in accordance with the provisions in Sections 30 to ;1'Z3('d)"Awhi(:h in substance provides for the deductions to be \k/ / .
made out of iota} income. Section 37' deans be decimated which are not. pI'ovided {hr in Sec1.i--'j:1:1's u'I't_._V provides that, any expe11ditu.re ' Capital expe11diE.1.'ire 01' pe1's0ne'11 out or expended whoffy and's§:(:.I..r5,:si\}C'ff,«* of i:Iv1 e business or professiop s11aT;_1___L:VE>A'c:__zdlpxvsfii " ':'j1'1_cg;11p11ting the income chargeable vLl"E.1..(V:":A'€.F_ J1.1u<':'aVd i:";3rQ]i('s and gains Q1' business orprQfi'9ssi.or1',.»~-- _ A .
8.3 In{his.baé:kgroLmd««.0fvt..ji:i.s_ p1f'ovisio11, in the instzlm case 7_the_ assesses'.Vhas"-i,11L:0me fi'01s1'1 exports. income from I11£1I11fi'8s(.i_L1'l"]',1'1_g a_Cfiix(i'ti_és«-._Wiihin the country and aiso income f1'OI?;1'€Q1'11fl1ivSS,iOi.I;"IIIVSO far as the il1('.()I'}'1C frc)m comrnission is c<5r1c:.e3réé"c(1;'A'..if" zmy e.xpe11scs is expended in earnixlg the said iVr:1c:0m¢"=1i1ndc:rv _}>3ection 3'? of the Act. {he said expenses is C1AC1(iLIC1E:3.--bI€n j',:-ind afier such deduc:1,1'0.1'a. E1116 am0L.1nt: arr.iv<~:d at woL1Id_1§-ezctoxnc part of the profits and gains of business. H T} e4ifr3i'0r'e, the question for co1'1sidc1':«;-1ti()11 while dec11.1C1.i.11g S-.}*-()% of the (,'.()I']'1I1'1i.'3Si()I1 in (::1!('t:.11;-;1ii1"1g 1.119 1:.)r01'i£s G1' the K/' business. whether the gross commission is to be dedu_(:t.ed._or net commission is to be deducted. in the definijttion 4C {baa} it is specificaiiy mentioned »wh_at "be;»red1;i_Cedg_isu' 90% of any receipts by way of Con'i4n1is_siion 'i'i~nCii_tded profits Therefore, it is clear i»t'._is._.not t'AheVre.c:ei'1b)t '§.Q%..3of the L' entire commission, it is I900/e ree_eiVptV_oi?_Veo1nrhissio;:r_ihe]uded in profits and gains o1"busir1e:ss.A L. V _ 8.4 In fact thatis..\iizhat."ho.th".t.he:;t$;pfie11ate Authorities have held sererirtl the Various Courts.
Tlrioughz thereAVVVi§tf;')Vp.§2_fs1rsb't.oa"h_e no direct decision in so far as comrnissiori' is t Jsupport is drawn from other judgrnen whiehheive 'Va. bearing on the sub] ect.
" case of Lakshmi Machine Works referred to suAp..ra, Court while dealing with Section SOHHC V'-has held as under: ~ ¥L/ "The principal reason for enacting jormula under 8 SOHI-IC was to disallow a= *' SOHHC concession when the entire...ded:,tctio'n._ claimed could not be regardhed"as_ relat'a.bte._ tom' exports. Therefore. while int:erpre_tirig the "total turnover" in tI1e_fo;'tn;.tl_a in'S..8OHHC:'o;71e.<hqs to give a schematic u"in.&terpretatio_n""e to hflthats expression. There-xis onei""mé;;~e re.ason';for'A giving schematic interpret'aiton."j'h1e amendments to S. SOHHC show.:._ i.hati irecetpbtstf way of brokerage,'b'cornmission.T7in't«eres_t;.. etc., do not form they have no nexus wi_th_the_ [ffinteresi or rent was not reQa'raVedV t.he*tegis_tatare as business profits, t'he c'ji,iesiion':'.'t)f: the same as part of the total'hutrnover_ tncthehbforrmtla did not arise. In fact. S. to be amended several times since htrieuforrnttla onseveral occasions gave a distorted °e>cport profits when receipts like interest. V"..__«rentf_'v..corrtmission etc.. which did not have the elernent of turnover got included in the P&L a/ c and. consequently became entitled to deduction. it This was ClClf7fi.(3d. by the amendment to S. SOHHC comrnencingfrom 15* April, 1992.
ks- .
Tax under the Act is upon income, and ga.ins. It is not a tax on gross receipts'i_Unci'e.r*- *' S. 2 (24) the word "income" fnClltd€S'.}?FQ,'f:i:ESu gains. The charge is not on gross"re_ceiipts .bit.t._on"' profits and gains. The charge °i1ot."o_n receipts but on profit.s artdgains Gross receipts or sale hou>'eIlglerr,l' profits. Therejore; scherriaticl' in.tjerpret:al'ion"ll for making the formula: S} g.8l:?lF;'I"l2C3l..Vtt1¢T3£(_1bl€ cannot' be ruled out'. Simila.rli;_,=purpase;ltIl'interpretation of S. 8OHHjC' ll't.'h_l'Ch t.$.Q:}'*r1any changes cannot" ~~.._pa'.'ri'ic_ularly, when those legislati1ge"* vgthat the legislature i;fitteti1dedl.f'VlfO ite_ms Wiike commission and interestfroni the ground that they did not possess _ any .eiements of "tumover" even ; though c*ommissic~n and interest emanated from . '"export's, _ \ {hiss because the very basis for computing S. deduction was "business profits" as it cofnputied under S28. a portion of which had to be apportioned in terms of the above ratio of export"
jitttrnover to t:ot"al turnover. Section 8OHHC(3) was a beneficial section. It was intended to provide La.
I0 incentives to promote exports. The incentive iiias exempt profits relatable to exports. In '7' combined business of an assessee _ business and domestic biisi;iess"'ih_e'--.g leg:'siiai_tire"--:V«' intended to have a formula :'i'.o profits by apportioning the -iotal business on the basis of turnovers. Apporiionmerii:__of' pi-'ofiiis on the basis of turnover as a of arriving at' export v " V 8.6 The S.1I.pren1e~Co_ufrt in i.he".casévr--.of"HERO EXPORTS vs connmssiQivE§2»t'"mrCo1iaE[(2oo7) 295 ITR 4541a:
para 1 its :~_ g ' r "If '[VV1"1g' " " two incomes with 'one 4:;o'mmoriapooE'of eiigpenses' and since "principle of V-:._tii1ii5Eebiiiior1" Iiasbeen retained in the scheme of s. '' ..soigHc<,«._i5o:,h in terms of Section 8oHHc (3), cl. (e) to _ to s. 8OHHC{3){a), (12) and (c) and in A =.__cl. {boa)j'..ito the Explanation to s. SOHHC, instead of going} into lengthy exercise of dividing such common " * aexperises, the assessee has estimated the reduction V' ' -- expori turnover by 10_per cent of the other income of Rs.I.60.000 {in the above example). Ul{ii.I7IClF.(--,'f_j, ct. (baa) to the Explanation is itself based on the assumption that 10 per cent of the income would an expense. We make it. clear that we are "
reading Expln. {baa} into s. 8OHHCt3){b). 1519-*:§§at "' say is as a guidance value/factor. 10 per total other income of Rs.1.6C?,JOA»OVO"u;ou_ld-Side"
estimate. This guidance value it cl.{baa) buifrom the schenie.__ofs.V"8Q'HHC uqittt the Memorandum to the Act of ~} Tat-ge a reverse case, if allocation &Qf"e;fioenses is lobe 'done on actual basis, it £L'ould".n0i,VonlyQbelvery difficult but in some cases actual».appo:t.ionmen£may not be in the interemieefven the.~Departn1en_t1.VfA
8.? "The in the Case of COMMISSIONER op INCOME us-7.K.';gAviNpRANATH NAIR [(200 7) 295 ITR " - A.33819_}}el(3.tA'é.19..l,under tttt .. «
-ff'j«v.,j3g.";f:;%zance Act, 1991 w.e.f. 1srApn't, 1992, l' time. the expression 'profits of the stood defined to mean the 'profils of the A. or business' as computed under the head 'Profits and * ._ f.g'ai.ns of business' under ss. 28 to 44D. Therefore. before giving deduction under s. 8OHHC{3)(a), {b} or
(c), the gross total income of the assessee profits from business had to be arrived at i_ni._terAr'ns[f-- '7' of cl. (baa) to the Explanation. However... ._ needs to be noted. nanieigf Wititiite '--«caici.iiat:ing"V 'business profits' the same had'io "done'--i.n terms it A of s. 28 to s 4413 atone. V 2 it 8.8 The Delhi High Court"h.had_VVan ot:--c_tision consider a sirnilar provision in tht---'._._xCf:1se.'_4of VSHRI RAM HONDA POWER EQUIP. {(2007} A2s9V._r131§ }47'5}V"wi:1¢.§e it was held as uI1der:~ to ensure that the eikporter of the profits derived from expert' debress the profit further.
_Thereiore,_:Vit'can 6:11;)" be the net interest which can 'iabe_incti1ded"in-.ih.e'profits. If netting were not to be A i < .. _V perrriit-ted--ttihe result would be that the profits of the V ex,n4ortertA'.u1o'LLld be depressed by an item that is Vexpe.nd'ii1'£re incurred on earning interest, which 'does notform part of the profit at all. This could not it it , have been the intention of the Legislature. iv e Explanation (baa) is relaiable only to {a} of section so HHC(3) and not to clattseyih *- thereof. These operate in distinct" areas,. inter--mtxing is contemplatect. Hence: the.
"interest" in clause (baa) to"\t'he._Explanations. section 80 HHC is ir1ciic'ai'év_e Q1' "net i.nteresif'»,.._i,e.,_} gross interest less the exp'er_ia':iture incurreti the asses see in earning.' such. ttiii'erVje.stV." '~ _ _ To summarise V ccrnclttgiorts: (I) In computing .iol1ai' the p'ro_'fiits_'deriizedfroni exports for section 'HHC{1) read with the piirjposes _.;_oi7 ' section the nexiis test has to be does not partake of 15'r.cy'its to have been derived from the business offe,q§o:;$'.l'(:i) In the specific context of X .clauseu"{b_aa}V.c§f the Eacplanahon to section 80 HHC, '"E9.Ltahile__cietjerrnining the "profits of the business the _V Assessing Officer has to undertake a two--step &'e2~fercisie'.i'in7the following sequence. He has to first V "corr1pi4_te" the profits of the business under the h "Profits and gains of business or profession In"'ot'her words, he will have to compute business profits, in terms of the Act, by applying the provisions of Section 28 to 4-4 thereof. (iii) In it 20 arriving at the profits of the business by the method, the Assessing Oflicer will exclude :_. é incomes which partake of the character from other sources" which in cjtiiy eventuare. treateciv under sections 56 & 57 of the fact TN ' not to be reckoned for the.__purpose's of .8'O':'; it HHC. (iv) Where surplus are bank and interestig earned jthereon it can..onI,§; be categorised as inC'ot1'1efror:fi' votiietr:so_urces. This receipt merits separatetreairnerit.iuntierf-~section 56 of the Act' p,¢ng';of profits and gains. frorn;1t>.igsi12:esst' ~,t1i'ii;i tprofession. It goes entirevly.V.o:ut'Vt;_of the purposes of s_Jeciion"' earned on fixed depos._its fort." of availing of credit facilities _fo'rr_n'.tnea"_;~bank, does not have an 4; himrnediatei with the export business and a'th.erefore hasV"to"necessarily be treated as income jrorn iiother sources and not business income. (iji}««Vé)n_ce:;.biisiness income has been determined by appiyiing accounting standards as well as the provisions contained in the Act, the assessee would it be permitted, in terms of section 37 of the Act, to claim as deduction, e)q:)enditure laid out for the purposes of earning such business income. {vii} In the second stage, the Assessing Qfficer will deduct"
from the profits of the business computed under head "profits and gains of business of projessig'3'ni':'f'«--._ the following sums in order to arnve at the r.- of the business" for the purposes of _section' HHC(3): {a} 90 per cent of anysum, referred'tpj in-.1; clause {iiia), (nib) and (iiic} of se,ctio'ni 28, ':;.e.;~ A incentives: (b) 90 per ceniio-f__anyVi'eceipts by:hu,2ay.of it brokerage. commission, interest, rent,' lair any other receipt of a sirriilar-.natI1re incli.Lde:t in such profits; and tc):"p_rofitss.j_pqt :'branch, office, warehouse or ant; of the assessee. situate §,out;s_itie '(1}»tii) The word 'tnterest"'f_.inH 'A3cla:,ise.._' (baa) of the Explanation connotes ?'net'_.and not "gross interest". TherVé3*Tore,V in V'..deducttng such interest, the 4; Assessing , _Cfj°icer will take into account the net "interest t.e.,"""gross interest as reduced by incurred for earning such interest. (ix) result of the computation of profits and gai'n;:_ bf business and profession, the Assessing Officer treats the interest receipt as business it '*~.__income, then deduction should be permissible, in terms of Explanation {baa} of the net interest ie, the gross interest less the expenditure incurred for It//, 3'3 U19 purposes Qf earning such. iI1ierg5I.. be;=i:'u,=een obiazhing the loan and ;)c1g;in_g:--- i * Ihearc;>or1 (lc1.yi:'1g out the e2.>cper1c1iI.urc_>» Q!"
inferesufor the purpose Qf the fixed deposit, to draw a.rbi'.Vcza'i.:;Zt)'&;;,r
37. will require to be'::;_i'ia:J_7.vr'1 i'h.r-3 appiication Q1' the I-1521.1-ixigufizfiiilcipie".2 * " ' 8.9 in f:;1Ci, E36611 Followed by 21 Division Bench vAA«'i_ii _'_'.il1e case of THE coMMIssIo1}.*E;i2.,'L:ii3F ANOTHER vs M/S. GOKULIMSV :25/2003 AND CONNECTED "i.I'}1'<-.*i'¢.21V'(i1.'A<::', on the ;)oii'1i' is fairly well settled. T3X;II.I'1f1€1' i11e»A(:i is 119011 income, pro1'it':s and gains. It is not a. 1;-1X" receipts. Under S. 2 (24) the word "ir1c:0mc"
inc}uitlcs'~.pi*of1":.r:3.V~'21n(:1 gains. The charge is not on gross rec:eipt:s bL1--3;__011v~p1'(§.i3ts and gains. Gross receipis or sale: proceeds. Iloxvexfi'-yr." include profits. The very basis for C()m;.)L1E.1'ng S. k L.» ._N.
SOI--Ii-'EC ciediicticiii was "}:31.1siness p1'o{'i1s" as ('Oil1'[5x{..%:1:é1Ti: "L1u1'1de1' S28. 21 portion of which 11361 to be 2-1p1')<)i'ii<)1ie(-E above ratio of export turnover' to total Conihined business of an assesse~';.:J 'twpoi"t__.:1juVs.iVriesAsjvhi'1c1'Q.___ doinestie business the 1egisI21tL1i'e i'i'i1,:(?i:'i~("i't'C1 :.<$"i;.;m. at alscertain export profits by/T.§ip.po1'tio1'iiVr1g _ 'o1.1siness profits on the basis O1.'i'll1'i'i()V§'i%§:..i'A§Zj}.)()}'i.i0i1iiiltélliwfiioi' profiis on the basis of turnover '~..E'.1'E9~.:'.I;1n!_jliCth()d of arriving at export profits. if the ::i1E3.:.S'vv.'[.tt;Qv..'i-11CO£i1CS with 'one common pool of expianses' :'g'£I1d_S"i.'!"'i:€',CV .";5~i*i;1ci}.)1e of att1'ibuti011"
has b.¢e11_1*etéiine(:1_ tii.e"s«::_iienjie of S. 80}-IE--IC. both in terms of SCCtiOi'i.'80<HHC .c:i;'4{C]ii"!'oV.--t,he Explanation to 8OI~'iHC[3]{a).
(b) and {e).._ é1:1d iii Vcfl:i_. ";i3.).._'z'..*;'21] to the Expiz1n;11,io11 to 8OI'~'1'i~IC.
inst_'§jeaVd*.oi' gOii]g~.,'iI]TO leiigthy exercise of dividing s1.1eh common V ' the iegisIa1tL1i'e has estiinated the 1'edi:C'tion of export :iiV.1,i"'1V"'i€-)\:':'vE':1."J' per eeni. Ultiznz-;1E.eIy. (7.1. (baa) to the E2'c}'5ia1naii.ioif1_ itself based on the assL':mpiior1 that 10 per cent AI1(J*.t7iI1gV"from c:I.{b2121] but from the scI'1en1e oi' 8OIr"H"1C read of the income would be an expense. This g§§L.1ida-mac Value is not 34 with the M€i'1'l()1'E1}'1C1L1I31 to 1.119 §~'t1'1ai3'1t:('r Act' of 199.1. Bt.,t_fiI1Ct.'7£T(-,' Act, 1991 i.u.e.f. 1~'*i'April. 1992,for thefirst" time, t1?41:(73'£%%Vt'J19t'é3tS'SiOt1 'prqfttzs Qf the business' stood defined to mea.n__t.'h-e ';§t'Q;t"itsfQf.T the business' as Computed. under t'l'ie ..I.ie_acI i_i:').IV't'2_'fI.' K business' under 55. 28 to 4413.
under 80H}--IC, the gr(Jss"teii'c1_tx irieonie 5?./'_ the prQfit'sfr0m business had to Cit..ti(«.4t"(dt%II1SEQf'Cl. (bad) to th.e Explanation. prqfits' the same had to be d0ne__i,n tt:)".'I§'ClI()r1€. The idea of Section. 80 'e;rcp:c)rter gets the benefit of the ;5'refit_.3.A';,fifOhife)q;--0ft and not to depress the pregfit fu:rt"her." be the net conimission, interest, ren{i,'e1'e., wh.iehea.n be included in the prqfits. [fn.et"t.ing were not .i:Q""be the result. would. be that the _prQfit's of the (,"'.3<_',"[F.'OtA'L'{?t"""..T.:t}t}fVtid.*'be depressed by an item. that: is expendit.ure I'I1C1"£I'I'€_fi'(lI1i~"€(1I'I"liI1g cor'1m'i.ission. iriteremt, rent, et'c., Lt:-hz'eh does Anet'f'em*i' part Qf the prqfit: at all. This could not have been the "'£'.?'1_lt'Ef'AI'4.ifiOT7. of the Legislature. Hence the words e0n'imission, interest. rent, era, in clause {baa} to the Exptana.t'ion in section 11;
I'M} .Jl 80 HHC is ir1dic:an'L.>e Q1" "nef interest", gross "(he vcper1d1'.{ur'e incurred by the assessee in eczr'r'11';*.:'1:'%j Where, as a result" Qf the cor1'zpL.z{'c1Ii'c)r'--:-qj" "_'C):"t3Li!:l:a"
business and prqfessiorl, the Commissiorl. I'nI"eresI:', rem" a3" E311:;ig'A1e.g:e":._;ff1'C@1'iie, f'I'i'er 1 d.educIior1 should. be peg'mI'ssi!g£e.,.VV'f}"¢.,('c?%'<I1::1s E,"f?_lCLI'lL"IlIfOI1 (baa) Q]"
the net eomnu'ssi.on. the gross commission, infisrest, r:e'i'1't.; trure z'ncLu-red for {he purposes imieresri, rem, etc. .
--;1f01'esaid discussion, we are of he View t11e:_ I'£e$.co1'd€ci by both the Appellate AuUj10'1'ii..ies __1<i:'ga1 Qzmci correci and do 1101 cam for any V ' ir1t§er['e§*%§11ce';.«_ Accordingly, the said su%.)s1:ar1t:ia1 question of law is..ehe1ci.Véig;iVix1é§i..jt.i]e 1'eve11L1e and in favour of the zxssessee. 1_1:'V3;1_7.AeVS0 far as the third qL1es11'.c)I1 of 121W is (:0nccr11ec1. {he S;i}»:1'e111e Court. in the Case of T.R.F. LIMITED vs 5} xcdMM1ssIoNER or INCOME TAX (H2010) 323 12m 397] has 26 held that 21i'te1* April I}. 1989, it not 1]€(ECSSa.xI'_Vy'»._"i'()i' the assessee to establish t.h.z-it the debt', in fzlet;'""i'12is--.__h»eg§oi1ie i1'1*ecoVe'ra.bie: it is enough if the bad ciebi...is:"wi'i't.ten oi"? as iiieeoverabie in the accounts of the assessea A _ u _ A
12. In View of the ai'o1*esaici'.set.t1Aeci 1eg§;ii--.posi'i_io:i;"I;he Appeiiate Authorities were jus_ti{7ieci iii' ;1_lio\_ViV1}g dejdtietiioni under the head by settiiig o1'dei'--o_if the assessing authority who was of fheT-viexhvf-if..at"'tI1eitassessee has to first prove, th'at1x \V't_fé{S' '£1r"i"_If€LfIi€_' debt and secondly, it was i1'reeoVeiea_b"i'e mid actually written off. "he1'eI'ore. the said subs,ta:1tia1 Question of law is answered against the 1'e"v'er1i£e'A a1"1'1.ci in I"éii'/«oL11' of the assessee. Accordingly, the ist;-bsit;3t_fi't,i21'1 VC}h'L.1v('3.:&5U()I1 of law in the other <::o111e1eci.eci appeal aiso aA1'i..swe1*;:c¥ i31f1.-- iiivze terms. Hence. we pass the following:
we IQ '-J 0 RD ER (3.) Both the appeals are disr1'1.is3eri<. (13) No crests.