Shri Anil Dang vs The Income Tax Officer Ward 7(1) on 30 December, 2010

[Cites 8, Cited by 5]

Karnataka High Court

Shri Anil Dang vs The Income Tax Officer Ward 7(1) on 30 December, 2010

Equivalent citations: 2011 (2) AIR KANT HCR 470, 2011 TAX. L. R. 530, (2012) 344 ITR 143, 2011 (4) KCCR SN 402 (KAR)

Bench: Manjula Chellur, Aravind Kumar

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 4

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IN THE I"'llGI--I" COURT OF KARNATAKA, ISANGALORE

1)ATI.:1'3 '1':--11$ T119: 30"m DAY 01? IDEECEMBISR, 201 
PRESENT ' "L""

am 14: HON'I:3LI€ MRSJUSTICE MANJULA CI'-1I;4i;i,L3I2,VV: '7  .
AND    
THE HoN"131,E MR. JUSTICE ARAVINID --KUMAIa_ 

I.T.A. NO. 1252 or "::.od %3  " J
BEHNEEN: " A
Shri. Ami Dang

Prop. Tycoon 1I1't.ernati0nz1i  _ _ ~  V. 
No.419._ Egipura 80 Ft: Cirtiulaz-_ Rgaﬁgfl }   ' --

Koramangala, Bangalore '-

1 ' '  ,,  . Ij;APp1«:L1,ANT

{B3;"s"r":".  'A'c':"x2.",)
AND: V ' V' V. V '

'Fhe111(:0n1e«Téu< O.ffiC§3r --. 
Ward 711') _ '- '

...RESPON D ENT

1   =."_{BTy~éri, V}'v'§,:.V,- SheshachaIa. Adx/.,]

A '--~T§11is*a1'p.1§.?3:iI is filed Lmcier SEC/U011 260A 0f1.".I.'.AC.1,, 196}

 'arising ..()t1A1,, of Order dated 19-5-2006 pm-:.se:d in ITA
»i,' '<__N'0.AI928/Eieirlg/2004 for "the Assessnwrlt Years 2001w2002._
 A p'::21yiT:*:-5;' to f()rmu1aie the subst'a11i'.ial questiorls of law stated

 jEfEze1*ei_11A.a11d 10 :«;1110w the appeal and  aside the order of the
Q1.-'I"A'{', beellfirlg ITA N0. I928/132111;;/2004 c1:;1.te/cf ]9w5w2006.



in

This appeak baxs-'ing been heard and  V'
Judgment on 91 E-2010 coming on for pron.e.1.1,1}'ee1n.ei11; of " 
judgment. this day, ARAVIND KUMAR<&J deiiir-"eyed 

following:
JUDGMENT  d
This appeal is by the assveesser: L111der"Se{:tio;j1 é6OA
of Income Tax Act,  be.ing_ bybtbxe order
passed by ITAT, Asvsgmg-g{1_o;§¢  in ITA
No.192s(Bang§;'/2:354 datec_1"x1Q§5¥2~U'O'3.: This Court by
order dated,  the appeal to
ansxverfthe ssub_sta'_11.ti_a1 questions of law:
1)   facts and in the
;«::.i--reL1:nsf;a;1_1i:es bf  the ease. the Honourable
V-':,..';Tr:;b'una1  """ "right in law holding that the
 -..p1~"ofesvsio:1..a1 charges received by the appeﬂani
"'..__wouQI'd.__is.11"V.i1r1c1er exp1e1natioI1 (baa) below Section
 in spite of its dear finding that such
piiofessionax} charges were received not only for
Vd"--~.p1-c)c2L11~i1ag order but also for supervising
"prociue1;ion and quzlliiy :.«:mcl ensuring shipmezxt. in

time'?

<%r"'""



VW1eiih€1' on the faeis and in the Ci1'(f.g3h1st;in€:es"'*1 *
oft':11e ease. the Horioiirelble 'I'rib1.1f1"ai--- §$ras'rVright,i_ 
in iaw applying the Explanation jj.{b'a.:»i)_ii1_ re.svpeej;_T f

of receipts for renderirigl.composite"servicesr V

consisting of procuri'I~i.g o'rd.__e1*.,_ 
production and qualityuV§§m_(i'V..ensiiri:1 shipment
in time when t_f'1V:rr';_s;§id;Vi_ VE§xp_ia,iiation deals only
with the reeeipf;sV'd'i.n  of brokerage,
cornrnissioii, iriA_te1je's'.ti.  or any other

retteipf of   r.1_at-ure? »

 If  toidqiiestiori 2 is in the affirmative.

whetherVo'n:_i'the..,_faet.s and in the circumstances

of 't"r1,e easC_i thiefionourable Tribunal was right

in law Vin. not issuing directions to bifurcate the
¥pfroI'es.sio11a1 charges between procuring order

  Vreiiulering other services so as to exclude

or:1i3*i._ Afhat part of professional charges as

V'a§.t.ribLii,ab1e to procuring order in corr1pui:ing

dprofits of the business?

$2"



4} Whether on the facts )2-11'1d in the eiret111'1st';1_if1£;es

of the ease. the Hon01.1rz21b1e "I'rib14tr1_aT--.\xr;is--[figgFLi- ~

in law in rejeetiing the alternelttve»V-;iit:a"~.ef«the 

appellam for exe1usio11 pf 0_rH14iyV h._et:7 'V_s_0'7

received in spite of its 'C1_eé1r fi11di;-Ig'»i;1:a't»_.the<

appellant. had iI1(:t1i~1se3_éi~V..eerta1nV_cEei'it1-it:e"..eXpeiises *

towards rer1deri1"1;___{  said p1'0fessi0nai
charges? _ _V  V»   _
FACTS or 'rHE OAsI__+;.

2. AssesseeI" isﬂ the-~*:pmp1*i'etQ1f_7 of M/ s Tycoon Interr1ati()f_s'_c11.gﬁivhich fit'*':'i'1'jvee.1*1jg2«;get;1 in the mallufactttring and export " 7(;_f _'Vgarrn.e1'1tvs. _F01' the assessment year 2001-02 rett:u'r1 'oVfe'.tﬁe_Q0i'né,..~was filed and assessee had eoznputeéthe all v£v:ablse""pr0fit.s under -S€C1',i€)l1 80HHC of thegxtétsstn 1::isar:et.t1rr1v' of Income. It was "noticed by the "'v..Assessi;1gQfficei'""'dt1ri11g the Course of assessment _ p*1'e(::.eAe'd.1_1ig'st' that. had received a. sum of from M/s Indus Textiies Limited in I1'1cti:--.121=..eu1*1*e1e1(?y for 1'1avir1§§§ Pétsseci on the export order H t..();l11(.t1'.'ts. Textiles limited. Thus. Assessitlg C)fﬁ(:e1' while COI11}}l.1U11§g cleduetioii under Se(:i'ic)1i 80HHC the same while ar1'ivi1'1g at the profit: f1*0n1'"A«.ex'pert.i' bf goods or merchandise, in View (if eXp1>111at',i.Q11V"{}3aa}"t'0 Section 8OHHC and accordingly v4C}ete.1ji11ine:(i"_i' turiiover.

3. Being aggrieV:a:1.._}py tVii'i's*tj1fjr'1ve'1?.._asseSs'ee"ea1*ried the matter in appeal, of Income Tax {Appeals} Officer to consider e:5ic1u.Si0§§"of, ':Apfo_i'e=sSi0nal charges out of ifhhfull (100%) by assessee and 21150 charges of Rs.15,39,'707/--

A_a11dV_sta.1e ffgibfies«O.f_Rs.5.07,O35/H to be treated as part The Appellate authority rejected the 'd1tCFi'i.21ti€ p1eja.e:'oi' the assessee to exclucle only the net 'x1_feceipt:?4.

4. Agg1*ie\red by the same assessee ﬁltggiiéeipfjeai-« before income Tax Appellate TribL11'1a.l e1ga1iI1S<i__ thev.()i'de'1< of CIT (Appeals) vide a1ppea}:';i\i()'.' T1'ibL.1I1.':11 dismissed the appeal fi1eciV__by'. ihe 'arid V confirmed the order of C0m1nf'ssi011er*._0f»I:.1c<5ine Tax {Appea}s) by order déite_ci the facts eimmerated herein aboveeL1b'si4éi11i;i.ei1vnq1i__eisti0r1s Of law came to be Eby: tiiiS"~ order dated 17" L200'? ivhiie V .1t"'IA'1.«,~i'i..-;q§ipe::1. H'e:amf __é:dd1'essed by' the iearued advocates. 2 % Sri.Ché1it.eIiya :He-gde, learned counsel appearing appe1.1a11i; assessee wouici Conterld to section 801-iHC is not applicable to etihe eissesseeéi and CIT (Appeals) had erred in i11(:]'uding :i'.1"1"e'p1fofeSsi(.)11al charges received in the business pmfits

--f.--gu'1d excltlding such c_:i121r,g§es from the total izimiovei'. He would comenci that clause (1) of explanatioiéy"'{-?§:21e;ijv.. provides for reduction of pr0fii.s by 90% <)"1".__"a2f1y...surrzef referred to in Clauses (iiiaj, {i.iib],:'[iii(%]'.' .(jﬁ.dJ aéifciT1':;.§ve)--7«ofH Section 28 or of any receipts {arsy commission. interest, rent, oz;

of similar nature inciliﬁéﬁd in such the Assessing Officer vAe?;%)'}'.;anation [baa] to Section He would also conterfri t,i51 e_, Generis would apply ts they since the amount 1'eeeiVe(:i by the asse_ssee in case would not fall Within the mea=3.ingVe-f brekefage, commission, interest, rent, Charges other receipt of a similar r1ature and in s':_;;ppo1§t:"~:$I'--«t;§1is'V'prop0sitioI1 he zfeiies upon the judgment _ of S'i*i.C,!_iui-aflal V.Mehta & Sons Ltd., Vs. Century, Spinning'. 82. Manufacturing Co. Ltd. AIR 1962 SC S-_

7. He would also elaborate his submission to contend that Tribunal has not considered the fact that appellant was able to identify and establish thevwriaeiitihs between the expenses incurred and profession_a'l''eharges;_ ' earned and thus assessee had clearly «theyl expenses incurred by him and Tribunal ...'e2'red'-sc.'_in_cr upholding the order of the.Co_1jr1missioner of gross receipts should be dedti'c.tec§V_by'lcornputing the proﬁts of the business" " Assessing Officer part of professional charges as attributable' to order while computing business _profit-s_."He 'would contend that Ker-aia High .irEIbthde«i'.case Baby Marine (Eastern) Exports has held that assessee who was _expor'tiing"the"' Marine goods through export house and "rece.i\{iI1g""frorn export. house ''Premium'' or "service in excess of FOB prices is entitled to deduction ~ "respect of such service charges as the same could not ér/_ 9 be regzirdeci as bI'()k€i'£Ig(3, C0rI1111issio11. i1'1t:erest or <:h.211'ges or c0I1e(rti()r1 of any zmlount. of simiiar 1'1at1.1re as described in 8OHHC (413) which principle is applicable to the facts of the p1'ese11t case. In _ his submissions he also relies upon _f;'.~}:1:;~,--. :fc31Ic».wing.L_' judgemeI1ts:

[2007] ITR 223 .

CIT V. K. Ravindrc1r1aih_c;n.'Nair" «. [2007] 290 IT}? 323 CIT Vs. Baby Marin¢vE.¥cpQrjts.

(Kerala) (HG) uBc:by'Mar<ine»_("--ELiii;:iI.ern) Exports Vs. ACIT » _ 2$V8~..{TR 1€5 (Mad;Hc E V' CIT u. Kira..r.1«Processor*s (200 7) .A %%V., ';*2%o{)3} 260 ITR 371 (Born) HC 'CVITwi);VBClrlQ(1l0I'(3 Clothing Co. ' 121607] 288 ITR 1 1 6 (Raj) HC ~~ V ";.CIT v. Sharda Gum & Chemicxals " He would 21150 c01T1t.cnci that it. is tzzhe net 1"e(reipts ' vw.1.,1_i.<':l'1 ot.1gl'1f. to lmvc 1'3<;r-5:11 de(.fL1c.t'eci while ct()_mpt.a1:_i11g' the =§ profits of the business and not: the gross.H_1'1eeE::ii;3Vts"-. pa1'1:i(":u1a.r1y when the assessee had i3ii'i1.:jeai,ed"<.fiie'"': ' expenses incurred by him and d€I'I1OI'1S{1'ﬂ~i.:€~C1.V'"Sa}ﬁI}C.__ before the CIT [Appeals]. 'In siipport tiiis he relies upon the dec.is.ion in Ram Honda Power Equip"&'---._(z)rs. "reported Ai£:i"{2VO07] 289 HR 475 [Delhi High coum) .' He tiierefofe si,1bm.its that substantial questions ofgiéivv be ':ii1_swereVeii" in favour ofthe assessee and appueal13«e* .

in V __i1as been argued by Mr.1\/i.V.Sesh.§is%chaia7Viieéirﬁed Senior Standing Counsel

-*,_for V_"r:eve_1"1i;I(;3 th'3i;.. .... assessee is not a supporting per subwSeetior1 [IA] of Section SOHHC fof eiéiimiiigiisitietlzietion under Section. BOHHC. He would "»,.,..«."e»o11i:enciV"";1:hat sub--se(:tion [1] of Section E-BOHIHC "«}5ostii'iates that [i] Assessee should be ail exporter and ...T[ii)e%goods or merchzmdise should have been exporiied by the assessee himself' and oniy then xvoti1dj--be., entitled to claim benefit ﬂowing from H stibmits that in the instant: ;;='¢iéée".as'ses;sar;e"thaviiig procured an export order did 11(>t:4eX'ecuic.e ii:_»_b'y-himself and export the goods. On V.1i'em.:ci;.foz:der was endorsed or foi"t'v<;i_rde«d.""_1:V)§:< I1ic'1'VLi's°;l'e;><ti1es Limited for executing the goods as per the customer and in turn and thus assessee havingiriofii merchandise relating receipt 4' of Rs.18/15,733/--

e1:3.in:;ed by Vas5esseeV'v.-ras not aliowabie as deduction He would submit that orders Officer as confirmed by the App'ei1at_._e'Atithority and the T ribunai does not call for any__interierer1ce. in support of his submission he relies t1_poi1:I'ol1<)wii'1g decifsions:

(1) (2007)295 ITR 454 Hero Exports Vs. CIT (2) ITA 25/2003 connected 'wi:_h¥.1rA.AlV2é:zs.

32 7/2003 DD on_9-7-.éoo's._ by 2i.b'.(;£)'}or"(:liri:2«1.'te M' Bench of this courtfs» IO. narrow will have to deal with the :qL1'({$fiOI1 is whether the Assessing rle11x«'ing the claim of the assesseell for deduction of ?.l8,45.7:'3_3)':'_ received as professional Charges and"'i[' so Vwhetherﬂtlhe gross charges is to be taken " V. into V_e'o:nsie1erVatioi1 or net charges. it"1_}"_»._'As'sessee is engaged in the business of I112i1A]'L1"F2i(ttt1refarfd export of garments. For the assessment. 'year 2001.502 return of ineorne eanie to be filed on '..:£f':»1n§IiZ~.200} clerrlarirlg total income of ?4,48.438. Ij)L1r'i11g the *~--'rel"eve~mt previous year. as per profit and loss 21(?eouI1t,. sales §.

and other income of the assessee was .'3h()\VI1 in the return of income as ?5.5'7.1.6,453/~ and as per scheciuie V1 to___the profit. and loss account. the details there of was sh.Jwi't,_a's_ under:

Export tL1I"I1OV61' Vif4,53.46;'2'89_;'.~'V""r 1 Duty draw back Interest received on FD Finishing charges _ '<'V3;.6".t",cGVO4/t-'3 Professionaf chargest: #*._A'?AiE3,_{15,733/~ 12,. UncfeAVrtsect_io.n Exporter are allowed, in the computatitooof totel":w.Ai':':co«rﬁ'ej.'. a deduction of the entire profits..derAéved"fr.om'exports. The Export profit is computed onAthe:' b'asis..Aof thetttttratio of export turnover to total 'tu.rr1ox}err,_"Thefﬁorimufa as accepted by both the Assessee and AR.even.uef;orVarriving at export profits is as under:

Bu"s_irTess Profits X export turnover e 2 Export profits Total turnover tiif, 14 13, As per report under Section SOHHC annexed to the return of income the assessee has computed adjyusted totai turnover at Rs.4,96,21,221/-, adjusted _ at Rs.4,73,-46,289/« and adjusted busine.s.s,_u_:'fprotit. Rs.16,93,770/«. On query by the assessee to furnish as to how"these_'figures.'v--'ha.y:ei' beigent worked out the assessee submi'tte:d»a working"shhee:tE during the course of scrutiny.'p:ocee'd'i'ngis;xaVnd._é.sarnieihavs been extracted by the Assessingi 2.2 of the assessment ord.er;, 'ThoL[igh:. the aVs'sejs.see"Vfhas reduced out of profits of of the duty draw back and interest receLiyed'onVF"!.j' but-,eassessee has not reduced 90% r of professziyonai c-h_arg'es or Rs.18,4E5,733/-. On further query .from)3.sse'ssing_Officermduring the assessment proceedings, a letter dated 29-1«2003 contending that t.hese~recfeiApts are considered as business income and i'"~v.__a-»!.so rela't.e__d expenses are considered as business expenses ityras further submitted by the assessee that he would be abie to bifurcate this part of the expenses separateiy since administrative set up are common to export business and the activity of indirect exports.

14. it is not in dispute that assessee received;"~th'i-sv amount of Rs.18,45,733/~ from M/s. Indus Text_i.!eés"L'im'gited'V._._T'.

in Indian currency. it is aiso not in dispute"tha1t=.igt°'i:sthe__u '* 'V assessee who received the order export the Ago-od's:"a\_nd; it instead of exporting the goodesaby it pas"sedi:_on order to M/s. Indus Textiles Limit"'ed:_V§i' It has 'b.e_enV':con§tended before the Appeilate Aut:hoyrity_"'a's--V_vviejiig avv§~-.before"ithVis Court that the""s'a'id.eiaimoiiiht received by the assessee"e_'vva'_s'proiessionaiLgiharges for the activity of getting the'-uexportAioirdeir of readymade garments, .--v..supeV_rvi.i.sin?g the "pro..d._uc'tion and quantity, ensuring its '*._shiVpm_ent._ 'on"t_iriae_ and also ensuring that safe proceeds are recei"ve'dVVioVr"."the:.Vparty and for such activity assessee had

-Vreceivéed charges at 7% of the export proceeds. ..._':'to assessment year reads as under:

Section SOHHC and expianation thereto relevant %/.,,t .

16 Deduction in respect of profits retained for Export..h'uusirje$s:Q"

" 80f--IHC: [1] Where an assessee, Indian company or a perso;z""'['~ot'he_r t._han7.a companiﬂresident in India, is _the [A business of export otit'»r'Q,t:India._o]"ariggaods or merchandise to u.2l1ici'i"i'th"is sectiion there shall, in aLj(30fdaI'I'Cé"llii:UI hariid sii&Ij;jVect'VVt0 the provisions of '-,Cv:I'HOV[U€d_. in cornputirig the total '1'.V..1COITvl€_'Qff assessee, a dedu,ct'io.r._i eqcterii; of p:ro:}'iw-,~:r'ejeI'red to in B}; the assessee fro nithe 'exporgt .of=suc.h goods "or merchand tse: Provided that being a holder Qfvan E.-a:pVori_Hoiese":Certyicate or a Trading IiifoaseCer*Aiij'iea.t:e' {hereafter in this section. A as an Export' House or a Trading the case may be,} issues a referred to in clause {b} of sub« section (-4A}, that in respect of the amount of A' *t'he H'e.><port' turnover speei/ied therein. the it "a"eduction under this su.b--sect'ion is to be aliouzed to a supporting maru.ij"aclure. then étlk)/.

the amount of deduction in the (,'ClS(-3 ot7«~~t..he.'__" , A' assessee shall be reduced by such a;*Inottrtt.. 'M which bears to the [ total pro[it.s ' assesseejrom the export of t.t'adtr1g:'goods,the same proportion as the arn'ottn--t turnover spectfied tn the cert'_t]-'t'.c_§ate.'S9eVareW to the total export. turno;.v-er:o'lf. the asses:«;ee.v' respect ofsuch _ (IA) H {2}{a) {3} .... ' 132;) *'- 'A I41 154 ) {X/1)'-/at V' V 1: 4 .x,-_ 1 J\.f's.J__( n {4fAC}"g[a}:.'é?',;:::(bJ#. moor ' ,__Explaria--}'ior1.-- For the purposes ofthts section;

(aj , A3' "convertible foreign exchange"

means_]'oreigr'1 exchange which tsjor the time being treated by the Reserved Bank' of India as convertible _/oretgn S exchange for the purposes of Foreign Exchange Regulation Act, 19233 A (46 of .1973), and any rules --1~ thereunder;

[{aa) "export out of :'I4nd:ia..":' shalt.' include any transaastion by "way of sale or otherwise, in er:'1po'rir.:ni7or' any other gstalygl-i,s}1.rhe'fVtt'i_. sittta'te India, not i'1'ttioy1.1)i.*.1giVi..Cleaféint-ey at any customs sta.t,t.on--V. in the ou5¢mgéAc:1se2(£a3§rt962p/

-.'i~2xporft.._4"tLiino'ver" means the sale 'V.._proceeds""[,' received in. or brought into, In"dia]'Vb'y 'the; assessee in normertible foreign "e:»:ch.ange I in merchandise to u;.htch this section applies and which are out of India, but does not 'tnetttde freight or insurance attributable to Q/' merchandise beyond the customs station as defined in the customs Act', 1962 { 52 q/'1962)_:/ égﬂ the transport the goods or the V. ._ 19 (ba} "total turnover"sha1Z noi. incIudefrez'gi'2i or insurance attributable to the i'2'ar1spori""--.T of the goods or merchandise beyond customs station as defined in.

Customs Act. 1962 (52 qr 1962}~.~ [jg ' Provided that in raeiaiiion iv assessment year'eo'n:2.menC'ir1g on or {he 15% day ofApril, 4iI99I., iheiexloression "toi'aI iurnooerf' s}_'iaI.Z_ if it also excluded to in clauses.__ [iIIa'_)V," {iiiei of seciion 28:} ""[{baa)V"'fprofits:~ of the business" means i}"1e"pro;fiis £31" the business as computed under the head " profits and gains of "b'as_ir;~ess or profession as reduced by- ' AT ninety per cent' Qf(1I"l_1j sum re/erred to in clauses (iiiaj. (iiib) and (iiic) of section 28 or of any receipts by way of brokerage. commission, interest rent. Charges or any other 20 rec7ez'pt of a similar nature included in such profits; and (2) the profits of any branch, oj)'"tcc{,"'~--.

wareho use or any ot'he'r v establishment of the :"

situate outside Indta:l [{6}] 'ExPort housez'-A "Trading House Certifir_:_ate'lvmeansfa Export House Cert1;i'icate'..t«_or _ Tradzng 'V'Ho'ase Certtftca te, as the ~cV_ase: inlay: l sttssueoty 'b_g" the Chief Controller , Exports;

Gouernm.:er_1t ll ._]lb)] l "5. mantgfacturer" means _r7,persuor1_v being'. ah Indian company or a ._':_'per.sor'1_ ( otllier---tltan a Company) resident in trtdia, 't_lrr:ar'tufact1tring {including processing) "~l'.__go"ocl's]_or'_'nter'charrzdise and selling such. goods =-..__or v_.:'nerfr;:har'1dise to an Export" House or a Trad:.:'r1g Housejor the purposes ofex_port;] %/.

ix.) [(6)] " speciai economz'C zone" shall have the meamng assigned to it in clause {viii} of', {he Explanation. 2 to secrtion IOA".

It wouid emelge from above ihélf;p,I'»i1"I1£1Ij7H'CC)'flCi§'[i.()J"1_'IO"-V V claim deduction under Section VvE}3,_11Li.:--'bt:3VV the assesses should have of goods or merchandise gnd giirimary condition the assesses to Compute the total income' from

16. AV'[i}f_3i'L1vSEVE]'. -Qi'A'e}§;';l..:4n1ati0n [baa) to Section SOHHC

--=.whiCh'~3'.:defii1e_s "pi'Ofi1s.._.0f the business" would mean and V".'Vi1"1CV,1vlV.'l'C'§.$3 i.--hC'~p1toaiits of the business as conipuied under the proﬁts-.and'g%1'i--n$= and business and p1'ofessi01'1 reduced by

--[i.) 90°/5 o.I""aa11jf sum referred 1:0 in (.'.1F3.L1S(;'S {iiia}, (nib) and (iiic) ':01? "C3*sc_i'i0n 28 or of any 1"ec.eipi's by way of brokerage, ._itj.t0'mniissic)z1. ini:c1'esi.. rent. (:i1a11'g¢:rs or any oi.]'1cr re<.><3ipi'.s of

-,Vsi'I1'ii]a.:" nai.11re included in such proiirs (ii) pr0i'i.1,s of any Ex 4%' branch, office. warehouse or any other assesses si1.L1ated oulside India. In the Assessing Officer has included 910% "of &_t'i.).<-3 .; charges received by the 'Tz1ryr'if.'::1;.1A1g. business profiis of the :*_:€'.>vV<a'pvvv14";"i"11'a{i0}."; (baa) 1-0 the facts on hands. ' i

17. it is conisendead' to place an irzterpretation of into service of "Ejesdurz1.(?s§e.nefiis'.'_ amid__M§..Ch'aiia.ﬁysmf1egde has pressed into sexjfiséwjVtf1Ae?;.L;dgE1f;ﬁcs_tsf Sir._"(V3V}fiunila1 V.Mehta and Sons Lid.. V§2'hé1'ei1i of Ejesdum Generis is considered a'n.d'sz:b§11iis_ {.1131 professional charges received ._VI'_1'o111.':L_j}'3$:4I/;f5_sV:Indus Limited would not fall under the W,s'ps<A?{iesT ::;;f§ b:'Q'.§ét'age. commission, interest, rem and it is to be"hé'}ti sépa1'a'1e receipt which would fall under 1110 'pategorjz "of profit arising out of Cxports of goods or ..:'1.1érCi1.;1ndise. As observed by as herein E¥.b0V('3 in Claim '.K...'d€;.d1"1('.'1Ai()1'1 LEI}d<3i' S€CEli()I'1 SOEHEC primary cc:mdi1.1'or1 which aissessec wiil Imve to s.:'-1E;'.si"},-* would 136 then. prom. so <'::«..1r11ed %/.

ix) 1;) would have l"lE?X.L1S to export. of goods or merchandise. Aihthis ju11C1;ure it would be of benefit to extract the jtldgilzeni' I~ion'bie Apex Court in the Case 1f5.--,:

K.Ravindranathan Nair [2007] 295' Ire, 223, .é'g:(:i«._u_rh.it:hl."'. reads as under:

'12}. Al the outset, zuetfnay stale('l:az.{"_;i.ri'llieV" l present case, we are cl.eal_iI1icj"~1lL_v1'lVl:; ll1ella1l2_'Aasiil sloocl during jAl":'l1_af. time s.

8OHHC(3) of the IT Alcl by itself. SLlb4S:e"ql,l€T1i':1A'l1llll€'i%ldt%l1€l1'{.,3 imposed reslricliorés / cj{lo,_l§jicoE.ioI1s bjf V whicli the said code by itself". In the alaove exisi:'ed four variables, nanie:lyl,lib11s$ae'os export turnover, total _tu...rr1ove'r' perlcenr of the sums referred to 'ii~r1 .__(baaA)l" to -------- {lie said Explanation. In the ' 2 _, _V co_h1p;.llai1'oh of dedu.c:E1'.on under s. SOHHC allfour to be taken Erato accouni All four 'Joarialilefs'lnwere reqziired to be given weighlage. l'1".l1e...sz4lbsl'ilulion of 8OHHC(3) secures profits V * .@.'Cl€3vl'Vlil)(3(Zi from the exports of eligible goods. ' --. fherefore, if all the four variables are kept in mind, it becomes clear that every receipt is not income and every income would not necessarily include element of exports'- turnover. This aspect needs to be kept in mind while interpreting cl. (baa) to the_{sa'id"i.' V Explanation. The said clause stared tf1ai.,9'0. cent. of incentive profiis or receipis. by' l,L:3«C1.~LKj"'i()fV brokerage, commission. intfereszi. re_hI.;'ici1ar_qe.s or any other receipt of i;'»i'ce'__ namrei" ir1cli.:d'eci' trig: business profits. had (fox. dedL.z{;t'ed.7jro;rv1 business profits computed----in.'ierrras. of ss;"28-iio 44D of the IT receipts constituting indepen'der:.t__iiin}1crimie'iﬁgiibing no nexus '-{..§x195i:PT't5:, :Vl.':l.'('.'3"°V(A_3',"'~.i' to be reduced bnsiness profits under cl.

(baa). A1 A'r';é"areAV r3eadinig._o_/'_C£- {baa} I'rtdica1"es that rece.rfpts_ by "zo¢;r_Lj'v«..oi"'»..<brokerage, commission, £r1IereVsz";._' ire,r1t.,' cha.rgc>s§'etc. formed parr: of gross sfoiiai.fr1.cori'2.e_i5eing"business profits. But. for the "~;o'ur*pose.s of LLroriEirzg our" theformula and in order Io eifstoriiorl of arriving export pro/'i.ts cl.

Vi".-.('i3aVc'i}' i§'iQod;.'ir;1serr.ed to say that although i1'1cen.1',ive "-.pro[{Is and 'independent'' incomes' con.su'1'uted part' Q/'*gross total income, they had to be excluded A °;,lfror71 gross total income because such receipts fiaci no nexus with. the export turnover. Therefore. in the aboveforrnula, we have to read all fhe fO1 Lr 2

ix) U'! variabies. On reading ("iii the van'a.bles ii f;J€(?Q'IH"I'"£!C:'Vi:~} 'V' clear that every receipt may not CO1'1S£i{II.ii'ﬁf3:--Sdié'.:2"-- proceeds from exports. T hai. every rece:}:;si-- income under the IT Act" a.r1d::evebfy'ii-ieome--1fio.;g._V" V not be attributable to expor'b'i:.3V, --. the reasonfor {his Couri i'o':h'o..igi iheii..iiidirer:*i'"i§r1;=5e5W like excise duty which ivciiiie'recouer'ieci"iiﬁi; ioxpayersjor aI1d'"Q{1 beiiolf' Gouefrir72eﬁi:', shali not be inclucied i--n .:.i ?.éIEI1OQ€F in the above formula [See use I;}oi¥cSFi$i{:i"'Maei1ir1e Works (s_;:p're-g;[.~"

18. ithe' above Judgement by the HOif1'b1§3' .C_o«urt:«..1j:f1a,_t deduction has {.0 be from the profits as unde;feirjjo.db"--i;9i"»,c0mn10I1 sense and in this background 'wilen l'"21__Ci;~,g Oi7...";'/ht? present'; case are examirmd we ﬁy1d,,.j.'3er1Vt'l~i1e i11eta_n't. case what has been received by the ""asséss'eé?'*:s""..g siinfof Rs.18,<iL5,733/« ciaiming to be op1*0£7essio'n_é11».é'h§1i'ges. As to what p1'Of('.SS1'()I1E1} services; ii" had re21ci'e.1'ec1 w'§1i.c:Ii:=i,voL1ld have 1'}C',XE,1S to the export, {UI'1"10\/'81' has not 'been.esiéiblished eii.her befme the A.ssessi.1'Ig Officer or K ""._ "E7>c;?I"o1'e Appellaie Aui.ho1'iiy. On the oiher hmld the assessee in the course of assessment ;)roccéedi1igs_'io"the* query raised by the revenue as to why 90% fovfvt't191e._f professional charges so received shoLi1Ei"i1o'i, be _redtr.r:cd out of profits has submitted a letter d£1t€&«2Q'+_i;2OO3..(iO'Z1'LC11'd.;i':f1gnVt' that it will not be able to bifurv(:Tt2.:[_§=.,i,Ii1iSAtiaiiftt31{:A'th€uEi5tf5€§T1%:€S separately since adrriiriistgreitive set mairke':--..sevt§ up are Commorl to export exports.

When such being the S'{E1:11Vd.V(')i:':V:tE't'f.;5 it is to be noticed that [baa)[.1] 90% of any [iiib} and [iii(:) of Section _of1 any receipts by way of bl"Ok6FE1g€,"C?--f):i1";}TtiSSie)i't.:' rent, charges or any other 1'ec:eipig'o1"i..-ct "sim.i1é§19 nature" is required to be cieciueted. Wiienxu refit, _c'orIin'1issio11. brokerage charges etc., though 1'om;s_ ptéu*-1iVgros.$'¥tot'al income, has to be excluded as they are ":3.epa.1*ate.:7' incomes" which had no nexus to export"

'ﬂttirnovel'.*i.i'" included would result in arriving at a distorted 7{;ig_Li'i'¢Z'. of export profits. Tlitis. Aui,ho1'ity and the .,Ap;}5e}.I.21te Authori.1,y liavcr not applied the principles of %.

E_;'esdum Generis which has been pressed into sewice to the facts of the case and if applied it wouid lead to avs:--i.t_t1§;tio'rn_Vit where the assessee wouid be entitled to project_;:tn~--erroneous ' ~ ﬁgure relating to "Export Profits" \v5hiich"i's not_. the .i.i1t:en_tioV:}_ of the law makers. This a1r1ount'wh'i--ch isbV.t_:J2ii'1i1ed'=--'2isi deduction under Section 80 HHC«vs.s}5yi,the would not constitute sale proceeds" ,.IV'rorI1.;"eXports:"--.2 The dassessee in question except procuring' expiio;"t: oride_1:vh'.3_s not carried on any activity wh.ieI1..hae_'nexns to _eXport in sofar as the receipt of ant-oiir.-I_1 733/? is concerned. Hence.

qL1estion1vNos-.] _» »tovrnit1\1at.ied hereinabove has to be answered inxthe affi:'n'1e_ti\re in favour of the revenue and against; 336. asses~*e.e_eVa.1'1d they are accordingly answered. 1$);._VRe;Q.uestions 3 and 4: The contention of Mr§Chz1itai1ye[jf_I---ietde is that the Tribunai ought to have 'isstiedtctirectivon to bifureate professionai charges between tpiiocui-'i;'1g the order and rendering other services so as to

-.[€<xc'Eude only that part of the p1'ofess1'onal charges as " --.t1ii'ribi.1t.ab1cé to rocuriii I the order in con'; 3L1t.1'r1'rF " ro its 0 _ P g_--.. I e 13 $2, 4:2?' 29 90 per cent. of (he said sum Ilaci Io be r(__jdi'1'<;'e¢i ' from the gross ("oral income to arrive viiije i"

business profits and since 1i_1.e..s_q1'd charge was an z'rnpor1a.n£ C():npor1en:iCof:bnsiness profits, ii' aiso had to z'ncii.v:._de'd in lV'..l¥:'7é.T.:.{¢1(,(:7.l turnover in the said arrive at ' profits in terms of cl. i»V"'(-l9:§zcz)_» to.' £'.h_¢_ sfiid §xplanaf.ion., "

20. In the .i.nst2111:1.""(:.sse: Officer selected the cﬂas-teé njyr raised queries as to why has not been redueed*_Yvoutj! »offt-:23 'bitsiness". The assessee has subn1itted"1neie't1'erV and contended that these Ifi.':'.Cf:T'1'_p'CS areaconsidered as business income and related to- &e5(penEses "are considered as business expenses. The iéissiesssiee_}1in1"sei.iT_F1.as stated ihai. he Wili not be able to bif'L1rL?.g:1.e Vi,his'f.: part. of the expenses separaieiy since .«.._ad,n'1.inist.i ai.ive set. up and market. set up 2-are common to <%x§_3o.r1. 'I;"l.1SiI'l€2SS and this activity of indirect expoi'i's. In 21 .._'s'iII'}ijEar sii,uai.ion. ihe Ho1'1'b1e Apex C01,: rt in I'Ieros--Exp()1'i.s Vs. CIT case report'.ed in (2007) 295 ITR 454 while {?()t1..side<rii'1g e1'1titlement, of the assesses as to what extent of e::pe1isesL"-has ' . to be attributed to an earning has held as u1'1c_1e:f:_"~--.. "13. As stated. above. gt-r~.'"'oz;.u~. opoirtiortg'ttte V A word "at't:rz'.but'abte in section 80!/f-I'ttCtZ3}tt;;'_ ir7.iU1e main section itself indicates thatapuortiotémertt {principle of attn'but.ion} omitt'e_cV_t'j'rr':=nt":;t1eW said provision of ,sectiortSOHI-*i'C'('3}{b). above, the assesseetitthas-_ income of Rs..1,60,000 apart exports of Rs.6,.fivO.'O:O_O. Texp'et1.se has to be attribi;zteott_t,tO cam-ig.1q;i.4R:;fv1,5o','ooo. If so. the r1ext:_qttes't~iort_ ;L{.--'hi'Cflt is how to allocate the costs?. As the assessee has two ir'1cornes Luttiaorte'eo'ii'1mon pool of expenses and tsvmwrre th"e..e_V_Vprinci'pEe of att:rtbut.ion has been kretfained. in ::ri;é"§¢r1eme of section. SOHHC, both in "section 8OHHC{3), ctattse (e) to the t.o section 8OHHC{3]{a), (b) and (C) arid' E'!"t:"V.CtC1l,£S£? (baa) to the Explanat'tor1 to section {"3'()V__}"-3i',t--IC, instead of going into lengthy exercise of A ~._dz'.oto'.tr1g such common expenses. the assessee has estimated, the reduct.tor'1 of export" turnover by 10 per cent'. Of the other incom.e of Rs. 1,630,000 /.

E ./ E {in the above example}. Ultimately. clause (baa) the Explanation is itself based on the assamp't--i--on~. A' that 10 per cent. of the income tvoulct expense. We make it cleanthat Lve ai"eA-Tviot' reading Explanation {baa} :_---into Vsectiorif-it,,__ it 8OHHC{3)tb}. What tveesay a guidance " i value/ factor, 10 per cent. the total .otl:er"z'_ncome"

of Rs.1,50,000 tvould Abe :fair'=._estimate,H guidance value ;;.F.r_oiIin'.clause {baa} but from the scheme ojlsectiotn read with the Memoraradumrtoib of 1991.

Take xofexpenses is to be done ilcttial Vitiiwotild not only be very difficult' tb_t:ct_«Vin. _ cases actual apportionment may not be inithe' even of the Department.

In cor2cl'us:ion, we may state that under section one has to balance the "j:iiinciple ofV""attn'bution" with the concept of _"'a.l_locatton". The concept of allocation is meant to redvfce the incentive. However, when "allocation"

-, be balanced with the "principle of "at_t%ibution", the object is to reduce the incentive in it and not to eliminate it."

M 32 The Hon'b}.e Apex Court has taken into c:onside1'atioI1 the scheme ofSeetio11 801--{MC and held t'.ha1- if 2111(>c'21tio11 expenses is done on actual basis ii wouid not ():i1'y'11'e--..__ire:'§y difﬁe1.11t. but in some cases aei.L1a1 appo1*tion111ent_: "may-,ho_t be"

in the interesﬁ of the department --:.1~~..$1::g_1:

case, the Assessing Of1'.iee1f.*h_as «C§'ed'uetedoV.§.0'§'./g5 201°'; l.1:lVC ".

p1'ofessior1a1 charges received I'fo_If1 p1'ofi{s._oi1*'l)us;§r1ess by reducing 10% to\va.1*ds'e_h'a_1*ge_s aﬁ;1'ib}.1.t;i19}e to _pi9oeu1*iz1g the order and thus question No's._3 2i1iVd'4 _i'oVi*me:L:1a"1.ec1 hereinabove is to be answe1'ed Z'in the :;affirr1'1.2itiVfe.bnamely 'I'ribLmal was right i1V*z__no_1.--issi'1E.:1g_ a11y'd_ii'e.e1€ons to the Assessing Officer to bifureate p1'c)11ession'é11V'e,hs--Jjges between procu1"ing order and 1'enderi11g;; oL'r1e':'.,sei"v'iees so as 'to exeiude only that part as to procurirlg order in computing the profits of "' L.he'_ be - . . f /

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