Parry Agro Industries vs Joint Commissioner of Income Tax

K.S. Radhakrishnan, J.—This appeal is preferred by the assessee u/s 260A of the IT Act, 1961. Following is the question of law that has been referred for the decision of this Court:

Whether, on the facts and circumstances of the case, was the Tribunal justified in holding that miscellaneous income such as agency commission, duty drawback, service charges and rent received cannot be included in the profit for the purpose of computation of relief u/s 80HHC of the IT Act ?

Assessment year in question is 1991-92. Assessee claimed deduction on export profit u/s 80HHC of the IT Act. While taking the GP of Deckiajuli Estate for the purpose of computation of relief u/s 80HHC(3)(b) the assessee has taken into account the following items of income:

Agency commission Rs. 6,46,630 Duty drawback Rs. 1,42,313 Service charges Rs. 6,95,697 Rent Rs. 2,36,253

The assessing authority held that the abovementioned items are not export profits and are income in the nature of miscellaneous income which cannot be taken into account for computation of deduction u/s 80HHC. Aggrieved by the said order, assessee filed appeal before the CIT(A). CIT(A) allowed the claim holding that miscellaneous income referred to above are incidental to the business and is therefore eligible for deduction. Aggrieved by the same, Revenue took up the matter in appeal before the Tribunal. Tribunal held that the miscellaneous income such as agency commission, duty drawback, service charges and rent cannot be reckoned for the purpose of deduction u/s 80HHC of the IT Act, the correctness of which is under challenge in this appeal.

Counsel appearing for the assessee Sri Anil D. Nair submitted that the income earned from agency commission, duty drawback, service charge and rent form part of the income incidental to the business and were to be considered for the purpose of allowing deduction u/s 80HHC. Standing counsel for the Revenue Sri P.K. Ravindranatha Menon on the other hand contended that the Tribunal is justified in holding that the deduction u/s 80HHC was not allowable on a proportion of all profits and receipts from various business activities of the assessee. In support of this contention counsel placed reliance on the decision of this Court in Commissioner of Income Tax Vs. V.T. Joseph, .

The apex Court in IPCA Laboratory Ltd. Vs. Deputy Commissioner of Income Tax, Mumbai, examined the scope of Sections 80AB, 80B(5) and 80HHC and held that a plain reading of Section 80HHC makes it clear that in arriving at profits earned from export of both self-manufactured goods and trading goods, the profits and losses in both trades have to be taken into consideration. The Court held that Section 80HHC has been incorporated in the IT Act, 1961 with a view to provide incentive for earning foreign exchange. The Court also held that even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wording of the provision. The abovementioned decision was followed by the Madras High Court in Commissioner of Income Tax Vs. P.R. Prabhakar, . The Court held that by the very terms of Section 80HHC it is clear that the assessee is not entitled to any benefit thereunder in the absence of any profits. Further, it was also held that the assessee in that case is not entitled to special deduction u/s 80HHC in respect of brokerage and commission for producing export contracts. In V.T. Joseph''s case (supra) the Court while interpreting Section 80HHC held that the claim for deduction u/s 80HHC was restricted by the provisions of Section 80AB and that the deduction u/s 80HHC was to be allowed only to the extent of the income from export business included in the gross total income. Therefore deduction in respect of any income of the nature specified in Section 80AB of the Act is allowable only with reference to the amount of income of that nature which was included in the GP of the assessee. In other words, it should have nexus with the business conducted by the assessee.

Agency commission, duty drawback, rent receipts etc. are miscellaneous income and they have no nexus with the assessee'' s business of export of tea and therefore, such receipts should not be included for the purpose of deduction u/s 80HHC. Agency commission has nothing to do with the export of tea which is a distinct business of the assessee-company which is engaged in the manufacture and sale of tea. Further, service charges received by the assessee do not form part of the receipts of export of tea. Same is the position with regard to rent also. Deduction is for the specified goods and admittedly receipts issued herein are not profit derived from the export of tea. So far as duty drawback is concerned, it was ordered that the assessing authority will decide the issue after ascertaining whether the receipt of duty drawback was incidental to the business of export of tea.

In view of the aforementioned circumstances, we answer the question in favour of the Revenue holding that unless and until it is established that those miscellaneous items have nexus with the assessee''s business of export of tea, the assessee cannot claim deduction u/s 80HHC. This appeal therefore lacks merits and the same would stand dismissed.