The Commissioner of Income Tax vs S.A.E. (India) Limited

K. Raviraja Pandian, J.—The appeals are filed against the order of the Income Tax Appellate Tribunal Madras ''C'' Bench made in I.T.A.

Nos. 650 and 651/Mds/1995 dated 25.8.2003 and admitted on the following substantial question of law:

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the Dividend Income, Profit on

sale of investment, miscellaneous receipts, excess liability return back, interest on deposit, insurance and other claims, foreign exchange gain should

be treated as part of income are to be deducted from the profits and relief should be calculated u/s 80HHC?

The relevant assessment years are 1991-92 and 1992-93.

The facts culminating in filing the present appeals proceed as follows:

The assessee was doing business in design manufacture, supply and erection of Trans-lines, Electrification of Railways. For the said assessment

years, the assessee claimed dividend income, profit on sale of investment, insurance on other claims, miscellaneous receipts, excess liability return

back, interest on deposits, foreign exchange as part of the business income. The assessing officer disallowed the claim on the ground that the above

income did not directly arise out of the conduct of the assessee''s export business. Against that order the assessee preferred an appeal before the

first appellate authority, the Commissioner of Income Tax Appeals, who allowed the appeal for the assessment year 1991-92 and partly allowed

the appeal in respect of 1992-93. As against that order, the Department preferred appeals before the Income Tax Appellate Tribunal. The

Tribunal following the decision of this Court in the case of Commissioner of Income Tax Vs. N.S.C. Shoes, remitted the matter back to the

assessing officer to pass a consequential order by following the principle of natural justice. That order is put in issue in this appeal on the ground

that the reasoning given by the Tribunal by placing reliance on the case of Commissioner of Income Tax Vs. N.S.C. Shoes, is not correct.

We heard the arguments of the learned Counsel appearing on either side and perused the materials on record.

It could be seen from the order of the Tribunal that the Tribunal was of the view that in respect of computation of income u/s 80HHC of the Act,

in relation to the items mentioned in Explanation(baa) thereof, the issue was covered by the decision of the Madras High Court rendered in the

case of Commissioner of Income Tax Vs. N.S.C. Shoes, wherein it has been held that 90% of the items mentioned in Explanation (baa) were to

be deducted from the profits and the relief should be calculated u/s 80HHC. The Tribunal directed the assessing officer to work out the relief u/s

80HHC in the light of the decision of this Court.

We are of the considered view that the observations made by the Tribunal in the order under appeal are not correct and made on an erroneous

understanding of the law laid down by this Court in the case of Commissioner of Income Tax Vs. N.S.C. Shoes, . In that case the dispute related

to the assessment year 1986-87 and the question of law under consideration was that whether the Tribunal was right in holding that the interest on

amount deposited as guarantee fund forms part of profit derived from the export business and should be included in the profit of the assessment for

computing deduction under Sections 80HH, 80HHC and 80I. Admittedly, Explanation (baa) to Section 80HHC has been inserted by the Finance

(No. 2) Act, 1991, with effect from 1.4.1992. Hence, the observation made by the Tribunal that in Commissioner of Income Tax Vs. N.S.C.

Shoes, , it was held that 90% of the items mentioned in Explanation (baa) are to be deducted from the profits and the relief should be calculated

u/s 80HHC is an incorrect observation. That observation cannot be allowed to stand. To that extent the order of the Tribunal is set aside and the

assessing officer is directed to consider the case in accordance with law, which was obtaining during the relevant period under consideration.

With these observations, the appeals are disposed of.