By K. B. Bhujle, Advocate
New Page 1
27 Export Profit : Deduction u/s.80HHC :
Computation : S. 80HHC Expl. (baa) of Income-tax Act, 1961 : Manufacture and
export including job works for others : Investment in raw materials, labour,
etc. by assessee on own account alone includible in total profit.
[William Goodacre and Sons India Ltd. v. CIT, 305 ITR
365 (Ker.)]
The assessee was engaged in the business of manufacture and
export of products. The assessee was also engaged in doing job works for others
particularly exporters. The Assessing Officer excluded 90% of the job work
receipts from the business profit in the computation of the export profit by
referring to clause (baa) of the Explanation to S. 80HHC(4B) of the Income-tax
Act, 1961. The Tribunal confirmed the order of the Assessing Officer.
On appeal by the assessee, the Kerala High Court remanded the
matter back to the Assessing Officer and held as under :
“(i) The scheme of S. 80HHC of the Income-tax Act, 1961
provides for computation of the export profit of an assessee engaged in local
business and export business based on the formula provided in the Section to
find out the proportionate profit on export with reference to the total
turnover and total profit. Under the formula, eligible export profit is the
total profit divided by the total turnover and multiplied by export turnover.
(ii) The scheme of exclusion of certain items of income
which come within the description of business profits by virtue of the
inclusion clause contained in S. 28 of the Act, is to ensure that in the
course of working out the eligible export profit on a proportionate basis with
reference to the total turnover and export turnover, the net result should not
be a distorted figure. In other words, the formula seeks to achieve
determination of export profit as realistically and as near as possible. The
purpose of clause (baa) of the Explanation to S. 80HHC(4B) of the Act, is to
exclude such items of receipts which are not derived from business turnover.
Brokerage, commission, interest and rent, etc. are items which are essentially
in the nature of net receipts and are not derived out of total turnover of the
assessee. Besides the four items enumerated in clause (baa)(1), the charges or
any other receipt of a similar nature should also be excluded. If charges are
not comparable to any of these items, then such items cannot be excluded from
the business profits in terms of clause (baa) of the Explanation.
(iii) If raw materials are supplied by the awarder or if
the assessee purchased the raw materials separately in its name and claimed
separate re-imbursement, then the turnover of the transaction does not get
included in the total turnover and the receipt is net receipt, 90% of which
has to be excluded as charges under clause (baa).
(iv) The rubber backing charges and rubber edging charges
could not be excluded from the total profit by referring to clause (baa) of
the Explanation to the Section. The authorities below failed to consider the
claim of the assessee that it purchased raw materials on its own account and
used them in manufacture of the final product leading to value addition at the
assessee’s cost on the awarder’s raw material like doormats and coir carpets.
Unless the cost of the raw material is borne by the assessee in its own
account forming its sale value as total turnover, the assessee could not claim
the benefit of inclusion of full charges so collected in the total profit.
(v) If the entire raw material cost is borne by the awarder
and the assessee did only job work with machinery and employed its own labour,
such charges were comparable to commission or brokerage which were income
earned by incurring labour and other charges covered under clause (baa) of the
Explanation.”
