[CIT v. Motor Industries Co. Ltd., 239 CTR 541 (Kar.)]
The assessee-company was in the business of manufacture of automobile parts. For the A.Y. 1994-95, the assessee had received an amount of Rs.64,75,373 as fees towards developmental work from M/s. Robert Bosch, Germany. In respect of this amount, the assessee had claimed deduction u/s.80-O of the Income-tax Act, 1961, which was granted. For the purpose of computing the amount deductible u/s.80HHC of the Act, the Assessing Officer excluded 90% of the above amount for computing the profits of the business by applying Explanation (baa) to section 80HHC. The assessee objected to such exclusion. The Tribunal accepted the assessee’s claim.
In appeal, the Revenue contended that the assessee had already availed the benefit of the said income u/s.80-O of the Act and accordingly that the said income is in the nature of ‘charges’ as contemplated under clause (i) of Explanation (baa) to section 80HHC. The Karnataka High Court upheld the decision of the Tribunal and held as under:
“(i) It is clear that such incomes which have no direct nexus with the export turnover are liable to be deducted in arriving at the profits of the business. It was only when the assessee has an independent income which has no nexus with the income derived from export, which is in the nature of brokerage, commission, interest, rent or charges, and by inclusion of that income to the profits of the business, results in distortion, then, such income should be excluded.
(ii) In the instant case, it is not in dispute that the assessee is in the business of export of goods and merchandise. The disputed income is earned by the assessee for his fees towards developmental work from RB. The developmental work is intimately connected with the business of manufacturing and sale of goods by the assessee. There is immediate nexus between the activity of export and the developmental work.
(iii) Admittedly, for the services rendered by way of these developmental work, the assessee has been given the benefit of deduction u/s. 80-O. The receipt of consideration from the foreign enterprise is not in dispute. From the very same business that the assessee is carrying on, he is having an income under two heads and therefore, it is not a case of any independent income unrelated to or unconnected with the business carried on by the assessee is sought to be included in the profits of the business.
(iv) In these circumstances, the Tribunal was justified in holding that the said consideration received for developmental work is not liable to be deducted under clause (baa) in computing the profits of the business.”
