Export profit : Deduction u/s.80HHC of Income-tax Act, 1961 : A.Y. 2000-01 : Profits of business : Expl. (baa) : Insurance claim relating to stock-in-trade not to be excluded.

[CIT v. The Pfizer Ltd. (Bom.); ITAL No. 128 of 2009
dated 18-6-2010]

The assessee is engaged in the manufacture and export of
pharmaceuticals and animal health products. For the A.Y. 2000-01, while
computing deduction u/s.80HHC, the Assessing Officer excluded 90% of the amount
of insurance claim which was related to the stock-in-trade of the assessee. The
Tribunal held that the insurance claim formed part of the income of the business
of the assesee and was liable to be considered as part of the profits of the
business in view of Explanation (baa) to S. 80HHC. The Tribunal was of the view
that the insurance claim was not in the nature of brokerage, commission,
interest, rent or charges and therefore was not any other receipt of a similar
nature within the meaning of Explanation (baa). The Tribunal, therefore, held
that 90% of the insurance claim could not be excluded.

On appeal by the Revenue the Bombay High Court upheld the
decision of the Tribunal and held as :

“(i) Receipts by way of brokerage, commission, interest,
rent or charges in Explanation (baa) have been held, by the judgment of the
Supreme Court in CIT v. K. Ravindranathan Nair; 295 ITR 228 (SC), to
constitute independent incomes. Being independent incomes unrelated to export,
the Parliament contemplated that 90% of such receipts would have to be reduced
from the profits of business as defined in Explanation (baa).

(ii) The rationale for excluding 90% of the receipts by way
of brokerage, commission, interest, rent or charges is that these are
independent incomes and their inclusion in the profits of business would
result in a distortion. In determining whether any other receipt is liable to
undergo a reduction of 90%, the basic prescription which must be borne in mind
is whether the receipt is of a similar nature and is included in the profits
of business. To be susceptible of a reduction the receipt must be of a nature
similar to brokerage, commission, interest, rent or charges.

(iii) In the present case, the insurance claim, it must be
clarified, is related to the stock-in trade and it is only an insurance claim
of that nature which forms the subject matter of the appeal. Now it cannot be
disputed that if the stock-in-trade of the assessee were to be sold, the
income that was received from the sale of goods would constitute the profits
of the business as computed under the head profits and gains of business or
profession. The income emanating from the sale would not be sustainable to a
reduction of 90% for the simple reason that it would not constitute a receipt
of a nature similar to brokerage, commission, interest, rent or charges.

(iv) A contract of insurance is a contract of indemnity.
The insurance claim in essence indemnifies the assessee for the loss of the
stock-in-trade. The indemnification that is made to the assessee must stand on
the same footing as the income that would have been realised by the assessee
on the sale of the stock in trade.

(v) In these circumstances, we are clearly of the view that
the insurance claim on account of the stock-in-trade does not constitute an
independent income or a receipt of a nature similar to brokerage, commission,
interest, rent or charges. Hence, such a receipt would not be subject to a
deduction of 90% under clause (1) of Explanation (baa).”