Law:

Section:

Section 80HHC of the Income-tax Act, 1961 - Deductions - Exporters - Assessment year 1992-93 - Whether before invoking Explanation (baa) to section 80HHC, revenue has to ascertain as to what is dominant business of company and whether receipts like rent, interest, commissions, labour charges, etc., irrespective of their nomenclature, accrue as a part of main business activity of an assessee or whether they accrue out of incidental business as operational income, i.e., Assessing Officer has to ascertain whether element of turnover existed or not - Held, yes - Whether if receipts of labour charges (job work charges), interest, commission, etc., accrue by way of operating income, then they fall outside Explanation (baa) - Held, yes - Tribunal found that receipts of labour charges accrued from manufacturing activity and job processing activity was linked to manufacturing activity of assessee-exporter and not in nature of charges, etc., as mentioned in Explanation (baa) - Whether Tribunal was justified in holding that while computing deduction under section 80HHC, 90 per cent of labour charges ought not to have been excluded from business profit - Held, yes Circulars and notifications - CBDT Circular No. 621, dated 19-12-1991 Words and phrases - 'charges' as occurring in Explanation (baa) to section 80HHC FACTS The assessee was engaged in manufacture and sale of garments, both domestically and by way of export. The assessee filed its returns of income claiming deduction under section 80HHC. The Assessing Officer disallowed the claim of deduction under section 80HHC on the ground that receipt of charges of job work done by assessee in India was not a part of total turnover. On appeal, the Commissioner (Appeals), however, viewed that the assessee was entitled to deduction as it was processing the goods on job-work basis which was part of business of the assessee and included such turnover in its total turnover. The Commissioner (Appeals) further directed the Assessing Officer not to reduce 90 per cent of job work turnover from business profits. Thus, the Commissioner (Appeals) reduced the total turnover and increased the business profits. On appeal, the Tribunal held…

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