Commissioner of Income Tax vs Macmillan India Ltd.

P.D. Dinakaran, J.—The above tax case appeal is directed against the order of the Income Tax Appellate Tribunal in ITA No. 2299/Mds/2001 dated 04.10.2001, raising the following substantial questions of law:

Whether in the facts and circumstances of the case, the Tribunal was justified in law in directing relief u/s 80HHC(3)(a) instead of Section 80HHC(3)(b) of the I.T. Act, 1961?

Whether the Tribunal is justified in the facts and circumstances of the case in directing relief u/s 32AB even in respect of interest income which is different from business income?

The revenue is the appellant. The assessment year involved in this appeal is 1989-90. The assessee is a company carrying on the business of printing and publication of books in India. It claimed relief u/s 80HHC for the assessment year 1989-90. The Assessing Officer noted that the company was having two units, one at Madras for local business and another at Bangalore for export business and therefore computed the relief as per Section 80HHC(3)(b) and rejected the claim for calculation of the relief u/s 80HHC(3)(a). The assessee claimed relief u/s 32AB including therein interest income which is not part of business income. The Assessing Officer excluded the interest income from the computation of relief u/s 32AB. On appeal at the instance of the assessee, the Commissioner of Income Tax (Appeals) dismissed the appeal by his order dated 31.7.1992. However, on further appeal by the assessee, the Appellate Tribunal allowed the appeal holding that Bangalore Unit was a 100% export oriented unit and there was no need to bring in the ratio of export turnover to domestic turnover. Hence, the present appeal raising the above substantial questions of law.

The first question of law was decided in favour of the assessee and against the revenue by this Court in Commissioner of Income Tax Vs. Rathore Brothers, , where the assessee had maintained separate accounts and maintained its trading receipts and profit and loss accounts separately for export sales and domestic sales and produced sufficient material for support of all the necessary documents to show that the deduction claimed was entirely due to export, it was held that there was no warrant for disallowing any portion of the export earnings pro rata by invoking Clause (b) of Sub-section (3) of Section 80HHC of the Income Tax Act, 1961, and the purpose of the clause was to disallow a part of the allowance under that section only when the entire deduction claimed could not be regarded as being relatable to exports.

With regard to the second question of law, it is settled that the calculations required to be made for the purpose of Section 32AB of the Income Tax Act, 1961, are to commence with the figure representing the profits of the eligible business as computed in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act, 1956. From that figure the amount equal to the depreciation computed in accordance with Section 32(1) of the Income Tax Act, 1961, is to be deducted. After such deduction, that amount is to be increased by the aggregate of the amounts set out in Clauses (i) to (vii) of Section 32(3). A sum equal to 20 per cent of that amount is to be allowed as a deduction u/s 32AB(1)(ii). The determination of the profit required to be made in accordance with Parts II and III of Schedule VI to the Companies Act is required to be made after taking into account all the activities of the assessee governed by the Companies Act, as the profit and loss account required to be drawn up by a company must necessarily reflect all the income and all the expenditure incurred by the company in that year. Section 32AB does not require the profit for the purpose of Section 32AB(1) to be calculated in accordance with the provisions of the Income Tax Act. All that it provides is that the calculations should first be made in accordance with the Companies Act and the requirements more specifically required of Parts II and III of Schedule VI of the Companies Act. There is, therefore, no scope at all for importing the concept of different heads of income found in the Income Tax Act, into the calculation of profit required to be made, vide Carborandum Universal Ltd. Vs. Commissioner of Income Tax, .

Applying the ratio laid down in the decisions referred supra, we dismiss the appeal and decide the above substantial questions of law in favour of the assessee and against the revenue. No costs.