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Judgment
N. Kumar, J.—These two appeals are preferred by the revenue challenging the order passed by the tribunal which has held the receipts from sub contract services and sale of scrap material do not fall within the definition of explanation baa to Section 80HHC(I) of the Income Tax Act, 1961.
The assessee is a manufacturer of commutators. It also manufactures certain goods on sub contract basis for others and received services/job charges to the tune of Rs. 71,44,752/- (ITA 1141/06) and Rs. 386675/- (ITA 22/08) besides receipts from safe of copper scrap. They claimed deduction u/s 80HHC including the said receipts, The assessing authority held that the receipts from the sub contract receipts and scrap fall within the explanation baa to Section 80HHC and therefore, the same could not be included. Aggrieved by the said order, the assessee preferred an appeal. The appellate authority held as there is a direct nexus between the receipts from special contract as well as sale of scrap material, it does not fall within the explanation (baa) and the assesses is entitled to include the said receipts in the income from and business and profits. The revenue''s appeals to the tribunal came to be dismissed. It is thereafter, they have preferred this appeal.
The appeal was admitted to consider the following substantial questions of law in ITA 22/ 08 and respectively:
Whether the Appellate Authorities were correct in holding that 90% of the income derived from scrap sales and other sub-contract services cannot be excluded when computing the profits of the business u/s 80HHC of the Act in accordance with the explanation (baa) to Section 80HHC of the Act despite the same having not been earned in the course of export.
Whether the Tribunal written statement correct in holding that assessee would be entitled to deduction U/s. 80HHC of the Act in respect of other income sub contract services, scrap, lese hire charges miscellaneous income and other claims received Rs. 1,98,62,656/- which has not been earned in the course of export and therefore 90% of the same should be excluded as per explanation (baa) to Section 80HHC(1) of the Act when computing the deduction?
As the subject matter of these appeals relate only to receipts from sub contract and sale of scrap materials, the items mentioned in the substantial question of law such as ''Miscellaneous expenses and hire charges'' are deleted.
From the material on record, it is clear that the asses see is in the business of manufacture of commutator and they export the commutators after manufacturing and they have export income. They also manufacture certain products which are sold locally, The scrap which is sold is generated in the course of the manufacturing activity. Therefore, it is clear both the subject matter of the sub contract and the scrap arises out of the very same business of manufacturing of commutators carried on by the assesses. Therefore it does not fall within the explanation (baa) to Section 80HHC as rightly held by the tribunal as well as the appellate authority.
In those circumstances we do not see any justification to interfere with the order passed by the tribunal as it is strictly in accordance with law. Accordingly, the substantial question of law is answered in favor of the assesses and against the revenue. Appeals are dismissed.