Case: Commnr.,Income Tax, Thiruvananthapuram Vs. K. Ravindranathan Nair

This is a batch of civil appeals filed by the Department. For the sake of convenience we state the facts occurring in Civil Appeal No… of 2007 arising out of S.L.P.(C) No.24617 of 2003 - Commissioner, Income Tax, Thiruvananthapuram v. K. Ravindranathan Nair. Assessee-respondent has a factory in which he processes cashew nuts which are grown in his farm. Thereafter he exports the cashew nuts as an exporter. For processing, the assessee has complete infrastructure. He has plant and machinery in his factory. At the same time, the assessee processes cashew nuts which are supplied to him by the exporters on job-work basis. After processing, the assessee returns the processed cashew nuts to the exporters. He earns processing charges. Therefore, the assessee is an exporter and a jobof Export Incentive under Section 80HHC(3) of the Income Tax Act, 1961 ("I.T. Act", for short), is the issue for determination in this batch of civilassessee made a claim for Export Incentive under Section 80HHC(3) in his returns filed for the assessment year 1993-94. The assessee did not include processing charges (receipts) in his total turnover. In his return, he indicated his business profits at Rs.1,94,08,220. The figure of Rs.1,94,08,220 included the processing charges (receipts) amounting to Rs.1,54,68,811. However, the assessee did not include the processing charges amounting to Rs.1,54,68,811 in his total turnover. He contended that although the processing charges (receipts) amounting to Rs.1,54,68,811 constituted part of business profits as computed under Section 28 of the I.T. Act, since Section 80HHC (3) was the formula to work out export incentive, the said figure of Rs.1,54,68,811 was not includible in the total turnover in the formula under the said Section 80HHC(3) of the I.T. Act. According to assessee, Section 80HHC(3) provided for computation of export incentive/concession to be computed by allocating business profits in the ratio of export turnover w by total turnover. This argument was not accepted by the Department.

Reasoning:
In our view, for the above reasons, the said processing charges, which was part of gross total income, was an independent income like rent, commission, brokerage etc. and, therefore, 90% of the said sum had to be reduced from the gross total income to arrive at the Business Profits and since the said processing charge was an important component of Business Profits, it also had to be included in the total turnover in the said formula to arrive at business profits in terms of clause (baa) to the said Explanation.