COMMISSIONER OF INCOME TAX, BANGALORE Vs. MITTAL CREATIONS

JUDGEMENT

(1.) THIS appeal is by the revenue challenging the order passed by the Tribunal holding that the receipts from job work do not fall within the clause (baa) of the explanation below section 80HHC(4b) of the Income -tax Act, 1961. The appeal was admitted on 21 -8 -2011 to consider the following substantial question of law: Whether the appellate authorities were right in granting relief to the assessee and the same is in conformity with Explanation (baa) to section 80HHC of the Income -tax Act, 1961?

(2.) THE assessee is engaged in the manufacture and export of ready made garments. There was some receipts of Rs. 33,12,545 from job work charges which was part of the business activity of the assessee. Therefore, the same was included in the total turnover and benefit of section 80HHC is claimed on that basis. The assessing authority had the income from the said job works falls within (baa) and cannot be included in the profit taxable turnover and therefore, the same was disallowed. Aggrieved by the same, the assessee preferred an appeal. The Commissioner of appeals held the income from the job works has a nexus with the export business carried on by the assessee and therefore, it does not fall within the definition of (baa) and granted the benefit. The revenue preferred an appeal to the Tribunal. The Tribunal dismissed the appeal. Aggrieved by the same, the revenue is before this Court. From the material on record, it is clear the assessee is in the manufacture and export of ready made garments. In the course of the said export business, utilizing some men and machinery, they have undertaken some job work and they have received the aforesaid amount of Rs. 33,12,545 as a part of the business activity of the assessee viz., manufacture and export of ready made garments. Explanation (baa) refers to receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits. They are the types of income which has no bearing insofar as the manufacturing activity of the assessee is concerned or the income derived from such manufacturing activity. However, the assessee has earned these receipts from job work utilizing the very same machinery and men and as a part of his manufacturing activity. Therefore, there is a direct nexus between the job work and the manufacturing activity carried on by the assessee insofar as the export of manufacturing items is concerned. Therefore, this income does not fall within the definition of (baa) and therefore, the said receipt has to be included in the total profits. That is precisely what the Tribunal as well as the appellate authority has held. In that view of the matter, there is no merit in this appeal. Accordingly, we answer the substantial question of law in favour of the assessee and against the revenue.