CIT Vs. ANIL CHANANA

JUDGEMENT

(1.) This is a reference made at the instance of the Commissioner of Income Tax, Delhi-VII under Section 256(1) of the Income Tax Act (hereinafter referred to as "the Act"). The following questions of law were referred to us for opinion :

(2.) The brief facts giving rise to the reference may be noticed. The assessee is an individual engaged in the export business. In the return of income filed for the assessment year 1991-92, he claimed deduction of Rs33,63,149/- under Section 80HHC of the Act. While completing the assessment under Section 143(3), the Assessing Officer noticed that the assessee had claimed deduction under the aforesaid Section even in respect of rent and interest. These items of receipt were also treated as part of the turnover. He was of the opinion that deduction under Section 80HHC could only be allowed to the extent of the profits from the export business as envisaged by Section 80AB of the Act and accordingly, proposed to exclude the rent and interest receipts from the computation of the deduction. The assessee however, submitted that the proposal of the Assessing Officer would be contrary to the scheme of the deduction envisaged by Section 80HHC. According to him the formula to be applied for determining the export profits was the one prescribed in sub-section (3) of Section 80HHC, which was as under :

(3.) It may be noticed that the Assessing Officer excluded both the interest and rent receipts from the computation of the profits of the business for the purpose of calculating the deduction under Section 80HHC, but in this reference we are concerned only with the interest receipts. So far as the rent is concerned, even before the tax authorities the assessee does not press for the deduction. Accordingly, on 3 rd August, 2012 we had reframed the questions referred to us by the Tribunal and consider it appropriate to deal with only one question of law which is "Whether the ITAT was right in law in holding that the domestic business need not have any nexus with export business for the purpose of deduction under Section 80HHC?". As the question shows, the real objection of the income tax authorities in this case is that the interest income, even if it is assessed as business income on the footing that the assessee was carrying on money lending business, still it represented domestic profits and not export profits and therefore, a mechanism should be devised by which the domestic profits are excluded from the profits of the business for the purpose of applying the formula prescribed by Section 80HHC(3).