COMMISSIONER OF INCOME TAX Vs. PREMIER POLYTRONICS LTD

JUDGEMENT

(1.) THIS Tax Case Appeal is filed by the Revenue, raising the following substantial question of law: "whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in setting aside the order of the Commissioner of Income Tax under Section 263 of the Income Tax Act, holding that while computing the deduction under Section 80 HHC in the case of the assessee for the assessment year 1992-93, 90% of the service income, lease income and packing and forwarding collection should be excluded from the profits of the business and the said receipts would not be disqualified under explanation to Section 80 HHC (4a)? "

(2.) THE assessment year under consideration is 1992-93. Originally, while computing the relief under Section 80-HHC, the Assessing Authority did not exclude 90% of the receipts pertaining to the service income, lease income and packing and forwarding collection. However, in exercise of power under Section 263 of the Income Tax Act, 1961, the Commissioner of Income Tax (Appeals) revised the order of assessment. In the process, the Commissioner held that the three items of receipt were not part of receipts from the manufacturing activities to have the character of a business income. Consequently, the Commissioner of Income Tax held that Section 80 HHC being an incentive given for actual export business and not over profits from non-export activities, they have to be excluded under the computation of the eligible income in terms of explanation (baa) to sub Section (4a) of Section 80 HHC. The Commissioner of Income Tax directed the Assessing Officer to re-compute the assessment under Section 80 HHC by excluding 90% of the total receipt of service income, lease income and packing and forwarding collection.

(3.) AGGRIEVED by the order of the Commissioner of Income Tax (Appeals), the assessee preferred an appeal before the Income Tax Appellate Tribunal, wherein it was contended that the receipts on service are related to its business activity. It was also contended that the assessee had been selling plant and machinery to different buyers as part of its regular business. The assessee had also entered into Annual Maintenance Contracts with the buyers and charging separate service charges for maintaining such contracts. As far as the leasing income is concerned, the assessee contended that they were carrying separate leasing division as part of the diversified business and the lease rentals were arrived as business income. As far as packing and forwarding collection is concerned, it was contended that it was in the nature of recoupment of such expenditure already incurred by the assessee on behalf of the buyers while supplying the plant and machinery sold by the assessee. In support of its claim, the assessee relied on the decision of the Bombay High Court reported in 260 ITR 371 (CIT Vs. BANGALORE CLOTHING COMPANY) to contend that the Bombay High Court had held that the receipts forming part of the operational income of the assessee could not be excluded under Explanation (baa) to sub Section (4a) of Section 80 HHC. Applying the law declared by the Bombay High Court, the Income Tax Appellate Tribunal set aside the order of the Commissioner of Income Tax (Appeals ). The Revenue is on appeal challenging the correctness of the order of the Tribunal.