CIT vs. Asian Star Co (Bombay High Court)

For Expl (baa) to s. 80HHC, netting of income from expenditure is not allowed

The assessee claimed deduction u/s 80HHC on profits which included interest income of Rs. 3.25 crores. Under Explanation (baa) to s. 80HHC, 90% of the said interest income has to be reduced from the profits. The assessee claimed that the interest expenditure incurred by it having a nexus with the said interest income had to be netted off and only the balance, if any, could be subjected to the 90% reduction. The assessee proved that there was a nexus between the income and the expenditure. The claim was rejected by the AO though it was accepted by the CIT (A) and the Tribunal relying on Lalsons Enterprises 89 ITD 25 (Del) (SB). On appeal by the Revenue, HELD reversing the Tribunal:

(i) Explanation (baa) to s. 80HHC requires that ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature have to be reduced from the profits. The reason why items like brokerage etc have to be excluded is because they do not possess any nexus with export turnover and their inclusion in profits would result in a distortion of the figure of export profits. However, as some expenditure might have been incurred in earning these incomes, an adhoc deduction of ten per cent from such income is allowed;

(ii) Once Parliament has legislated both in regard to the nature of the exclusion and the extent of the exclusion, it would not be open to the Court to order otherwise by rewriting the legislative provision. The task of interpretation is to find out the true intent of a legislative provision and it is clearly not open to the Court to legislate by substituting a formula or provision other than what has been legislated by Parliament. It is not open to say that something more than the 10% statutorily provided should also be allowed. In Shri Ram Honda Power Equip 289 ITR 475 the Delhi High Court has not adequately emphasized the entire rationale for confining the deduction only to the extent of ninety per cent of the excludible receipts and it cannot be followed;

(iii) As regards the judgement of the Special Bench in Lalsons Enterprises “We are affirmatively of the view that … the Tribunal … has transgressed the limitations on the exercise of judicial power and …. has in effect legislated by providing a deduction on the ground of expenses other than in the terms which have been allowed by Parliament. That is impermissible”.