CIT vs. Dresser Rand India (Bombay High Court)

Receipts with no nexus to exports have to be excluded for s. 80HHC deduction

Explanation (baa) to s. 80HHC defines the term “profits of the business” to mean business profits as reduced by 90% of .. “receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature“. The Tribunal took the view, on the basis of Bangalore Clothing 260 ITR 371 (Bom) that receipts towards recovery of freight, insurance, packing receipts, sales tax set off/refund and service income were “operational income” and not liable to be excluded under Expl (baa) to s. 80HHC. On appeal by the Revenue, HELD reversing the Tribunal:

(i) The ratio of Ravindranathan Nair 295 ITR 228 (SC) is that Explanation (baa) to s. 80HHC required receipts constituting independent income having no nexus with exports to be reduced from business profits under clause (baa) so as to avoid distortion in the computation of export profits;

(ii) In Bangalore Clothing Co 260 ITR 371 (Bom) it was held that If an item of income is closely linked with business operations and constitutes “operational income”, it cannot be excluded under Explanation (baa) to s. 80HHC. This proposition is inconsistent with the law in Ravindranathan Nair and is no longer good law. The submission that Bangalore Clothing was impliedly approved in Baby Marine Exports 290 ITR 323 (SC) is not acceptable because that judgement turned on the fact that the export house premium was an integral part of the consideration for the sale realized by the assessee, a supporting manufacturer.