In, M/s. Ashok Leyland Ltd vs. The Deputy Commissioner of Income Tax, a division bench of the Madras High Court held that incentive profits having no nexus with the export turnover have to be excluded from Gross Total Income.
The question before the Madras High Court was whether the appellant was entitled to the deduction under 80HHC of the Income Tax Act, in respect of the Interest, rent and miscellaneous income earned out of business operations.
Referring the decision in the case of Commissioner of Income Tax Vs. K. Ravindranathan Nair, the bench held that receipts constituting independent income having no nexus with exports are required to be reduced from business profit under cl.(bba) of explanation to Section 80HHC of the Act. The court found that the computation of deduction under section 80HHC is depended upon four variables, namely- business profits, export turnover, total turnover and 90 percent of the sums referred to in cl. (baa) to the said Explanation, which demands weight.
Bearing in mind the four variables, the court observed that every receipt is not income and every income would not include the element of export turnover. The court also found that 90 percent of incentive profits or receipts by way of brokerage, commission, interest, rent charges or any other receipt of like nature included in business profits, had to be deducted from business profits computed in terms of sections 28 to 44D of the Income Tax Act as such incentive profits had no nexus with exports.
Answering the issue in favor of the Revenue, the bench comprising of Justice T.S. Sivagnanam and Justice N. Seshasayee concluded that although incentive profits and ‘independent incomes’ constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover.
