The income derived from the developmental work had a direct nexus with the business of manufacturing and sale of goods, and therefore, it was not liable to be deducted under clause (baa) in computing the profits of the business.

This appeal is by the Revenue, challenging the order passed by the Tribunal which has disallowed the deduction of Rs.64,75,373/- being the fee received towards developmental work in computing the profits of the business under Section 80HHC of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. The assessee is public limited company carrying on business of manufacturing and sale of automobile parts like spark plugs, fuel injection equipment etc. For the year 1994-95 the appellant received Rs.64,75,373/- as fees towards developmental work from M/s. Robert Bosch, Germany. The assessee claimed deduction under Section 80-O of the Act, which was granted. For the purpose of deduction under Section 80-HHC of the Act, the assessing officer deducted 90% of the above amount applying the provisions of explanation (baa) to Section 80HHC of the Act. The assessee contended that the proviso to explanation (baa) could be applied only to those items which are specifically mentioned therein. The technical service fees received from Bosch was not one of such specified items. Over ruling the said objection, the assessing officer held that it is consideration flowing to the assessee for the services rendered by them, and therefore it would fall in the category of “any other receipt of similar nature” and deducted the said amount from profits of the business. Aggrieved by the same, assessee preferred an appeal to the Commissioner for Income Tax. Appeals were dismissed. Aggrieved by these two orders, the assessee preferred an appeal to the Tribunal. The Tribunal, relying on the judgment of the Cochin Bench of the Tribunal in the case of ACIT vs HERBAL ISOLATES PVT LTD. (2002) 83 ITD 310 (COCHIN) and also the judgment of the Bombay High Court in CIT vs HINDUSTAN ANTIBIOTICS LTD (137 ITR 42) (Bom) held that the said deduction was not warranted. Therefore it set aside the orders and upheld the contention of the assessee. Aggrieved by the same, revenue is in appeal.

3. Learned counsel for the revenue assailing the impugned order, contended that the receipt of Rs.64,75,373/- fees towards developmental work is not a sale consideration for sale of goods or merchandise by the assessee in the course of export business. Admittedly, the said income is not included in the export turnover. The assessee already had availed the benefit of the said income under Section 80-O of the Act. The said income is in the nature of “charges” as contemplated under clause (i) of explanation (baa) to 80HHC of the Act. Therefore, as held by the Apex Court in the case of COMMISSIONER OF INCOME TAX vs K RAVINDRANATHAN IYER reported in 295 ITR 228 SC the said amount has to be deducted from the profits of the business. The Tribunal was in error in interfering with the orders passed by the Commissioner as well as the assessing officer and therefore he submits that a case for interference is made out.

4. Per contra, learned Sr.counsel appearing for the assessee contends that the aforesaid amount is earned by the assessee in the course of its export business and it has earned profit to that extent, though the said profit does not arise out of sale of goods or merchandise in the course of export business. It is not included in the export turnover. The benefit under Section 80-O of the Act is availed of as it forms part of an income arising out of the services rendered. The claim for benefit under Section 80 HHC is altogether on a different basis. Even if it were to be held, there is a double benefit to the assessee, the same is not prohibited under law. Once the assessee has earned that income in the course of his export business, clause (i) of explanation (baa) is not attracted, it does not fall within one of the categories specifically provided under that provision and therefore the said amount cannot be deducted in computing profits of the business as rightly held by the Tribunal. Therefore, he submits that no case for interference is made out.

5. Therefore,