The main legal point established in the judgment is that certain receipts, such as re-treading charges, should be considered as part of the business profits for the purpose of computing deductions under Section 80HHC of the Income Tax Act.

(P.P.S. Janarathana Raja, J.)

1. The Revenue has come up on appeal as against the order of the Income Tax Appellate Tribunal, Chennai 'C' Bench dated 25.06.2004 passed in ITA.No.1070/Mds/96. When the matter came up before this Court, this court admitted the Tax Case (Appeal) on the following substantial question of law:-

"1. 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 Income-tax Act directing the Assessing Officer to recompute the deduction under section 80HHC excluding 90% of retreading charges and other miscellaneous receipts from the profits of business in terms of explanation (baa) to Section 80 HHC of the Act?"

2. The brief facts of the Tax Case (Appeal) are as under:-

The assessment year was 1992-93 and corresponding year ended on 31.03.1992. The assessee is a company and is engaged in the business of Tyre re-treading. The Assessing Officer completed the original assessment under Section 143(3) of the Income Tax Act on 10.01.1993 and determined the taxable income at Rs.4,33,410/-. Subsequently, a revision order was passed by the Assessing Officer by giving effect to the order of the Commissioner of Income Tax (Appeal) and determined the revised total income of Rs.3,67,19,940/-. Subsequently, the Commissioner of Income-Tax, passed the order under Section 263 of the Income Tax Act on the ground that the assessment made by the Assessing Officer was erroneous and prejudicial to the interest of the revenue since the Assessing Officer has not excluded 90% of 11 items of receipts from profits of the business under Explanation (baa) to Section 80 HHC while allowing the deduction under Section 80 HHC of the Income Tax Act. Hence, the Commissioner of Income Tax set aside the assessment with a direction to the Assessing Officer to recompute the deduction under Section 80 HHC of the Income Tax Act after excluding 90% of 11 items of receipts aggregating to Rs.3,52,97,412/-. Aggrieved by that, the Assessee filed an appeal before the Appellate Tribunal. The Income Tax Appellate Tribunal following the Bombay High Court judgment in CIT Vs. Bangalore Clothing Co (2003) (260 ITR 371) allowed the assessee's appeal. Aggrieved by the same, the Revenue filed the present appeal.

3. Learned Counsel appearing for the Revenue submitted that the order passed by the Tribunal is wrong, illegal and without justification and further submitted that the Tribunal ought to have noticed that the re-treading charges had to be considered as miscellaneous income and 90% of such income had to be excluded while computing profit for deduction under Section 80 HHC in view of Explanation (baa) to Section 80 HHC. The said explanation defines the expression "profits of the business" for the purposes of Section 80 HHC to mean profits of the business as computed under Section 28 of the Act as reduced by 90% of any sum referred to in clause (iiia), (iiib) and (iiiic) of Section 28 or receipts by way of brokerage, commissioner, interest, rent charges or any other receipt of a similar nature included in such profits. Therefore, it was contended that the Tribunal ought to have held that the re-treading charge would come under "any other receipt of a similar nature included in such profits" and therefore, contended that the order passed by the Tribunal is not in accordance with law and the same has to be set aside.

4. Learned counsel appearing for the assessee contended that the re-treading charges cannot be excluded while computing profit for deduction under Section 80 HHC of the Act. It was further contended that the re-treading is the main business activity of the company and these receipts are part and parcel of business income and do not require to be excluded from the computation under Section 80 HHC. It is further contended that the Tribunal has correctly followed the Bombay High Court Judgment reported in (2003) (260 ITR