Per Dr. O.K. Narayanan, A.M. - This appeal relating to the assessment year 1993-94 is filed at the instance of the Revenue. The appeal is filed against the order of the CIT(A), Kochi, dated 15-10-1997 and arises out of the regular assessment completed under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act).

2. The respondent-assessee is a company engaged in the business of manufacturing spices products, such as oleoresins, essence and other items and exporting them to outside India. The assessee-company also supplies such manufactured products to other companies on a job work basis. The assessee belongs to the Synthite Group of Companies, who are one of the largest exporters of spices products in the country. It is also said that the assessee has received certificate of Honour from the Spices Board for its export performance and holds the quality assurance mark of ISO 9002.

3. As the assessee is an exporter of spices products as stated above, it has been claiming the benefits available under section 80HHC of the Act on a regular basis from year to year. The claim of the assessee has been consistently accepted and allowed by the Department. For the impugned assessment year 1993-94, the assessee has claimed a deduction of Rs. 5,83,375 by way of such benefits available under section 80HHC of the Act. The profit of the business carried on by the assessee was Rs. 10,22,835 as per its profits and loss account. The adjusted profit worked out by the assessee for income-tax purpose was Rs. 10,70,012. In the course of carrying on of the business, the assessee also received a sum of Rs. 19,90,260.40 in the nature of drying/grinding/distillation charges collected from other companies for undertaking job work production. While examining the claim of the assessee towards the deduction of benefit available under section 80HHC, the Assessing Officer made a reference to clause (baa) of Explanation given to section 80HHC. Particularly referring to sub-clause (i) of the above clause (baa), the Assessing Officer observed that the drying/grinding/distillation charges credited in the trading account of the assessee had to be deleted from the profit of the assessee computed under the head "profits and gains of business or profession" for the purpose of working out the "profits of business". He pointed out that the deduction has to be made to the extent of 90 per cent of such receipts. The Assessing Officer held that this has become necessary for the reason that any amount received by the assessee by way of "charges" need to be reduced to the extent of its 90 per cent from the profit of the assessee-company. The Assessing Officer pointed out that the reduction of such charges is provided by the Act for the purpose of eliminating non-business receipts from the computation of the profits of the business entitled for the benefits under section 80HHC.

4. Sub-section (3) of section 80HHC fixes the quantum of deduction on the basis of a proportion of the profits of the business under the head "profits and gains of business or profession". The formula to arrive at the proportion is :

5. Therefore, to work out the quantum of deduction under section 80HHC, it is necessary to work out the "profits of the business" of the assessee. The "profits of business" has been explained in clause (baa) of the Explanation given under section 80HHC of the Act. It is in these circumstances that the Assessing Officer had to first quantify the profits of the assessee’s business as defined in the Explanation, for the purpose of computing the quantum of benefit under section 80HHC.

6. The Assessing Officer pointed out that as the sum of Rs. 19,90,260.40 was in the nature of "charges" (by way of drying/grinding/distillation) as explained in sub-clause (i) of clause (baa), 90 per cent of the said sum has to be deducted from the profits of the business as worked out by the ass