INCOME TAX ACT, 1961

Deduction under section 80HHC- Computation-Labour charges for job-work

Assessee was engaged in the manufacture of jewellery. The spare capacity of the plant and machinery employed in the jewellery manufacturing was utilized by it for manufacturing the jewellery of its clients and customers on job-work basis. It claimed deduction under section 80HHC on account of labour charges received by it for job-work carried out. AO while computing the deduction under section 80HHC had excluded the labour charges from the business profits of the assessee. CIT(A) allowed the deduction to the assessee and directed AO to include the labour charges in the business profits of the assessee for the purpose of computing deduction under section 80HHC. Held:Bombay High Court in CIT v. Bangalore Clothing Co. [2003] 260 ITR 371/ 127 Taxman 637 had held that in case any income earned by the assessee constitutes the operational income, the receipts from the same are includible in the business profits while computing the deduction under section 80HHC. The labour charges received by the assessee for job-work carried out, were in line with manufacturing activity carried on by the assessee, and they constituted operational income and the profits and the receipts from the said labour charges were includible in the business profits of the assessee, while computing the deduction under section 80HHC. Therefore, CIT(A) was justified in accepting the claim of the assessee. [Para 9]

Income Tax Act, 1961 Section 80HHC

Case Law Analysis:CIT v. Bangalore Clothing Co. [2003] 260 ITR 371/ 127 Taxman 637 (Bom.) (Para 9) followed.

Decision: In favour of Assessee.
A.Y. 2001-02

INCOME TAX ACT, 1961

MAT- Book profit under section 115JB-Computation-Treatment of gain on sale of capital asset to Holding company

Assessee-company had transferred some of its capital assets to its holding company during the relevant assessment year and the profit arising on such transfer was credited to the profit and loss appropriation account. It did not include the capital profit arising on transfer of assets to holding company in the book profits, as capital gains arising on such transfer had been specifically excluded from the purview of section 45 by virtue of section 47(v). It claimed that the said capital profit was capital receipt, which did not have any element of income. It also claimed that such capital receipt was not chargeable to tax. Therefore, it claimed that the capital receipt in issue did not form part of its book profits for the purpose of computation of Minimum Alternate Tax (MAT) profit under section 115J. AO disallowed the claim of the assessee included the capital receipts as part of book profits while computing the MAT profit under section 115JB. CIT (A) allowed the claim of assessee and was held that the receipt on transfer of assets to holding company were of non-income category and could not be subjected to tax by invoking the provision of section 115JB. Held:As per section 115JB the companies should be made to pay taxes on the basis of the net profits shown in their profit and loss account. The business profits as declared in the profit and loss account were to be considered by AO for the purpose of computing the MAT profit under section 115JB. The section provides certain adjustments to be made in respect of different sets of income and expenditure. In this case, the assessee was not liable to pay any tax on the gain arising on transfer of its assets to holding company. Such profit was exempt from tax under section 47(v). Though for computing the MAT profit under section 115JB the business profits shown in the profit and loss were to be adopted, yet in case the said profits include certain receipts which were not of income nature, the same were to be excluded before making any calculations in that regard. Further, section 349 of the Companies Act clearly provides that the credit for the profit arising on sale of any immovable property or fixed assets of capital nature should not be taken into profit and loss account, and accordingly, the profits/gains arising on transfer of assets to the holding company were not includible in the profits of the assessee-company. [Para 12]