F.I. Rebello, J.
1. Notice was served on the respondent that the matter would be finally decided. None present for the respondent.
The Revenue has preferred this appeal on the following question:
The question is whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal erred in allowing the claim made by the assessee under Section 80HHC to the extent of Rs. 3,45,120?
2. In the instant case, the respondent preferred an appeal against the order of the Assessing Officer before the Commissioner (Appeals). The Commissioner (Appeals) held that the export profits for the purpose of deduction under Section 80HHC(1) shall be the profit related to the export of goods manufactured by the respondent computed by allocating over all profits of the business in the ratio of export turnover of the manufactured goods to the total turnover of the manufactured goods. The Commissioner (Appeals) also noted that the working of profit for the purpose of deduction under Section 80HHC(1) of the Income-tax Act has been introduced by the Finance (No. 2) Act 1991, and the provision has been clarified by the Board's Circular No. 621, dated December 19, 1991 (see [1992] 195 ITR 154) and that the Explanation below Section 80HHC(4B) gives the definition of export turnover as well as the total turnover. Bearing these definitions and other aspects, it held that the receipts shown by way of development charges does not form part either of export turnover or the total turnover. The Commissioner (Appeals) took note of the purpose of computation of export profits, the profits on business has also been defined in the Explanation where in arriving at the said profits 90 per cent, of, inter alia, other receipts have to be excluded. It then held that in the light of the definition, it is clear that since the development charges does not fall within the ambit of export turnover and total turnover, from the profits of the business as well as 90 per cent, of receipts by way of development charges has to be excluded and upheld the order of the Assessing Officer.
3. In appeal preferred by the respondent herein the learned Tribunal was pleased to hold that the assessee is a manufacturer of machineries and equipments necessary for power plants. In addition to manufacturing, the assessee-company is also rendering technical services to domestic as well as overseas customers and matters regarding the improvement and the performance of the machineries and equipments sold by the assessee and also giving professional advice to the customers and others regarding the optimum performance of the connected machineries and the development charges and service charges are collected by the assessee against rendering of such services. The Tribunal held that the consultancy and advisory activities carried on by the assessee is part and parcel of the business and, therefore, the Assessing Officer was not justified in excluding 90 per cent, of such charges from the computation of eligible business profits for the purpose of Section 80HHC and accordingly directed the assessing authority to compute the benefits available to the assessee under Section 80HHC without excluding the development and service charges from the computation of the business profits of the assessee-company.
4. On behalf of the appellant, learned Counsel points out that the benefit of Section 80HHC is only in respect of export turnover of manufactured products. Development charges and service charges would, therefore, be not entitled, though may be part of the business of the assessee. The issue, it is pointed out, is no longer res integra having been covered by the judgment of the Supreme Court. In CIT v. K. Ravindranathan Nair [2007] 295 ITR 228, the Supreme Court was considering the case where the manufacturer was manufacturing the goods and exporting them and also was processing the goods based on work contracts. It was contended before the Supreme Court that Section 80HHC(3) had granted export incentives only in respect of receipts in foreign exchange from sale of goods and from processing provided such processing was done to goods which the taxpayer exported. What was charged from third parties was not includible for the total deduction even though such charges were includible in the business profits. After considering the contention advanced the Supreme Court held that in the context of Section 80HHC the total turnover referred to sales and purchase turnover and it did not include receipts in the nature of income which income was not attributable to sales. It further held that the processing charges, which was part of gross total income, was an independent income like rent, commission, brokerage, etc., and, therefore, 90 per cent, of the said sum had to be reduced from the gross total income to arrive at the business profits. The court then observed as under (page 241) :
In other words, receipts constituting independent income having no nexus with exports were required to be reduced from business profits under Clause (baa). A bare reading of Clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc., formed part of gross total income being business profits. But for the purposes of working out the formula and in order to avoid distortion of arriving at the export profits, Clause (baa) stood inserted to say 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. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the Income-tax Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the Government, shall not be included in the total turnover in the above formula see CIT v. Lakshmi Machine Works : [2007]290ITR667(SC) .
5. Applying the ratio of the aforesaid judgment, we are clearly of the opinion that the income from development charges and service charges would not fall and the assessee would not be entitled to the benefit under Section 80HHC(3) and it had to be computed based on 90 per cent, exclusion. The learned Tribunal, therefore, erred in law in reversing the order of the Commissioner (Appeals).
6. For the aforesaid reasons we set aside the order of the learned Income-tax Appellate Tribunal and restore the order of the Commissioner (Appeals). Appeal accordingly disposed of.