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Whether net amount of interest paid by the assessee liable to be treated as part of export business?
1.Under the provisions of section 80HHC of the Income-tax Act, 1961, 100 percent. deduction is allowed to exporters in respect of profits derived from export of goods or merchandise. As a measure to provide incentive to supporting manufacturers selling goods or merchandise to an export house/trading house for export, the benefit of deduction under section 80HHC was extended with effect from 1st April, 1989 to such supporting manufacturers.
2.The essential ingredients of section 80HHC are as follows:
(i) The assessee should be an Indian company or a person (other than a company) resident in India.
(ii) He should be engage in the business of export out of India of any goods or merchandise (other than mineral oils, minerals and ores);
(iii) The deduction is also available to a supporting manufacturer who has sold his goods or merchandise to an export house/trading house provided the export house/trading house has issued a disclaimer certificate in respect of the “export turnover” in Form No. 10CCAB. The term “supporting manufacturer” shall, with effect from the assessment year 1991-92, include a processor of goods. Thus, a seafood processor, for example, or any other processing unit exporting goods or merchandise through an export house/trading house, will now be eligible to claim deduction under section 80HHC on the condition that he obtains a disclaimer certificate from the export house/trading house;
(iv) Under the existing provisions, deduction under section 80HHC is allowed if the sale proceeds are receivable in convertible foreign exchange. With effect from the assessment year 1991-92, the deduction under this section shall be allowed only if the sale proceeds are received in or brought into India within a period of six months from the end of the relevant previous year. However, in case of genuine hardship, the Chief Commissioner or the Commissioner may allow further time for the remittance of foreign exchange if he is satisfied that the assessee was unable to bring the foreign exchange within the period of six months for reasons beyond his control. While allowing further period in this regard, the Chief Commissioner or the Commissioner shall record reasons for the same in writing;
(v) The deduction shall be of the profits derive by the assessee from the export of goods or merchandise. What constitutes “Profits derived from the export of goods of merchandise out of India”, has been defined in sub-section (3) of section 80HHC. This sub-section (3) lays down that the profits derived from the export of goods or merchandise shall be the amount which bears to the profits of the assessee (as computed under the head “Profits and gains of business or profession”) the same proportion as the “export turnover” bears to the “total turnover” of the business carried on by the assessee.
Deduction under sec. 80HHC
Whether net amount of interest pay by the assessee liable to be treat as part of export business?
My client is a proprietor of M/s.ABC & Co. He has 100% export sale under M/s.ABC & Co. during the year 1991-92. He has surplus fund in this company which he has given on interest to some parties. He also enjoys credit facility from bank on which he has paid interest. During the year interest take was Rs.4,000 and interest pay 9,000. He keeps only an interest account and accordingly net interest of Rs.5,000 is taken as expenditure in the P&L A/c. He has profit of Rs.60,000 during the year as per P&L A/c. We think that interest received on funds given on interest should not be considere as income from export business and hence net income from export business should calculated like this :
|Net profit as per P&L A/c
|Add : Interest income adjusted from interest paid
|Income from export
Sec. 80HHC lays down that the assessee carrying on export business to which the above section is applicable shall be entitle to claim deduction under that section for the amount of interest paid by him on the capital borrowed for the purpose of business. It must be noted that the deduction u/s 80HHC is provide to an assessee in respect of profits derived by an assessee from the business of export of goods out of India. In the case of the querist the assessee has claimed deduction of Rs. 4,000 in the computation of the profits of the business carried on by him.
The amount of interest paid by the assessee in the course of business was Rs. 9,000 and the amount of interest received by him was Rs. 4,000. The amount of interest received by the assessee does not appear to be receipt in the course of export business. Since the amount of interest paid by the assessee is Rs. 9,000 the same should have been claim as deduction in the computation of profits from the export business. In absence of full particular about the receipt of interest of Rs. 4,000 it is presume that the above income from interest was not derive out of the export business. The deduction under s. 80HHC should be compute as under :
|Net profit of business as per account book
|Interest claimed as expenditure to be considered separately
|Profit of the business
|Interest paid in the course of Export Business
|Net export profit
|Interest not being receipt of business to be chargeable to tax