M/S ACG ASSOCIATED CAPSULES PVT. LTD.versusTHE COMMISSIONER OF INCOME TAX, CENTRAL-IV, MUMBAI

                    [2012] 2 S.C.R. 401


    M/S ACG ASSOCIATED CAPSULES PVT. LTD.                       A
 (FORMERLY M/S ASSOCIATED CAPSULES PVT. LTD.)
                             v.
 THE COMMISSIONER OF INCOME TAX, CENTRAL-IV,
                     MUMBAI
         (Civil Appeal No. 1914 of 2012)                        B

                   FEBRUARY 08, 2012 .

        [S.H. KAPADIA, CJI, A.K. PATNAIK AND
               SWATANTER KUMAR, JJ.]
                                                                c
     Income Tax Act, 1961: s.BOHHC, Explanation (baa) -
Deduction under - Held: Ninety per cent of the net interest,
which has been included in the profits of the business of the
assessee as computed under the head 'Profits and Gains of
Business or Profession' is to be deducted under clause (1)      D
of Explanation (baa) to s. BOHHC for determining the profits
of the business.
                                  !
     The question which arose for consideration in the
instant appeals was whether while determining the
profits of the business as defined in Explanation (baa) to      E
Section 80HHC of the Income Tax Act, 1961, ninety per
cent of only the net interest which has been included in
the profits of the business of the assessee as computed
under the head 'Profits and Gains of Busniness and
Profession' would be excluded for the purpose of                F
working out the deduction under Section 80HHC of the
Act.

    Disposing of the appeals, the Court
                                                                G
    HELD: 1. Explanation (baa) to Section 80HHC of the
Income Tax Act, 1961 states that "profits of the business"
means the profits of the business as computed under the
head "Profits and Gains of Business or Profession" as
                            401                                 H
        402     SUPREME COURT REPORTS            [2012] 2 S.C.R.

1
    A reduced by the receipts of the nature mentioned in
      clauses (1) and (2) of the Explanation (baa). Thus, profits
      of the business of an assessee will have to be first
      computed under the head "Profits and Gains of Business
      or Profession" in accordance with provisions of Section
    B 28 to 440 of the Act. In the computation of such profits
      of business, all receipts of income which are chargeable
      as profits and gains of business under Section 28 of the
      Act will have to be included. Similarly, in computation of
      such profits ·of business, different expenses which are
    C allowable under Sections 30 to 440 have to be allowed
      as expenses. After including such receipts of income and
      after deducting such expenses, the total of the net
      receipts are profits of the business of the assessee
      computed under the head "Profits and Gains of Business
      or Profession" from which deductions are to made under
    0
      clau~es (1) and (2) of Explanation (baa). [Para 9) [409-E-
      H; 410-A]
             2. Under Clause (1) of Explanation (baa), ninety per
        cent of any receipts by way of brokerage, commission,
    E   interest, rent, charges or any other receipt of a similar
        nature included in any such profits are to be deducted
        from the profits of the business as computed under the
        head "Profits and Gains of Business or Profession". The
        expression "included any such profits" in clause (1) of
    F   the Explanation (baa) would mean only such receipts by
        way of brokerage, commission, interest, rent, charges or
        any other receipt which are included in the profits of the
        business as computed under the head "Profits and Gains
        of Business or Profession". Therefore, if any quantum of
    G   the receipts by way of brokerage, commission, interest,
        rent, charges or any other receipt of a similar nature is
        allowed as expenses under Sections 30 to 440 of the Act
        and is not included in the profits of business as
        computed under the head "Profits and Gains of Business
    H   or Profession", ninety per cent of such quantum of
 ACG ASSOCIATED CAPSULES PVT. LTD. v. COMMNR. OF 403
         INCOME TAX, CENTRAL-IV, MUMBAI
receipts cannot be reduced under Clause (1) of                   A
Explanation (baa) from the profits of the business. In
other words, only ninety per cent of the net amount of any
receipt of the nature mentioned in clause (1) which is
actually included in the profits of the assessee is to be
deducted from the profits of the assessee for determining        B
"profits of the business" of the assessee under
Explanation (baa) to Section SOHHC. [Para 10] [410-B-F]

    3. In "Distributors (Baroda) P. Ltd. v. Union of India and
Others the Constitution Bench of this Court held that
 Section SOM of the Act provided for deduction in respect
                                                                 c
 of certain intercorporate dividends and it provided in sub-
 section (1) of Section SOM that "where the gross total
 income of an assessee being a company includes any
 income by way of dividends received by it from a
 domestic company, there shall, in accordance with and           D
 subject to the provisions of this Section, be allowed, in
 computing the total income of the assessee, a deduction
 from such income by way of dividends an amount equal
 to" a certain percentage of the income mentioned in this
 Section. The Constitution Bench held that the Court must        E
 construe Section SOM on its own language and arrive at
 its true interpretation according to the plain natural
 meaning of the words used by the legislature and .so
 construed the words "such income by way of dividends"
 in sub-section (1) of Section SOM must be referable not         F
 only to the category of income included in the gross total
 income but also to the quantum of the income so
 included. Similarly, Explanation (baa) has to be construed
 on its own language and as per the plain natural meaning
 of the words used in Explanation (baa), the words               G
 "receipts by way of brokerage, commission, interest,
 rent, charges or any other receipt of a similar nature
·included in such profits" will not only refer to the nature
 of receipts but also the quantum of receipts included in
                                                                 H
    404       SUPREME COURT REPORTS                [2012] 2 S.C.R.


A the profits of the business as computed under the head
  "Profits and Gains of Business or Profession" referred
  to in the first part of the Explanation (baa). Accordingly,
  if any quantum of any receipt of the nature mentioned in
  clause (1) of Explanation (baa) has not been included in
B the profits of business of an assessee as computed under
  the head "Profits and Gains of Business or Profession",
  ninety per cent of such quantum of the receipt cannot be
  deducted under Explanation (baa) to Section 80HHC.
  Therefore, if the rent or interest is a receipt chargeable
c as profits and gains of business and chargeable to tax
  under Section 28 of the Act, and if any quantum of the
  rent or interest of the assessee is allowable as an
  expense in accordance with Sections 30 to 440 of the Act
  and is not to be included in the profits of the business of
  the assessee as computed under the head "Profits and
0
  Gains of Business or Profession", ninety per cent of such
  quantum of the receipt of rent or interest will not be
  deducted under clause (1) of Explanation (baa) to Section
  80HHC. In other words, ninety per cent of not the gross
E rent or gross interest but only the net interest or net rent,
  which has been included in the profits of business of the
  assessee as computed under the head "Profits and Gains
  of Business or Profession", is to be deducted under
  clause (1) of Explanation (baa) to Section 80HHC for
  determining the profits of the business. [Para 11, 12] (410-
F G-H; 411-A-H; 412-A-B]

          *Distributors (Baroda) P. Ltd. v. Union of India and Others
    (1985) 155 ITR 120 .- Followed.
G       Commissioner of Income- Tax v. ·Shri Ram Honda Power
    Equip (2007) 289 ITR 475 (Delhi) - approved

        Commissioner of Income- Tax v. Asian Star Co. Ltd.
    (2010) 326 ITR 56 (Born); Commissioner of Income- Tax v.
    Gokuldas Exports, etc. (2011 )· 333 ITR 214 (Karn);
H
ACG ASSOCIATED CAPSULES PVT. LTD. v. COMMNR. OF           405
        INCOME TAX, CENTRAL-IV, MUMBAI

Commissioner of Income- Tax v. K. Ravindranathan Nair            A
(2007) 295 ITR 228 (SC) - referred to.

                     Case Law Reference:
    (2007) 289 ITR 475 (Delhi) approved            Para 3
                                                                 B
    (2010) 326 ITR 56 (Born)       referred to     Para 3

    (1985) 155 ITR 120             followed        Para 5

    (2011) 333 ITR 214 (Karn) referred to          Para 5

    (2007) 295 ITR 228 (SC)        referred to     Para 14       C

    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1914 of 2012.

    From the Judgment & Order dated 6.8.2010 of the High
Court of Judicature at Bombay in ITA (Lodg.) No. 1276 of 2010.   D

                          . WITH

C.A. No. 4534 of 2008.

    Rashmikumar Manilal Vithlani for the Appellant.
                                                                 E

    B.V. Bairam Das, N. Ganpathy for the Respondent.

    The Judgment of the Court was delivered by
                                                                 F
    A.K. PATNAIK, J.

    CIVIL APPEAL No. OF 2012

    (Arising out of SLP (C) No. 32450 of 2010)
                                                                 G
    1. Leave granted.

    2. This is an appeal against the judgment and order dated
06.08.2010 of the Bombay High Court in ITA(L) No. 1276 of
2010 deciding two issues against the assessee. On the first
issue, the High Court has held, relying on its judgment in       H
    406      SUPREME COURT REPORTS               [2012] 2 S.C.R.


A  Commissioner of the Income Tax vs. Kalpataru Colours and
   Chemicals (ITA(L) 2887 of 2009), that the entire amount
   received by an assessee on sale of the Duty Entitlement Pass
   Book (for short 'the DEPB') represents profit on transfer of
   DEPB under Section 28(iiid) of the Income Tax Act, 1961 (for
B short 'the Act'). We have already decided this issue in favour
   of the assessee in a separate judgment in M/s Topman Exports
  ·vs. Commissioner of Income Tax, Bombay, and other connected
   matters and we have held that not the entire amount received
   by the assessee on sale of DEPB, but the sale value less the
c face value of the DEPB will represent profit on transfer of
   DEPB by the assessee. The first issue is, therefore, decided
   accordingly.

        3. For appreciating the second issue, we may refer very
  briefly to the facts of the case. For the assessment year 2003-
D 04, the assessee filed a return of income claiming a deduction
   of Rs.34,44,24,827/- under Section 80HHC of the Act. The
  Assessing Officer passed the assessment order deducting
   ninety per cent of the gross interest and gross rent received
  from the profits of business while computing the deduction under
E Section 80HHC and accordingly restricted the deduction under
   Section 80HHC to Rs.2,36,25,053/-. The assessee filed an
  appeal against the assessment order before the Commissioner
  of Income-Tax (Appeals), who confirmed the order of the
  Assessing Officer excluding ninety per cent of the gross interest
F and gross rent received by the assessee while computing the
  profits of the business for the purposes of Section 80HHC.
  Aggrieved, the assessee filed an appeal before the Income Tax
  Appellate Tribunal (for short 'the Tribunal'). The Tribunal held,
  relying on the decision of the Delhi High Court in
G Commissioner of Income- Tax v. Shri Ram Honda Power
  Equip [(2007) 289 ITR 475 (Delhi)], that netting of the interest
  could be allowed if the assessee Is able to prove the nexus
  between the interest expenditure and interest income and
  -remanded the matter to the file of the Assessing Officer. The
H Tribunal also remanded the issue of netting of the rent to the
 ACGASSOCIATED CAPSULES PVT. LTD. v. COMMNR. OF 407
   INCOME TAX, CENTRAL-IV, MUMBAI [AK. PATNAIK, J.)

Assessing Officer with the direction to find out whether the         A
assessee has paid the rent on the same flats against which rent
has been received from the staff and if such rent was paid then
such rent is to be reduced from the rental income for the
purpose of exclu.sion of business income for computing the
deduction under Section 80HHC. Against the order of the              B
Tribunal, the Revenue filed an appeal before the High Court and
the High Court has directed that on remand the Assessing
Officer will decide the issue in accordance with the judgment
of the High Court in Commissioner of Income-Tax v. Asian
Star Co. Ltd. [(2010) 326 ITR 56 (Born)] in which it has been        c
held that while determining the profits of the business as
defined in Explanation (baa) to Section 80HHC, ninety per cent
of the gross receipts towards interest and not ninety per cent
of the net receipts towards interest on fixed deposits in banks
received by the assessee would be excluded for the purpose           0
of working out the deduction under Section 80HHC of the Act.

     4. Learned counsel for the appellant submitted that it will
be clear from the Explanation (baa) that ninety per cent of any
receipts by way of brokerage, commission, interest, rent,
charges or any other receipt of a similar nature included in such    E
profits will be excluded for determining the profits and gains of
business or profession. He argued that as the net receipts and
not the gross receipts towards interest and rent are included
in profits and gains of business or profession, ninety per cent
of such net interest and net rent and not ninety per cent of gross   F
interest and gross rent are to be excluded for determining the
profits of the business under Explanation (baa) to Section
80HHC of the Act.

     5. In support of this argument, learned counsel for the         G
appellant relied on the decision of this Court in Distributors
(Baroda) P. Ltd. v. Union of India and Others [(1985) 155 ITR
120) in which a Constitution Bench of this Court has held that
only the dividends computed in accordance with the provisions
of the Act, which is included in the gross total income of the       H
    408       SUPREME COURT REPORTS                [2012] 2 S.C.R.


A domestic company, shall be taken into account for working out
  the relief under Section SOM of the Act. He cited the judgment
  in Commissioner of Income- Tax v. Shri Ram Honda Power
  Equip (supra) in which the Delhi High Court has taken a view
  that the word 'interest' in Explanation (baa) to Section 80HHC
B connotes 'net interest' and not 'gross interest' and, therefore,
  in deducting such interest, the Assessing Officer will have to
  take into account the net interest, i.e. gross interest as reduced
  by expenditure incurred for earning such interest. He submitted
  that the Karnataka High Court in Commissioner of Income-Tax
c v. Gokuldas Exports, etc. [(2011) 333 ITR 214 (Karn)] has
  taken a similar view relying on the decision of the High Court
  in Commissioner of Income- Tax v. Shri Ram Honda Power
  Equip (supra).

       6. Learned counsel for the appellant referred to the
D Memorandum to Finance (No.2) Bill, 1991 explaining the
  rationale of Explanation (baa) in which inter alia it is stated that
  as some expenditure might be incurred in earning such
  incomes, which in the generality of cases is part of common
  expenses, and thus ad-hoc 10 per cent deduction from such
E incomes have been provided for to account for these expenses.
  He submitted that the High Court has not correctly appreciated
  the Memorandum and has held, relying on the Memorandum,
  that gross interest and gross rent have to be deducted under
  Explanation (baa) to Section 80HHC to avoid a distorted figure
F of export profits.

       7. Learned counsel for the Revenue, on the other hand,
  relied on the reasons given by the Bombay High Court in
  Commissioner of ·income-Tax v. Asian Star Co. Ltd. (supra)
G and submitted that the Bombay High Court has rightly held that
  ninety per cent of the gross amount received towards interest
  and rent have to be excluded from the profits and gains of
  business for computing the profits of the business as defined
  in Explanation (baa) to Section 80HHC of the Act. He also
  relied on the Memorandum to the Finance (No.2) Bill 1991 in
H support of his submission that ninety per cent of the gross
ACG ASSOCIATED CAPSULES PVT. LTD. v. COMMNR. OF 409
  INCOME TAX, CENTRAL-IV, MUMBAI [AK. PATNAIK, J.]
interest and gross rent has to be deducted from the profits of              A
the assessee under Explanation (baa).

     8. Before we deal with the contentions of learned counsel
for the parties, we may extract Explanation (baa) to Section
80HHC of the Act.                                                           B
     "Explanation:- For the purposes of this section,-

     (baa) "profits of the business" means the profits of the
     business as computed under the head "Profits and gains
     of business or profession" as reduced by-                              C

      (1)    ninety per cent of any sum referred to in clauses
            (iiia), (iiib), (iiic), (iiid) and (iiie) of Section 28 or of
            any receipts by way of brokerage, commission,
            interest, rent, charges or any other receipt of a
                                                                            0
            similar nature included in such profits; and

      (2)   the profits of any branch, office, warehouse or any
            other establishment of the assessee situate outside
            India".
                                                                            E
     9. Explanation (baa) extracted above states that "profits
of the business" rr.eans the profits of the business as computed
under the head "Profits and Gains of Business or Profession"
as reduced by the receipts of the nature mentioned in clauses
(1) and (2) of the Explanation (baa). Thus, profits of the business
                                                                            F
of an assessee will have to be first computed under the head
"Profits and Gains of Business or Profession" in accordance
with provisions of Section 28 to 440 of the Act. In the
computation of such profits of business, all receipts of income
which are chargeable as profits and gains of business under
Section 28 of the Act will have to be included. Similarly, in               G
computation of such profits of business, different expenses
which are allowable under Sections 30 to 44D have to be
allowed as expenses. After including such receipts of income
and after deducting such expenses, the total of the net receipts
are profits of the business of the assessee computed under tile             H
   410       SUPREME COURT REPORTS                [2012] 2 S.C.R.

A head "Profits and Gains of Business or Profession" from which
  deductions are to made under clauses (1) and (2) of
  Explanation (baa).

       10. Under Clause (1) of Explanation (baa), ninety per cent
B of.any receipts by way of brokerage, commission, interest, rent,
  charges or any other receipt of a similar nature included in any
  such profits are to be deducted from the profits of the business
  as computed under the head "Profits and Gains of Business
  or Profession". The expression "included any such profits" in
  clause (1) of the Explanation (baa) would mean only such
C receipts by way of brokerage, commission, interest, rent,
  charges or any other receipt which are included in the profits
  of the business as computed under the head "Profits and Gains
  of Business or Profession". Therefore, if any quantum of the
  receipts by way of brokerage, commission, interest,. rent,
D charges or any other receipt of a similar nature is allowed as
  expenses under Sections 30 to 440 of the Act and is not
  included in the profits of business as computed under the head
  "Profits and Gains of Business or Profession", ninety per cent
  of such quantum of receipts cannot be reduced under Clause
E (1) of Explanation (baa) from the profits of the business. In other
  words, only ninety per cent of the net amount of any receipt of
  the nature mentioned in clause (1) which is actually included in
  the profits of the assessee is to be deducted from the profits
  of the assessee for determining "profits of the business" of the
F assessee under Explanation (baa) to Section SOHHC.

        11. For this interpretation of Explanation (baa) to Section
  SOHHC of the Act, we rely on the judgment of the Constitution
  Bench of this Court in Distributors (Baroda) P. Ltd. v. Union
G of India and Others (supra). Section SOM of the Act provided
  for deduction in respect of certain intercorporate dividends and
  it provided in sub-section (1) of Section SOM that "where the
  gross total income of an assessee being a company includes
  any income by way of dividends received by it from a domestic
H company, there shall, in accordance with and subject to the ..
 ACG ASSOCIATED CAPSULES PVT LTD. v. COMMNR. OF 411
   INCOME TAX, CENTRAL-IV, MUMBAI [AK. PATNAIK, J.]

provisions of this Section, be allowed, in computing the total         A
income of the assessee, a deduction from such income by way
of dividends an amount equal to" a certain percentage of the
income mentioned in this Section. The Constitution Bench held
that the Court must construe Section 80M on its own language
and arrive at its true interpretation according to the plain natural   B
meaning of the words used by the legislature and so construed
the words "such income by way of dividends" in sub-section ( 1)
of Section SOM must be referable not only to the category of
income included in the gross total income but also to the
quantum of the income so included. Similarly, Explanation (baa)        c
has to be construed on its own language and as per the plain
natural meaning of the words used in Explanation (baa), the
words "receipts by way of brokerage, commission, interest, rent,
charges or any other receipt of a similar nature included in such
profits" will not only refer to the nature of receipts but also the
                                                                       0
quantum of receipts included in the profits of the business as
computed under the head "Profits and Gains of Business or
Profession" referred to in the first part of the Explanation (baa).
Accordingly, if any quantum of any receipt of the nature
mentioned in clause (1) of Explanation (baa) has not been
included in the profits of business of an assessee as computed
                                                                       E
under the head "Profits and Gains of Business or Profession",
ninety per cent of such quantum of the receipt cannot be
deducted under Explanation (baa) to Section 80HHC.

      12. If we now apply Explanation (baa) as interpreted by us F
in this judgment to the facts of the case before us, if the rent or
interest is a receipt chargeable as profits and gains of business
and chargeable to tax under Section 28 of the Act, and if any
quantum of the rent or interest of the assessee is allowable as·
an expense in accordance with Sections 30 to 440 of the Act G
and is not to be included in the profits of the business of the
ass~ssee as computed under the head "Profits and Gains of
Business or Profession", ninety per cent of such quantum of the
receipt of rent or interest will not be deducted under clause (1)
of Explanation (baa) to Section 80HHC. In other words, ninety H
        412   SUPREME COURT REPORTS              [2012] 2 S.C.R.


A per cent of not the gross rent or gross interest but only the net
   interest or net rent, which has been included in the profits of
   business of the assessee as computed under the head "Profits
   and Gains of Business or Profession" ,,is to be deducted under
   clause ('1) of Explanation (baa) fo Section 80HHC for
B 'determining the profits of the business.              ·

       13. The view that we have taken of Explanation {baa) tO
  Section 80HHC is also the view of the Delhi High' Court in
  Commissioner of Income- Tax v. Shri Ram Honda Power
  Equip (supra) and the Tribunal in the present case has followed
C the judgment of the Delhi High Court. On appeal being filed by
  the Revenue against the order of the Tribunal, the High Court
  has set aside the order of the Tribunal and directed the
  Assessing Officer to dispose of the issue in accordance with
  the judgment of the Bombay High Court in Commissioner of
D lncome-rax v. Asian Star Co. Ltd. (supra). We must, thus,
  examine whether reasons given by the High Court in its
  judgment in Commissioner of Income-Tax v. Asian Star Co.
  Ltd. (supra) were correct in law.

E        14. On a perusal of the judgment of the High Court in
   Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra),
   we find that the reason which weighed with the High Court for
   taking a different view, is that rent, commission, interest and
   brokerage do not possess any nexus with export turnover and,
F ·therefore, the inclusion of such items in the profits of the
   business would result in a distortion of the figure of export
   profits. The High Court has relied on a decision of this Court
   in Commissioner of Income-Tax v. K. Ravindranathan Nair
   {(2007) 295 ITR 228 (SC)] in which the issue raised before this
G Court was entirely different from the issue raised in this case.
   In that case, the assessee owned a factory in whiGh he
   processed cashew nuts grown in his farm and he exported the
   cashew nuts as an exporter. At the same time, the assessee
   processed cashew nuts which were supplied to him by
H exporters on job work basis and he collected processing
   charges for the same. He, however, did not include such
 itJ.
ACG ASSOCIATED CAPSULES PVT. LTD. v. COMMNR. OF              413
  INCOME TAX, CENTRAL-IV, MUMBAI [A.K. PATNAIK, J.]
processing charges collected on job work basis in his total          A
turnover for the purpose of comp.uting the deduction under
Section 80HHC (3) of the Act and as a result this turnover of
collection charges was left out in the computation of profits and
gains of business of the assessee and as a result ninety per
cent of the profits of the assessee arising out of the receipt of    B
processing charges was not deducted under clauses (1) of the
Explanation (baa) to Section 80HHC. This Court held that the
processing charges was included in the gross total income from
cashew. business and hence in terms of Explanation (baa),
ninety per cent of the gross total income arising from processing    c
charges had to be deducted under Explanation (baa) to arrive
at the profits of the business. In this case, this Court held that
the processing charges received by the assessee were part
of the business turnover and accordingly the income arising
therefrom should have been included in the profits and gains
                                                                     0
of business of the assessee and ninety per cent of this income
also would have to be deducted under Explanation (baa) under
Section 80HHC of the Act. In this case, this Court was not
deciding the issue whether ninety per cent deduction is to be
made from the gross or net income of any of the receipts
mentioned in clause (1) of the Explanation (baa).
                                                                     E

     15. The Bombay High Court has also relied on the
Memorandum explaining the clauses of the Finance Bill, 1991
contained in the circular dated 19.12.1991 of the Central Board
of Direct Taxes to come to the conclusion that the Parliament        F
intended to exclude items which were unrelated to the export
turnover from the computation of deduction and while excluding
such items which are unrelated to export for the purpose of
Section 80HHC, Parliament has taken due note of the fact that
the exporter assessee would have incurred such expenditure           G
in earning the profits and to avoid a distorted figure of export
profits, ninety per cent of the receipts like brokerage,
commission, interest, rent, charges are sought to be excluded
from the profits of the business. In our considered opinion, it
was not necessary to refer to the explanatory Memorandum             H
    414      SUPREME COURT REPORTS                [2012] 2 S.C.R.


A when the language of Explanation (baa) to Section 80HHC was
  clear that only ninety per cent of receipts by way of brokerage,
  commission, interest, rent, charges or any other receipt of a
  similar nature included in such profits computed under the head
  profits and gains of business of an assessee could be
B deducted under clause (1) of Explanation (baa) and not ninety
  per cent of the quantum of any of the aforesaid receipts which
  are allowed as expenses and therefore not included in the
  profits of business of the assessee.

       16. In the result, we allow the appeal and set aside the
C impugned order of the High Court and remand the matter to
  the Assessing Officer to work out the deductions from rent and
  interest in accordance with this judgment. No costs.

    CIVIL APPEAL No. 4534 OF 2008
D
         1. This is an appeal against the order dated 19.01.2007
    of the Delhi High Court in l.T.A. No. 541 of 2006.

         2. The facts of this case very briefly are that Bharat
    Rasayan Limited (for short 'the assessee') filed a return of
E   income tax claiming a deduction of Rs.72,76,405/- u~der
    Section 80HHC of the Act. In the assessment order, the
    Assessing Officer held that ninety per cent of the gross interest
    has to be excluded from the profits of the business of the
    assessee under Explanation (baa) to Section 80HHC of the Act
F   and deducted ninety per cent of the gross interest of
    Rs.50,26,284/- from the profits of the business of the assessee.
    The assessee preferred an appeal contending that only ninety
    per cent of the net interest should have been deducted from
    the profits of the business of the assessee under Explanation
G   (baa) to Section 80HHC, but the Commissioner of Income Tax
    (Appeals) rejected this contention of the assessee. Aggrieved,
    the assessee filed an appeal before the Income Tax Appellate
    Tribunal (for short 'the Tribunal') and the Tribunal allowed the
    appeal of the assessee and held that the assessee was entitled
H   to deduct the expenses from the interest received and only
 ACG ASSOCIATED CAPSULES PVf. LTD. v. COMMNR. OF 415
   INCOME TAX, CENTRAL-IV, MUMBAI [A.K. PATNAIK, J.]

ninety per cent of the net amount of interest could be excluded     A
under Explanation (baa) to Section 80HHC and remitted the
matter to the Assessing Officer to examine whether there is
factually an excess between the interest paid and interest
received and take a fresh decision. The Revenue filed an
appeal against the order of the Tribunal before the High Court,     B
but by the impugned order the f:tigh Court following its decision
in Commissioner of Income-Tax v. Shri Ram Honda Power
Equip (supra) sustained the order of the Tribunal and dismissed
the appeal.

     3. We have held in our judgment in the case of Mis ACG         C
Associated Capsules Pvt. Ltd. v. Commissioner of Income
Tax that ninety per cent of not the gross interest but only the
net interest, which has been included in the profits of the
business of the assessee as computed under the heads
'Profits and Gains of Business or Profession' is to be deducted     D
under clause (1) of Explanation (baa) to Section 80HHC for
determining the profits of the business. Since, the view taken
by the High Court in the impugned order is consistent with our
aforesaid view, we find no merit in this appeal and we
accordingly dismiss the same. There shail be no order as to         E
costs.

D.G.                                     Appeals disposed of.