THE COMMISSIONER OF INCOME TAX vs. M/S ROBERT BOSCH (INDIA)LTD

1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 10th DAY OF OCTOBER 2013 PRESENT THE HON’BLE MR. JUSTICE DILIP B BHOSALE AND THE HON’BLE MR. JUSTICE B MANOHAR ITA.NO.507/2007 c/w ITA.NO.508/2007, ITA.NO.503/2007, ITA.NO.505/2007 IN ITA.NO.507/2007 : BETWEEN : 1. THE COMMISSIONER OF INCOME TAX CENTRAL CIRCLE,C R BUILDING QUEENS ROAD, BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 12(2), BANGALORE.

... APPELLANTS (BY SRI K V ARAVIND, ADV.,) AND : M/S ROBERT BOSCH (INDIA)LTD HOSUR ROAD, KORAMANGALA BANGALORE 560095.

... RESPONDENT (BY SRI K. P. KUMAR, SR. ADV., A/W MISS TANMAYEE RAJKUMAR AND SRI T SURYANARAYANA, ADV.,) R

2 THIS I.T.A. IS FILED U/S.260-A OF I.T.ACT 1961 ARISING OUT OF ORDER DATED 21-12-2006 PASSED IN ITA NO.1700/BANG/2005 FOR THE ASSESSMENT YEAR 1999-2000, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.1700/BANG/2005 DATED 21-12-2006 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-12(2), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA.NO.508/2007 : BETWEEN : 1. THE COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, C R BUILDING QUEENS ROAD, BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 12(2) BANGALORE. ... APPELLANTS (BY SRI K. V. ARAVIND, ADV.,) AND : M/S ROBERT BOSCH (INDIA)LTD HOSUR ROAD, KORAMANGALA BANGALORE 560095. ... RESPONDENT (BY SRI K. P. KUMAR, SR. ADV., FOR KING & PARTRIDGE) THIS ITA IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING

3 OUT OF ORDER DATED 21-12-2006 PASSED IN ITA NO.3425/BANG/2004 FOR THE ASSESSMENT YEAR 2000-01, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND TO ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.3425/BANG/2004 DATED 21-12-2006 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMNR. OF INCOME TAX, CIRCLE-12(2), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA.NO.503/2007 : BETWEEN : 1. THE COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, C R BUILDING QUEENS ROAD, BANGALORE. 2. THE ASSISTANT COMMISISONER OF INCOME TAX CIRCLE 12(2), BANGALORE. ... APPELLANTS (BY SRI K. V. ARAVIND, ADVOCATE) AND : M/S. ROBERT BOSCH HOSUR ROAD, KORAMANGALA BANGALORE – 560095. ... RESPONDENT (BY SRI S. PARTHASARATHI, ADVOCATE) THIS ITA IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 21-12-2006 PASSED IN ITA NO.3427/BANG/2004 FOR THE ASSESSMENT YEAR 2002-03,

4 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND TO ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.3427/BANG/2004 DATED 21-12-2006 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER & CONFIRM THE ORDER PASSED BY THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE-12(2),BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA.NO.505/2007 : BETWEEN : 1. THE COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, C R BUILDING QUEENS ROAD, BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 12(2), BANGALORE. ... APPELLANTS (BY SRI K. V. ARAVIND, ADVOCATE) AND : M/S. ROBERT BOSCH (INDIA)LTD HOSUR ROAD, KORAMANGALA BANGALORE 560095. ... RESPONDENT (BY SRI S. PARTHASARATHI, ADV.,) THIS ITA IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 21-12-2006 PASSED IN ITA NO.3426/BANG/2004 FOR THE ASSESSMENT YEAR 2001-02, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW

5 STATED THEREIN AND TO ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.3426/BANG/2004 DATED 21-12-2006 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMNR. OF INCOME TAX, CIRCLE-12(2), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY.

THESE ITAs COMING ON FOR HEARING, THIS DAY, THE COURT DELIVERED THE FOLLOWING: ORAL JUDGMENT : (Dilip B. Bhosale J.,) These four Income Tax appeals, preferred under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’), are directed against the common order dated 21.12.2006 rendered by the Income Tax Appellate Tribunal, Bangalore Bench ‘B’, (for short ‘the Tribunal’) in ITA Nos.1700/Bang/2005 and 3425-3427/Bang/2004, pertaining to the Assessment years, 1999-2000 to 2002-2003. By this order, all the four appeals filed by the revenue, came to be dismissed. The appeals were directed against the order of learned Commissioner of Income Tax (Appeals)-III, Bangalore, (for short ‘the Appellate Authority’ or ‘AA') dated

6 13.10.2005, whereby the order passed by the Assessing Officer dated 22.01.2004 was set aside. 2. The instant appeals were admitted to consider the substantial question of law framed in the memorandum of appeals. However, with the assistance of learned counsel for the parties, we have reformulated the question, which reads as under:- Whether on the facts and in the circumstances of the case, and in law, the Tribunal was justified in holding that the service income amounting to Rs.1,79,26,506/- for the assessment year 1999-2000; Rs.1,93,70,373/- for the assessment year 2000-2001; Rs.91,26,240/- for the assessment year 2001- 2002 and Rs.1,99,57,875/- for the assessment year 2002-2003 related to technical services rendered by the assessee-Company in India and therefore, there was no justification to exclude 90% of the service income while computing eligible profits under Section 80HHE of the Act, even though, there is a clear finding of the Assessing Officer that the service charges are directly related to the business profit? 3. The assessee is engaged in computer software exports, domestic sales and providing technical services in and outside India and so also in manufacturing and sale of

7 fuel injection pumps. For the assessment years in question, the assessee claimed deduction under Section 80HHE. The return of income was processed under Section 143(1) of the Act and an intimation was sent to the assessee. Subsequently, the case was selected for scrutiny by issue of notice under Section 148 of the Act, as the case was subject to under assessment by reason of assessee claiming excess deduction under Section 80HHE by including certain ineligible incomes such as, service income. The Assessing Officer, while computing the deduction excluded 90% of the amount of service income from profits of the business which was generated from the services rendered in India by the assessee. The Appellate Authority reversed the order of the Assessing officer vide order dated 09.09.2004 for the assessment years 1999-2000 and 2001-2002 and vide an order dated 13.10.2005, for the assessment year 2002-2003. The relevant observations made by the Assessing officer in the order dated 22.01.2004 for the assessment year 1999- 2000, read thus:-

8 “The Section is very specific and clear about the situs as to the rendering of technical services. It is ‘outside India’. Here, the assessee has rendered services for the parent company’s personnel who are delegated to India. The intent is very clear and there is no scope to ‘deem’ any such services rendered in India as rendered outside India, by using the specific words ‘outside India’ which gives no option to assessee or the department to interpret the provision otherwise. Therefore, I am of the considered view that the assessee’s case is outside the scope of the provision. This sum is therefore considered for exclusion while computing the deduction.” 4. The AA, vide orders dated 9.9.2004 and 13.10.2005, reversed the assessment orders. The relevant observations made by the AA reads thus: “As per the provisions of Sec.80HHE the eligible profit has to be determined by taking into account global business profit, total turnover and the export turnover. The appellant has not included service income in the export turnover while claiming the deduction u/s 80HHE. Further there is no dispute regarding the fact that service income is an integral part of the business income. Further the service income is also not covered by Explanation (d) of Sec.80HHE.

In the circumstances and in view of the Bangalore Tribunal’s decision referred to supra, I am of the considered opinion that 90% of service income cannot be excluded from global business profit in determining the eligible profit u/s 80HHE. Accordingly, the Assessing Officer is directed not

9 to exclude 90% of the service income from business profit while allowing relief u/s 80HHE for all the three years under appeal.” The Tribunal confirmed the order passed by the AA in respect of all the four assessment years vide order dated 21.12.2006. 5. The AA as well as the Tribunal observed that for the relevant assessment years there was no justification to exclude 90% of the service income. Besides this, these authorities also held that the service income forms a part of the income of business of the assessee and was liable to be considered as a part of the profits of business in view of Explanation (d) to Section 80HHE of the Act. The Appellate Authorities, accordingly, were of the view that the service income was not in the nature of brokerage, commission, interest, rent or charges. Accordingly, these authorities directed the Assessing Officer not to exclude 90% of the service income from business profits while granting relief under Section 80HHE for all the four years.

10 6. We have heard learned counsel for the parties on the question of law reformulated by us. Mr.Aravind, learned counsel for the revenue, at the out set, invited our attention to the judgment of the Supreme Court in COMMISSIONER OF INCOME TAX –vs- K.RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC) to contend that Clause (d) of the Explanation appended to Section 80HHE state that 90% of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature have to be excluded from the business profits. These receipts have no nexus with export and hence according to Mr.Aravind, the service income also would constitute independent income having no nexus with export, and therefore, liable to be excluded. He submitted that “profit of the business” has to be arrived at as per Section 28 to 44D of the Act and to be adjusted by reducing the income included in the profits of business having no nexus and is independent of the exports. He further submitted that the service income received by the assessee is for the services rendered in India and have no

11 bearing on export activity and, therefore, would constitute independent income. He, then, submitted the provisions of Section 80HHE provides for benefit only for the income derived from the activity contemplated by the Section namely export of computer software and rendering of technical services outside India. The income from services rendered in India cannot be treated as has been derived from the above activities. Next, he submitted the category of incomes referred to in the explanation are incomes having no nexus with exports as held by the Supreme Court in Ravindranathan Nair’s case and by the Division Bench of this Court in COMMISSIONER OF INCOME TAX –vs- MOTOR INDUSTRIES CO. LTD. (for short ‘MICO’) in 2011 331 ITR 79 (Karn). He submitted that the contention of the assessee that the service income does not fall within the catagory of ‘income’ referred to in Explanation (d), and therefore, cannot be excluded deserves to be rejected. After inviting our attention to the expression/word ‘derived’ in Sub-section(1) of Section 80HHE, he submitted that it is only

12 first degree of income derived from the activities referred to as eligible business are alone liable for deduction and since the service income is beyond the first degree, it has formed a part of the business profits, and deserves to be reduced by 90% as per Explanation (d). 7. On the other hand, Ms.Tanmayee, learned counsel for the respondent vehemently submitted that the service income earned by the respondent being an integral part of its business, it cannot be excluded to the extent of 90% from the profits of the business as it does not fall within purview of Clause (d) (1) of the explanation i.e., brokerage, commission, interest, rent or charges or any other receipt of similar nature. She submitted that it is clear from Explanation(d) to Section 80HHE that the entire profits of business whether arising in India or outside India are to be taken into account except those specifically mentioned in sub-clause(1) of Clause(d) of the Explanation. Service income is not one of those and merely because the income is

13 earned in India, the same cannot be excluded to the extent of 90% resorting to Clause(1) of Explanation(d). Next, she submitted if the revenue’s contention that only the income having nexus to export is to be included in the profits of the business is accepted, the formula for determining the eligible profits under Section 80HHE(3) would become redundant, and the very necessity to apply the proportion of export turnover/total turnover would not arise. The very basis for applying the formula is to apportion the total profits of the business based on turnovers and to retain only export profits to the exclusion of other profits as held by the Bombay High Court in COMMISSIONER OF INCOME TAX vs. PFIZER LIMITED (2011) 330 ITR 62 (Bom). She submitted that Section 80HHE is an incentive provision and once the provision is applicable, it ought to be given a liberal interpretation as held by the Supreme Court in MANGALORE CHEMICALS V. DCCT & OTHERS (1991) 83 STC 234. In reply to the specific submission advanced by Mr. Aravind in respect of the word ‘derived’ as occurred in sub-section (1) of

14 Section 80HHE, she submitted that the word ‘derived’ is taken care of in the formula contemplated by Section 80HHE (3) of the Act, which provides the profits derived for the purposes of deduction under that provision. 8. Before we advert to the rival submissions advanced by learned counsel for the parties, we would like to look into the judgments relied upon by learned counsel appearing for the parties in support of their contentions. 9. In Ravindranathan Nair (supra), the Supreme Court while dealing with the provisions contained in Section 80HHC of the Act which is pari materia with Section 80HHE, in paragraph 21, observed thus: “The substitution of s. 80HHC(3) secures profits derived from the exports of eligible goods. Therefore, if all the four variables are kept in mind, it becomes clear that every receipt is not income and every income would not necessarily include element of export turnover. This aspect needs to be kept in mind while interpreting cl.(baa) to the said Explanation. The said clause stated that 90 per

15 cent of incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in business profits, had to be deducted from business profits computed in terms of ss. 28 to 44D of the IT Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from business profits under cl. (baa). A bare reading of cl. (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 export profits cl. (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.” (emphasis supplied) The Supreme Court, then, in paragraph 23 observed that the nature of every receipt needs to be ascertained in order to find out whether the said receipt forms part of / or it has an attribute of export turnover. 10. From perusal of the judgment of the Supreme Court in Ravindranathan Nair, it appears to us that

16 receipts by way of brokerage, commission, interest, rent or charges constitute independent incomes. Being independent incomes unrelated to export, Parliament contemplated that 90% of such receipts would have to be reduced from profits of the business as defined in Explanation(baa). The Supreme Court, therefore explained the rational stating that, “profit incentives and items like brokerage, commission, interest, rent or charges etc., though formed part of gross total income had to be excluded as they were ‘independent incomes’ which had no element of export turnover. That, the said items distorted the figure of export profits.” 11. In LIBERTY INDIA –vs- COMMISSIONER OF INCOME TAX (2009) 317 ITR 218, the Supreme Court while considering the word ‘derived’ as occurred in Sub-section (1) of Section 80HHE, in paragraph 14 observed thus: “The words “derived from” is narrower in connotation as compared to the words “attributable to”. In other words, by using the expression “derived from”, Parliament intended to cover sources not beyond the first degree”

17 12. Mr. Aravind, learned counsel appearing for the revenue placed heavy reliance upon the following observations made by this Court in MICO (Supra) (page 88 and 89) “The basic requirement of section 80HHC is earning in foreign exchange and retention of profits for export business. Though the object of exchange and retention of profits for export business. Though the object of enacting section 80HHC of the Act is to provide incentive to export business and thus, earning foreign exchange, the said benefit should go to only exporters and should not be misused in getting the benefit when there is no element of export involved in the income. Keeping in mind the legislative intent, it is clear that such incomes which have no direct nexus with the export turnover are liable to be deducted in arriving at the profits of the business. It was only when the assessee has an independent income which has no nexus with the income derived from export, which is in the nature of brokerage, commission, interest, rent or charges, and by inclusion of that income to the profits of the business result in distortion, then, such income should be excluded.” (emphasis supplied)

18 13. The Bombay High Court in PFIZER LIMITED while dealing with Section 80HHC observed thus: “In determining in each case as to whether a receipt which forms part of the profits of business is liable to undergo a reduction of ninety per cent as stipulated in clause (1) of Explanation (baa), it is necessary for the court to consider whether the receipt is “of a similar nature included in such profits”. The rationale for excluding ninety per cent of the receipts by way of brokerage, commission, interest, rent or charges, is that these are independent incomes and their inclusion in the profits of business would result in a distortion. In determining whether any other receipt is liable to undergo a reduction of ninety per cent the basic prescription which must be borne in mind is whether the receipt is of a similar nature and is included in the profits of business. To be susceptible to a reduction the receipt must be of a nature similar to brokerage, commission, interest, rent or charges”. “Clause (a) of sub-section (3) specifies that where the export is of goods or mechandise manufactured or processed by the assessee the profits derived from the export shall be the amount which bears to the profits of business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. In other words, in determining the profits derived from the export of goods or merchandise the proportion of the export

19 turnover to the total turnover of the business is applied to the profits of the business. The profits of the business in turn are defined in Explanation (baa) to section 80HHC. Hence, the element of export turnover is a facet which has been taken care of by the Legislature in the application of the formula which is referred to in sub-section (3) of section 80 HHC. In determining the profits of the business for the purposes of Explanation (baa), the incomes which are susceptible to a reduction of ninety per cent are those which are specifically prescribed by the Legislature. These are, inter alia, the incomes referred to in clauses (iiia), (iiib) and (iiic) of section 28 and receipts by way of brokerage, commission, interest, rent or charges or receipts of a similar nature included in such profits. Therefore, before a receipt is liable to be excluded to the extent of ninety percent it must be receipt of a nature similar to brokerage, commission, interest, rent or charges.” (emphasis supplied) 14. This Court, in yet another judgment in G.J.FERNANDEZ –vs- ASSISTANT COMMISSIONER OF INCOME TAX (2012) 344 ITR 222(Karn), while dealing with the provisions contained in 80HHC, and in particular Clause (baa) observed thus: 16.”……..Therefore, the intention is very clear. It is not to take into consideration only the

20 profits derived from export business. When once the incomes from all the businesses are included in the total turnover, the profit derived from all those businesses should form part of the profits of business for the purpose of computing the deduction under section 80 HHC. It is to be kept in mind that this provision is not a charging section, but an incentive provision. That is the reason why the apex court in unequivocal terms held in the aforesaid K. Ravindranathan Nair’s case (2007) 295 ITR 228 (SC) that, every receipt may not constitute sale proceeds from exports. Every receipt in not income under the Income-tax Act and every income may not be attributable to exports.” 15. The arguments advanced by learned counsel appearing for the parties were centered around Clause(d) of the Explanation appended to Section 80HHE, which in our opinion, deserves to be reproduced for better appreciation of the submissions. Clause (d) of the Explanation reads thus: “(d) “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 – (1) 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 profits; and

21 (2) the profits of any branch, office warehouse or any other establishment of the assessee situate outside India;” Under Explanation (d), the profits of business are defined to mean the profits of the business as computed under the head of profits and gains of business or profession. This has to be reduced under Sub-clause (1) of Clause (d) by 90% of any receipts by way of brokerage, commission, interest, rent or charges of a similar nature included in such profits. Receipts by way of brokerage, commission, interest, rent or charges as noticed earlier have been held, by the Supreme Court in Ravindranathan Nair (Supra) to constitute independent incomes. Being independent incomes unrelated to export 90% of such receipts would have to be reduced from the profit of business as defined under Explanation (d). As observed by the Bombay High Court in PFIZER (supra), in determining in each case as to whether a receipt which forms part of the profits of business is liable to undergo a reduction of 90% as stipulated in Sub-Clause (1) of Clause (d) of the Explanation, it is necessary to consider

22 whether the receipt is of a similar nature included in such profits. The rational for excluding 90% of the receipt by way of brokerage, commission, interest, rent or charges is that they are independent incomes and their inclusion in the profits of business would result in a distortion as observed by the Supreme Court in Ravindranathan Nair (Supra). In determining whether any other receipt is liable to undergo a reduction of 90%, the basic prescription which must be borne in mind is whether the receipt is of a similar nature and is included in the profits of business. To be susceptible to a reduction, the receipt must be of a similar nature to brokerage, commission, interest, rent or charges. 16. This Court in MICO after considering the judgment of the Supreme Court in Ravindranathan Nair (supra) and the judgment of the Bombay High Court in PFIZER (supra) observed that it is clear that in computing profits of the business for the purpose of Explanation (baa), the incomes which are deductible are those which are

23 expressly prescribed in the said provision and which are similar in nature. If the income is derived out of the activity which would have direct and immediate nexus to the activity of export, then the said income is not deductible from the said profits of the business under the aforesaid profession. 17. Thus, it is clear from the judgment of the Supreme Court and so also the judgment of the Bombay High Court and this Court, that if any income is derived from export by way of foreign exchange, such income is not deductible and the benefit of that income has to be given to the assessee. The expression “any receipt of a similar nature”, has to be understood in the context of the words preceding the said expression namely brokerage, commission, interest, rent or charges. Such receipts have no nexus with the income earned by way of foreign exchange. Every receipt is not income and every income would not necessarily include element of export turnover. (see Ravindranathan Nair) .

24 18. In the present case, the income in question is the ‘service income’, which the assessee earned by rendering services to Robert Bosch GmbH, a German Company. The assessee rendered services to this Company in India like attending to Bosch personnel delegated to India, exchange of technical and economic information between the said Company and the Licensees. 19. There is no dispute that the assesee is engaged in the export and domestic sale of computer software, provision of technical services in and outside India and manufacture and sale of fuel injection pumps. This being so, the question is whether ‘service income’ would also fall in the category of receipts by way of brokerage, commission, interest, rent, charges or any other receipts of similar nature included in such profits. In other words, whether the ‘service income’ could be treated as receipt of a similar nature.

25 20. It is true that the Supreme Court in Ravindranathan Nair (supra) observed that the receipts constitute independent income having no nexus with the export would require to be reduced from business profits under Clause (baa) of the explanation appended to Section 80HHC of the Act. At this stage, it is necessary to notice that clause (d) of the explanation does not refer to export turnover. Sub-Section(1) of Section 80HHE of the Act contemplates deduction to the extent of profits derived by the assessee from the export out of India on computer software or its transmission from India to a place outside India by any means or providing technical services outside India in connection with the development or production of computer software to which this section applies. The formula in sub-Section(3) of Section 80HHE of the Act has been provided by Parliament, for the purpose of sub-Section (1) to compute the profits derived from the export of India. The profits of business are defined in clause(d) of the Explanation

26 to Section 80HHE of the Act. It is clear from these provisions that the element of export turnover is a facet which has been taken care of by the Legislature in the application of the formula which is referred to in sub-Section (3) of Section 80HHE of the Act. In determining the profits of the business for the purpose of clause(d) of the explanation, the income which are susceptible to a reduction of 90% are those which are specifically prescribed by the Legislature. These are income contemplated by Section 28 of the Act and receipts by way of brokerage, commission, interest, rent, charges or receipts of similar nature included in such profits. Therefore, before a receipt is liable to be included to the extent of 90%, it must be a receipt of a nature similar to brokerage, commission, interest, rent or charges. The income emanating from services rendered, in our opinion, would not be susceptible to a reduction of 90% for simple reason that it would not constitute a receipt of nature similar to brokerage, commission, interest, rent or charges. In short, such a receipt could not be subject to deduction of 90% under sub-

27 clause(1) of clause (d) of the Explanation and therefore, not liable to be reduced to the extent of 90%. 21. In the result, the question formulated by us is answered in favour of the assessee and against the revenue. The appeal is accordingly disposed of in terms of this judgment. No costs Sd/- JUDGE Sd/- JUDGE Srl/TL/Mpk