{"id":268635,"date":"2022-06-18T11:00:11","date_gmt":"2022-06-18T05:30:11","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=268635"},"modified":"2022-06-17T21:34:17","modified_gmt":"2022-06-17T16:04:17","slug":"mad-hc-decides-on-includability-of-royalty-guarantee-commission-in-business-profit-for-the-purpose-of-calculation-of-deduction-under-s-80-hhc-of-it-act","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2022\/06\/18\/mad-hc-decides-on-includability-of-royalty-guarantee-commission-in-business-profit-for-the-purpose-of-calculation-of-deduction-under-s-80-hhc-of-it-act\/","title":{"rendered":"Mad HC decides on includability of royalty \/ guarantee commission in business profit for the purpose of calculation of deduction under S 80 HHC of IT Act"},"content":{"rendered":"

Madras High Court<\/span><\/b>: A Division Bench of R Mahadevan and Sathya Narayan Prasad, JJ. dismissed the tax appeal holding that guarantee commission as well as royalty must be excluded from the business profit for the purpose of calculation of deduction under Section 80 HHC of the Income Tax Act, 1961.<\/span>\u00a0<\/span><\/p>\n

 <\/p>\n

The facts of the case are such that the appellant was engaged in the business of manufacture and sale of V & Fan Belts, Oil Seals etc. For the assessment year 2004-2005, they filed its return admitting a total income of Rs.14, 02, 65,870\/-, which was subsequently, revised by them. Upon scrutiny of the same, the respondent issued notice under section 143(2) of the Income Tax Act, 1961 (hereinafter, \u201cthe Act\u201d) and thereafter, completed the assessment under section 143(3) determining the total income which excludes long term capital gains. While doing so, the assessing officer, among others, restricted the claim of deduction under Section 80HHC by excluding 90% of the royalty receipts from the profits of the business under clause (baa) to explanation to section 80HHC (4). The order of AO was challenged before the Commissioner of Income Tax Madurai, who partly allowed the appeal. Aggrieved by this, the Revenue filed an appeal before the Income Tax Appellate Tribunal (\u2018ITAT\u2019) which thereby set aside the impugned order. Assailing this, the present tax appeal was filed under Section 260 A of the Income Tax Act, 1961.<\/span>\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Counsel for appellants submitted that the appellant entered into a MOU with its 100% subsidiary company; the subsidiary company manufactures the goods as per the specifications given by the appellant and the appellant has also provided know-how, secret formula manufacturing process and methods to ensure the same quality of manufactured goods; for providing these services, the subsidiary company paid royalty and hence, the royalty receipts are directly related to the goods exported by the appellant and the same cannot be excluded from the profits of the business.<\/span>\u00a0<\/span><\/p>\n

\u00a0<\/span>\u00a0<\/span><\/p>\n

The Court relied on <\/span>CIT v. Bangalore Clothing Co<\/span><\/i>., <\/span>2003 SCC OnLine <\/span>Bom 40<\/span><\/a> ,<\/span> wherein it was categorically held that \u201cguarantee commission as well as royalty viz., a payment for using a right, must be excluded from the business profit for the purpose of calculation of deduction under section 80HHC of the Act.<\/span>\u00a0<\/span><\/p>\n

\u00a0<\/span>\u00a0<\/span><\/p>\n

The Court noted that there is no concrete material produced by the appellant \/ assessee to prove that the royalty income received from the subsidiary company is related to export business,\u00a0<\/span>\u00a0<\/span><\/p>\n

\u00a0<\/span>\u00a0<\/span><\/p>\n

Thus, the court held the <\/span>\u201cTribunal has rightly directed the assessing officer to exclude the royalty income from the business profits for the purpose of calculation of deduction under section 80HHC of the Act, which warrants no interference.\u201d<\/span><\/i>\u00a0<\/span><\/p>\n

[Fenner India Ltd. v. Assistant Commissioner of Income Tax, <\/span><\/strong><\/span>2022 SCC OnLine <\/span>Mad 2923<\/span><\/a> , decided on 08-06-2022<\/span><\/strong>]<\/span>\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Appearances<\/span><\/b>\u00a0<\/span><\/p>\n

For Appellant: Mr. Subbaraya Aiyar<\/span>\u00a0<\/span><\/p>\n

For Respondent: Mr.M. Swaminathan, and Mrs. V. Pushpa<\/span>\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n

\n

*Arunima Bose, Editorial Assistant has reported this brief.<\/span><\/h4>\n","protected":false},"excerpt":{"rendered":"

Madras High Court: A Division Bench of R Mahadevan and Sathya Narayan Prasad, JJ. dismissed the tax appeal holding that guarantee commission <\/p>\n","protected":false},"author":67011,"featured_media":261884,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,10],"tags":[8991,31394,36712,28944,49740,2592,2567,33403,2621],"class_list":["post-268635","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-highcourts","tag-appeal","tag-assessing-officer","tag-business-profit","tag-deduction","tag-guarantee-commission","tag-Income_Tax","tag-Madras_High_Court","tag-royalty","tag-Tax"],"yoast_head":"\nMad HC decides on includability of royalty \/ guarantee commission in business profit for the purpose of calculation of deduction under S 80 HHC of IT Act | SCC Times<\/title>\n<meta name=\"robots\" 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interest earned by Co-operative Society from Co-operative Bank is allowed for Sec. 80P(2)(d) Deduction? 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Bombay HC sets aside ITAT\u2019s order treating income from same source differently for different assessment years","author":"Editor","date":"August 27, 2025","format":false,"excerpt":"For the purposes of Income Tax Act, 1961, the business which is involved in letting out premises on hire, would be said to have commenced right from the stage of repairing and furnishing of property for being rented out and cannot be treated as commenced only when the premises are\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"treating income from same source differently","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/08\/treating-income-from-same-source-differently.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/08\/treating-income-from-same-source-differently.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/08\/treating-income-from-same-source-differently.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/08\/treating-income-from-same-source-differently.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":315889,"url":"https:\/\/www.scconline.com\/blog\/post\/2024\/03\/02\/dhc-sets-aside-cic-order-allowing-disclosure-of-exemption-sought-by-shri-ram-janmabhoomi-teerth-kshetra-legal-news-scc-times\/","url_meta":{"origin":268635,"position":3},"title":"Delhi HC sets aside CIC order allowing disclosure of exemption sought by Shri Ram Janmabhoomi Teerth Kshetra for its donations","author":"Simranjeet","date":"March 2, 2024","format":false,"excerpt":"\u201cThe information pertaining to an assessee cannot be granted under the Right to Information Act, 2005 in view of Section 138(1)(b) of the Income Tax Act, 1961.\u201d","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Delhi High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Delhi-High-Court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":371254,"url":"https:\/\/www.scconline.com\/blog\/post\/2025\/12\/30\/del-hc-icc-sponsorship-payments-taxable-royalty-scc-times\/","url_meta":{"origin":268635,"position":4},"title":"Part of ICC Sponsorship Payments, for using ICC Trademark, constitutes Taxable Royalty: Delhi High Court","author":"Ritu","date":"December 30, 2025","format":false,"excerpt":"The Court held that the revisional authority was justified in concluding that the payment had two distinct elements, i.e., advertisement and trademark usage.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"ICC Sponsorship Payments","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/12\/blog-29-11.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/12\/blog-29-11.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/12\/blog-29-11.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/12\/blog-29-11.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":132511,"url":"https:\/\/www.scconline.com\/blog\/post\/2017\/05\/22\/supreme-court-to-decide-whether-noida-is-a-corporation-established-by-the-uttar-pradesh-government\/","url_meta":{"origin":268635,"position":5},"title":"Supreme Court to decide whether NOIDA is a corporation established by the Uttar Pradesh Government","author":"Prachi Bhardwaj","date":"May 22, 2017","format":false,"excerpt":"Supreme Court: The bench of R.K. Agrawal and A.M. Sapre, JJ agreed to examine a plea of the income tax department whether the North Okhla Industrial Development Authority (NOIDA) is a corporation established by the Uttar Pradesh government under the state industrial development law or not. The Court said that\u2026","rel":"","context":"In "Hot Off The Press"","block_context":{"text":"Hot Off The Press","link":"https:\/\/www.scconline.com\/blog\/post\/category\/news\/hot_off_the_press\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/09\/Supreme-Court_Colour.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/09\/Supreme-Court_Colour.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/09\/Supreme-Court_Colour.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/09\/Supreme-Court_Colour.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/09\/Supreme-Court_Colour.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/268635","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/67011"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=268635"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/268635\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/261884"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=268635"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=268635"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=268635"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}