2004 (6) TMI 38 - HC - Income Tax

High Court clarifies deduction rules under section 80HHC, emphasizes considering profits from self-manufactured goods.

The High Court addressed issues regarding the computation and claim of deduction under section 80HHC. It ruled in favor of the Department, citing the ... Computation of for the purpose of deduction under section 80HHC - 'A plain reading of section 80HHC makes it clear that in arriving at profits earned from export of both self-manufactured goods and trading goods, the profits and losses in both trades have to be taken into consideration. If after such adjustments there is a positive profit the assessee would be entitled to deduction under section 80HHC(1). If there is a loss the assessee would not be entitled to deduction'. – Revenue’s appeal accepted Issues involved:1. Computation of profits for deduction under section 80HHC2. Claim of deduction under section 80HHC3. Eligibility for deduction under section 80HHC based on business profit proportionAnalysis:Issue 1: Computation of profits for deduction under section 80HHCThe court addressed the validity of the manner and method of computation of profits for the purpose of deduction under section 80HHC. The questions raised included whether the Tribunal's computation method was in accordance with the law. The Supreme Court's ruling in IPCA Laboratory Ltd. v. Deputy CIT was cited, emphasizing that profits and losses from both self-manufactured goods and trading goods must be considered. If there is a positive profit after adjustments, the assessee is entitled to deduction under section 80HHC(1). However, if there is a loss, no deduction is allowed. The court concluded that the questions of law were answered in favor of the Department, based on the Supreme Court's decision, and against the assessee.Issue 2: Claim of deduction under section 80HHCThe court examined whether the claim for deduction under section 80HHC in a specific amount was valid. It was questioned whether the Tribunal's allowance of the claimed amount by the assessee was in accordance with the law. The court referred to the facts and figures provided in the reference application and analyzed the nature of the amount claimed for deduction. The court set aside the Tribunal's order and directed the Commissioner of Income-tax (Appeals) to compute the profits in accordance with the law and the principles outlined in the IPCA Laboratory Ltd. case.Issue 3: Eligibility for deduction under section 80HHC based on business profit proportionThe court considered the eligibility of the assessee for deduction under section 80HHC based on the entire business profit taken as a proportion of the export turnover to the total turnover. The court referred to the specific question of law raised in this regard and concluded that, in line with the Supreme Court's decision, the questions of law were answered in favor of the Department and against the assessee. The court directed the Commissioner of Income-tax (Appeals) to recompute the profits in accordance with the law and the principles established in the IPCA Laboratory Ltd. case.In summary, the High Court of Kerala addressed various issues related to the computation and claim of deduction under section 80HHC, emphasizing the need to comply with the legal provisions and relevant judicial precedents in determining the eligibility for such deductions.