Deduction under Section 80HHC excludes set-off of prior years' unabsorbed business losses under Section 72

HC held that for computing deduction under section 80HHC the "profits of the business" must be determined under the head Profits and gains of business as defined by sections 28-44D, thereby excluding set-off of prior years' unabsorbed business losses under section 72. Section 80AB does not override section 80HHC(3); section 80HHC is a self-contained code with an artificial formula to take current year export profits into account. Appeal dismissed with no order as to costs.

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Issues Involved:
1. Whether section 80AB applied to section 80HHCRs.
2. Whether, in determination of business profits u/s 80HHC, the unabsorbed business losses of the earlier years u/s 72 should be set offRs.

Summary:

Issue 1: Applicability of Section 80AB to Section 80HHC
The court examined whether section 80AB, which contains a non obstante clause, controls section 80HHC. The court noted that Chapter VI-A contains two sets of sections, with different languages used in sections like 80HH, 80P, and 80M compared to section 80HHC. The former sections require that the gross total income includes specified income, a precondition not present in section 80HHC. The court concluded that section 80HHC marks a departure from other sections in Chapter VI-A and does not use the expression "where the gross total income includes any income." Therefore, section 80AB does not control section 80HHC. The court agreed with the Kerala High Court's view in CIT v. A. V. Thomas and Co. Ltd. [1997] 225 ITR 29, which held that section 80HHC's computation is based on export turnover, not income, to encourage exports.

Issue 2: Set-off of Unabsorbed Business Losses u/s 72 in Business Profits u/s 80HHC
The court analyzed whether unabsorbed business losses of earlier years u/s 72 should be set off while computing business profits u/s 80HHC(3). The court emphasized the formula in section 80HHC(3) for calculating export profits, which is based on business profits computed under the head "Profits and gains of business" as per sections 28 to 44D, excluding section 72. The court held that section 80HHC is a complete code by itself, and the profits of the current year are to be considered, excluding brought forward losses. The court concluded that section 80AB, despite its non obstante clause, does not control section 80HHC(3) to the extent of export profits being worked out from business profits.

Conclusion:
The court dismissed the appeal, holding that section 80AB does not control section 80HHC and that unabsorbed business losses u/s 72 should not be set off while computing business profits u/s 80HHC(3). The appeal was dismissed with no order as to costs.

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