2000 (8) TMI 72 - HC - Income Tax

Tribunal recalculates deductions under section 80HHC, excludes amount from turnover, reduces profits

The Tribunal directed the Assessing Officer to recompute deductions under section 80HHC, excluding an amount from the total turnover and reducing business ... Export incentives - total turnover for deduction under section 80HHC - proviso to clause (baa) of the Explanation to section 80HHC - surrender of import licences and premium treatment - profits of business increased by 90% of export incentivesExport incentives - total turnover for deduction under section 80HHC - proviso to clause (baa) of the Explanation to section 80HHC - surrender of import licences and premium treatment - Whether the premium received on surrender of import licences is to be included in total turnover for computing deduction under section 80HHC or is an export incentive excluded by the proviso to clause (baa) of the Explanation to section 80HHC. - HELD THAT: - The Court examined the nature and purpose of the premium paid by the Government on unutilised import licences following introduction of full convertibility. The premium was a cash substitution for incentives previously receivable in the form of dutyfree import entitlement; it was paid to compensate exporters who, having completed export obligations but not imports, were stranded by policy change. Given that the cash payment replaced an import entitlement that was itself an exportlinked incentive, the Court held that the premium constituted an export incentive within the meaning of the proviso to clause (baa) of the Explanation to section 80HHC. Consequently, such premium falls within the exclusions enumerated in the proviso (clauses (iiia), (iiib) and (iiic)) and is not includible in total turnover for computing the deduction under section 80HHC.The premium received from the Government on surrender of import licences is an export incentive and is excluded from total turnover for the purpose of computing deduction under section 80HHC.Profits of business increased by 90% of export incentives - total turnover for deduction under section 80HHC - Whether the Tribunal's division between licence premium earned on the assessee's own exports and premium on licences purchased from the market, and its direction to increase profits by 90% only in respect of the first category, stands confirmed. - HELD THAT: - The Tribunal distinguished two categories of licence premium: (a) premium attributable to licences earned against the assessee's own exports (treated as export incentives falling under clause (iiib)); and (b) premium received on licences purchased from the open market (treated as not augmenting export profits in the same manner). Under the proviso and section 80HHC(3) formula, profits are to be adjusted by reference to export incentives in the proportion specified. The Court observed that the Tribunal's finding - that only the first category should be taken into account for increasing profits by 90% and that the second category does not augment export profits for this purpose - was not challenged by the assessee. Having given explanatory clarification of the Tribunal's reasoning so the Assessing Officer could implement the directions, the Court confirmed that finding.The Tribunal's dichotomy and its direction to increase profits by 90% only in respect of the premium attributable to licences earned on the assessee's own exports is confirmed.Final Conclusion: The premium received on surrender of import licences is an export incentive excluded from total turnover under the proviso to clause (baa) of the Explanation to section 80HHC; the Tribunal's classification between licence premium earned on the assessee's own exports and premium on licences purchased from the market - and its direction to apply the 90% adjustment only to the former - is confirmed. The appeal is dismissed with costs. Issues Involved:The judgment involves the interpretation of deduction under section 80HHC for an exporter of diamonds, specifically regarding the treatment of premium on import licences in the total turnover and the computation of profits under the said section.Interpretation of Deduction under Section 80HHC:The Assessing Officer allowed a deduction of Rs. 63,78,088 instead of Rs. 88,40,538 claimed by the assessee, citing discrepancies in the treatment of licence premium and import licence premium. The Tribunal directed the Assessing Officer to recompute the deductions under section 80HHC, excluding an amount of Rs. 51,93,829 from the total turnover and reducing business profits by 90% of the net premium of Rs. 15,47,005 as per clause (baa) of the Explanation to section 80HHC. The Department appealed under section 260A of the Income-tax Act, 1961, challenging the Tribunal's directions.Treatment of Premium on Import Licences:The key question was whether the premium received by the assessee on surrender of import licences should be included in the total turnover for calculating the deduction under section 80HHC. The premium received from the Government of India, totaling Rs. 51,93,829, was analyzed to determine if it constituted export incentives as per the provisions of the Act.Analysis and Decision:The premium received on import licences was deemed to be export incentives, as it was a compensation for exporters affected by the introduction of full convertibility of the rupee. The Government circular offering cash amount equivalent to unutilized import licences was considered an export incentive, falling under the proviso to clause (baa) of the Explanation to section 80HHC. The Tribunal differentiated between premiums received on licences obtained through exports and those purchased from the market, adjusting the calculation of export profits accordingly. The Tribunal's decision on the treatment of premiums was upheld, and the appeal was dismissed with costs.