Export Profit Not Required for Deduction under Section 80HHC: Tribunal Decision

The Tribunal clarified that profits from exports are not a precondition for claiming deduction under section 80HHC(3)(b). Cash compensatory support and duty drawback qualify for deduction under section 80HHC(1) without proportionate calculation. Section 80HHC(3)(b) applies to apportion export profits even if local business differs. The Tribunal emphasized aggregating total turnover for profit computation. The matter was referred to the Division Bench for further proceedings in line with the Special Bench decision.

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Issues Involved:
1. Whether profits from exports are a precondition for relief u/s 80HHC(3)(b).
2. Applicability of section 80HHC(3)(b) to profits like cash compensatory support and duty drawback.
3. Applicability of section 80HHC(3)(b) for apportionment of export profits in cases where local business is not in the same goods as exported.

Summary:

Issue 1: Whether profits from exports are a precondition for relief u/s 80HHC(3)(b)
The Tribunal concluded that the matter was academic as the assessee had profits in the business of exports. The issue stands settled by the earlier Special Bench decision, which held that the presence of export profits is not a precondition for claiming deduction under section 80HHC(3)(b).

Issue 2: Applicability of section 80HHC(3)(b) to profits like cash compensatory support and duty drawback
The Tribunal held that cash compensatory support (CCS) and duty drawback (DDB) received by the assessee against exports qualify for deduction under section 80HHC(1) without applying the proportionate method of clause (3) of section 80HHC. This is based on the argument that these incentives are derived directly from the business of exports and should not be subjected to the proportionate calculation method. The Tribunal also noted that the amendments to the law introduced by Finance (No. 2) Act, 1991, effective from 1-4-1992, were not applicable to the assessment year 1986-87.

Issue 3: Applicability of section 80HHC(3)(b) for apportionment of export profits in cases where local business is not in the same goods as exported
The Tribunal upheld the view that if the assessee has both export and local business, clause (b) of sub-section (3) of section 80HHC applies. This means that the total turnover of the entire business, including both export and domestic turnover, must be aggregated to compute the profits derived from export turnover. The Tribunal rejected the argument that separate books of account for different businesses would allow for separate computation of export profits without aggregation. The Tribunal emphasized that the legislative intent was to avoid litigation by providing a method of apportioning profits on the basis of turnover, irrespective of whether the local business dealt in the same goods as exported or different goods.

The Tribunal also referred to the earlier Special Bench decision in the case of International Research Park Laboratories Ltd., which had considered similar issues and concluded that the profits of the entire business must be computed and then apportioned based on the export turnover to total turnover ratio.

Conclusion
The Tribunal directed that the matter be placed before the Division Bench for passing an order in conformity with the views expressed by the Special Bench and to deal with any other grounds raised in the appeal.

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