1995 (5) TMI 45 - AT - Income Tax

Compute Gross Income First for Section 80HHC Deductions

The court partially allowed the departmental appeal, directing the Assessing Officer to compute the gross total income first and then limit the deduction ... Export Business Issues Involved: Interpretation of provisions of section 72 for setting off losses of earlier years and section 80HHC for deduction in computing total income.Interpretation of Section 72: The Assessing Officer had set off the loss brought forward from earlier years against current year's income before allowing deduction under section 80HHC. However, the CIT (Appeals) directed that the deduction under section 80HHC be allowed first and then apply provisions relating to adjustment and set off of earlier years' losses.Interpretation of Section 80HHC: Section 80HHC allows deduction in computing total income based on net foreign exchange realization and profits from export of goods. The deduction under this section is not restricted except by the proviso that it should not exceed the profits derived from export. The total deduction allowable cannot exceed 50% of the total export profits for the year alone.Interpretation of Section 80A: Section 80A controls deductions under Chapter VIA and states that the aggregate deductions shall not exceed the gross total income of the assessee. Gross total income is computed after setting off brought forward losses from earlier years. If the gross total income exceeds 50% of the total export profits, no modification to the assessment order is required. However, if the gross total income is below 50% of total export profits, the deduction under section 80HHC should be restricted to the gross total income amount.Decision: The departmental appeal is partially allowed to the extent that the Assessing Officer is directed to compute the gross total income first and then limit the deduction under section 80HHC to the amount of gross total income if it is below 50% of the total export profits.