Section 80HHC deduction denied where no export profit existed and proportionate computation could not create relief.

Section 80HHC allows deduction only from profits derived from export of goods or merchandise, and section 80AB confines Chapter VI-A relief to income of that nature included in gross total income. The proportionate computation under section 80HHC(3)(b) was treated as applicable only where export business exists with common profits capable of apportionment, not where there is no export profit and the activity results in a loss. The assessee's reading was rejected because it would create an anomalous result and undermine section 80AB. Deduction under section 80HHC was therefore not available in the absence of export profits.

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Issues: Whether deduction under section 80HHC could be allowed on a proportionate computation under sub-section (3)(b) even when the assessee had no profit from export of specified goods or merchandise and the export activity resulted in a loss.

Analysis: Section 80HHC grants deduction only in respect of profits derived from export of goods or merchandise, and section 80AB limits Chapter VI-A deductions to income of that nature included in the gross total income. The proportionate formula in section 80HHC(3)(b) was held to apply where export business is carried on along with export of non-specified goods, so that common profits of the export business can be apportioned. It was not accepted as a basis for granting a deduction out of profits of unrelated non-export business when there was no export profit at all. The construction suggested by the assessee was found to produce an anomalous result and to make section 80AB ineffective.

Conclusion: Deduction under section 80HHC was not allowable in the absence of any profit derived from the export of specified goods or merchandise included in the gross total income, and the Revenue's appeal succeeded.

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