TaxTMI 
TaxTMI 
1995 (9) TMI 104
X X X X Extracts X X X X
X X X X Extracts X X X X
....th Feb., 1994 under s. 154, the AO recomputed the deduction under s. 80HHC as follows: . . Rs. (i) Under s. 80HHC(3) (-) 15,26,085 (ii) Under s. 80HHC(3A) (-) 31,24,496 (iii) Under the proviso to sub-s. 80HHC(3) (+) 8,01,100 Since the net result was a minus figure, the AO held that the assessee was not eligible for deduction under s. 80HHC. On appeal, the learned CIT(A) held that the adjustments made by the AO partook of the nature of debatable issues and, therefore, deleted the disallowance. Thereupon, the case was taken up for scrutiny under s. 143(3) of the IT Act. The assessee had originally computed the deduction in the following terms: Deduction under s. 80HHC . . Rs. 1. Total turnover . 7,54,66,221 Less: freight . 54,11,239 FOB value . 7,00,54,982 2. Export turnover . . (a) Direct export—BSF . 1,39,14,089 Yempee Sea Foods . 30,37,245 . . 1,69,51,334 . Rs. . Less: Freight BSF 6,89,903 . Yempee Sea Foods 2,33,239 9,23,142 . . 1,60,28,192 (b) Exports through export house for which Disclaimer certificates obtained—Tata . ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deduction under s. 80HHC as per the original computation was quantified at Rs. 16,98,583 though the claim was restricted to Rs. 11,29,813. However, the quantum of deduction as per the revised computation is Rs. 24,41,266 though in this case also the claim was restricted to Rs. 11,29,813 as before. The difference in the gross quantum is due to the change in the amount of export turnover used as numerator of the formula. There is no dispute on this aspect of the matter. In other words, the numerator of the formula as stated in the revised computation is not disputed by the assessing authority. The AO held that even though the assessee had manufactured and processed and had also exported through export houses as a supporting manufacturer, as there was no "profit of the business", but was only a loss, the assessee will not be entitled to any deduction under s. 80HHC of the IT Act. According to him, the assessee would be eligible for deduction only if there was a positive figure of profit in terms of sub-s. (3) r/w the Expln. (baa) to s. 80HHC. As the computation in terms of the Explanation had resulted in loss the assessee is not entitled to get deduction under sub-s. (3) of s. 80HHC.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ignored and the positive figure computed under the proviso to sub-s. (3) must be allowed as a deduction. Aggrieved, the assessee is in second appeal. 4. Sri R. Srinivasan, the learned chartered accountant, submitted that the deduction under s. 80HHC is an incentive given to the exporters who earn precious foreign exchange. Therefore, the section should receive a liberal construction in order to give effect to the benefit intended to be conferred on the exporters. That the assessee has exported goods during the relevant previous year on his own account and also through export houses are indisputed facts. Prima facie, the assessee is eligible for deduction under s. 80HHC. The first dispute in this appeal is regarding the interpretation of the term "profit" as occurring in sub-s. (3) of s. 80HHC. In other words, whether the expression "profit" will include losses also. The second dispute is in a case, where the assessee had only loss in the computation under sub-s. (3), whether such loss must be ignored while giving effect to the provisions of the proviso to sub-s. (3). In other words, where the computation results in loss under the main provisions of sub-s. (3), whether such loss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and the export houses to say that the payments were not in the nature of receipts towards "charges" incurred by the assessee and also filed additional grounds of appeal. 5. Sri T. John George, the learned Departmental Representative, submitted that the assessee has now only filed additional ground before the Tribunal in respect of the computation of the "profits of the business" under Expln. (baa) of s. 80HHC. Though the assessee had filed the documents in support of his stand, the documents did not stand the scrutiny of the authorities. Therefore, the question of quantification of the profits of business in accordance with the Explanation should be restored to the file of the AO. The learned Departmental Representative next submitted that there was no warrant for excluding the export house premium, chitty profit and miscellaneous income from the deductions envisaged under Expln. (baa) to s. 80HHC. They are receipts in the nature of "charges". He further submitted that even if these items are not deducted from the profit, the resultant figure would still be a loss, but not profit and, therefore, the assessee would not be eligible for any deduction under sub-s. (3) of s. 80HHC.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eal. Therefore, we admit the plea and the evidence and proceed to deal with the same. Clause (baa) of Expln. to s. 80HHC is as follows: "(baa) "Profits of the business" means the profits as computed under the head "profits and gains of business or profession" as reduced by— (1) ninety percent of any sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipts of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India." The sums referred to in cls. (iiia), (iiib) and (iiic) of s. 28 are as follows: (1) profits on sale of licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947) (cl. iiia) (2) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India (cl. iiib) (3) any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essors an incentive 4.5% (four point five per cent only) premium on the FOB value of the said Frozen Marine Products exported by the processors. The cash assistance and import replenishment licence available as per policy will be claimed by the processors. The Export House hereby agree to issue necessary disclaimers to the processors for claiming import replenishment licence and cash compensatory support. These disclaimers will be issued promptly since processors has SPS facility." In the case of the agreement with M/s Rossel Industries Ltd., paras 10 and 11 are relevant: "10. In consideration of the processor processing the Frozen Marine Products for export by the company and rendering service in connection therewith and in consideration of the various liabilities and obligations undertaken by the processor, the company hereby agrees to pay to the processor, a premium of 7.5% on FOB basis. The processor also agrees that if they do not fulfil the contracted amount of exports of Rupees 50.00 lacs, they shall compensate the company adequately for the non-fulfilment of the contract. 11. The company will be entitled to claim from the Joint Chief Controller of Imports & Exports....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eby agree to pay the manufacturer/shipper a premium of 5.50% as premium on the FOB value of the said Frozen Marine Products exported by the manufacturer/shipper. This premium of 5.50% will be paid to the manufacturer/shipper in batches, immediately after completion of exports to a value of Rs. 25 lacs (twenty five lacs only) FOB and after submission of all copies of documents as required by the trading house." In the case of the agreement with M/s J.K. Industries Ltd., para 16 is relevant: "16. In consideration of the processor exporting Frozen Marine Products on behalf of the Export House and issuing the disclaimer certificates and other documents as required in favour of the Export House for receiving the Export House benefits, the Export House hereby agree to pay the processor an incentive of 8% (eight per cent only) as premium on the FOB value excluding overseas commission of the said Frozen Marine Products exports by the processor. The said premium of 8% will be paid after submission of all bank certified documents." From the terms of the above agreements, which are extracted by us, it will be clear that the assessee is given a percentage on the FOB value not in reimb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion. In fact, it is such type of receipts towards charges that were held to be within the meaning of the Explanation in the case of G. Gangadharan Nair vs. ITO. The Tribunal in is order dt. 21st Dec., 1994 in the case cited supra held as follows: "One of the items found in this clause is receipts towards "any charge". From the agreement it is seen that the assessee has been given an incentive or subsidy sat 3.5% or 2% or whatever it is, to cover the cost of charges incurred by it. So the export premium receipts is only a subsidy received by the assessee to cover the cost. Certainly it will fall within the meaning of the term any receipt towards "charges" that entered the profits of the business." Thus, we uphold the contention of the learned Departmental Representative in respect of the receipts from M/s Sun Export Corpn. and M/s Jeet Machine Tools Ltd. In our considered opinion the charges received from others mentioned above cannot be considered as falling within the purview of sub-cl. (1) of cl. (baa) of the Expln. to s. 80HHC. It is too obvious to require reiteration that the profit from chitty business cannot be considered under the kind of receipts mentioned in sub-cl. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Under the main provision of sub-s. (3), the computation results in loss. The AO's view is that the proviso to sub-s. (3) can come into operation only if there is profit and not loss. The view of the learned CIT(A) is that if there was any loss under the provisions of sub-s. (3) and if there was any profit under the proviso thereto, the former must be adjusted against the latter and if there remained any profit after such adjustment, the assessee would be entitled to the deduction in terms of s. 80HHC to the extent of such profit. The contention of Sri Srinivasan, the learned chartered accountant, is that sub-s. (3) of s. 80HHC envisaged relief in two stages, (i) under the main provision and (ii) under the proviso thereto. Even if the assessee is not entitled to deduction under s. 80HHC in terms of sub-s. (3) de hors the proviso thereto, the benefit available under the proviso must be extended to it, particularly when in point of fact the assessee had exported goods and is found otherwise eligible for the deduction and, hence, a liberal construction should be placed on the provisions of sub-s. (3) of s. 80HHC. Having regard to these contentions, we are inclined to place a liberal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ory "profit of business" as defined in the Explanation and, therefore, in terms of the main provisions of sub-s. (3) he is not entitled to the deduction of such profit (which is nil) there being no profit. The learned Chartered Accountant concedes this point before us. However, he urges that the assessee would be entitled to the deduction of an amount as provided for in the proviso to sub-s. (3). In a case where there are no "profits of business" for deduction under sub-s. (3) of s. 80HHC, the question is whether the assessee would be entitled to the deduction in terms of the proviso under sub-s. (3)? That would depend upon the construction of the proviso in the context and setting of the enactment and the objects for which the section was enacted. We have already stated in the earlier part of our order that s. 80HHC is a benevolent section conferring benefit on the exporters who earned precious foreign exchange so vital for the economic well being of the nation. We have also seen that the provisions of a section designed to subserve laudable objectives should receive liberal construction. There could be also doubt as to whether "profit" as defined in the Explanation should include....