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2003 (3) TMI 23
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....ection 80HHC of the Income-tax Act, 1961, for short "the Act". The assessee had profit in the export of own goods manufactured by it. But the assessee incurred loss in the export of trading goods. In the assessment for the year 1992-93, the Assessing Officer computed the deduction available under section 80HHC of the Act by deducting the loss incurred in the export of trading goods from the profits derived from the export of own goods (manufactured goods). The assessee, inter alia, challenged the deduction of the loss in the computation of profits for the purpose of section 80HHC. The first appellate authority confirmed the order of the Assessing Officer on this point. In further appeal by the assessee, the Income-tax Appellate Tribunal allowed the appeal on this point by relying on the decision of the Supreme Court in CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320 and held that the Assessing Officer was not justified in setting off the negative profit in respect of the export of trading goods against the aggregate of the export profits on manufactured goods. Being aggrieved by the said order of the Tribunal, this appeal is filed by the Revenue. The appellant had formulate....
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....ounsel for the assessee, on the other hand, submits that section 80HHC of the Act is a self-contained code in itself, and that the computation of the deduction has to be made strictly in accordance with the said provisions, and so construed, the profits of the business referred to in sub-clause (i) of clause (c) of sub-section (3) of section 80HHC read with the provisions of clause (baa) of the Explanation to sub-section (3), the profit has to be worked out strictly in accordance with the provisions of sections 30 to 44D, which falls under the head "Income from profits and gains of business or profession" and there is no question of applying the other provisions of the Act, particularly, the provisions of sections 70 and 71 thereof. The counsel further submitted that the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd.'s case [1978] 113 ITR 84 or the decision in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 (SC), rendered in the context of the provisions of sections 80M, 80E and 80AA of the Act have no application to section 80HHC. Counsel pointed out that those provisions open with the words, "Where the gross total income of an assessee being a....
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...., learned counsel appearing for the assessee brought to our notice the decision of the Supreme Court in Civil Appeal 4605 of 1998 affirming the decision in A. V. Thomas' case [1997] 225 ITR 29 (Ker). Hence, the case was posted as "to be spoken to" to this date and matter was further heard on the merits. Now there is no surviving conflict between the two decisions of this court. We also note that both the said decisions were rendered in the context of the provisions of section 80HHC which was different from the one which we are now considering. In these circumstances, we are disposing of this case on the merits by this judgment. The question for consideration in this case, as already noted, is as to whether in the computation of the relief under section 80HHC of the Act, the Assessing Officer is entitled to deduct the loss incurred from the export of the trading goods from the profits derived from the export of own goods, namely the manufactured goods. In order to appreciate the rival contentions, it necessary to refer to the relevant provisions of the Act. Section 80HHC(1) as stood at the relevant time reads as follows: "80HHC. Deduction in respect of profits retained for exp....
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.... Since the Revenue relies on the decision of the Supreme Court rendered in the context of the provisions of section 80E of the Act, as it stood upto April 1, 1989, and also section 80M of the Act, the said provisions are also extracted: "80E. Deduction in respect of profits and gains from specified industries in the case of certain companies.-(1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of anyone or more of the articles or things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent. thereof, in computing the total income of the company. (2) This section applies to (a) an Indian company; or (b) any other company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, but does not apply to any Indian company referre....
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....-section (3). However, when the export out of India is of goods or merchandise, both manufactured or processed goods and trading goods-the computation is provided under clause (c) of sub-section (3). Under the said clause, where the export out of India is of goods or merchandise, manufactured or processed by the assessee, and of trading goods, the profit derived from such export shall in respect of the goods or merchandise, manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee. There is no difficulty in finding out the adjusted export turnover and the adjusted total turnover of the business, with reference to the definition of the said two terms contained in clauses (a) and (c) of the Explanation to sub-section (3). However, the difficulty arises only in arriving at the adjusted profits of the business referred to in sub-clause (i) of clause (c). The adjusted profits of the business as already extracted earlier, means the profits of the business as reduced by the profits d....
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....with and subject to the provisions of this section. Further, the deduction is in respect of the profits derived by the assessee from the export of such goods or merchandise, computed in accordance with the provisions of sub-section (3). In clause (c) of sub-section (3), regarding computation of profits, where the export out of India is of goods or merchandise, manufactured or processed by the assessee and of trading goods, there is no reference to any "gross total income" or "total income" or any computation of total income. We find that the reference in sub-clause (i) of clause (c) of sub-section (3) is to the amount which bears to the adjusted profits of the business, and the definition of the expression" adjusted profits of the business" also refers to the "profits of the business", and by virtue of clause (baa) of the Explanation to section 80HHC, it means the profits of the business as computed under the head "Profits and gains of business or profession". Nowhere in the computation provision, we find any requirement to compute the profit derived from export business in accordance with the provisions of the Act. Clause (baa) only provides for computation of the profits of the b....
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....omputation provision under sub-section (3), particularly, clause (c) thereof, does not refer to either gross total income or total income, with reference to which the computation of the profits of the business has to be arrived at. Thus, we are of the view that the Tribunal was justified in its conclusion that the loss incurred in the export of trading goods cannot be deducted from the profit derived from the export of own goods. Under the scheme of section 80HHC as it stood at the relevant time, actual profit from the export business was not a necessary requirement for grant of relief under the said section. The profits derived from the export business have to be worked on a formula which is not based on any actual export profit. This view of ours finds support from the decision of the Bombay High Court in CIT v. Shirke Construction Equipments Ltd. [2000] 246 ITR 429, and the decision of the Gujarat High Court in CIT v. Arvind Mills Ltd. [2002] 254 ITR 529. Two questions arose for consideration before the Bombay High Court in Shirke Construction Equipments Ltd.'s case [2000] 246 ITR 429 above; the first one was as to whether section 80AB applies to section 80HHC. The second que....
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.... section 80HHC(3) is to arrive at the export profits by multiplying the business profits with export turnover by total turnover. He also contended that the effect of section 80AB was that where any income in respect of which deduction is claimed falls under the heading "C" of Chapter VI-A is included in the gross total income, then, the amount of income of that nature shall first be decided in accordance with the provisions of the Act before making any deductions' under Chapter VI-A. However, section 80HHC does not provide that income from exports should be included in the gross total income and that the Legislature has made a departure from other sections of Chapter VI-A in enacting section 80HHC. He also contended that section 80AB came into the picture because a controversy arose as to whether dividend income was relatable to gross income or whether it was relatable to net income and section 80AB came to be introduced to make it applicable to all specified incomes like royalty. He consequently contended that section 80AB did not control section 80HHC. The Division Bench considered the questions and observed that for the purpose of computing the deduction under section 80HHC(3), ....
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....0AB. In the case of section 80P, etc., the same formula would work. However, in those cases, the business profits are required to be computed on the basis of the provisions of the Act in their entirety including section 71 and section 72 of the Act. However, when it comes to the artificial formula for computing the export profits for the purposes of deduction from the gross total income in section 80HHC(3) the business profits shall be computed under the head 'Profits and gains of business' which, in turn, refers to section 28 to section 44D and which will exclude section 71 and section 72 of the Act. Therefore, section 80AB does not control section 80HHC(3). Therefore, section 80HHC is a complete code by itself. Hence, there is no merit in this appea1." The High Court also considered the decision of the Supreme Court in Motilal Pesticides (I) (P.) Ltd. v. CIT [2000] 243 ITR 26 rendered in the context of section 80P of the Act, and observed that there is a difference in language between section 80AB and section 80P, on the one hand, and section 80HHC, on the other hand. The High Court also referred to the decision of this court in CIT v. V.T. Joseph [1997] 225 ITR 731, and the d....
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....ance with the provisions of the Act which will certainly take in section 70 of the Act providing for setting off the loss incurred in the business. In that context, the senior counsel has relied on the decision of the Supreme Court in CIT v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118. There, the question before the Supreme Court was whether the capital loss could be determined and carried forward in accordance with the provisions of section 24 of the Indian Income-tax Act, 1922, when the provisions of section 12B of the Indian Income-tax Act, 1922, itself were not applicable in the assessment year 1955-56. In that case, the assessee, a private limited company, had purchased 1,124 shares of M/s. Intercontinent Travancore Pvt. Ltd. at a cost of Rs. 1,12,400 from M/s. Escorts (A & M) Ltd. In the relevant accounting year, the assessee received 562 bonus shares from the said company. It thus acquired a total number of 1,686 shares. During the relevant previous years, the assessee sold all these 1,686 shares to M/s. Escorts (Agents) Ltd. for Rs. 84,300 and claimed a loss of Rs. 84,862 in the income-tax return filed by it. The Income-tax Officer disallowed the entire loss on the ground....
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....ssee as defined in section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the 'total amount of income, profits and gains referred to in section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act.' If either of these conditions fails, the income will not be a part of the total income that can be brought to charge." According to us, the above general observations made by the Supreme Court have no application in a case of determination of profits derived from the business under section 80HHC of the Act, for as already noted, section 80HHC is a self contained one and it provides that the mode of computation of the profits derived from the business, which in turn, refers to the provisions of sections 28 to 44D, by virtue of the Explanation contained in clause (baa) of section 80HHC of the Act. The general observations of the Supreme Court will apply only to a case of determination of income, total income, or the computation of total income. It has no application to a case of determination of "profits of business" contained in section 80HHC(3)(c)(i) of the Act. The other decision r....
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.... contended before the High Court that the expression "total income" appearing in section 80E(1) had been used in its commercial sense and since the unabsorbed depreciation and the unabsorbed rebate has nothing to do with the commercial profits attributable to the business, the said two items would not be deductible before arriving at the figure that would be exigible to the 8% deduction. Repelling the said contention, the Supreme Court observed as follows: "First, in sub-section (1) of section 80E, the expression 'total income' is followed by the words' as computed in accordance with the other provisions of this Act' in parenthesis and the mandate of these words clearly negatives the argument that the expression 'total income' has been used in the sense of commercial profits. Secondly, the expression, the 'total income' has been defined in section 2(45) of the Act as meaning 'the total amount of income referred to in section 5, computed in the manner laid down in this Act' and when this definition has been furnished by the Act itself the expression as appearing in section 80E(1) must, in the absence of anything in the context suggesting to the contrary, be construed in accordanc....
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....ion". In other words the question of applying section 72 of the Act arises only in the computation of total income under the Act. The Appellate Tribunal in this case has relied on the decision of the Supreme Court in CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320. The Supreme Court in that case was concerned with a claim for deduction under section 80E of the Act. The said provision provided for a deduction of 8% from the profits and gains. The question was whether, for the purpose of granting relief under section 80E, the loss suffered by the assessee in the manufacture of alloy steels can be set off against the profits arising from the manufacture of automobile ancillaries. The Supreme Court observed that having regard to the object and scheme of the provisions of section 80E, the profits and gains earned by an industry mentioned in that section cannot be reduced by the loss suffered by any other industry or industries owned by the assessee. The Supreme Court referred to its earlier decisions which we have considered hereinabove and observed that the said decisions have no application. In fact the Bombay High Court in the decision discussed earlier had considered all the....