TaxTMI 
TaxTMI 
2001 (7) TMI 99
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....own level. In this appeal we are concerned with the assessment year 1996-97. On November 28, 1996, the return of income was filed by the appellant declaring "nil" income. The taxable income before deductions under Chapter IV-A was Rs. 4.39 crores (approximately). However, against the said taxable income, the appellant claimed deductions under Chapter VI-A. One such deduction was under section 8OHHC of Rs. 3.78 crores. The return was processed on March 3, 1997. On a perusal of the details filed along with the return of income, it was found that the assessee was an exporter of goods which were self-manufactured as well as of the goods manufactured by the sup porting manufacturers. Accordingly, the profits eligible for deduction consisted of profits from exports of self-manufactured goods ; profits from exports of goods manufactured by the supporting manufacturers and pro fits for export incentives. The appellant filed Form No. 10CCAC along with the return of income which indicated net loss from the export of goods. The break up of the loss was shown as under : &nb....
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....ext of exports of trading goods should be ignored for the purposes of section 80HHC(3)(c) and that such loss should not be adjusted against profits from export of self-manufactured goods. The Assessing Officer rejected the aforestated contentions of the assessee. The Assessing officer came to the conclusion that under section 80HHC(3)(c), the loss of Rs. 6.86 crores was required to be adjusted against profit from export of self-manufactured goods of Rs. 3.78 crores. That the said loss of Rs. 6.86 trores cannot be ignored. That if the contention of the assessee was to be accepted, it would mean that both, the assessee and the supporting manufacturer, would become eligible for tax concession under section 80HHC'whereas, if there was no disclaimer, none would be entitled for the said benefit. He found that the said section 8OHHC(L) came to be amended with effect from April 1, 1989, when the word "profit" came to be substituted for the expression "whole of income". He came to the conclusion that the object of this amendment was to ensure that deduction is allowed under section 80HHC only when the assessee is having profit. That, although the word "income" may include loss, for the purp....
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....ee, submitted that the Tribunal failed to interpret the relevant provisions of law in a liberal way. He contended that section 8OHHC gives incentives for exports. He contended that the Tribunal has interpreted the said section narrowly. He contended that section 80HHC(3)(c) refers to aggregation of profits on trading goods with profits on self-manufactured goods. That, in the case of profit on trading goods the same has to be club- bed with the profits on self-manufactured goods. However, in the cases of a loss on trading of goods, the same has to be ignored and not considered with the profits from self-manufactured goods activity. He submitted that the word "profit" in section 80HHC(l) and the word "profit" in the section 80HHC(3) must get a uniform interpretation. He contended that it is now well-settled that the word "profit" under the Income-tax Act includes loss. That the word "loss" is negative profit/minus profit. He contended that the Department has given two different meanings to the word profit. He pointed out that according to the Department the word "profit" in section 80HHC(1) did not include loss, whereas the word "profit" in section 80HHC(3) included minus profit/los....
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....trading export turnover stood disclaimed, there was no export turnover of the trading goods. That the trading turnover and the profits/loss connected thereto go hand in hand and if. the trading turnover in its entirety stands excluded, the loss/profit which go along with such turnover should also he excluded while working out adjusted export turnover, adjusted profits of business, adjusted total turnover and what was required to be considered was only the profits of the assessee-company from export of self-manufactured goods. Briefly, he contended that in view of the disclaimer of the total turnover of trading goods, the losses from such activity should be ignored and only the profits from export of self-manufactured goods should be taken into account for the purposes of calculating the deduction under section 80HHC(1). Findings: We do not find any merit in the above arguments on behalf of the assessee. At the outset, for the sake of conveniences we have set out herein below section 80HHC in its entirety as it stood at the relevant time. In this appeal we are concerned with the assessment year 1996-97. "80HHC (1) Where an assessee, being an Indian company or a person (other than....
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....export ; (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee, and of trading goods, the profits derived from such export shall, (i) 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; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic), of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee." From a plain reading of this section it appears to us that this legisl....
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....r to arrive at the total income/taxable income of the assessee. Section 80HHC is a section which comes under Chapter VIA of the Income-tax Act. The said Chapter provides for special deductions from gross total income. One such deduction is export profits. We would like to emphasise the word "deduction" in section 80HHC(1). Section 80A deals with deductions to be made under Chapter VIA in computing the total income. It lays down that in computing the total income, there shall be allowed deduction from the gross total income of an assessee as specified in section 80C to section 80U. Section 80A(2) lays down that the aggregate amount of the deductions under Chapter VIA shall not exceed the gross total income of the assessee. In other words, what is contemplated is a deduction from the gross total income. This aspect is important because computation of deduction is contemplated by section 80HHC(3), whereas the effect to be given to such computed deduction is contemplated in section 80HHC(1). In other words, the machinery to compute the deduction is provided in section 80HHC(3) and after computing such deduction, such amount of deduction is required to be deducted from the gross total i....
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....nefits under the said section and to avoid misuse of the said provision the Legislature made the above change. Tberefore, the word "profit" does not mean "minus profits". At this stage, one may look at the provisions of sub-section (3) which starts with the expression "for the purposes of sub-section (1)". This expression shows that sub-section (3) is in aid of section 80HHC(1). Now, sub-section (3) consists of three sub-clauses. Sub-clause (a) deals with profits derived by an assessee by export of self-manufactured goods. Sub-clause (b) deals with profits derived from exports of trading goods. Sub-clause (c) deals with profits from export of self-manufactured goods and trading goods. In other words, sub-clause (c) refers to mixed activities of the assessee. The entire sub-section (3) deals with computation 6f profits. The entire sub-section (3) indicates the formula for calculating the profits derived from the aforestated activities of the assessee. It is basically a machinery section. Subsection (1) provides for deduction of profits from the gross total income, whereas sub-section (3) lays down the manner of calculating the profits which, as stated above, constitute deduction, ta....
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....ctured goods and incentives, then all the three profits would be clubbed together and the total deduction would be available to the Trading House from the gross total income. This would be the case where there is no disclaimer, but if there is a disclaimer, as in the present case, then the total deduction/tax concession which, as stated above, is tile net profit calculated under section 80HHC(3), would stand proportionately reduced to the extent of the disclaimed amount which is passed on to the supporting manufacturer. It is for this reason that the proviso is introduced by the Legislature in section 80HHC(1). Under that proviso, the Export House is entitled to issue a disclaimer certificate in favour of the supporting manufacturer. The said proviso is not introduced after section 80HHC(3). The reason is clear. Section 80HHC(3)(c) provides for computation of net profit and after arriving at such profit, effect is given to the resultant figure under section 80HHC(1) which provides for deduction from gross total income only to the extent of the resultant figure calculated under section 80HHC(3)(c) in order to arrive at the taxable total income of the assessee. At this stage, we may ....
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....nd merit in the contention of the Department that the benefit of disclaimer for the purposes of claiming tax concession can be availed of by the assessee only if there is profit under sub-section (1) which has to be a positive figure. 14ow, under the proviso to section 80HHC(1), the total tax concession would stand reduced proportionately to the extent of disclaimer. It is clear, therefore, that the only effect of dis6iiimer is to reduce tax concession. That such disclaimer will reduce th6fesultant figure of deduction falling under section 80HHC(1). Hence, it is clear that the disclaimer can only operate if there is profit under section 80HHC(1) which, as stated above, refers only to positive figure of profit and which excludes loss. In other words, if the resultant figure is a loss, as in this case, the assessee cannot claim deduction of the loss under section 80HHC(1) from gross total income and so also, the assessee cannot ignore the loss. Our reasoning is also supported by the formula given by the circulars issued by the Department which clearly show that the assessee will have to first compute the deductions under section 80HHC(3)(c) in order to arrive at the total tax concess....
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....s from self-manufactured goods shall be arrived at by applying the ratio of export turnover of self-manufacturing, goods to the total turnover of self-manufactured goods. (ii) profits relating to export of trading goods to be arrived at by deducting from the sale proceeds, the direct and indirect costs. In this matter, we are concerned with the mixed activity, viz., export of trading goods and export of self-manufactured goods. Therefore, we are concerned with section 80HHC(3)(c) which is already discussed hereinabove. the profits computed under the formula in clause (c) of section 80HHC(3) shall be increased by the amount which bears to 90 per cent. of export incentives. This is mentioned in the proviso to section 80HHC(3)(c). The entire discussion on section 80HHC(3)(c), therefore, shows that it deals with commutation of profits which represent deduction. It indicates that profits from the two activities should be aggregated. The two sub-clauses in clause (c) are required to be read conjunctively and not disjunctively, particularly in view of the fact that the two sub-clauses are separated by the word "and". At this stage, it may be pointed out that earlier it was held by the ....
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....he present case, if the assessee's argument is to be accepted, it would mean that even in cases where the net result of the aggregation is a loss/negative profit, even then, the assessee would be entitled to deduct such negative profit from gross total income to arrive it the total income under section 80HHC(1). This would defeat the purpose of section 80HHC. Now, in the present case, without disclaimer and on the basis of the aggregation of the profits which includes loss, the resultant figure is a loss in the hands of the Export House and, therefore, they are not entitled to claim deduction under section 80HHC(1). However, the argument is that because of the disclaimer, the loss on the export of trading goods amounting to Rs. 6.86 crores be ignored and only the profits from the self-manufactured goods of Rs. 3.78 crores alone should be taken into account. This is an ingenious method because if this argument is accepted, then the supporting manufacturer as well as the Export House would be both entitled to the benefit of tax concession/deduction under section 80HHC. This would defeat the very object of section 80HHC(1). In the circumstances, we hold that the word "profit" in secti....