What is the correct method of computation of deductions
under Section 80HHC(3) of the Income Tax Act, 1961, in the given facts and
circumstances,
Finance Act of 1983 introduced Section 80HHC of the Income
Tax Act, providing incentives to exporters and deductions for persons
involved in the export business.
Section 80HHC(3)(b) provided the formula
for the computation of deduction for persons who do not have business
exclusively of export out of India, that is to say, in cases where the
assessee is having turnover and income from business in India as well as
from the export business.
On 05.07.1990, the Central Board of Direct Taxes (CBDT) issued
Circular No.564 dated 05.07.1990 giving detailed guidelines as to how the
deductions under Section 80HHC are to be calculated.
The formula prescribed by CBDT circular is as follows:
|Profit of the |X |Export Turnover |
|Business | | |
| | |Total Turnover |
the Assessing Officer passed fresh order dated 28.05.1992
giving effect to the orders of the ITAT.
While giving the effect, the
Assessing Officer found that the appellant had not earned any profits from
the export of Marine products and in fact, from the said export business,
it had suffered a loss.
Therefore, according to the Assessing Officer, as
per Section 80AB, the deduction under Section 80HHC could not exceed the
amount of income included in the total income.
He found that as the income
from export of Marine product business was in the negative i.e. there was a
loss, the deduction under Section 80HHC would be nil, even when the
assessee is entitled to deduction under the said provision.
"Whether on the facts and in the circumstances of the case, the
Tribunal was right in law in holding that the deduction admissible to the
assessee under Section 80HHC is nil?"
The High Court has now pronounced on the aforesaid question referred
to it by the impugned judgment dated 20.08.2002 answering this question
against the assessee holding as under:
"5. In this case, the assessment admittedly had not earned any
profits from the export of the Marine products. On the other hand, it had
suffered a loss. The deduction permissible under Section 80HHC is only a
deduction of the profits of the assessee from the export of the goods or
merchandise. By the very terms of Section 80HHC, it is clear that the
assessee was not entitled to any benefit thereunder in the absence of any
profits.
The question referred to us therefore is answered against the
assessee and in favour of the revenue."
Therefore, we are of the opinion that the view taken by the Highgiving effect to the orders of the ITAT.
While giving the effect, the
Assessing Officer found that the appellant had not earned any profits from
the export of Marine products and in fact, from the said export business,
it had suffered a loss.
Therefore, according to the Assessing Officer, as
per Section 80AB, the deduction under Section 80HHC could not exceed the
amount of income included in the total income.
He found that as the income
from export of Marine product business was in the negative i.e. there was a
loss, the deduction under Section 80HHC would be nil, even when the
assessee is entitled to deduction under the said provision.
"Whether on the facts and in the circumstances of the case, the
Tribunal was right in law in holding that the deduction admissible to the
assessee under Section 80HHC is nil?"
The High Court has now pronounced on the aforesaid question referred
to it by the impugned judgment dated 20.08.2002 answering this question
against the assessee holding as under:
"5. In this case, the assessment admittedly had not earned any
profits from the export of the Marine products. On the other hand, it had
suffered a loss. The deduction permissible under Section 80HHC is only a
deduction of the profits of the assessee from the export of the goods or
merchandise. By the very terms of Section 80HHC, it is clear that the
assessee was not entitled to any benefit thereunder in the absence of any
profits.
The question referred to us therefore is answered against the
assessee and in favour of the revenue."
Apex court held that
Court is correct on the facts of this case. With this, there may not be
need to answer the second facet of the problem as the question of
computation of deduction does not arise. However, we find that even here,
the approach of the ITAT is correct.
In the present case, the domestic income in respect of which benefit
is sought is from dividend income, interest income, profit or sale of
shares and fees received from arranging finance for the assessee's clients.
The Tribunal has recorded this aspect as under:
13. It is, however, seen from the assessee's Profit & Loss Account
for the year of account ending on 31.03.1989 that the aggregate sum of
Rs.26,04,477 (which the assessee has labeled as total turnover) comprised
not only export turnover of Rs.16,67,084 but also the following items which
cannot properly be regarded as turnover:
|(1) |Brokerage received for arranging |:|Rs.8,50,321|
| |Finance for the assessee's claims | | |
|(2) |Dividend |:|Rs. |
| | | |5,247 |
|(3) |Interest |:|Rs. |
| | | |7,212 |
|(4) |Profit on sale of shares |:|Rs. |
| | | |74,913 |
| | | |Rs.9,37,693|
The Tribunal observed that aforesaid four items are income
simplicitor and cannot be covered by the expression "total turnover".
Following discussion of the Tribunal in this behalf needs to be quoted:
"17. Now the mode and mechanics of computing the deduction
admissible to an assessee falling under Section 80HHC(3)(b) clearly
proceeds on the basis that in trading transactions profit, or, as the case
may be, loss is embedded in the gross turnover. The most significant
conclusion that flows from the said provision is that when Section 80HHC(3)
talks of turnover, it talks of trading receipts and not of receipts which
are of the nature of income to start with. It should, therefore, follow
that the aggregate sum of Rs.9,37,693/- referred to supra cannot be
regarded as turnover, and that by the same token, it should be left out of
reckoning for purposes of computing deduction admissible to the assessee
under Section 80HHC. If this exercise is done, we are back to Proposition
No.1. This would mean that the deduction admissible to the assessee under
Section 80HHC would be nil, especially in view of the fact that the export
business of the assessee has resulted in a loss.
xx xx xx
But a manufacturer may not invariably be able to export, in their
entirety, the goods or merchandise manufactured. He may export a part of
them and sell the rest in India. Given the paramount need to give fillip
to exports, Parliament clearly intended that the benefit of Section 80HHC
should not be denied in such cases. But the difficulty in such cases is
that the profits attributable to exports cannot be ascertain with
precision. This is because not only the manufacturing activities but also
the selling activities (including the activities connected with exports)
from a continuous, integrated whole. Even so, the intention of Parliament,
was to extend the benefit of Section 80HHC to the extent of the profits
generated by exports. With this end in view, Parliament incorporated a
rule of thumb in Section 80HHC(3)(b). As long as the assessee has cleared
profits in a particular year of account, export profits are computed by
applying to total profits the ratio which export turnover bears to total
turnover."
We are in agreement with the aforesaid view of the Tribunal.
Therefore, even otherwise, the formula as sought to be applied by the
appellant does not become applicable on the facts of this case.
Thus, from every angle the matter is to be looked into, the appeal
lacks merit. Same is, accordingly, dismissed with costs. - 2015 SC msklawreports
