2004 (5) TMI 26 - HC - Income Tax

Deduction under section 80HHC - 1. Whether, Tribunal was right in law in holding that the assessee is entitled to deduction under section 80HHC even though the export business resulted in a loss of Rs. 6,372? 2. Whether, Tribunal is right in law in holding that commission and brokerage for procuring export contracts for other exporters is exempt under section 80HHC on the ground that the same is export profits? - We answer both the questions raised in the negative and in favour of the Revenue.

Summary

Issues:
1. Entitlement to deduction under section 80HHC despite a loss in export business.
2. Exemption under section 80HHC for commission and brokerage for procuring export contracts.

Issue 1: Entitlement to deduction under section 80HHC despite a loss in export business:

The case involved the assessment year 1990-91 where the assessee's gross total income was mainly from commission and brokerage for procuring export contracts, with a loss incurred in actual export business. The Assessing Officer denied exemption under section 80HHC due to the export business loss. The Income-tax Appellate Tribunal, relying on a previous decision, allowed the benefit under section 80HHC for the commission/brokerage income. The High Court analyzed section 80HHC, emphasizing that profits derived from export should be a positive figure after considering losses. Referring to relevant case laws, the High Court highlighted the Supreme Court's interpretation that "profit" in section 80HHC means positive profit, not a loss. The court concluded that allowing exemption for income from other sources due to export losses would lead to absurd outcomes. Therefore, the High Court held in favor of the Revenue, denying the deduction under section 80HHC in cases of export business losses.

Issue 2: Exemption under section 80HHC for commission and brokerage for procuring export contracts:

The second issue revolved around whether income from commission/brokerage for procuring export orders for other exporters should be exempt under section 80HHC. The High Court answered this question in the negative. The court pointed out that granting exemption in such cases would lead to double benefits for both the exporting house and the broker. The court referred to an Explanation added as an amendment, clarifying that such income should not be exempt. The assessee argued that since the Explanation was added post the relevant period, it should not apply. However, the court highlighted that clarificatory provisions are generally retrospective. Citing relevant precedents, the court emphasized that clarificatory provisions are presumed to have retrospective effect. Therefore, the High Court ruled against granting exemption for income derived from procuring export contracts for other exporters under section 80HHC.

In conclusion, the High Court decided both issues in favor of the Revenue, denying the assessee the deduction under section 80HHC for losses in export business and rejecting exemption for income from commission and brokerage for procuring export contracts for other exporters.