2003 (7) TMI 24 - HC - Income Tax

1. Whether, Tribunal was justified in upholding the order of the lower authorities restricting the claim under section 80HHC to a sum of Rs. 13,54,636? - 2. Whether there were materials for the Tribunal to hold that the computation under section 80HHC(3)(b) was relevant and not section 80HHC(3)(a) in the applicant s case? - If the assessee is engaged in the business of local sale of goods in addition to the export sales clause (b) of sub-section (3) of section 80HHC is attracted - We answer the questions referred in the affirmative, i.e., in favour of the Revenue and against the assessee.

Summary

Issues:
1. Interpretation of provisions of section 80HHC of the Income-tax Act, 1961 regarding computation of profits from export business.
2. Application of section 80HHC(3)(b) in cases involving both export and local sales of goods.

Analysis:

Issue 1: Interpretation of provisions of section 80HHC

The case involved a partnership firm engaged in the purchase and sale of raw rubber, coconut, oil, and pepper. The dispute arose regarding the application of section 80HHC for computing profits from export business. The Assessing Officer and the first appellate authority applied section 80HHC(3)(b) to determine the profits from export business, whereas the assessee contended that section 80HHC(3)(a) should be applied. The key contention was whether the turnover of local sales should be considered in computing export business profits. The High Court analyzed the provisions of section 80HHC, emphasizing the distinction between clause (a) and clause (b) of sub-section (3). It was held that clause (a) applies when the assessee is exclusively engaged in export business, while clause (b) applies when the business includes both export and local sales of goods. The court referred to relevant precedents to support the interpretation of the provisions.

Issue 2: Application of section 80HHC(3)(b) in mixed business scenarios

The court considered the arguments presented by both parties regarding the application of section 80HHC(3)(b) in cases where the assessee is involved in both export and local sales of goods. The assessee contended that only profits from export sales should be considered, excluding local sales turnover. On the other hand, the Revenue argued that all business activities, including local sales, should be taken into account for computing export business profits. The court referred to previous judgments, including the decision in Madras Motors Ltd./M.M. Forgings Ltd.'s case, to support its conclusion. It was held that when an assessee is engaged in both export and local sales of goods, clause (b) of sub-section (3) of section 80HHC is applicable, and the turnover of all business activities should be considered for profit calculation.

In conclusion, based on the binding decision of the Division Bench and the interpretation of the relevant provisions of section 80HHC, the court ruled in favor of the Revenue, upholding the application of section 80HHC(3)(b) for computing profits from export business in cases involving mixed business activities.