2003 (3) TMI 24 - HC - Income Tax

(1) Whether, on an interpretation of the relevant provisions, the Tribunal is right in law in holding on principle that the assessee is entitled to deduction u/s 80HHC? - (2) Whether, Tribunal is right in law and fact in holding that the business income of the assessee as computed by the Assessing Officer in a sum of Rs. 96,49,307 which entered the total income of the assessee amounting to Rs. 1,04,40,020 should be deemed to include the income by way of exports in an extent of a sum computed in accordance with clause (b) of sub-section (3) of section 80HHC? - We answer the two questions referred by the Tribunal, in the affirmative, that is, in favour of the assessee and against the Revenue

Summary

Issues:
1. Interpretation of deduction under section 80HHC of the Income-tax Act.
2. Computation of profits derived from export business under section 80HHC.

Analysis:

Issue 1: Interpretation of deduction under section 80HHC of the Income-tax Act
The case involved a dispute regarding the entitlement of the assessee to a deduction under section 80HHC of the Income-tax Act. The assessee, a company engaged in tea production and trading, claimed a deduction under section 80HHC for the year 1987-88. The Assessing Officer disallowed the deduction based on a loss from the export of tea, leading to a net loss. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal ruled in favor of the assessee, stating that section 80AB did not apply to cases covered by section 80HHC. The Revenue contended that the profits derived from business under section 80HHC(3) should consider the loss suffered. However, the assessee argued that the deduction should be calculated as per the specific formula provided in section 80HHC(3)(b) without considering whether there was a profit from the export business.

Issue 2: Computation of profits derived from export business under section 80HHC
The court analyzed the relevant provisions of section 80HHC of the Income-tax Act to determine whether the assessee could be denied the benefit of deduction under section 80HHC due to a lack of profit from the export business. Section 80HHC(1) allows a deduction based on a percentage of net foreign exchange realization and profits derived from exports. The court emphasized that the computation of profits under section 80HHC(3) involves a specific formula based on export turnover and total turnover. The court held that actual profit from the export business is not a prerequisite for claiming the deduction under section 80HHC. It clarified that if there is a profit in the overall business, the profits from export turnover should be calculated using the formula provided in the Act. The court cited previous judgments supporting this interpretation and concluded that section 80HHC is a self-contained code, and section 80AB is subject to it. Therefore, the court answered the questions in favor of the assessee and against the Revenue, directing the Tribunal to proceed accordingly.

This detailed analysis of the judgment highlights the key legal interpretations and conclusions reached by the court in resolving the issues related to the deduction under section 80HHC of the Income-tax Act.