2006 (5) TMI 421 - AT - Income Tax

Summary

Issues:
1. Interpretation of deduction under section 80HHC(3)(b) vs. 80HHC(3)(a) for a trading exporter.

Analysis:
The appeal involved a dispute regarding the interpretation of deduction under section 80HHC for the assessment year 2001-02. The Assessing Officer had granted a deduction under section 80HHC(3)(a) treating the assessee as a manufacturer or processor, while the assessee claimed deduction under section 80HHC(3)(b) as a trading exporter. The CIT(A), following a Supreme Court decision, directed the deduction under section 80HHC(3)(b) for trading activities. The revenue contended that the assessee's activities did not qualify as trading since the goods imported and exported were different. The insertion of "or processed" in clause (a) broadened its scope to include processed goods, not just manufactured ones. The assessee imported teak wood round logs and exported teak wood sawn timber, indicating processing. The CBDT Circular No. 636 clarified the rationale behind the amendment. The Tribunal held that the assessee's activities fell under clause (a) of sub-section (3) of section 80HHC, as the goods were processed, not merely traded. The decision under the Sales Tax Act was deemed irrelevant due to the wider scope of "processed" compared to "manufactured." The Tribunal reversed the CIT(A)'s decision and upheld the Assessing Officer's computation of profits derived from export under clause (a) of sub-section (3) of section 80HHC.

This detailed analysis clarifies the interpretation of the deduction under section 80HHC and the application of the "or processed" clause in determining eligibility for the deduction. The Tribunal's decision provides a comprehensive understanding of the legal principles involved and the rationale behind the judgment.