2002 (11) TMI 745 - AT - Income Tax

Summary

Issues Involved:
1. Whether profits from exports are not an essential precondition for relief u/s 80HHC(3)(b) and such relief would be available even if there are losses in the business of exports.
2. Whether the provisions of section 80HHC(3)(b) are to be applied to profits like cash compensatory support (CCS) and duty drawback for the purposes of apportionment and computing profits derived from the export of goods or merchandise out of India.
3. Whether the provisions of section 80HHC(3)(b) would be applicable for apportionment of the export profits even in cases where the local business of the assessee is not in the same goods as are exported by it.

Summary:

Issue 1: Profits from Exports as a Precondition for Relief u/s 80HHC(3)(b)
The Tribunal concluded that the matter was academic in the present case since the assessee had profits from the export business. The issue was settled by the earlier Special Bench decision, which held that profits from exports are not an essential precondition for relief u/s 80HHC(3)(b).

Issue 2: Application of Section 80HHC(3)(b) to CCS and Duty Drawback
The Tribunal held that the export incentives such as CCS and duty drawback received by the assessee against exports are derived from the business of exports and are eligible for deduction under section 80HHC(1) without applying the proportionate method of sub-section (3) of section 80HHC. The Tribunal referred to the Central Board of Direct Taxes Circulars No. 564 and No. 571, which clarified that for purposes of section 80HHC, the profits derived from exports would include these incentives.

Issue 3: Applicability of Section 80HHC(3)(b) for Apportionment of Export Profits
The Tribunal extensively referred to the earlier Special Bench decision in the case of International Research Park Laboratories Ltd. v. CIT [1995] 212 ITR (AT) 1 (Delhi), which held that if the assessee has both export and local turnover, the entire profits of the business must be computed under the head "Profits and gains of business or profession" and then apportioned on the basis of the turnover. The Tribunal rejected the argument that separate books of account for export and local businesses would necessitate a different treatment under clause (a) of sub-section (3). The Tribunal emphasized that the legislative intent was to avoid litigation by providing a clear formula for apportionment based on total turnover, irrespective of whether the local turnover was in the same or different commodities.

Conclusion:
The Tribunal upheld the view that section 80HHC(3)(b) applies to the entire business profits, including export incentives, and mandates apportionment based on total turnover. The earlier Special Bench decision was reaffirmed, and the matter was directed to be placed before the Division Bench for passing an order in conformity with the views expressed by the Special Bench.