2011 (8) TMI 405 - HC - Income Tax

Deduction u/s 80HHC - whether for the purpose of computation in terms of sub-section (3) of Section 80HHC after the amendment, each of the businesses of the assessee should be separately computed or it should be computed on the basis of profit arising out of all the businesses of the assessee - The adjusted profit of the business means a profit as reduced by the profit derived from business of exports out of India of trading goods. Thus in calculating the profits, under Subsec. (3)(c)(i), one necessarily has to reduce by profits under Subsec. (3)(c)(ii). As seen above the term profit means positive profit - In S. 80-HHC(1) it is admittedly used to indicate positive profit because the deduction will only be of a positive profit. Section 80-HHC(3) is the sub-section which provides how profits are to be worked out in computing total income - Decided against the assessee

Issues Involved:
1. Interpretation of Section 80HHC of the Income Tax Act, 1961.
2. Computation of deduction under Section 80HHC for separate businesses.
3. Validity of the Tribunal's decision in aggregating profits and turnovers for deduction computation.

Issue-wise Detailed Analysis:

1. Interpretation of Section 80HHC of the Income Tax Act, 1961:

The core issue revolves around the interpretation of Section 80HHC, particularly sub-section (3) as amended by the Finance Act, 1990, effective from April 1, 1991. The appellant argued that the amendment did not bring any substantial change and that separate computations for different businesses should still be allowed. The court quoted both pre-amended and post-amended provisions of Section 80HHC(3) to understand the legislative intent and the changes brought by the amendment.

2. Computation of deduction under Section 80HHC for separate businesses:

The appellant, a public limited liability company, engaged in two distinct businesses-garden tea business and purchased tea business-claimed that deductions under Section 80HHC should be computed separately for each business. They supported this claim by maintaining separate books of accounts and obtaining certification from Chartered Accountants. The Assessing Officer, however, aggregated the profits and turnovers of both businesses to compute the deduction under Section 80HHC, resulting in a lower deduction amount.

3. Validity of the Tribunal's decision in aggregating profits and turnovers for deduction computation:

The Tribunal upheld the Assessing Officer's approach of aggregating profits and turnovers, dismissing the appellant's claim for separate computation. The appellant contended that the Tribunal's decision contradicted earlier accepted practices and relevant judicial precedents. The court examined whether the Tribunal was justified in aggregating the figures or if separate computation should be allowed.

Court's Analysis and Judgment:

The court analyzed the amended provisions of Section 80HHC(3) and the relevant judicial precedents, including the Supreme Court's ruling in IPCA Laboratory Ltd. vs. Deputy Commissioner of Income-tax, which emphasized that the term "profit" in Section 80HHC should be interpreted as positive profit after considering losses. The court concluded that the amendment aimed to unify the computation method by considering the total turnover and profits of all businesses collectively, rather than separately.

The court also reviewed the decisions cited by the appellant, finding them inconsistent with the Supreme Court's interpretation in the IPCA Laboratory case. Consequently, the court held that the Tribunal was justified in aggregating the profits and turnovers for computing the deduction under Section 80HHC.

Conclusion:

The court dismissed the appeal, affirming that the deduction under Section 80HHC should be computed by aggregating the profits, export turnover, and total turnover of all the businesses of the assessee. The questions formulated by the Division Bench were answered in the affirmative and against the assessee, with no order as to costs.

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