2010 (10) TMI 843 - HC - Income Tax

Deduction under s. 80HHC - Whether the Tribunal was justified in deleting, in order to ascertain deduction under s. 80HHC, the profit derived from all the businesses cannot be taken into consideration and it is only the profit from eligible business, i.e., export business alone should be taken into consideration? - Held that - The finding of the Tribunal that for the purpose of calculating deduction under s. 80HHC, it is only the profits from the eligible business, the turnover of the eligible business is to be taken into consideration is contrary to the scheme of s. 80HHC and the circular No. 564, dt. 5th July, 1990. The finding is when the assessee has maintained separate accounts for different units and the assessee is having a number of businesses, then deduction is to be ascertained in respect of eligible business and if separate accounts for such eligible business then deduction is to be computed on the basis of profit from such eligible business and export turnover and total turnover of such business. This finding is ex facie contrary to the definition clause contained in the Explanation where the total turnover is explicitly defined for the purposes of this section. In law there is no distinction between an assessee maintaining separate accounts in respect of each business or the assessee maintaining one account. When once the income from all the businesses is pooled together and constitutes a total income, only the profits derived from all those businesses also should form the components of the profits of business. The Tribunal seems to have been very much carried away by the fact that the assessee has maintained separate accounts for his each business which in law makes no difference - in favour of the assessee and against the Revenue.

Issues Involved:
1. Eligibility and computation of deduction under Section 80HHC of the Income Tax Act.
2. Interpretation of "profits of the business" and "total turnover" for the purpose of Section 80HHC.
3. Applicability of separate accounts for different business units in computing deductions under Section 80HHC.
4. Consideration of global profits versus profits from eligible export business for deduction under Section 80HHC.

Issue-Wise Detailed Analysis:

1. Eligibility and Computation of Deduction under Section 80HHC:
The primary issue revolves around whether the Tribunal was justified in holding that for the purpose of deduction under Section 80HHC, only the profits from the eligible export business should be considered, excluding profits from other businesses. The assessee argued that the profits from all businesses should be included in the computation of the deduction.

2. Interpretation of "Profits of the Business" and "Total Turnover":
The court examined the statutory provisions of Section 80HHC, particularly the definition of "profits of the business" as stated in Explanation (baa). The court noted that "profits of the business" means the profits computed under the head "Profits and gains of business or profession" as reduced by certain specified receipts. The court also referred to the CBDT Circular No. 564, which clarified that the deduction under Section 80HHC is based on a proportion of the profits of the business, irrespective of whether the profits are strictly derived from export activities.

3. Applicability of Separate Accounts for Different Business Units:
The Tribunal had held that if separate accounts are maintained for different business units, the deduction under Section 80HHC should be computed based on the profits from the eligible export business alone. The court, however, found this interpretation to be contrary to the statutory provisions and the intent of Section 80HHC. The court emphasized that whether separate accounts are maintained or not, the total turnover and profits from all businesses should be considered for computing the deduction.

4. Consideration of Global Profits Versus Profits from Eligible Export Business:
The court referred to the Supreme Court's judgment in CIT vs. K. Ravindranathan Nair, which held that Section 80HHC is an incentive provision and not a charging section. The court reiterated that the computation of deduction under Section 80HHC should include all four variables: business profits, export turnover, total turnover, and 90% of certain receipts. The court concluded that the profits from all businesses, not just the eligible export business, should be included in the computation of the deduction.

Conclusion:
The court found that the Tribunal's interpretation was contrary to the scheme of Section 80HHC and the CBDT circular. The court held that the profits from all businesses should be considered for computing the deduction under Section 80HHC, regardless of whether separate accounts are maintained for different business units. The court allowed the appeals, set aside the orders of the Tribunal, appellate authority, and the AO, and answered the substantial question of law in favor of the assessee and against the Revenue. No costs were awarded.

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