2012 (9) TMI 646 - HC - Income Tax

Deduction u/s 80HHC when loss is derived from the export of goods and merchandise - Held that - Issue is no longer res integra. Supreme Court in IPCA Laboratories Ltd. vs. DCIT (2004 (3) TMI 9 - SUPREME COURT ) held that on an assessee suffering net loss in export business, the entitlement for deduction u/s 80HHC is not available - Decided in favor of Revenue

Summary

Issues:
1. Deduction under Section 80HHC of the Income Tax Act for assessment years 1990-91 and 1991-92.
2. Interpretation of the term "derived from" in Section 80HHC.
3. Granting deduction under Section 80HHC when no profits are derived from export of goods and merchandise.

Issue 1: Deduction under Section 80HHC

The case involved appeals filed by the Revenue regarding the deduction under Section 80HHC of the Income Tax Act for the assessment years 1990-91 and 1991-92. The assessee, a company engaged in plantation business and local trading, also conducted export activities. Initially, the deduction was allowed by the Assessing Officer. However, upon discovering that the export business resulted in a loss, proceedings were initiated to rectify the mistake and disallow the deduction. The first appellate authority reversed the decision of the Assessing Officer and allowed the deduction, a decision upheld by the Income Tax Appellate Tribunal.

Issue 2: Interpretation of "Derived From"

The main contention revolved around the interpretation of the term "derived from" in Section 80HHC concerning the eligibility for deduction. The Revenue questioned whether the Tribunal was correct in law in allowing the deduction under Section 80HHC when no profits were derived from the export of goods and merchandise. The case law cited, including IPCA Laboratories Ltd. vs. Deputy Commissioner of Income Tax and A.M. Moosa vs. Commissioner of Income Tax, established that an assessee suffering a net loss in export business is not entitled to the deduction under Section 80HHC. The Supreme Court rulings guided the decision to disallow the deduction in the present case, leading to the orders of the Tribunal and the first appellate authority being set aside in favor of the Revenue.

Issue 3: Granting Deduction Without Profits

Considering the specific circumstances where the assessee's export business resulted in a loss, the question arose whether the Tribunal was justified in granting the deduction under Section 80HHC. The judgment highlighted the precedent set by the Supreme Court, emphasizing that when an assessee incurs a net loss in export activities, the entitlement for deduction under Section 80HHC is not applicable. Consequently, the appeals were allowed in favor of the Revenue, overturning the decisions of the lower authorities and reinstating the order of the Assessing Officer.

In conclusion, the judgment addressed the issues related to the deduction under Section 80HHC of the Income Tax Act, emphasizing the interpretation of the term "derived from" and the implications of claiming deductions in cases where no profits are derived from export activities. The decision aligned with established legal principles and precedents, ultimately ruling in favor of the Revenue and setting aside the earlier decisions that allowed the deduction claimed by the assessee.