2008 (9) TMI 7 - SC - Income Tax

Formula to compute Export Profits assessee is doing export business exclusively hence export turnover & total turnover would be identical, if the entire sale proceeds are brought into India in convertible foreign exchange within the prescribed time limit - HC had erred in relying upon the judgment of SC in IPCA Laboratory Ltd. because Section 80HHC(3) has undergone amendments many times further formula has undergone a change by several amendments assessee s appeal allowed

Summary

Issues:
Interpretation of Section 80HHC for deduction in respect of profits retained for export business.

Analysis:
The case involved a limited company that purchased 105 computers for Rs.90,91,063, exported them, and realized export sales of the same amount during Assessment Year (AY) 1990-91. The Income Tax Officer (I.T.O.) allowed a deduction under Section 80HHC at Rs.15,81,389 based on a specific formula. The Department went in revision under Section 263 of the Income Tax Act, contending that Section 80HHC confers benefits only to those deriving profits from export business. The Commissioner set aside the I.T.O.'s order, but the Tribunal, citing a precedent, allowed the deduction. The matter was then taken to the Karnataka High Court, which ruled that since no profits were earned from export sales, the deduction was not applicable, relying on a Supreme Court judgment in another case.

The Supreme Court analyzed Section 80HHC falling under Chapter VI-A, which governs deductions in computing total income. The Court highlighted that eligibility for deduction is under Section 80HHC(1), while the quantum of deduction is determined under Section 80HHC(3) using a principle of proportionality. The formula applies to turnover from export sales exclusively and composite sales. The Court emphasized the correct application of the formula by the I.T.O. in the case of composite business, where export turnover differs from total turnover.

The Court criticized the High Court's reliance on a Supreme Court judgment from a later assessment year, as Section 80HHC(3) had undergone multiple amendments. Referring to a circular issued by the Central Board of Direct Taxes (CBDT), the Court clarified the statutory basis for deduction calculation, emphasizing the proportion of business profits for deductions. The Court allowed the civil appeal, setting aside the High Court's judgment, and clarified that their reasoning applied to the law during the relevant assessment year.

In conclusion, the Supreme Court's judgment clarified the interpretation of Section 80HHC for deductions related to profits retained for export business, emphasizing the statutory formula and the principle of proportionality in determining deductions for different types of business turnovers.