2006 (4) TMI 115 - HC - Income Tax

Assessee purchased 105 computers and peripherals for Rs. 90, 91,063 and exported them and realised the sale proceeds of Rs. 90,91,063 - assessee did not derive any profit from the aforesaid export. On this aspect there is no dispute. In the absence of the assessee deriving any profit, the assessee is not entitled to deduction under section 80HHC. In that view of the matter, the Tribunal has committed serious error in interfering with the order passed by the Commissioner disallowing deduction

Summary

Issues:
Interpretation of section 80HHC of the Income-tax Act, 1961 regarding deduction for export business profitability.

Analysis:
The High Court of Karnataka was presented with a question of law regarding the allowance of deduction under section 80HHC of the Income-tax Act, 1961, when the assessee had not derived any profit from the export business. The case involved a limited company that purchased computers and peripherals for a certain amount, exported them, but did not make any profit from the transaction. The Income-tax Officer initially allowed the deduction under section 80HHC, but the Commissioner of Income-tax later held that since the assessee did not make any profit from the export, they were not entitled to the deduction. The Tribunal, however, ruled in favor of the deduction, leading to the reference of the question to the High Court.

Upon thorough examination, the High Court referred to the Supreme Court's decision in the case of IPCA Laboratory Ltd. v. Deputy CIT, which clarified the interpretation of section 80HHC. The Supreme Court highlighted that profits and losses from both self-manufactured goods and trading goods must be considered in determining eligibility for the deduction. If there is a positive profit after adjustments, the assessee is entitled to the deduction; otherwise, not. The court emphasized that profits from exports of both self-manufactured goods and trading goods must be taken into account for the deduction under section 80HHC(1).

In the specific case at hand, the assessee had purchased and exported computers and peripherals without making any profit from the transaction. As per the Supreme Court's interpretation and the clear language of section 80HHC, the assessee, in this scenario, was not entitled to the deduction under section 80HHC due to the absence of profit derived from the export. The High Court concluded that the Tribunal erred in interfering with the Commissioner's decision to disallow the deduction. Therefore, the question of law was answered in the negative against the assessee and in favor of the Revenue.

In light of the above analysis and interpretation of the law, the High Court disposed of the reference without issuing any costs.