2008 (2) TMI 385 - HC - Income Tax

Claim for special deduction u/s 80HHC - Supreme Court in the case of A. M. Moosa, observed that word profit in section 80HHC(1) and (3) of the Income-tax Act, 1961, means a positive profit therefore, Tribunal was not correct in holding that the negative export profits should be ignored when aggregating the total turnover including other exports in view of the specific definition adduced in section 80HHC r.w.s. 80AB for the purpose of computing deduction u/s 80HHC

Summary

Issues:
Interpretation of provisions under section 80HHC of the Income-tax Act, 1961 regarding deduction for export profits.

Analysis:
The High Court of Karnataka heard an appeal by the Revenue under section 260A of the Income-tax Act, 1961, against the order of the Income-tax Appellate Tribunal. The key issue was whether negative export profits should be ignored when calculating the total turnover for the purpose of computing deduction under section 80HHC of the Act. The court referred to two significant judgments of the Supreme Court in the cases of IPCA Laboratory Ltd. and A. M. Moosa. The Supreme Court clarified that "profit" in section 80HHC means a positive profit, and deductions can only be permitted if there is a positive profit in exports of both self-manufactured goods and trading goods. The court emphasized that section 80AB has an overriding effect over all other sections in Chapter VI-A, including section 80HHC, and benefits cannot be conferred by misinterpreting the section.

The Supreme Court's interpretation in the case of A. M. Moosa highlighted that the calculation of profits under section 80HHC should include profits from both self-manufactured goods and trading goods. The court emphasized that deductions can only be allowed if there is a positive profit in both types of exports. Additionally, the court clarified that section 80AB prevails over section 80HHC and other provisions of the Act, indicating that the provisions of section 80HHC must be interpreted in line with the wording of the section. While the purpose of section 80HHC is to incentivize export houses, a liberal interpretation should align with the clear wording of the section.

Based on the judgments referenced and the interpretation provided, the High Court of Karnataka ruled in favor of the Revenue and against the assessee. The court held that negative export profits cannot be ignored when aggregating the total turnover for computing deductions under section 80HHC. Consequently, the appeal was disposed of in accordance with the interpretation provided by the Supreme Court judgments, emphasizing the importance of adhering to the clear wording of the statutory provisions for determining eligibility for deductions under section 80HHC of the Income-tax Act, 1961.