2021 (9) TMI 705 - HC - Income Tax

Computation of deduction u/s 80HHC - Whether the computation of deduction under section 80HHC of the Income Tax Act is to be effected after reducing the amount allowed under section 80-IB and section 80-IA? - Whether computation of deduction under section 80HHC of the Income Tax Act is to be done independently without restricting the quantum by reference to the provisions of section 80-IB or section 80-IA ? - activity of packing and sterilization of gloves purchased or produced by the appellant in non-sterilized form from the market would amount to a process of manufacture for the purpose of section 80-IB - HELD THAT - Section 80HHC which relates to deductions in respect of the profits and gains from export business falls under the heading C of Chapter VI-A. There is no ambiguity in section 80-IA(9) of the Act. The intention of the legislature is clear that there cannot be a simultaneous deduction under section 80-IA and under section 80HHC. The profits and gains allowed as deductions under section 80-IA have to be excluded while computing the deduction under section 80HHC. This Court had, as pointed out by both counsel, already held, succinctly, in Olam Exports (India) Ltd. v. Commissioner of Income Tax 2009 (5) TMI 574 - KERALA HIGH COURT that by virtue of specific exclusion of section 80-IB(13) of the Act the assessee is not entitled to simultaneous deduction of both. In other words, while computing the deduction under section 80HHC, deduction granted under section 80-IB cannot be reckoned or has to be excluded. We find no reason to depart from the aforesaid finding of this Court nor do we find any cause for reconsideration. In K. Ravindranathan Nair's case 2007 (11) TMI 10 - SUPREME COURT the issue that arose for consideration was for the years 1993-94 and as observed in that case, the provisions of section 80HHC is no longer a complete code by itself after the subsequent amendments and restrictions. The Supreme Court was considering the computation of export incentive under section 80HHC(3) and the question, in that case, was whether the processing charges can be included in the total turnover while arriving at the export profits. The deduction under section 80HHC of the Act and the deduction under section 80-IB are not simultaneous. The deduction granted under section 80-IB has to be excluded while computing the deduction claimed under section 80HHC. The Tribunal was correct in its conclusion and the first two questions are answered in favour of the revenue. This appeal, therefore, stands dismissed. Deduction u/s 80IB - Whether sterilization and packing as a manufacture for the purpose of section 80-IB ? - Tribunal rejected the claim and held that there was no manufacture in the activity carried out by the assessee - HELD THAT - Non-sterilised gloves are purchased by the assessee and the same is subjected to sterilisation to make it more hygienic. It must be appreciated that the gloves have already been manufactured and processed. On a factual consideration, the Tribunal found that the process of sterilisation carried out by the assessee does not create or bring into being a new product so as to make it a 'manufacture'. The Tribunal had, as a final fact-finding authority, found the process adopted by the assessee as one not coming within the purview of manufacture. We are of the view that the said finding needs no interference and hence the third question raised in these appeals is found against the assessee. This appeal therefore fails and is dismissed

Summary

Issues:
- Computation of deduction under section 80HHC of the Income Tax Act after reducing the amount allowed under section 80-IB and section 80-IA.
- Whether computation of deduction under section 80HHC should be done independently without restricting the quantum by reference to the provisions of section 80-IB or section 80-IA.
- Whether the activity of packing and sterilization of gloves purchased or produced by the appellant in non-sterilized form would amount to a process of manufacture for the purpose of section 80-IB of the Income Tax Act.

Issue 1: Computation of Deduction under Section 80HHC after Reducing Amount Allowed under Section 80-IB and Section 80-IA:
- The appellant claimed deductions under sections 80HHC, 80-IB, and 80JJAA for the assessment year 2000-01. The assessing officer disagreed with the simultaneous deductions and allowed deduction under section 80HHC only to the extent it exceeded the deduction under section 80-IB. The CIT (Appeals) also held that deduction under section 80HHC should be allowed after reducing the amount allowed under section 80-IB from the eligible business profits. The Tribunal confirmed this approach, stating that the computation directed by the CIT (Appeals) was in line with the provisions of the Act. The High Court upheld this decision, emphasizing that the deduction under section 80-IA and section 80-IB cannot be simultaneous, and the profits and gains allowed under these sections must be excluded while computing the deduction under section 80HHC.

Issue 2: Independent Computation of Deduction under Section 80HHC without Restricting Quantum by Reference to Section 80-IB or Section 80-IA:
- The appellant argued that there should be no prohibition on granting simultaneous deductions under section 80-IA and section 80HHC, as the intention of section 80-IA(9) was to grant deductions cumulatively for maximum benefit to the assessee. However, the High Court held that the provisions of section 80-IA(9) clearly state that if an assessee is allowed a deduction under section 80-IA, further deduction to the extent of such profits and gains cannot be allowed under any other provisions of Chapter VI-A, including section 80HHC. The Court reiterated its previous decision that simultaneous deductions under section 80-IB and section 80HHC are impermissible.

Issue 3: Activity of Packing and Sterilization of Gloves as a Process of Manufacture under Section 80-IB:
- The appellant claimed that the activity of packing and sterilization of gloves purchased in non-sterilized form amounted to a process of manufacture for the purpose of section 80-IB. However, the Tribunal found that the process of sterilization did not create a new product to qualify as 'manufacture.' The High Court agreed with the Tribunal's finding, stating that the process carried out by the appellant did not fall within the definition of manufacture. Therefore, the claim for deduction under section 80-IB based on this activity was rejected.

In conclusion, the High Court dismissed all appeals, upholding the decisions regarding the computation of deductions under sections 80HHC, 80-IB, and 80JJAA, and rejecting the claim that the activity of packing and sterilization of gloves constituted a process of manufacture for the purpose of section 80-IB.