2005 (12) TMI 49 - SC - Income Tax

Whether Tribunal was justified in allowing the deduction u/s 80HHC to the assessee-company in spite of not fulfilling the pre-condition which is mandatory in order to obtain such deduction - To consider this aspect of the matter as to whether the appellant had shown any positive profit or not as such clear finding does not appear to have been arrived at by the HC - matter should be considered from this angle by the High Court - matter is remitted to the High Court

Summary

Issues:
Interpretation of section 80HHC of the Income-tax Act for claiming benefit of deduction in case of loss incurred in export business.

Analysis:
The judgment dealt with the interpretation of section 80HHC of the Income-tax Act in the context of an assessee engaged in export business claiming benefit despite incurring a loss. The Commissioner of Income-tax issued a notice under section 263, challenging the allowance of the benefit by the Assessing Officer. The key issue revolved around whether an assessee could claim deduction under section 80HHC despite not fulfilling the mandatory pre-condition of earning positive profits from the export of goods. The High Court dismissed the appeal challenging the Commissioner's order, leading to the matter being brought before the Supreme Court.

The Supreme Court analyzed the provisions of section 80HHC, emphasizing that the profits derived from the export of goods must be positive to qualify for exemption. The term "profits" in the provision signified positive profit earned from the business carried out by the assessee. The Court referred to a previous case where it was held that deductions under section 80HHC could not be claimed if there was a loss in the export of trading goods, even if profits were made from self-manufactured goods. The judgment highlighted that adjusted profit of business should be calculated after considering profits and losses from both self-manufactured and trading goods.

The Court observed that the records did not clearly indicate whether the assessee had shown any positive profit in its export business. It directed the High Court to re-examine the case to determine if the appellant had indeed earned profits, as a clear finding on this aspect was lacking. The Court stressed the need to consider whether the appellant met the requirement of positive profits as mandated by section 80HHC for claiming the deduction. Consequently, the appeal was allowed, and the matter was remitted to the High Court for a fresh consideration based on the observations provided in the judgment.