1993 (12) TMI 88 - AT - Income Tax

Summary

Issues:
- Appeal against order under section 263 of the Income-tax Act, 1961 regarding deduction under section 80HHC for export turnover.
- Interpretation of the term "export turnover" and "total turnover" for computation of profits derived from export of goods.
- Application of retrospective amendment to exclude freight and insurance from "total turnover" under section 80HHC.
- Consideration of anomaly in computation of export profit due to exclusion of freight and insurance from "export turnover" but not from "total turnover."

Analysis:
The case involves an appeal against an order under section 263 of the Income-tax Act, 1961, concerning the deduction under section 80HHC for export turnover. The appellant, an exporter of dress material with local sales, claimed deduction under section 80HHC based on the profits derived from export of specified goods. The dispute arose regarding the exclusion of freight and insurance from the "total turnover" for computing export profit. The Commissioner of Income-tax held the assessment erroneous, directing the exclusion of freight and insurance from the total turnover, which the appellant contested in the appeal.

The crux of the matter lies in the interpretation of "export turnover" and "total turnover" under section 80HHC for determining the profits derived from export of goods. The appellant argued that the retrospective amendment introduced by Finance (No. 2) Act, 1991, clarifying the exclusion of freight and insurance from "total turnover," should apply from the assessment year 1986-87. This argument was supported by a decision of the Patna High Court, emphasizing the retrospective nature of amendments to remove anomalies in tax provisions.

The Tribunal examined the legislative history of section 80HHC, noting the evolution of deduction schemes and the introduction of "total turnover" in the computation of export profit. It was observed that the exclusion of freight and insurance from "export turnover" but not from "total turnover" led to an anomaly, overstating the profit derived from export. Consequently, the Tribunal held that the retrospective application of the explanatory amendment to exclude freight and insurance from "total turnover" should be from 1-4-1986, in line with the legislative intent to rectify anomalies in the tax provisions.

In light of the above analysis, the Tribunal vacated the Commissioner's order under section 263, restoring the assessment order in favor of the appellant. The appeal was allowed, emphasizing the correct computation of export profit by deducting freight and insurance from the "total turnover" as per the retrospective amendment under section 80HHC.