1994 (12) TMI 116 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 80HHC(3)(a) vs. Section 80HHC(3)(b) of the Income Tax Act, 1961.
2. Apportionment of common expenses.
3. Definition and scope of "business" under Section 80HHC.
4. Calculation of total turnover for deduction purposes.

Issue-wise Detailed Analysis:

1. Applicability of Section 80HHC(3)(a) vs. Section 80HHC(3)(b):
The primary issue revolves around whether the assessee's deduction should be computed under Section 80HHC(3)(a) or Section 80HHC(3)(b) of the Income Tax Act, 1961. The assessee contended that its business in pepper consisted exclusively of exports, with local sales being incidental. However, the Assessing Officer and CIT (Appeals) disagreed, noting that the assessee also engaged in local sales of rubber and coconut oil, which constituted a significant part of its business. Consequently, they applied Section 80HHC(3)(b), which pertains to businesses not exclusively engaged in exports. The Tribunal upheld this view, stating, "When the assessee has effected local sales, whether as seconds or rejects, the fact is that the assessee was not in export business exclusively."

2. Apportionment of Common Expenses:
The assessee did not apportion common expenses like salary, office rent, and other administrative costs to its separate trading accounts for rubber, coconut oil, and pepper. Instead, these expenses were charged against the gross profit from all trading activities. The CIT (Appeals) and the Tribunal noted this as a factor in determining that the assessee's business was not exclusively export-oriented. The Tribunal emphasized that "general expenses like salary, rent, etc., had not been apportioned to the three lines of business carried on by the assessee."

3. Definition and Scope of "Business" under Section 80HHC:
The Tribunal examined whether the assessee's activities constituted a single business or multiple distinct businesses. It concluded that the assessee's activities in rubber, coconut oil, and pepper were part of the same business due to common management, control, and funds. The Tribunal cited the Special Bench decision in the case of International Research Park Laboratories Ltd v. Assistant CIT, which clarified that "the expression 'total turnover' used in section 80HHC(3)(b) unambiguously refers to the total turnover of the entire business and not to the total turnover of the export business."

4. Calculation of Total Turnover for Deduction Purposes:
The assessee argued that the total turnover should only include the turnover of pepper, both export and local, excluding rubber and coconut oil. However, the Tribunal rejected this argument, stating that the entire turnover of the business, including local sales of rubber and coconut oil, should be considered. The Tribunal reiterated that "if there is domestic turnover, it is clause (b) of sub-section (3) that would become operational and according to clause (b) the entire turnover of the entire business must be aggregated."

Conclusion:
The Tribunal upheld the Assessing Officer's computation under Section 80HHC(3)(b), rejecting the assessee's contentions. The appeal was dismissed, affirming that the assessee's business did not consist exclusively of exports and that the entire turnover, including local sales, should be considered for deduction purposes. The Tribunal emphasized a holistic approach to defining "business" and apportioning profits, aligning with legislative intent and judicial precedents.