1997 (10) TMI 95 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction under section 80HHC.
2. Interpretation and application of sub-section (3)(b) of section 80HHC.
3. Consideration of section 80AB restrictions on deductions.
4. Computation of export profits and total turnover.
5. Relevance of Central Board Circulars.

Detailed Analysis:

1. Eligibility for Deduction under Section 80HHC:

The primary issue is whether the assessee is eligible for a deduction under section 80HHC when no actual profit is derived from the export of specified goods or merchandise. The assessee claimed a deduction of Rs. 2,57,488 under section 80HHC, which was initially disallowed by the Assessing Officer due to the absence of profit from export activities. The CIT(Appeals) allowed the deduction, but the Revenue contended that the deduction should not exceed the actual profit derived from the export business.

2. Interpretation and Application of Sub-section (3)(b) of Section 80HHC:

The Revenue argued that sub-section (3)(b) was misapplied by including non-export business activities in the total turnover for computing the deduction. According to the Revenue, sub-section (3)(b) applies only when the export business does not consist exclusively of specified goods, requiring apportionment based on export turnover to total turnover. The assessee, however, claimed that the computation under sub-section (3)(b) was correct and supported by Circular No. 421 and Circular No. 572 issued by the CBDT.

3. Consideration of Section 80AB Restrictions on Deductions:

Section 80AB restricts deductions to the amount of income included in the gross total income. The Revenue argued that section 80AB limits the deduction under section 80HHC to the actual profit from export activities included in the gross total income. The Tribunal agreed with the Revenue, stating that deductions under Chapter VI-A, including section 80HHC, must adhere to the restrictions imposed by section 80AB.

4. Computation of Export Profits and Total Turnover:

The Tribunal examined the computation of export profits and total turnover. The assessee's total turnover included various non-export income sources, such as agency commission, handling charges, and sundry credits written back. The Tribunal noted that including these non-export activities in the total turnover for computing the deduction under section 80HHC was incorrect. The correct approach should consider only the export business turnover.

5. Relevance of Central Board Circulars:

The assessee referred to Circular No. 421 and Circular No. 572 to support their computation under sub-section (3)(b). However, the Tribunal held that these circulars do not override the statutory provisions of section 80AB, which restrict the deduction to the actual profit included in the gross total income. The Tribunal emphasized that statutory provisions must be interpreted in a manner that makes them workable and consistent with the overall scheme of the Act.

Conclusion:

The Tribunal concluded that the CIT(Appeals) erred in allowing the deduction under section 80HHC based on the computation that included non-export business activities. The Tribunal reversed the order of the CIT(Appeals) and restored the order of the Assessing Officer, thereby disallowing the deduction under section 80HHC in the absence of any profit derived from the export of specified goods or merchandise included in the gross total income. The appeal by the Revenue was allowed.