2007 (5) TMI 194 - SC - Income Tax

Whether section 80AB can be applied to section 80HHC - Whether, in determination of business profit u/s 80HHC, the unabsorbed business losses of the earlier years u/s 72 of the Act should be set off - two points which had been posed by the High Court for its decision are answered in the negative, i.e., against the Revenue and in favour of the assessee.

Summary

Issues involved:
Interpretation of provisions of the Income-tax Act, 1961 regarding the application of section 80AB to section 80HHC and the treatment of unabsorbed business losses from earlier years in determining business profit under section 80HHC.

Analysis:
The High Court framed two questions for determination in this appeal. The first question was whether section 80AB can be applied to section 80HHC of the Income-tax Act, 1961. The High Court held that section 80HHC is independent of section 80AB and that section 80AB does not control section 80HHC. The second question was whether unabsorbed business losses of earlier years under section 72 of the Act should be set off in the determination of business profit under section 80HHC. The High Court ruled that these losses could not be set off against profits from exports. This decision was in favor of the assessee and against the Revenue.

The Supreme Court referred to a similar view taken by the High Court of Kerala in a previous case and noted that the decisions of the Bombay High Court and the High Court of Kerala had been overruled by the Supreme Court in a different case. The Supreme Court held that section 80HHC is not independent of section 80AB and is governed by section 80AB. The court emphasized that losses should be set off against profits earned from the export of self-manufactured goods, contrary to the High Court's decision.

The Supreme Court cited previous judgments to support its decision, highlighting that the term 'profit' includes profit earned from the export of both self-manufactured goods and trading goods. The court reiterated that the computation of income must be in accordance with the provisions of the Act, taking into consideration both profits and losses. Consequently, the Supreme Court ruled against the decisions of the High Court and in favor of the assessee, setting aside the impugned judgment and allowing the appeal.

In conclusion, the Supreme Court answered the questions posed by the High Court in the negative, favoring the assessee over the Revenue. The appeal was allowed, and no costs were awarded in the case.