2016 (9) TMI 156 - HC - Income Tax

Benefit under section 10B - Whether on a true and correct interpretation of Section 80 HHC the Tribunal has erred in law in holding that the export turnover of the unit whose profits are exempt under section 10B is not to be included in the export turnover for the purposes of calculating the deduction under section 80HHC? - Held that - The Tribunal held that the turnover of sales made by the assessee for which deduction under section 10B had been claimed did not answer the description of the turnover eligible for deduction under section 80HHC and therefore, the Assessing Officer rightly excluded such turnover from export turnover while computing relief available to the assessee under section 80HHC of the Act. We are unable to agree. Section 80 HHC clearly defines the terms export turnover, total turnover and profits of business. None of these definitions exclude the export turnover in respect whereof benefit has been derived under section 10B. To accept the respondent s contention would require the section to be rewritten and the expression to be redefined which is not permissible. In the circumstances, the first question of law is answered in affirmative in favour of the appellant.

Issues Involved:
1. Interpretation of Section 80HHC of the Income Tax Act, 1961 regarding inclusion of export turnover of units exempt under Section 10B.
2. Consideration of a co-ordinate Bench's decision on the issue.

Detailed Analysis:

Issue 1: Interpretation of Section 80HHC regarding inclusion of export turnover of units exempt under Section 10B

The appellant-assessee availed benefits under Section 10B of the Income Tax Act, 1961. The primary legal question was whether the export turnover of a unit exempt under Section 10B should be included in the 'export turnover' for calculating deductions under Section 80HHC.

Relevant Provisions:
- Section 10B(1): Profits and gains from a 100% export-oriented undertaking are not included in the total income of the assessee.
- Section 10B(4)(iii): No deduction is allowed under certain sections (e.g., 80HH, 80HHA, 80-I, 80-IA) in relation to the profits and gains of the undertaking.
- Section 80HHC(1): Allows a deduction in computing the total income of the assessee, derived from the export of goods or merchandise.
- Section 80HHC(3): Provides the formula for computing profits derived from exports.
- Explanation (ba) to Section 80HHC: Defines 'total turnover' and excludes certain sums but does not mention Section 10B benefits.

Court's Findings:
1. Plain Language Interpretation: The definition of 'total turnover' in Section 80HHC does not warrant the exclusion of benefits under Section 10B.
2. Section 10B vs. Section 80HHC: Section 10B(4)(iii) does not refer to Section 80HHC, indicating that the legislature did not intend to deny deductions under Section 80HHC to assessees who availed benefits under Section 10B.
3. Circular from C.B.D.T.: The circular dated 16.12.1998 suggests that Section 10B was introduced to provide a further incentive, not a replacement for Section 80HHC.
4. Legislative Intent: The absence of Section 80HHC in the list of exclusions under Section 10B(4)(iii) implies that the legislature did not intend to preclude deductions under Section 80HHC for units availing Section 10B benefits.

Supporting Judgments:
1. Delhi High Court in Commissioner of Income Tax v. M/s Dabur India Ltd.: Held that export turnover from units in Export Promotion Zones (EPZ) should not be excluded when computing deductions under Section 80HHC.
2. Madras High Court in Commissioner of Income Tax v. Ambatture Clothing Ltd.: Concluded that there was no prohibition for claiming deductions under Section 80HHC while availing benefits under Section 10A.
3. Bombay High Court in Commissioner of Income Tax v. M/s Hindustan Lever Ltd.: Affirmed that net foreign exchange realization from exports should be considered for deductions under Section 80HHC, even if benefits under Section 10A were claimed.

Conclusion on Issue 1:
The court concluded that the export turnover of units exempt under Section 10B should be included in the 'export turnover' for calculating deductions under Section 80HHC. The Tribunal's decision to exclude such turnover was incorrect.

Issue 2: Consideration of a co-ordinate Bench's decision

The second question regarding the Tribunal's failure to consider a co-ordinate Bench's decision was deemed irrelevant as the court decided the primary question of law independently.

Final Judgment:
The first question of law was answered in the affirmative in favor of the appellant. The Tribunal's order was set aside, and the Assessing Officer was directed to compute the assessee's income accordingly.

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