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TMI Blog1997 (10) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... half of the Revenue, Shri Sudhakaran Pillai, the Departmental Representative submitted before us that the CIT(Appeals) was not justified in holding that the assesee was entitled to get by way of deduction under section 80HHC an amount in excess of the actual profit derived from the export of coir products. The learned departmental representative pointed out that the export sale during the year was only Rs. 5,36,485 on the purchases of Rs. 5,31,680 and even without considering the overhead expenses the result was a gross profit of only Rs. 4805 and that the net result in the export business was only loss after taking into account all the overhead and incidental expenses. According to Shri Sudhakaran Pillai, when there was no profit derived from the export, the CIT(Appeals) was not justified in allowing deduction for the sum of Rs. 2,57,488 as profit derived from the export business computed in accordance with sub-section (3)(b) of section 80HHC. Drawing our attention to section 80HHC(1), the learned departmental representative stated that the intention of the Legislature was to allow deduction of the profits derived by the assesee from the export of specified goods and merchandise a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to first find out whether any profit is derived by the assessee from the export business and included in the gross total income under section 80AB. He also relied on the decision of the Kerala High Court in the case of CIT v. V.T. Joseph [1997] 225 ITR 731/91 Taxman 311 to contend that deduction under section 80HHC is to be allowed only to the extent of the income from export business included in the gross total income. Reference was also made to the decision of the Kerala High Court in CIT v. Kil Kotagiri Tea Coffee Estates Ltd [1990] 48 Taxman 122/[1991] 191 ITR 283, wherein on page 287 the Court observed that whatever has not been included in the assessment cannot be excluded and only the amount which has been included can be excluded. Shri Sudhakaran Pillai contended that when no export profit was included in the total income, there was no amount which could be allowed as a deduction under section 80HHC as profit derived from the export business which is other-wise included in the gross total income within the meaning of section 80B(5). 3. Per contra, Shri J. Krishnan, Chartered Accountant, appearing on behalf of the assessee, strongly supported the order of the CIT(Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cidental expenses are also taken into account, the result in the export business would be loss only. As a matter of fact, the Assessing Officer rejected the assessee's claim for deduction under section 80HHC for the reason that there was no profit derived from the export of specified goods or merchandise, which could be deducted under section 80HHC. But the assesee claimed deduction of Rs. 2,57,488 under section 80HHC as under:- . Rs. Profit from business as per the computation of total income 12,33,464 FOB value of the exports 5,36,485 Total credit in the P L a/c 25,69,969 Export profit : 12,33,464x5,36,485 = 2,57,488 25,69,969 (The total credit of Rs. 25,69,969 in the P L a/c includes the following items in addition to export sales: .. Rs. Interest 47,250 Agency commission 15,78,066 Handling charges of containers 52,767 De-stuffing charges 87,018 Xerox charges 3,465 Sundry credits written back 2,63,634 The CIT(Appeals) upheld the assessee's claim for deduction on the basis of the above co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deduction under section 80HHC in view of the clear provisions of section 80AB. A perusal of the provisions of section 80HHC provides sufficient answers with reference to the determination of the income in respect to which deduction can be considered. The very marginal note, apart from the statutory contents specifies that the deduction is in respect of profits retained for export business. Section 80HHC(1) further provides the intrinsic material to show that in computing the total income of the assessee engaged in the business of export of specified goods or merchandise there shall be allowed a deduction of the 'profits derived by the assessee from the export of such goods or merchandise". The statutory provisions thus limit the quantum of deduction inseparably with the profits derived from the export of the goods. Again, it is provided in section 80AB that the deductions specified in Chapter VI-A will be granted with reference to the net income includible in the gross total income computed in accordance with the other provisions of the Act. To be precise, the deduction in relation to the various provisions in Chapter VI will have to be calculated with reference to the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'profits and gains of business or profession'. It can be seen that when the assessee has no other export business there is no difficulty in ascertaining the correct profit derived from export of specified goods for the purpose of deduction under section 80HHC. But the difficulty arises where the assessee has in addition, (1) other export business, i.e., export of non-specified goods or merchandise, and (2) other non-export business (say commission agency or steamer agency as in the case of the present assessee). The question to be decided is whether sub-section (3)(b) applies in the case (1) above or (2) above. According to the assessee, subsection (3)(b) applies in the case in (2) above, i.e., where the assessee has business other than export, in addition to export of specified goods or merchandise and that the entire profit of the business should be considered for the computation of the 'profit derived from export of specified goods', on a proportionate basis. From the following illustration it can be seen that such a computation may result in an anomalous situation: Take the case of an assessee who is carrying on business consisting exclusively of the export of specified goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , etc., should be understood as the export business (and not all the businesses of the assessee). Again, in making the apportionment the ratio to be applied is the export turnover to 'the total turnover of the business carried on by the assessee'. That means the total turnover of the export business including the turnover in the export of non-specified goods. The computation as per clause (b) is to be thus made to arrive at the profit derived from the export of specified goods or merchandise, in a case where the assessee's business includes export of non-specified goods. The total turnover does not include the turnover in all the business activities of the assessee. The interpretation that sub-section (3)(b) is applicable to a case of business in export of specified goods and non-specified goods, is to be favoured as that interpretation alone would make the provisions of section 80AB workable in regard to the deduction under section 80HHC. In interpreting the provisions of the statute, we have to accept an interpretation that would make the various provisions in the statute workable. In this context it would be beneficial to refer to the following observations of the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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