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TMI Blog2003 (7) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... s contention. Section 115JA(4) itself makes it clear that other provisions apply only when it is not otherwise provided in the section. We find that the language of section 115JA(1) and Explanation thereto rules out applicability of section 80A(3) and section 80B(5). We accordingly decide this aspect of the matter in favour of the assessee. It may be observed that the indirect costs to be taken into consideration are the proportion of the total costs which include the costs of Manufacturing Division and not a proportion of the costs relatable to the Sales Division alone. When the denominator in the formula for working out the relevant portion of indirect costs is the total turnover, we do not see why the specified proportion of the total indirect costs should not be taken into consideration. No serious argument to the contrary has been advanced before us. At any rate, even if only the indirect costs of the sales Division should be adopted as the correct basis, it is not conceivable as to how the said figure of Rs.8,10,820 is arrived at. In the circumstances, we see no reason for holding that the admissible deduction u/s 80HHC is anything more than Rs.10,25,264 worked out by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ......... (viii) the amount of profits eligible for deduction under section 80HHC, computed under clause (a), (b) or (c) of sub-section (3) or subsection (3A), as the case may be, of that section, and subject to the conditions specified in sub-sections (4) and (4A) of that section; (ix).................. (3)................ (4)................ 3. The Assessing Officer noticed that the assessee did not enclose the tax audit report in Form No.10CCAC alongwith the return as required under sub-section (4), of section 80HHC. So, he held that the deduction under section 80HHC is not admissible. He also observed that in terms of section 80A(2), the aggregate of deductions under Chapter-VI, which includes the deduction under section 80HHC shall not in any case exceed the gross total income of the assessee. He noticed that the gross total income of the assessee as computed under the normal provisions of the Income-tax Act is not a positive figure, and so, he held that the deduction under section 80HHC to be considered for computation of book profit under section 115JA is 'nil. He also observed that if at all any deduction under section 80HHC in the computation of book profit under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the decision of the Hon'ble Kerala High Court in the case of CIT v. G.T.N. Textiles Ltd.[2001] 248 ITR 372. On the question of the restriction of the indirect costs in the computation of deduction under section 80HHC, the learned counsel for the assessee explained that the assessee has a Sales Division and a Manufacturing Division, and he has worked out the deduction under section 80HHC on the basis of the indirect costs relatable to the Sales Division. In other words, the indirect costs of the Manufacturing Division have been excluded for the purposes of working out the proportion of indirect costs attributable to the exports in the ratio of the export turnover to the total turnover. This is how the concerned Chartered Accountant has worked out the proportion in the audit report in Form 10CCAC, which may be seen at pages 21 to 24 of the assessee's paper-book. So, he argued that the deduction under section 80HHC worked out by the assessee is correct and the Assessing Officer erred in restricting the same, as done by him in the assessment order, the relevant portion of which has been extracted above. 6. The learned Departmental Representative, on the other hand, conceded that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............. (1A).............. Explanation .-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (1 A), as increased by- (a) to (ha)............. If any amount referred to in clauses (a) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profit and loss account, and as reduced by,- (i) ............ (ii) ............ (iii) the amounts as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clauses (i) and (ii) attributable to the business, the profits from which are eligible for deduction under section 80HHC or 80HHD; so, however, that such amounts are computed in the manner specified in sub-section (3) or subsection (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be; or (iv) ............... (2)..........." 8. Under both the clauses, viz., clause (viii) of Explanation to section 115JA with which we are concerned in the present appeal, and clause (iii) of Explanation to section 115J consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth these provisions levy what is known as the Minimum Alternative Tax, and are applicable to what are known as 'Zero Tax Companies'. These companies have substantial book profit and declare dividend to shareholders, but they do not pay income-tax, by availing various deductions and exemptions which are available under the normal provisions of the Act. So, under both section 115J and section 115JA, tax is levied on the basis of the book profit subject to certain adjustments. These provisions come into picture when the total income of the assessee chargeable to tax under the provisions of the Act is Nil or less than the specified percentages of the book profit. So, the invocation of section 115J and section 115JA implies two distinct procedures - (1) determination of income under the normal provisions of the Act, which include section 80A(2) and section 80B(5) relied on by the Revenue and (2) determination of the book profit subject to the specified adjustments and a comparison of the two results obtained by the two procedures. So, we are of the view that section 80A(2) and section 80B(5) which are applicable only in the first procedure, have no role to play in working out the deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Manufacturing Division. It is not a case where separate accounts are maintained for the Sales Division. Assessee has filed a consolidated Profit Loss Account for both the divisions. In the circumstances, we see no reason for ignoring the indirect costs of the Manufacturing Division. The definition of the term 'indirect cost' which has to be taken into consideration for working out the deduction in terms of section 80HHC(3) as given in the Explanation to the said sub-section reads as under- "80HHC........ (3).......... Explanation - For the purpose of this sub-section,- (a) to(d)............ (e) "Indirect cost" means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover; (f) ........" 12. It may be observed that the indirect costs to be taken into consideration are the proportion of the total costs which include the costs of Manufacturing Division and not a proportion of the costs relatable to the Sales Division alone. When the denominator in the formula for working out the relevant portion of indirect costs is the total turnover, we do not see why the specified proportion of the total indirect costs should ..... X X X X Extracts X X X X X X X X Extracts X X X X
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