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TMI Blog2010 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... gibility" and "deductibility" of profits as contended on behalf of the Department. - We need to keep in mind the Upward and Downward Adjustments and if so read it becomes clear that clause (iv) covers full export profits of 100% as "eligible profits" and that the same cannot be reduced to 80% by relying on Section 80HHC(1B). Thus, for computing "book profits" the Downward Adjustment, in the above example, would be ₹ 100 crores and not ₹ 90 crores. - 7518 OF 2010 - - - Dated:- 9-9-2010 - JUDGMENT S.H. KAPADIA, CJI Leave granted. 2. Assessee was a MAT company at the relevant time. On 30.10.2001, it filed its return of income for assessment year 2001-02. The said return was accompanied by statutory audit report claiming deduction under Section 80HHC of the Income-tax Act, 1961 (for short, "the 1961 Act"). While computing the "book profits" under Section 115JB of the 1961 Act, the assessee claimed reduction, under clause (iv) of Explanation to Section 115JB, of 100% export profits. Vide assessment order dated 27.2.2004 the AO allowed only 80% of the export profits in terms of Section 80HHC(1B), as being allowed for reduction of "book profits" under clause (iv) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by - (i) to (iii) (iv) the amount of profits eligible for deduction under Section 80HHC, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section." (emphasis supplied) 5. We also quote hereinbelow Section 80HHC as inserted by the Finance Act, 1983 w.e.f. 1.4.83. Sub-section (1B) thereof was inserted by Finance Act, 2000, w.e.f. 1.4.2001, the relevant portion of the said provisions reads as follows: "80HHC. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B) derived by the assessee from the export of such goods or merchandise: Provided (1A) (1B) For the purposes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies, so far as it does not deem the book profit as total income. Under Section 115JB, however, clause (viii) of Section 115JA is re-numbered as clause (iv). Section 115JB continues to remain a self-contained Code. 9. On the other hand, Section 80HHC(1) inter alia states that where an assessee, who is the Indian resident, is engaged in the business of exports out of India of any goods earns convertible foreign exchange then in computing the total income, a deduction of the profits derived from such exports would be admissible. Thus, Section 80HHC provides for tax incentives. Section 80HHC(1) at one point of time laid down that an amount equal to the amount of deduction claimed should be debited to the P L Account of the previous year in respect of which deduction is to be allowed and credited to the reserve account to be utilized for the business purpose. Section 80HHC(1) concerns eligibility whereas Section 80HHC(3) concerns computation of the quantum of deduction/tax relief. At one point of time prior to the Finance Act, 2000, exporters were allowed 100% deduction in respect of profits derived from export of goods. However, that has now been reduced in a phase-wise manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 100% as "eligible profits" and that the same cannot be reduced to 80% by relying on Section 80HHC(1B). Thus, for computing "book profits" the Downward Adjustment, in the above example, would be Rs.100 crores and not Rs.90 crores. The idea being to exclude "export profits" from computation of book profits under Section 115JB which imposes MAT on deemed income. The above reasoning also gets support from the Memorandum of Explanation to the Finance Bill, 2000. 10. One of the contentions raised on behalf of the Department was that if clause (iv) of Explanation to Section 115JB is read in entirety including the last line thereof (which reads as "subject to the conditions specified in that section"), it becomes clear that the amount of profits eligible for deduction under Section 80HHC, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, is subject to the conditions specified in that Section. According to the Department, the assessee herein is trying to read the various provisions of Section 80HHC in isolation whereas as per clause (iv) of Explanation to Section 115JB, it is clear that book profit shall be reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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