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TMI Blog2004 (7) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... after setting off the carry forward of losses and unabsorbed depreciation of earlier years. u The CIT (Appeals) ought to have appreciated that Hon'ble Kerala High Court in the case of CIT v. V.T. Joseph [1997] 225 ITR 731 also held likewise. u The CIT(Appeals) has erred in directing the Assessing Officer to consider the profit of Rs. 36,230 under section 41(1) as profits from eligible business for the purpose of computation of deduction under section 80HHE. u The CIT(Appeals) failed to consider the fact that profit under section 41(1) arose on cessation of liability or provision written back and it is necessary to examine whether such liability was in relation to the eligible business of the assessee. 3. The assessee is engaged in the business of export of software. For the relevant assessment year, he filed return of income declaring total income of 'Nil' which was computed as under : Profits and gains from business 1,02,22,893 Income from other sources :-- Interest on FD and Income Tax refunds : 1,73,321 Total : 1,03,96,214 Brought forward business losses : 32,29,435 Unabsorbed depreciation : 24,08,033 56,37,468 Gross total income 47,58,746 Less: Deduction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vail over section 80AB or any other provisions of the Act. Thus reliance upon the decision of Gogineni Tobacco Ltd.'s case (supra) by the Learned CIT(A) is not in accordance with law. Since section 80AB overrides the provision of section 80HHC which is in pari materia with section 80HHE, the amount eligible for deduction under section 80HHE can be only after reducing the unabsorbed depreciation and brought forward losses. To this extent the order of Learned CIT(A) needs to be reversed. Sri Datta also relied upon the decision of Hon'ble Kerala High Court in the case of CIT v. V.T. Joseph [1997] 225 ITR 7313, wherein also deduction under section 80HHC was computed after setting off brought forward losses and depreciation. 6. Learned counsel for the assessee Mr. Ramasubramanian fairly submitted that for the purpose of computing deduction under section 80HHC unabsorbed depreciation is to be reduced as the unabsorbed depreciation is set off under section 32(2). Thus the business profit can be computed only after setting off unabsorbed depreciation. However as regards unabsorbed losses, he submitted that the losses are set off under section 72 of the Income-tax Act. The setting off of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of AP High Court in Gogineni Tobacco Ltd.'s case (supra) wherein it was held that : "From a reading of the section, it is clear that the total income is to be computed in accordance with the provisions of the Act first. Thereafter, the deduction under section 80E is to be allowed. Whereas, under section 80HHC which we have already extracted in the earlier paragraphs, the deduction under that section is to be allowed before working out the income under the other provisions of the Act. Section 80HHC does not use the words 'as computed in accordance with the other provisions of this Act.' The section itself says there shall, in accordance with and subject to the provision of this section, be allowed a deduction of the profits derived by the assessee in computing the total income of the assessee. Since the language used in section 80HHC is different from the language used in section 80-I, the principle laid down by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, is not applicable to the interpretation of the section 80HHC of the Act." With due respect to the Hon'ble AP High Court, the said decision cannot be applied for the reason that : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [Emphasis supplied] Section 80HHE(1) provides that where the assessee is engaged in the business of export out of India of computer software, he is allowed deduction of the profits derived from such business computed in accor- dance with the provision of sub-section (3). Sub-section (3) of section 80HHE provides that deduction is admissible to the extent of profit derived from business in the proportion to export turnover bears to the total turnover. Clause (d) of Explanation below section 80HHE defines the words "profits of the business". As per this definition the "profits of business" means the profits as computed under the head 'Profits and gains of business or profession' under the Act. Such profit has to be further reduced by 90% of the income by way of brokerage, commission, etc. Thus, we are required to compute the profits of business. The profits of business is computed under Chapter IV-D as per sections 28 to 44D of the Act. The unabsorbed depreciation is to be treated as current year's depreciation as per section 32(2). Thus the unabsorbed depreciation will be deducted while computing profits of business under Chapter IV-D. We accordingly hold that the word 'profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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