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TMI Blog2011 (9) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of law which require adjudication. It is agreed by the learned counsels for the parties that the same questions of law can be framed in the captioned appeal as well. 2. This brings to fore the third issue which pertains to the claim of deduction by the assessee under section 80 HHC of the Income Tax Act, 1961 (in short, IT Act). The revenue has proposed a question of law for our consideration even with regard to this issue. 3. In order to come to a conclusion either way, the following brief facts required to be noticed :- 3.1. The assessee runs and manages two units. Out of these two units, one unit is in the business of multimedia. In so far as the multimedia unit is concerned, the assessee has carried out exports as well. As far as the other unit is concerned, it is engaged in the manufacture of PET jars. This is a domestic unit. The assessee had claimed a deduction under section 80 HHC equivalent to Rs.1966.33 Lacs. The AO upon consideration of this aspect of the matter, came to the conclusion that in calculating the deduction under section 80 HHC, the assessee would be required to include the turnover of the entire business which would include the turnover not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee earned income both by way of exports as well as domestic sales. The assessee lodged a claim for deduction under section 80 HHC in respect of its exports qua the forgings business. 5.2 In these circumstances, the court was thus called upon to construe the true import of the word turnover‟ as used in sub-section (3)(b) of section 80 HHC. The relevant provision as extracted in the judgment reads as follows :- 80HHC. Deduction in respect of profits retained for export business. - (3) For the purpose of sub-section (1), profits derived from the export of goods or merchandise out of India shall be, - (a) in a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head 'Profits and gains of business or profession'; (b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business (as computed under the head 'Profits and gains of business or profession') the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e section, it is clear that the word 'business' means the business relating to the goods to which the section applies and the thrust is on the word 'exclusively'. The sub-section considers a situation where the assessee's business is of exports and the assessee's business is not that of export alone. However, one thing is certain that the business has to be only in respect of the goods or merchandise to which the section applies. As has been stated earlier, the thrust is on the word 'exclusively'. The Legislature has rightly intended the situation where the business could be relating to the goods which would fetch the foreign exchange but there could also be the business in relation to these goods which may not be exported or which may not fetch foreign exchange. However, the whole sub-section speaks only about the goods, which are exportable, exported and fetch foreign exchange. It is, therefore, clear that the thrust of the opening clause of clause (b) of sub-section (3) has a stress on the words 'does not consist exclusively of the export'. The sub-section takes into consideration the situation of income out of the export of the goods vis-a-vis the income out of those goods othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale of motorcycles, motorcycle spare parts, television sets cannot be introduced to inflate the total turnover artificially in order to reduce the benefit which the assessee is entitled to. That would be clearly going against the object of section 80HHC, which is solely to encourage the exports .. (emphasis is ours) 6. The judgment in the Madras Motors Ltd. (supra) was followed by two separate division benches of the Madras High Court in the case of Commissioner of Income Tax Vs. Rathore Brothers (2002) 254 ITR 656 (Mad.) and Commissioner of Income Tax Vs. M. Gani and Co. (2008) 301 ITR 301. 7. The learned counsel for the revenue, however, has argued to the contrary. It is the submission of Ms. Aggarwal that the issue will be governed by the judgments of the Supreme Court in the case of IPCA Laboratory Ltd. Vs. Dy. Commissioner of Income Tax (2004) 266 ITR 521 and Simco Industries Ltd. Vs. Assessing Officer, Income Tax. The learned counsel further contends that the Tribunal did not taken into account the provisions of section 80 AB and section 80 B(5). It is the contention of Ms. Aggarwal, if the said provisions are applied then no deduction would be available to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co.(supra) which in turn followed yet another judgment of the Madras High Court in the case of CIT Vs. Suresh B. Mehta (2007) 291 ITR 462. 11. Ms. Aggarwal‟s submission that the judgment of the Supreme Court in IPCA Laboratory Ltd. (supra) and Simco Industries Ltd. (supra) would apply is according to us completely untenable. This is demonstrable from the facts obtaining in the two judgments cited before us. In IPCA Laboratory Ltd. (supra), the assessee was running an export house. For the assessment year 1996-1997, the assessee had filed a return of income declaring nil‟ income. The assessee‟s income before claiming deductions under Chapter VIA of the IT Act was Rs.4.39 crores. Against this income, the assessee had claimed various deductions including a deduction under section 80 HHC amounting to Rs.3.78 Crores. During the course of the assessment proceedings, it was found that the assessee was exporting goods which were manufactured by it but also those which were produced by supporting manufacturers. The assessment proceedings revealed that the profit of Rs.3.78 Crores which the assessee had claimed was earned by the assessee from exports of goods manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oil Division ought not to be adjusted against the profits earned by it in the Chemical Division. The AO, however, repelled this contention and denied the deduction to the assessee under Chapter VI-A since the gross total income was nil. The Tribunal as well as the High Court affirmed the view of the Assessing Officer. It is in these circumstances, the Supreme Court was called upon to consider the question as to whether the losses suffered in the earlier years by the Oil Division of the assessee could be adjusted against the profits of the two divisions (i.e., the Chemical Oil Division), while considering the grant of deduction under section 80 I of the Act. The Supreme Court came to the conclusion that deductions under Chapter VI-A could only be granted if the gross total income of the assessee was positive. It is in this connection that the court noticed the provisions of Section 80B(5) which defines gross total income‟ as total income computed in accordance with the provisions of the IT Act before making any deductions under Chapter VI-A. The court observed if, (as in that case) the assessee‟s gross total income is nil, there was no question of allowing any deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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