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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 ..... 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 of the multimedia unit but also that of the domestic unit. The Assessing Officer rejected the contention of the assessee despite the stand taken that two businesses were separate which were run through separate undertakings and involved maintenance of separate accounts including balance sheet and profit and loss account. The Assessing Officer in these circumstances concluded that the deduction under section 80 HHC was not available to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 same proportion as the export turnover bears to the total turnover of the business carried on by the assessee." 5.3 In this background, the controversy with which the court had to grapple with was limited to the meaning of the expression „total turnover‟ appearing in clause (b) of sub-section (3) of section 80 HHC. The assessee contended that in calculating the proportionate profits of the business which were attributable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 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 other than by way of exports. The words 'total turnover of the business' would then be controlled by and have to be read in the colour of the opening clause. The formula envisaged by the section would be 'export turnover F total turnover D profits and gains of business'. The business contemplated in the section would be restricted to only the goods to which the section applies and, therefore, by necessary implication even the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee under section 80 HHC of the IT Act. 8. In our view, the contention is completely mis-conceived. The issue involved in the present case is: where an assessee runs and manages two separate units, one of which, is engaged fully or partially in earning income through exports then, in the calculation of proportionate deductible profits, would the expression „total turnover of the business‟ would include only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 manufactured by the assessee. In so far as exports made by the assessee in respect of goods manufactured by the supporting manufacturers was concerned, the assessee had recorded a loss of Rs.6.86 Crores. It was also found that the assessee had issued certificates of disclaimer in favour of supporting manufacturers in respect of goods supplied by them for the purposes of export. It is in these circumstances t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsider 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 deduction under Chapter VI-A. The court went on to observe that in calculating the gross total income, the Assessing Officer would have to take into account the provisions of section 71 of the IT Act which provides for set off of loss from one head against income from another, and also provisions of section 72 of the IT Act which provides carry forward and set off of business losses. A r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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