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TMI Blog2011 (12) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... siness against profit from another export business, in computing the profit eligible for deduction under Section 80HHC of the Act?" 2. These questions have arisen in the following factual backdrop: The appellant/assessee is engaged in the business of manufacturing BOPP film. The assessee company has substantial exports of BOPP film. During the previous year relevant to the assessment year 2003-04, Gujarat Propack Limited (engaged in manufacture and domestic sale of BOPP film) merged with the assessee company with effect from 01.4.2002. At the time of amalgamation, the amalgamating company had brought forward losses of Rs. 3,755/- lacs from non-export activity and Rs. 80.29 lacs from export activity. For the Assessment Year 2003-04, in the return of income, the assessee claimed deduction under Section 80HHC of the Income Tax Act (hereinafter referred to as „the Act‟). Subsequently, however, taking into account the decision of the Supreme Court in the case of IPCA Laboratory Limited Vs. DCIT, 266 ITR 521 (SC) and SKF Bearings India Limited Vs. JCIT, [2005] 4 SOT 534 (ITAT Mumbai), the assessee recomputed deduction under that Section after setting off broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Industries (P) Ltd., 155 ITR 711 (SC). 8. Mr. Vohra further pleaded that the scheme of Section 80HHC of the Act is that deduction is allowed for profit derived from export of qualifying goods or merchandise. Sub-section (3) of the said Section provides an artificial basis of computing profit derived from export. In those cases where the assessee is engaged in the export of both manufacturing as well as trading goods, the deduction admissible under Section 80HHC of the Act is calculated in terms of Clause (c) of sub-Section (3) of that Section, by aggregating the profit/loss derived from export of manufactured goods and profit/loss derived from export of trading goods. This according to the learned counsel is the ratio of the judgment of the Apex Court in the case of IPCA Laboratory Limited (supra), which is statutorily recognized in Section 80HHC (3)(c) of the Act. For calculating deduction under Section 80HHC(3)(c)(i) of the Act in respect of export of manufactured goods, „profits of the business‟ have to be apportioned in the ratio of export turnover to total turnover. Clause (baa) of Explanation to the said Section defines "profits of the business" to mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f BOPP film, which is used for laminating purpose and cardboard in the packaging industry. Section 80AB of the Act had an overriding effect upon all the Sections of Chapter - VIA except Section 80M of the Act. For this reason, deduction under Section 80HHC had to be restricted under Section 80AB read with Section 80B(5) of the Act. Therefore, deduction under Section 80HHC of the Act is allowable to the assessee to the extent of the income from the export included in the total income. 13. Apart from IPCA Laboratory (supra), Mr. Maratha, also referred to the judgment of the Supreme Court in the case of Synco Industries Ltd. Vs. Assessing Officer and Another, 299 ITR 444 (SC). 14. We have considered the submissions of the counsel on either side in the light of the relevant provisions of the Act as well as the judgment of the Supreme Court in IPCA Laboratory (supra). The moot aspect which needs determination pertains to the treatment that is to be given to brought forward losses of the amalgamating company from both export and non-export activities. It is not in dispute that Section 72 of the Act postulates carrying forward and set off of such losses of the amalgamating compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etation has to be given to such a provision the interpretation has to be as per the wordings of this Section. If the wordings of the Section are clear then benefits, which are not available under the Section, cannot be conferred by ignoring or misinterpreting words in the Section. In this case we are concerned with the wordings of Sub-section 3(c) of Section 80HHC. As noted earlier Sub-section 3(a) deals with the case where the export is only of self manufactured goods. Sub-section 3(b) deals with the case where the export is only of trading goods. Thus when the Legislature wanted to take exports from self manufactured goods or trading goods separately, it has already so provided in Sub-section (3)(a) and (3)(b). It would not be denied that the word "profit" in Section 80HHC(1) and Sections 80HHC (3)(a) and 3(b) means a positive profit. In other words if there is a loss then no deduction would be available under Section 80HHC (1) or (3)(a) or (3)(b). In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit then the assessee will be entitled to a deduction. If the net figure is a loss then the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 80HHC. Section 80AB further provides that "notwithstanding anything contained in that Section". Thus Section 80AB has been given an overriding effect over all other Sections in Chapter VIA. Section 80HHC does not provide that its provisions are to prevail over Section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by Section 80AB. Decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration. 15. Another reason why the argument of Mr. Dastur cannot be accepted is that even under Section 80HHC (3)(c)(i) the profit is to be adjusted profit of business. The adjusted profit of the business means a profit as reduced by the profit derived from business of exports out of India of trading goods. Thus in calculating the profits, under Section 3(c)(i), one necessarily has to reduce by profits under 3(c)(ii). As seen above the term "p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be stated to be rejected. If such an argument is accepted it would lead to an absurd result. It would mean when if there was no disclaimer the export house would not be entitled to any deduction in cases where there is a loss but because disclaimer has been made both the export house and the supporting manufacturer would become entitled to deductions. The proviso to Sub-section (i) of Section 80HHC enables a disclaimer only to enable the export house to pass on deductions. It in no way reduces the turnover of the export house. In computing total income, the entire turnover is taken into account even though there is a disclaimer. Thus even though the disclaimer is made the taxable income of Rs. 4.39 crores has been arrived at by the Appellants after taking into account the entire turnover from export of trading goods. In arriving at the figure of Rs. 4.39 crores admittedly the loss of Rs. 6.86 crores has been taken into account. Even after disclaimer the turnover has remained the turnover of the Export House i.e. the Appellants. The disclaimer is only for purposes of enabling the export house to pass on the deduction which it would have got to the supporting manufacturer. It follows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be considered as negative profits and as per the Board Circular the calculation would be as follows: "80HHC Concession = *Export Profits - [Export Profits on Trading Goods x Disclaimed Export Turnover]/ Total Export Turnover of Trading Goods........ ..................He submitted that even on this calculation the Appellants are entitled to deduction of Rs. 3,78,80,937/-. We are unable to accept this submission. The calculation as per the Board Circular would not be as claimed. The Board Circular nowhere provides for negative profits. The Board Circular also shows that only positive profits can be considered for purposes of deduction. 21. We, therefore, see no substance in the Appeal. The same stands dismissed. There shall be no order as to costs." 16. The highlighted portion from the extracted passages would clearly demonstrate that the Supreme Court considered the scope of expression "profit" occurring in Section 80HHC and in no uncertain term held that it would mean a positive profit. It was clearly held that if there is a loss than no deduction would be available under this provision. The Court further clarified that for arriving at positive profit, both the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X
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