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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 ..... acts and in the circumstances of the case, the Tribunal erred in law in holding that aggregate brought forward losses of the amalgamating company from both export and non-export activities were liable to be set off in determining profit of the business for computing deduction under Section 80JHHC of the Act? 2. Whether on the facts and in the circumstances of the case, the Tribunal erred in applying the ration of the decision rendered by the Hon‟ble Supreme Court in the case of IPCA Laboratory Ltd. v. DCIT: 266 ITR 521, without appreciating that the issue in that case before the Apex Court was limited to set off of losses from one export business 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 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d depreciation of the amalgamated company and available for carry forward and set off in the hands of the amalgamated company, overriding the provisions of Section 78(2) of the Act providing to the contrary. He, thus, argued that the legal fiction incorporated in Section 72A of the Act is limited in scope to the extent of deeming the unabsorbed business losses/unabsorbed depreciation of the amalgamating company as the unabsorbed business losses/unabsorbed depreciation of the amalgamated company for purposes of carry forward and set off of the same, cannot extend beyond as held in CIT Vs. Mother India Refrigeration 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 profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra). 11. Mr. Abhishek Maratha, learned counsel appearing for the Revenue, on the other hand, maintained that the case was squarely covered by the judgment of the Supreme Court in IPCA Laboratory Limited (supra), which was rightly followed by the Tribunal. He submitted that the issue was discussed in detail in the said judgment and relied upon the discussion and reasoning contained therein. 12. The learned counsel also argued that the important factor in the present case was that the assessee company and the merged company were engaged in the same business of manufacture of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case was not a case where question of setting off loss from non-export activity had come up for consideration. At the same time we find that provision of Section 80HHC have been thoroughly considered, analysed and interpreted. The relevant discussion in this behalf runs from para 12 to 21 and it would be apt to extract the entire discussion contained in the aforesaid paragraphs.:- 12. We are unable to accept the submission of Mr. Dastur, Undoubtedly Section 80HHC has been incorporated with a view to providing incentive to export houses. Even though a liberal interpretation 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 manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income." Section 80B(5) is also relevant. Section 80B(5) provides that "gross total income" means total income computed in accordance with the provisions of the Income Tax Act. 14. Section 80AB is also in Chapter VI-A. It starts with the words "where any deduction is required to be made or allowed under any Section of this Chapter". This would include 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any. Thus the word "profit" has the same meaning in Section 80HHC (1) and (3). 17. It was next submitted that even when the profits are to be reduced by the losses in cases where an export house has disclaimed its turn over in favour of a supporting manufacturer, the turn over of the exporter gets reduced to the extent disclaimed. It is submitted that as the turnover, which is disclaimed, is reduced it cannot then be taken into consideration for the purposes of computing profits under Sub-section 3(c)(ii). In our view this is an argument which merely needs to 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 discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porting manufacturer, the concession to the Export or Trading House will be reduced by the amount which bears to the total export profits of trading goods the same proportion as the disclaimed export turnover bears to the total export turnover of trading goods. The formula in such cases will now be - 80HHC concession = export profit [export profits on trading goods x disclaimed export turnover/total export turnover" Mr. Dastur submitted that if even both profits and losses are to be taken into account the, on a disclaimer the losses will also have 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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