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TMI Blog2004 (3) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturers, i.e., trading goods. It was found that the sum of Rs. 3.78 crores, which had been claimed as a deduction, was the profit from exports of self manufactured goods. It was found that from the exports of trading goods there was a loss of Rs. 6.86 crores. It was found that the appellants had issued certificates of disclaimer in favour of the supporting manufacturers in respect of the entire export of trading goods. The Assessing Officer therefore held that there was a net loss from export of goods and disallowed the deduction of Rs. 3.78 crores. The Commissioner (Appeals) dismissed the appeal filed by the appellants on October 11, 1999. On December 29, 2000, the Income-tax Appellate Tribunal dismissed the second appeal. By the impugned judgment, the Bombay High Court has dismissed the appeal filed under section 260A of the Income-tax Act. The question for consideration is whether the appellants are entitled to deduction under section 80HHC in respect of the sum of Rs. 3.78 crores by ignoring the loss of Rs. 6.86 crores. It therefore becomes necessary to look at section 80HHC of the Income-tax Act. The relevant portions of section 80HHC read as follows: "80HHC Deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India is of trading goods, the profits derived from such export shall be the export turnover in respect of trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee, and of trading goods, the profits derived from such export shall, - (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods: Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iic), of section 28, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k us through the various provisions of Chapter VI-A and submitted that these provisions were enacted for encouraging business out of India so that foreign exchange is earned. He submitted that these provisions are meant to be an incentive for earning foreign exchange. He submitted that with this aim in mind deductions were given (a) under section 80HHB for profits from projects outside India; (b) under section 80HHC for profits from exports; (c) under section 80HHD for hotels and tour operators; (d) under section 80HHE from exports of computer software; (e) under section 80HHF from exports or transfer of film software; (f) under section 80-O for royalties, etc., from foreign enterprises; (g) under section 80R for deduction of remuneration from foreign sources of professors, teachers, etc. ;(h) under section 80RR for deduction of professional income from foreign sources and (i) under section 80RRA for remuneration received for services rendered outside India. He submitted that these incentives were given as Parliament considered earning of foreign exchange to be in national interest and in the interest of our society. Mr. Dastur submitted that as the appellants were exporting goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause the appellant (therein) received commission on the sales, the words "sale proceeds of such goods" were to be construed to mean sale proceeds ultimately received. On a construction of section 80HHC this court held that if the contention of the appellant (therein) were to be upheld, it would mean that not only the export house but also the appellant could claim deduction under section 80HHC in respect of the same amount. It was held that such an outcome would be contrary to the language of the section itself. This court therefore dismissed the claim of the appellant (therein) and held that the appellant was not entitled to the benefits of section 80HHC. In our view, far from assisting the appellants, this case is against them. It shows that even though section 80HHC has to be construed in the light of the object of giving incentives, it still has to be interpreted as per its language. An interpretation which leads to an absurd result or a result not contemplated by its language cannot be given. Mr. Dastur also relied upon the case of CIT v. Shirke Construction Equipments Ltd. [2000] 246 ITR 429. In this case, the Bombay High Court has held that section 80HHC is a complete cod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom export of goods manufactured by the assessee were to be considered separately and the profits from exports of trading goods were to be considered separately. He submitted that if there were profits from both then both the profits would be taken into consideration. He submitted that if there were profits only in respect of one type of exports then those profits could not be negatived or set off against the loss from the other export. He submitted that the word "and" in section 80HHC(3)(c) has to be liberally construed and cannot to be taken to mean that both the profits have to be clubbed or considered together. He submitted that persons who earn valuable foreign exchange cannot be deprived of the benefits of their export by adopting a construction which would defeat the very purpose for which the provision has been enacted. He submitted that the fact that the word "and" does not mean that sub-section (3)(c)(i) and (ii) have to be taken together is clear from the fact that in other sections, such as section 80HHD, the Legislature has used the words "aggregate of". He submitted that wherever the Legislature intended that both were to be taken together it has used words like "aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plain reading of sub-section (3)(c) shows that "profits from such exports" has to be profits of exports of self manufactured goods plus profits of exports of trading goods. The profit is to be calculated in the manner laid down in subsections (3)(c)(i) and (ii). The opening words "profit derived from such exports" together with the word" and" clearly indicate that the profits have to be calculated by counting both the exports. It is clear from a reading of sub-section (1) of section 80HHC(3) that a deduction can be permitted only if there is a positive profit in the exports of both self manufactured goods as well as trading goods. If there is a loss in either of the two then that loss has to be taken into account for the purposes of computing profits. Under section 80HHC(1), the deduction is to be given in computing the total income of the assessee. In computing the total income of the assessee both profits as well as losses will have to be taken into consideration. Section 80AB is relevant. It reads as follows: "80AB. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading 'C.-Deductions in respect of certain income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h self manufactured goods and trading goods, the profits and losses in both the trades have to be taken into consideration. If after such adjustments there is a positive profit the assessee would be entitled to deduction under section 80HHC(1). If there is a loss he will not be entitled to any deduction. Mr. Dastur submitted that the word "profit" in section 80HHC must have the same meaning in the entire section. He submitted that as the word profit in section 80HHC(1) means only positive profit, it will have the same meaning in section 80HHC(3)(c). He submitted that thus the word profit in section 80HHC(3)(c) would not include losses and if there are any losses they are to be ignored. We are unable to accept this submission for more than one reason. Firstly, it is not necessary that the word "profit" must have the same meaning. The meaning that the word "profit" will depend on the context in which it is used. In section 80HHC(1) it is admittedly used to indicate positive "profit" because the deduction will only be of a positive profit. Section 80HHC(3) is the sub-section which provides how profits are to be worked out in computing the total income. For purposes of such computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion, reliance was placed upon the authority of this court in the case of CIT v. Harprasad and Co. P. Ltd. [1975] 99 ITR 118. In this case the meaning of loss was being considered in the context of capital gains made from sale of shares. The question was whether the loss could be carried forward and set off against capital gains in a subsequent year. While considering this question, it was held as follows (page 124): "From the charging provisions of the Act, it is discernible that the words 'income' or 'profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains' represent 'plus income' whereas losses represent 'minus income' (CIT v. Karamchand Premchand Ltd. [1960] 40 ITR 106; [1960] 3 SCR 727 (SC) and CIT v. Elphinstone Spg. and Wvg. Mills Co. Ltd. [1960] 40 ITR 142; [1960] 3 SCR 953 (SC). In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee." In our view, the above observations are against the appellants. They show that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; ------------- 18,53,53,371 = (-3,07,84,867)-(-6,86,65,804) = (-3,07,84,867) + (6,86,65,804) & ..... 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