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TMI Blog2006 (1) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed in accordance with the provisions of the Act at Rs. 62,63,970. The assessee filed a revised return for treating the cash compensatory support received during the year at Rs. 75,91,462 as income from business of export on account of amendment in the Act of 1961 by inserting clauses (iiia), (iiib) and (iiic) in section 28 of the Act. These amendments were made with retrospective effect from April 1, 1962, April 1, 1967, and April 1, 1972, respectively vide the Finance Act, 1990. Perhaps this necessitated the filing of a revised return by the assessee on May 1, 1990, of total income of Rs. 2,64,860 instead of the return of loss filed earlier. 4. Computation of income under the head of "Profits and gains from business" was made by the Assessing Officer at Rs. 10,75,799. 5. The other facts which have been noticed in the assessment proceedings were that gross turnover of the assessee of his business as a whole was Rs. 9,16,18,537, out of which export turnover amounted to Rs. 7,23,95,420 and the indigenous sales were only Rs. 1,92,23,117. In short, the approximate ratio between the turnover of the business and export turnover came to be 9.17: 7.23. This ratio is relevant for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business profits for the purpose of section 80HHC, in the light of the provisions of section 80AB of the Act. With these findings, the Assessing Officer was directed to recompute the profits and gains from the business of the assessee and arrive at deduction to which the assessee may be entitled under section 80HHC. 10. Against the order of the Commissioner of Income-tax (Appeals), the assessee as well as the Revenue both preferred appeals before the Tribunal. The assessee did not press for his claim for computing profits and gains of business for the purpose of considering deduction under section 80HHC without considering deduction allowable under section 32AB and in our opinion rightly so. In view of the clear provision of section 80AB, deduction under section 80AB had to be considered for computing the profits and gains of business as per the provisions of the Income-tax Act, 1961, before considering claim of deduction under Chapter VI-A. 11. The Revenue was aggrieved with allowing the assessee's claim in respect of receipts from the sale of export licence; commission from sale of STC export counter and commission of shipping, freight and processing charges of job work. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r merchandise during the previous year and a deduction of an amount equal to five per cent. of the amount by which the export turnover of such goods or merchandise during the previous year exceeds the export turnover of such goods or merchandise during the immediately preceding year be allowed in the computation of income of the assessee. 18. Sub-section (3) envisaged one condition that no deduction under clause (b) of sub-section (1) shall be allowed unless the assessee had during the immediately preceding previous year, exported out of India goods or merchandise to which this section applies. 19. Admittedly, at the inception, the claim to deduction was directly referable to export turnover and not to the income or profit arising from the business of export out of India on such goods or other business which was by way of a general deduction from computation of taxable income. 20. The caption of section in its original form was reading "Deduction in respect of export turnover". 21. The case of deduction under section 80HHC underwent change when it was substituted by the Finance Act, 1985, with effect from April 1, 1986. The caption of the section was amended as it stands today, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise." 26. Thus the formula of quantifying deduction was changed. 27. Yet again vide the Finance Act, 1988 sub-section (1) of section 80HHC 27 was substituted with effect from April 1, 1989. The substituted sub-section (1) provides that where an assessee being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the whole of the income derived by the assessee from the export of such goods or merchandise. 28. Sub-section (1A) was inserted. After sub-section (3), sub-sections (3A) and (4A) were inserted. 29. The amended provisions have envisaged deduction of the whole of the income from export of goods or merchandise under sub-section (1) and sub-section (1A) of section 80HHC, thus, envisaging 100 per cent. deduction on export income falling under section 80HHC. 30. Since we are concerned with the assessment year 1989-90, the provisions of section 80HHC as existed on April 1, 1989, become relevant for our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee ... Explanation.- For the purposes of this section,- ... (b) 'export turnover' means the sale proceeds receivable by the assessee in convertible foreign exchange of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962." 31. From the aforesaid, it is noticed that for the assessment year 1989-90, the provisions of section 80HHC provides that profits of the business of export out of India of any goods or merchandise were to be deducted in computing the total income of the assessee from all other sources and under sub-section (2)(a) the only condition was that the sale proceeds of such goods or merchandise exported out of India must be receivable by the assessee in convertible foreign exchange. 32. However, vide the Finance Act, 1990, certain changes were made in sub-section (2)(a). The word "receivable" was substituted by the words "received in, or brought into, India". This substitution was made effective from April 1, 1991, and a new condition for availing of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness". Carrying on business of export trade is the basic condition of eligibility to enter the area of claim to deduction under section 80HHC of the Act of 1961. But that being not the question to be decided, as eligibility of the respondent-assessee is not in dispute. The next step is to quantify the claim to deduction. Where an assessee is exclusively involved in business of exporting goods or merchandise out of India, its income is to be computed in terms of the provisions of the Act of 1961 relevant for the purpose of computing income under the head "Profits and gains of business" like any other business income. 39. But where export of goods and merchandise is not the exclusive business of the assessee, but he has other business also, sub-section (3) leaves no room for doubt that where an assessee is engaged in more than one business and is not exclusively engaged in the business of export, his income from such exclusive business of export out of India of goods or merchandise is not to be separately computed, but is to be carved out in proportion from his total business income computed in accordance with the provisions of the Act. It is not the purpose of the provision that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instance and that profit was to be proportioned between "export turnover" and "total turnover" of the business" in the ratio of "total turnover" : "export turnover". 43. It is also to be considered that export turnover has been defined in clause 43 (b) of the Explanation to mean "the sale proceeds receivable by the assessee in convertible foreign exchange of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962." 44. Thus, the profits of business are to be considered as a whole. The object is clear that where the assessee's business consists of multiple activities including the business of export out of India of goods or merchandise, then the clear intent of the Legislature was to permit only proportionate profit of the total business to the extent the business of export out of India of goods or merchandise forms part of its total business, e.g., if the assessee's business of export out of India is only 2 per cent. of its total business activities, then the Legislature inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exports under any scheme of the Government of India; (inserted with effect from 1-4-1967) (iiic) any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971." (inserted with effect from 1-4-1972) 46. Because of such retrospective insertion of clause (iiia), (iiib) or (iiic) in section 28, these provisions must be deemed always to be existing and in force with effect from the date the same were inserted. Since all the three provisions were inserted with effect from the years prior to April, 1, 1989, they must be deemed to be part of the Income-tax Act as on April 1, 1989, and governing assessment of income from these sources as income from "profits and gains of business" of the assessee. This effect of retrospectively operative legislative act hardly needs any elaboration. 47. In this connection, it will be pertinent to notice that section 28 states in no uncertain terms that profits and gains of business or profession which was carried on by the assessee at any time during the previous year shall be chargeable to income-tax under the head "Profits and gains of business or profess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness" under Part D of Chapter IV in the assessment year 1989-90. 52. The total turnover of the assessee was Rs. 9,16,18,373. The export turnover of the assessee was Rs. 7,23,95,420. 53. The claim worked out by the assessee as deduction under section 80HHC was Rs. 7,25,801. After claiming deduction, the income returned as taxable was Rs. 2,64,860. The Assessing Officer has worked out computation of claim for deduction under section 80HHC as under: Rs. Rs. "Profits as per profit and loss account 11,40,673 Add: Donations 26,902 Sales tax penalty 500 Taxation 77,000 12,45,075 Less: processing charges 71,174 Other income as per Schedule 8 of profit and loss account 8,25,512 8,96,686 Interest income 1,27,446 10,24,132 2,20,943 Less: Deduction under section 32AB 2,43,535 (-) 22,592" 54. It may further be noticed before proceeding further that final assessment of income of the assessee has been assessed at Rs. 10,75,800 from gross profit computed at Rs. 12,45,075. 55. The following items that have been excluded from the profits and gains of business for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowed sums and paid interest and bank commission to the tune of Rs. 14,33,528.32 which were allowable deduction. As against payment of interest and bank commission, the assessee has also received interest and, therefore, the net outgoing under the head of interest has been stated to be Rs. 13,06,081.92 which has been deducted while computing profits of business. It has also been noticed by the Tribunal that interest income to the tune of Rs. 68,534 directly related to the export business as such excess interest earned was credited by the bank on early payment of foreign bills of exchange. These findings are findings of fact. The Assessing Officer also while reducing the profit of business for the purpose of computing income of the assessee has not treated the receipt of interest differently. It clearly goes to show that while computing the taxable income of the assessee he has taken the basis as profit shown as profit and loss account which included deduction on account of outgoing of interest as noticed above. No separate treatment has been given by the Assessing Officer in considering the income from interest receipt. Neither has he adjusted the profits shown in the profit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession for the purpose of computing allowable deduction under section 80HHC. In our opinion, the total turnover refers to turnover of the business and cannot be turnover of sale and purchase of goods as has been enunciated by the Kerala High Court in the aforesaid three cases. We do not find any justification for importing the definition of the State Sales Tax Act into the Income-tax Act to assign a limited meaning to the expression "turnover". We remind ourselves that the Income-tax Act is a Central enactment and operates in different field than the State Acts of levy and collection of sales-tax. If we were to import the definition of "turnover" given in the Sale Tax Act, for the purpose of imposing tax on sale of goods, the meaning of the expression "turnover" in the Income-tax Act will have to be read differently in different States of the Union, depending on the definition given in the respective State sales tax laws. 64. It is trite to say that the meaning of any expression used in a Central enactment operating throughout the union territory of India cannot be interpreted differently for its implementation in different States depending on the expression defined in a particula ..... X X X X Extracts X X X X X X X X Extracts X X X X
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