INCOME TAX ACT, 1961

Deduction under section 80HHC- Computation-Net figure should be positive

Assessee claimed deduction under section 80HHC, which was disallowed on the ground that the profits of the business computed as per said section indicated a negative figure. CIT(A) confirmed the impugned order. But Tribunal allowed the appeal of the assessee. The High Court decided the same in favour of revenue. Held:Section 80HHC has been incorporated with a view to provide 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 the 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. 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 section 80HHC(3)(a) or (3)(b) means a positive profit. 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 assessee will not be entitled to a deduction. Sub-section (3)(c) deals with cases where the export is of both self-manufactured goods as well as trading goods. The opening part of sub-section (3)(c) states profits derived from such export shall. Then follow clauses (i) and (ii ). Between clauses (i) and (ii) the word and appears. A plain reading of sub-section (3)(c) shows that the profits from such exports have to be profits from exports of self-manufactured goods plus profits from exports of trading goods. The profit is to be calculated in the manner laid down in sub-section (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 clause (i) of section 80HHC(3) that a deduction can be permitted only if there is a positive profit in the export of both self-manufactured goods as well as trading goods. If there is a loss in either of the two, then the loss has to be taken into account for the purposes of computing profits. [Para 7]

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 or trading goods. Thus, in calculating the profits under sub-section (3)(c)( i), one necessarily has to reduce profits under sub-section (3)(c)( ii). Thus, if there is loss, then the losses in export of trading goods have to be adjusted, cannot be ignored. Section 80HHC makes it clear that in arriving at profits earned from export of both 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. [Para 11]

The appeal that the word profit in section 80HHC(3)(c) would not include losses and if there were any losses, they are to be ignored, was clearly without substance. Firstly, it was not necessary that the word profit must have the same meaning. The meaning of the word profit will depend on the context in which it was 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) was the sub-section which provides how profits are to be worked out in computing total income. For the purposes of such computation, both profits and losses have to be taken into account. Thus, the word profit in section 80HHC(3) will mean profits after taking into account losses, if any. More importantly, the term profit in section 80HHC both in sub-section (1) and in sub-section (3) means a positive profit worked out after taking into consideration the losses, if any. Thus, the word profit had the same meaning in sections 80HHC(1) and (3). [Para 12]

Therefore, the appeal of the assessee was disallowed.

Income Tax Act, 1961 Section 80HHC