2004 (8) TMI 13 - HC - Income Tax

Interpretation of the provisions in section 80HHC - what should be the meaning given to the word profit in the proviso - When there is no difficulty in understanding the word used in the statute it is not necessary to go and find out what is the nature of the provisions so the word profit has to be given its natural meaning - profit mentioned in the proviso is clearly a profit and not loss - Whether Tribunal is right in law in holding that the payment received from the export houses under the agreements could not partake of the nature of receipt towards charges mentioned in clause (baa) of Explanation to section 80HHC? - Held no - we hold that the assessee did not have the statutory profit of business as defined in the Explanation and therefore in terms of the main provisions of sub-section (3) he is not entitled to the deduction of such profit (which is nil) there being no profits - interpretation given by the Tribunal is not correct.

Summary

Issues:
Interpretation of provisions in section 80HHC of the Income-tax Act, 1961.

Analysis:
The judgment arises from a reference made by the Income-tax Appellate Tribunal, Cochin Bench, at the instance of the Revenue. The questions of law revolve around the interpretation of certain provisions in section 80HHC of the Income-tax Act, 1961. The first issue questions whether the Tribunal was justified in entertaining an additional ground raised by the assessee that was not previously disputed. The second issue pertains to the nature of payment received from export houses under agreements in relation to section 80HHC. The third issue delves into the entitlement of the assessee to deduction under section 80HHC(3) based on specific turnover proportions. The fourth issue concerns the Tribunal's interpretation of the term 'profits of business.' Lastly, the fifth issue addresses the entitlement of the assessee to the benefits of section 80HHC of the Income-tax Act.

The judgment elaborates on the provisions of section 80HHC, which allows for a deduction of profits derived from the export of goods or merchandise for eligible entities engaged in export business. Sub-section (3) of section 80HHC outlines the computation of income derived from exports. The case involves a dispute regarding the treatment of profits and losses in the computation process. The Appellate Tribunal's order emphasized that losses should be disregarded in determining the 'profits of the business' for deduction purposes under section 80HHC(3). The Tribunal concluded that the term 'profit' encompasses losses as well, entitling the assessee to the benefit of the proviso.

However, the High Court disagreed with the Tribunal's interpretation, emphasizing that the term 'profit' should be construed in its natural sense, distinct from losses. The Court upheld the Commissioner of Income-tax (Appeals)' view that the profit mentioned in the proviso refers to actual profits, not losses. Consequently, the Court ruled in favor of the Department and against the assessee on questions related to the computation of profits for deduction under section 80HHC.

In conclusion, the High Court clarified that the Tribunal's allowance of losses as profits under section 80HHC was incorrect. The judgment reaffirmed that 'profit' should be understood in its conventional sense, excluding losses. The Court's decision favored the Department's stance on the interpretation of profit for deduction purposes, resolving the issues in the Income-tax reference in favor of the Department and against the assessee.