2008 (2) TMI 407 - HC - Income Tax

Export Negative export profits - Undoubtedly 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 interpretation has to be as per the wording of the section. If the wording of the section is clear then the benefits which are not available under the section can not be conferred by ignoring or misinterpreting words in the section - negative export profits can not be ignored when aggregating the total turnover including other export by not taking into consideration the specific definition adduced in section 80HHC read with section 80AB of the Act for the purpose of computing deduction under section 80HHC of the Act decided in favor of revenue tribunal order is not correct.

Summary

Issues:
Interpretation of section 80HHC of the Income-tax Act, 1961 regarding deduction computation.

Analysis:
The High Court of Karnataka heard an appeal by the Revenue under section 260A of the Income-tax Act, 1961, against a decision of the Income-tax Appellate Tribunal. The main issue was whether negative export profits should be excluded when calculating total turnover for the purpose of deduction under section 80HHC. The court referred to judgments by the Supreme Court in IPCA Laboratory Ltd. v. Deputy CIT and A. M. Moosa v. CIT to address this question.

The Supreme Court, in the case of A. M. Moosa v. CIT, clarified that "profit" in section 80HHC means a positive profit. The court emphasized that deductions can only be permitted if there is a positive profit from exports of both self-manufactured goods and trading goods. The calculation of profit should follow the method specified in the relevant subsections. Additionally, the court highlighted that section 80AB has an overriding effect over other sections in Chapter VI-A, including section 80HHC. Therefore, section 80HHC must be interpreted in conjunction with section 80AB.

The court acknowledged that section 80HHC aims to incentivize export activities, but emphasized that interpretations must align with the section's wording. If the section is clear, benefits not explicitly provided for cannot be granted through misinterpretation. In light of these principles, the court ruled in favor of the Revenue and against the assessee, concluding that the negative export profits should not be ignored when aggregating total turnover for computing deductions under section 80HHC. Consequently, the appeal was disposed of in favor of the Revenue.