TMI Blog2003 (2) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... of Avon Cycles Ltd. v. Asstt. CIT [1997] 59 TTJ (Chd.) 75 1 . As soon as the assessee came to know of the said decision, it immediately moved an application for raising the additional ground. Ld.DR also agreed that no fresh facts have to be investigated and the ground raised seems to be legal. After carefully considering the rival submissions, we allow the assessee to raise the additional ground in both the years being legal and also in view of the decision in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC). 3. Brief facts of the case are that the assessee is engaged in export of trading goods. The assessee received IPRS claim during assessment year 1992-93 amounting to Rs. 36,26,450 and during assessment year 1993-94 amounting to Rs. 1,12,33,814. The assessee earned income amounting to Rs. 3,99,303 for assessment year 1992-93 and Rs. 2,11,396 for assessment year 1993-94, after adding 90% of IPRS. Excluding the IPRS, the assessee incurred loss from trading of goods. While computing deduction under section 80HHC, the AO added the loss in 90% of the IPRS incentives and thus worked out the deduction under section 80HHC at nil . Computation of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that since it had disclaimed the entire trading exports in favour of supporting manufacturers, therefore it claimed deduction under section 80HHC for Rs. 3.78 Cr. The loss incurred could not be set off against the profit from the export of self-manufacturing goods. The Assessing Officer held that the assessee could disclaim the export benefits in favour of the supporting manufacturer under the proviso to section 80HHC(1) only when the assessee had profits from the export activities because the proviso talks of profits and not income which may include loss. Therefore, the Assessing Officer held that the proviso to section 80HHC(1) was not applicable to the present case and did not grant the benefit under section 80HHC to the assessee. The Commissioner of Income-tax (Appeals) held that if sub-section (1) of section 80HHC was not applicable for want of profits, then the proviso also would not apply. Accordingly, the Commissioner of Income-tax (Appeals) dismissed the appeal of the assessee. On appeal, the Tribunal held that the net result should be profits for the purpose of claiming deduction under section 80HHC, if the net result was a loss, then the assessee was not entitled to clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78, said obiter observations would undoubtedly be entitled to great weight, but an obiter cannot take the place of the ratio. Judges are not oracles. Hon ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 1 at page 320 has laid down the preposition how to interpret a judgment in the following manner : "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete law declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes the colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under considerations by this court, to support their reasoning." It is only the ratio decidendi of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so to sub-section (1), there shall, in accordance with the subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of the profits derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House. (2)( a ) This section applies to all goods or merchandise, other than those specified in clause ( b ), if the sale proceeds of such goods or merchandise exported out in India are received in, or brought into, India by the assessee (other than the supporting manufacturer) is convertible foreign exchange within a period of six months from the end of the previous year or where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf. ( b ) This section does not apply to the following goods or merchandise, namely : ( i )mineral oil; and ( ii )minerals and ores [(other than pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( 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 ( iiic ) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation. For the purposes of this sub-section. ( a )"adjusted export turnover" means the export turnover as reduced by the export turnover in respect of trading goods; ( b )"adjusted profits of the business" means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause ( b ) of sub-section (3); ( c )"adjusted total turnover" means the total turnover of the business as reduced by the export turnover in respect of trading goods; ( d )"direct costs" means costs directly attributable to the trading goods exported out of India including the purchase price of such goods; ( e )"indirect costs" means cost, not being direct costs, allocate in the ratio of the export turnover in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouse Certificate or Trading House Certificate, as the case may be, issued by the Chief Controller of Imports and Exports, Government of India; ( d )"supporting manufacturer" means a person being an Indian company or a person (other than a company)resident in India, manufacturing (including processing) goods or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export. From the plain reading of the aforesaid provisions of section 80HHC, it is clear that section 80HHC for computing deduction, this section lays down three stages for computation of profits derived from exports : (1) Firstly profits of the business are to be computed as per Explanation ( baa ) appended below section 80HHC(4B), i.e. Profits and gains of business as computed under the head "business income" minus 90% of any sum under clauses ( iiia ), ( iiib ) and ( iiic ) of section 28 or any receipt by way of brokerage, commission, interest etc. (2) Secondly, proportion of the aforesaid "profits of business" as export turnover bears to the total turnover of the business carried by the assessee is calculated. (3) Thirdly, the figure arrived at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee should be entitled for deduction in respect of 90% of the export incentive in case the assessee does not derive income from the export business. We find that section 80HHC(1) allows a deduction to the assessee of the profits derived from the export business. The profit from the export business have to be ascertained as per section 80HHC(3) which gives a formula. Section 80HHC(3) laid down following proposition : ( i )In sub-clause ( a ) the export profits are to be computed when the assessee is engaged in the business of export of goods, merchandise, manufacture or processed by him. ( ii )In sub-clause ( b ), export profits are to be computed when the assessee is engaged in the business of export of trading goods only. ( iii )In sub-clause ( c ), the export profits are to be computed when the assessee is engaged in the business of export of goods, manufacture or processed by him and of trading goods. Therefore, firstly the profits under clauses ( a ), ( b ) and ( c ) are to be computed under section 80HHC(3) of the Income-tax Act, 1961, if there is a loss computed from the business of the nature referred under clause ( a ), ( b ) or ( c ) and there is profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80HHC and not meant for the purpose of aggregation or set off. The proviso to sub-section (3) using the words further increased is meant to provide more or extra benefit and, therefore, has to be read independently of clauses ( a ), ( b ) and ( c ) in sub-section (3) of section 80HHC. This is the plain and undoubted effect of the proviso to sub-section (3) of section 80HHC. Explanation ( baa ) below section 80HHC(4B) which defines the expression "profits of the business" used in section 80HHC(3) also strengthens our view. This explanation stipulates that profits of business as computed under the head "profits and gains of business or profession" as reduced by ninety per cent of export incentives, and receipts like brokerage, commission, interest etc. The words "as reduced by" clearly implies that quantum of reduction is to be limited to the figure of profits which is to be reduced. While considering the meaning of the word "reduced" in section 225(3) of the Income-tax Act, it has been held by the Hon ble Apex Court in Mohan Wahi v. CIT [2001] 248 ITR 799 that the term "reduced" in section 225(3) would include a case where the demand consequent upon any appeal or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly made a departure from the normal restrictive function of a proviso and intended the proviso to further enlarge the scope of the main provision. The express legislative intention which is manifestly clear from the unambiguous language used while drafting the proviso cannot be ignored merely on the basis of certain rules of interpretation regarding normal function of proviso. From a plain reading of the above section, it is clear that under section 80HHC(1), it has been expressly provided that where an assessee is engaged in the business of exports to which the section applies then, in computing the total income of the assessee, a deduction of the profits derived from export activity as computed under section 80HHC(3) is given. In other words, from the gross total income of the assessee, deduction under section 80HHC is given in order to arrive at the total income/taxable income of the assessee. Section 80HHC is a section which comes under Chapter VIA of the Income-tax Act. The said Chapter provides for special deductions from gross total income. One such deduction is export profits. Section 80A deals with deductions to be made under Chapter VIA in computing the total income. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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