9911796707
TMI Blog2010 (10) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... f business as defined in Expln. (baa) of s. 80HHC as per the profits of all businesses and computed deduction under s. 80HHC in the proportion of export turnover to the total turnover of the business. The AO noticed that the total profit disclosed by the assessee from Raichur Thermal Power Station is Rs. 21,96,543 as against total turnover of Rs. 17,87,36,113. Abnormality of profit is on account of receipt of roughly about Rs. 12,00,000 on account of civil construction work at Raichur Thermal Power Station before the stipulated time. The assessee while claiming deduction under s. 80HHC has considered the profits of all other businesses run by the assessee besides M/s Esmario Export Enterprises. According to the AO, the eligible business for deduction under s. 80HHC was only in respect of M/s Esmario Export Enterprises. Therefore, the AO restricted the deduction under s. 80HHC on the basis of the turnover and profit of the unit, namely M/s Esmario Export Enterprises, which is only eligible for deduction under s. 80HHC. 3. Aggrieved by the said assessment order, the assessee preferred an appeal before the CIT(A). The CIT(A) upholding the order of the AO held that, only the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed, in computing the total income of the assessee a deduction to the extent of profits referred to in sub-s. (1B) derived by the assessee from the export of such goods or merchandise." Sub-s. (3) of s. 80HHC deals with how the profit derived from such export business has to be computed. Clause (a) of sub-s. (3) reads as under:- "3. For the purposes of sub-s. (1):- (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee;" Explanation to the section defines what is convertible foreign exchange, export out of India, export turnover and total turnover and profits of the business. Profits of the business is defined in Expln. (baa) as under:- "'Profits of the business' means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by:- (1) ninety per cent of any sum referred to in cls. (iiia), (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be allowed in the following manner:- Profit of the business (including export incentives) x Export turnover (sale proceeds actually received in foreign exchange) Total turnover (excluding export incentives) 9. Thus, in the case of an assessee who is doing export business exclusively, 'export turnover' and 'total turnover' would be identical, if the entire sale proceeds are brought into India in convertible foreign exchange within the prescribed time-limit. In that case, the entire profit under the head 'Profits and gains of business or profession' (which will include the three export incentives) will be deductible under s. 80HHC. However, in order to arrive at the amount deductible under s. 80HHC in the case of an assessee doing export business as well as some other domestic business, the fraction of 'export turnover' to 'total turnover' will be applied to his profits computed under the head 'Profits and gains of business or profession' (which again will include the three export incentives)." 10. This provision fell for consideration by the apex Court in the case of CIT vs. K. Ravindranathan Nair (2007) 213 CTR (SC) 227 : (2007) 295 ITR 228 (SC). After noticing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, charges, etc., formed part of gross total income being business profits. But for the purposes of working out the formula and in order to avoid distortion of arriving at the export profits, cl. (baa) stood inserted to say that although incentive profits and "independent incomes" constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the IT Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the Government, shall not be included in the total turnover in the above formula." 11. From the aforesaid statutory provisions, the clarification issued by the Board of Direct Taxes and the judgment of the apex Court it is clear that, in computing the deduction in respect of profits retained for export business all the four variabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness as computed under the head 'Profits and gains of business or profession'; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export;" 12. A perusal of the said provision makes it very clear that s. 3(1)(a) dealt with a case where a business carried on by the assessee consisted exclusively of the export business. Clause (b) dealt with business carried on by the assessee which is not exclusively of the export business. Now, the said provision is substituted by Finance (No. 2} Act, 1991 w.e.f. 1st April, 1992 deleting cl. (a) which dealt exclusively with export business only. In addition to that cl. (baa) expressly states what are the incomes which do not form part of the total turnover for the purpose of computing profits of business. Therefore, the intention is very clear. It is not to take into consideration only the profits derived from export business. When once the incomes from all the businesses are included in the total turnover, the profit derived from all those businesses should f ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
