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2016 (9) TMI 156 - PUNJAB AND HARYANA HIGH COURT

2016 (9) TMI 156 - PUNJAB AND HARYANA HIGH COURT - [2017] 391 ITR 290 - Benefit under section 10B - Whether on a true and correct interpretation of Section 80 HHC the Tribunal has erred in law in holding that the export turnover of the unit whose profits are exempt under section 10B is not to be included in the ‘export turnover’ for the purposes of calculating the deduction under section 80HHC? - Held that:- The Tribunal held that the turnover of sales made by the assessee for which deduction un .....

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been derived under section 10B. To accept the respondent’s contention would require the section to be rewritten and the expression to be redefined which is not permissible. - In the circumstances, the first question of law is answered in affirmative in favour of the appellant. - Income Tax Appeal No. 408 of 2007 (O&M) - Dated:- 2-9-2016 - Mr. S.J.VAZIFDAR AND MR. DEEPAK SIBAL, JJ. For The Appellant : Ms. Radhika Suri, Senior Advocate with Ms. Rinku Dahiya, Advocate, For The Respondent : Mr. .....

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Tax Act, 1961 is not to be included in the export turnover for the purposes of calculating the deduction under section 80HHC of the Income Tax Act, 1961? ii) Whether the Tribunal was right in law in not considering, dealing with the decision of a co-ordinate Bench on the issue which admittedly applied and had attained finality? The second question does not really arise as we intend deciding the question of law in any event. 2. The appellant-assessee admittedly availed the benefit under section 1 .....

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xx xx xx xx (3) The profits and gains referred to in sub- section (1) shall not be included in the total income of the assessee in respect of any five consecutive assessment years, falling within a period of eight years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things, specified by the assessee at his option: Provided that nothing in this sub- section shall be construed to extend the aforesaid five asse .....

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section 80HHA or section 80-I 1 or section 80-IA] in relation to the profits and gains of the undertaking; and…………………… 80HHC. [(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing th .....

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proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (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; (c) where the export out of India is of goods or merchandise manufactured [or processed] by the assessee and of trading goods, the prof .....

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to export of such trading goods : Provided that the profits computed under clause (a) or clause (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 :……&hel .....

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oods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) ;] [(ba) total turnover shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) : Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression total turnover shall have effect as if it also excluded any sum referred to in clauses (ii .....

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ment of the assessee situate outside India ;]……………………………… 4. The formula for computing the profits derived by the assessee from the exports of any goods or merchandise to which the section applies is admittedly as under:- Profits derived from export of articles or things or computer software = Profits of the business of the undertaking × Export turnover in respect of the articles or things or computer softw .....

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er does not warrant the exclusion of any benefit under section 10B of the Act. 5. Sub section 4 (iii) of section 10B of the Act provides that in computing the total income of the assessee, no deductions shall be allowed under the section mentioned therein in relation to the profits and gains of the undertaking. Section 80 HHC is not one of those sections. What is more important is the fact that section 80HHC does not preclude the assessee from availing deductions thereunder in the event of the a .....

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l founded. 6. Ms. Suri reliance upon a circular dated 16.12.1998 issued by the C.B.D.T. containing explanatory notes on the provisions relating to direct taxes in respect of the Finance Act, 1988 is well founded and the same insofar as it is relevant reads as under:- New provision to extend tax holiday to hundred per cent export-oriented units:- 18.1 xx xx xx xx xx 18.2 The above tax holiday was not available to a hundred per cent export-oriented undertaking. Such undertakings were eligible only .....

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rial undertakings operating in free trade zones. The exemption under the new provisions will be subject to the following conditions:-……………… Paragraph 18.2 clearly states that the above tax holiday meaning thereby the one provided in section 10A was not available to a hundred per cent export-oriented undertaking. Such undertakings were eligible only for deduction under section 80HHC but further states that it was with a view to providing further incentive .....

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ngs a further incentive for earning foreign exchange. 7. Mr. Katoch, learned counsel appearing on behalf of the respondent-department contended that section 80HHC is a self contained code as are sections 10A and 10B. None of the sections refer to other sections. He relied upon section 80HHC(4)(C)(b) of the Act. 8. Firstly, sub section 4(C) was inserted by the Finance Act, 2003 w.e.f. 01.04.2004. It, therefore, does not apply to the assessment year in question i.e. 1996-97. In any event, it would .....

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merchandise to which this section applies indicate that the goods and merchandise which are the subject matter of an exemption of section 10A and 10B would not be covered. It is little difficult to appreciate this submission. Section 80HHC does not provide that it does not apply to goods which are the subject matter of deduction under section 10A or 10B of the Act. 9. Mr. Suri rightly submitted that wherever the legislature intends excluding the benefit under a provision on account of an assesse .....

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ial undertaking to which this section applies shall not be included in the total income of the assessee. xx xx xx xx xx xx (4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,- xx xx xx xx xx (iii) no deduction shall be allowed under section 80 .....

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n 10B(4)(iii). 11. The nature and the extent of the benefits under section 80HHC and 10B are also entirely different. As we mentioned earlier a circular dated 16.12.1988 provided that section 10B was introduced to confer an additional benefit upon an assessee. 12. Our view is supported by a judgment of the Division Bench of Delhi High Court dated 17.10.2008 in ITR No. 10 of 2000 Commissioner of Income Tax, Delhi (Central) v. M/s Dabur India Ltd. That was a reference pertaining to the assessment .....

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ntended on behalf of the revenue that once the income from the unit in EPZ was included from scope and ambit of total income, it could not be reintroduced for the sake of making a deduction under section 80HHC as profits and gains of the business. Delhi High Court held as under:- 10. Having considered the arguments advanced by the counsel for the parties, while we agree with what the learned counsel for the revenue states that the provisions of Section 10(A)(4)(iii) would not be applicable for t .....

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s carried on by the assessee and the profits of the business. None of these components has reference to the expression ―total incomeǁ. The deduction has to be computed on the basis of these components. A literal reading of the provisions and literal application of the formula does not enable us to exclude the export turnover of the unit in the EPZ from the export turnover of such goods nor from the total turnover of the business. The profit arising out of these units in the EPZ is als .....

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the opinion that the export turnover from the unit in the EPZ is not to be excluded while computing the deduction under Section 80HHC. The deduction that is to be computed is without reference to the total income. Once the deduction is computed in terms of the formula prescribed in Section 80HHC(3), the amount so arrived at is to be deducted from the total income. However, while computing the deduction, reference to total income' is not called for. 13. We are in respectful agreement with the .....

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s a specific provision, which reads as under: "No deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; and" 5. The very statutory provision prescribing a prohibition in respect of the deductions in relation to the profits and gains itself, has not specifically included Section 80HHC. Apparently, it therefore would only mean that there was no prohibition for claiming any .....

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tion available for the assessee to claim the benefit under Section 80HHC in respect of the profits earned from Section 10A of the Act, there is absolutely no scope for the Assessing Authority to have invoked Section 154 of the Act, in order to state that, that can be considered as an error apparent, inasmuch as, there was no error at all, much less, apparent error to be rectified by the Assessing Authority. 6. This conclusion of ours is apart from the conclusion of the Tribunal in having held th .....

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er:- Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was right in holding that while computing deduction u/s.80HHC of the Act, the net foreign exchange relating to export from Kandla Free Trade Zone has also to be considered even though such receipt is covered by Section 10A of the Income Tax Act ? Even on this question our attention has been invited to the order of the Tribunal for the earlier assessment year. It is submitted that the Tribunal mere .....

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Kandla Free Trade Zone and exclusion of net foreign exchange realization of goods manufactured in Malaysia and exported to Middle East. The assessee submitted that the relevant provision and as it stood then, there is no scope for reading something into the Statute and which was never there. After referring to the Department's representative's arguments and reproducing the section, what the Tribunal has done is that it referred to the language of the provision as it then stood. For net .....

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e, a deduction of an amount equal to the aggregate of 4% of the net foreign exchange realization and 50% of the profits derived by the assessee from the export of such goods or merchandise as exceeds the amount referred to in clause (a) of sub-section (1) of Section 80HHC of the Income Tax Act,1961. The Tribunal held that sub-section (1) only stipulates that the assessee should be an Indian Company, resident in India and engaged in the business of export out of India of any goods or merchandise .....

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ndian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which the provision applies, then, in accordance with and subject to the provisions of this section, is allowed deduction in computing total income. There is nothing, according to the Tribunal, in the language to the contrary. What has been referred to by the Tribunal, in our opinion, rightly is sub-section (1) in its entirety. Even the provisos hav .....

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