TMI Blog2004 (3) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... s taxable income the appellants claimed various deductions. One such deduction was under section 80HHC for ₹ 3.78 crores. During the assessment proceedings it was found that the appellants were exporting goods which were self manufactured as well as goods manufactured by supporting manufacturers, i.e., trading goods. It was found that the sum of ₹ 3.78 crores, which had been claimed as a deduction, was the profit from exports of self manufactured goods. It was found that from the exports of trading goods there was a loss of ₹ 6.86 crores. It was found that the appellants had issued certificates of disclaimer in favour of the supporting manufacturers in respect of the entire export of trading goods. The Assessing Officer therefore held that there was a net loss from export of goods and disallowed the deduction of ₹ 3.78 crores. The Commissioner (Appeals) dismissed the appeal filed by the appellants on October 11, 1999. On December 29, 2000, the Income-tax Appellate Tribunal dismissed the second appeal. By the impugned judgment, the Bombay High Court has dismissed the appeal filed under section 260A of the Income-tax Act. The question for consideration is w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erchandise 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 ; (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 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 profits derived from such export shall, - (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section. Mr. Dastur submitted that section 80HHC appears in Chapter VI-A of the Income-tax Act. He submitted that Chapter VI-A provides for deduction to be made in computing the total income. He took us through the various provisions of Chapter VI-A and submitted that these provisions were enacted for encouraging business out of India so that foreign exchange is earned. He submitted that these provisions are meant to be an incentive for earning foreign exchange. He submitted that with this aim in mind deductions were given (a) under section 80HHB for profits from projects outside India; (b) under section 80HHC for profits from exports; (c) under section 80HHD for hotels and tour operators; (d) under section 80HHE from exports of computer software; (e) under section 80HHF from exports or transfer of film software; (f) under section 80-O for royalties, etc., from foreign enterprises; (g) under section 80R for deduction of remuneration from foreign sources of professors, teachers, etc. ;(h) under section 80RR for deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport turnover of such goods or merchandise during the immediately preceding previous year. (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 of India are receivable by the assessee in convertible foreign exchange. This court negatived the argument that, because the appellant (therein) received commission on the sales, the words sale proceeds of such goods were to be construed to mean sale proceeds ultimately received. On a construction of section 80HHC this court held that if the contention of the appellant (therein) were to be upheld, it would mean that not only the export house but also the appellant could claim deduction under section 80HHC in respect of the same amount. It was held that such an outcome would be contrary to the language of the section itself. This court therefore dismissed the claim of the appellant (therein) and held that the appellant was not entitled to the benefits of section 80HHC. In our view, far from assisting the appellants, this case is against them. It shows that even though section 80HHC has to be construed in the light of the obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits of such business would be taken into account. He submitted that where the assessee exports only trading goods then the profits of those goods only would be taken into account in subsection (3)(b). He submitted that sub-section (3)(c) dealt with a case where the assessee exported goods manufactured by him as well as trading goods. He submitted that in such a case profits from export of goods manufactured by the assessee were to be considered separately and the profits from exports of trading goods were to be considered separately. He submitted that if there were profits from both then both the profits would be taken into consideration. He submitted that if there were profits only in respect of one type of exports then those profits could not be negatived or set off against the loss from the other export. He submitted that the word and in section 80HHC(3)(c) has to be liberally construed and cannot to be taken to mean that both the profits have to be clubbed or considered together. He submitted that persons who earn valuable foreign exchange cannot be deprived of the benefits of their export by adopting a construction which would defeat the very purpose for which the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be entitled to a deduction. If the net figure is a loss then the assessee will not be entitled to a deduction. Sub-section (3)(c) deals with cases where the export is of both self manufactured goods as well as trading goods. The opening part of sub-section (3)(c) states profits derived from such export shall . Then follow (i) and (ii). Between (i) and (ii) the word and appears. A plain reading of sub-section (3)(c) shows that profits from such exports has to be profits of exports of self manufactured goods plus profits of exports of trading goods. The profit is to be calculated in the manner laid down in subsections (3)(c)(i) and (ii). The opening words profit derived from such exports together with the word and clearly indicate that the profits have to be calculated by counting both the exports. It is clear from a reading of sub-section (1) of section 80HHC(3) that a deduction can be permitted only if there is a positive profit in the exports of both self manufactured goods as well as trading goods. If there is a loss in either of the two then that loss has to be taken into account for the purposes of computing profits. Under section 80HHC(1), the deduction is to be gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sub-section (3)(c)(i), one necessarily has to reduce by profits under sub-section (3)(c)(ii). As seen above the term profit means positive profit. Thus if there is loss then those losses in export of trading goods have to be adjusted. They cannot be ignored. We, therefore, hold that a plain reading of section 80HHC makes it clear that in arriving at the profits earned from export of both self manufactured goods and trading goods, the profits and losses in both the trades have to be taken into consideration. If after such adjustments there is a positive profit the assessee would be entitled to deduction under section 80HHC(1). If there is a loss he will not be entitled to any deduction. Mr. Dastur submitted that the word profit in section 80HHC must have the same meaning in the entire section. He submitted that as the word profit in section 80HHC(1) means only positive profit, it will have the same meaning in section 80HHC(3)(c). He submitted that thus the word profit in section 80HHC(3)(c) would not include losses and if there are any losses they are to be ignored. We are unable to accept this submission for more than one reason. Firstly, it is not necessary that the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of enabling the export house to pass on the deduction which it would have got to the supporting manufacturer. It follows that if no deduction is available, because there is a loss, then the export house cannot pass on or give credit of such non-existing deduction to a supporting manufacturer. Faced with this situation, it was submitted that even a loss is a negative profit. In support of the submission, reliance was placed upon the authority of this court in the case of CIT v. Harprasad and Co. P. Ltd. [1975] 99 ITR 118. In this case the meaning of loss was being considered in the context of capital gains made from sale of shares. The question was whether the loss could be carried forward and set off against capital gains in a subsequent year. While considering this question, it was held as follows (page 124): From the charging provisions of the Act, it is discernible that the words 'income' or 'profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains' represent 'plus income' whereas losses represent 'minus income' (CIT v. Karamchand Premchand Ltd. [1960] 40 ITR 106; [1960] 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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