TMI Blog2003 (3) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ana Cashews", and also doing other business; transport business and trading business in electronic goods. In this case, we are only concerned with the cashew business of the assessee. The assessee is engaged in the processing of cashewnuts and its export. The assessee had also purchased cashewnuts from outside parties and exported the same to foreign countries. The cashewnuts purchased from outside parties will hereinafter be referred to as "trading goods" as defined in clause (f) of sub-section (3) of section 80HHC of the Income-tax Act, 1961, for short "the Act". The assessee had profit in the export of own goods manufactured by it. But the assessee incurred loss in the export of trading goods. In the assessment for the year 1992-93, the Assessing Officer computed the deduction available under section 80HHC of the Act by deducting the loss incurred in the export of trading goods from the profits derived from the export of own goods (manufactured goods). The assessee, inter alia, challenged the deduction of the loss in the computation of profits for the purpose of section 80HHC. The first appellate authority confirmed the order of the Assessing Officer on this point. In further ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 251 ITR 401. Senior counsel further submitted that section 80AB of the Act will apply in respect of the computation of the deduction available under section 80HHC of the Act, and that by virtue of the said provisions, the profits derived from the export business as provided under section 80HHC(3)(c)(i) of the Act can be worked out only in accordance with the provisions of the Act which includes the provisions of sections 70 and 71 dealing with set off of loss incurred in the business. Learned counsel for the assessee, on the other hand, submits that section 80HHC of the Act is a self-contained code in itself, and that the computation of the deduction has to be made strictly in accordance with the said provisions, and so construed, the profits of the business referred to in sub-clause (i) of clause (c) of sub-section (3) of section 80HHC read with the provisions of clause (baa) of the Explanation to sub-section (3), the profit has to be worked out strictly in accordance with the provisions of sections 30 to 44D, which falls under the head "Income from profits and gains of business or profession" and there is no question of applying the other provisions of the Act, particularly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court, one in CIT v. V. T. Joseph [1997] 225 ITR 731 and the other in CIT v. A. V. Thomas and Co. Ltd. [1997] 225 ITR 29. At that time, we were not aware of the fact that the decision in A. V. Thomas and Co. Ltd.'s case [1997] 225 ITR 29 (Ker) mentioned above had been affirmed by the Supreme Court by the judgment mentioned above. In those circumstances, we referred the matter to a larger Bench for resolving the conflict between the said two decisions of this court. However, before signing the order, learned counsel appearing for the assessee brought to our notice the decision of the Supreme Court in Civil Appeal 4605 of 1998 affirming the decision in A. V. Thomas' case [1997] 225 ITR 29 (Ker). Hence, the case was posted as "to be spoken to" to this date and matter was further heard on the merits. Now there is no surviving conflict between the two decisions of this court. We also note that both the said decisions were rendered in the context of the provisions of section 80HHC which was different from the one which we are now considering. In these circumstances, we are disposing of this case on the merits by this judgment. The question for consideration in this case, as already not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess' 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 clauses (iiia), (iiib) and (iic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India." Since the Revenue relies on the decision of the Supreme Court rendered in the context of the provisions of section 80E of the Act, as it stood upto April 1, 1989, and also section 80M of the Act, the said provisions are also extracted: "80E. Deduction in respect of profits and gains from specified industries in the case of certain companies.-(1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of anyone or more of the articles or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be computed in accordance with the provisions of sub-section (3) thereof. In a case where the exclusive business of the assessee is the export out of India of goods of merchandise, manufactured or processed by the assessee, the profits have to be worked out under the provisions of clause (a) of sub-section (3). In a case where the export out of India is exclusively of trading goods, the profits have to be worked out in accordance with the provisions of clause (b) of sub-section (3). However, when the export out of India is of goods or merchandise, both manufactured or processed goods and trading goods-the computation is provided under clause (c) of sub-section (3). Under the said clause, where the export out of India is of goods or merchandise, manufactured or processed by the assessee, and of trading goods, the profit derived from such export shall 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 in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee. There is no difficulty in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in turn means that by virtue of the provisions of section 29 computed under the provisions of sections 30 to 43D of the Act, and no further. Here, it must be noted that section 80HHC is a special provision which provides for a deduction in respect of profits retained for export business. Sub-section (1) clearly provides that the deduction is in respect of the goods or merchandise to which the said section applies, and that the deduction shall be allowed in accordance with and subject to the provisions of this section. Further, the deduction is in respect of the profits derived by the assessee from the export of such goods or merchandise, computed in accordance with the provisions of sub-section (3). In clause (c) of sub-section (3), regarding computation of profits, where the export out of India is of goods or merchandise, manufactured or processed by the assessee and of trading goods, there is no reference to any "gross total income" or "total income" or any computation of total income. We find that the reference in sub-clause (i) of clause (c) of sub-section (3) is to the amount which bears to the adjusted profits of the business, and the definition of the expression" adjuste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arriving at the total income referred to in section 5, computed in the manner as laid down in the Act. Even in the absence of specific mention about the computation of the total income, in accordance with the provisions of the Act in the concerned section, if the expression "gross total income or total income" occurs in the said section, the total income has to be computed in accordance with the provisions of the Act. As we have already noticed, section 80HHC(1) or the computation provision under sub-section (3), particularly, clause (c) thereof, does not refer to either gross total income or total income, with reference to which the computation of the profits of the business has to be arrived at. Thus, we are of the view that the Tribunal was justified in its conclusion that the loss incurred in the export of trading goods cannot be deducted from the profit derived from the export of own goods. Under the scheme of section 80HHC as it stood at the relevant time, actual profit from the export business was not a necessary requirement for grant of relief under the said section. The profits derived from the export business have to be worked on a formula which is not based on any act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other words, the contention was that in computing the total income of an assessee, deduction specified in section 80HHC shall be allowed from the gross total income and such deduction shall not exceed the gross total income. On the other hand, the counsel for the assessee contended that the object of section 80HHC was to encourage exports and that the object was to ascertain the export profits out of the business profits, for which the basic formula to be applied under section 80HHC(3) is to arrive at the export profits by multiplying the business profits with export turnover by total turnover. He also contended that the effect of section 80AB was that where any income in respect of which deduction is claimed falls under the heading "C" of Chapter VI-A is included in the gross total income, then, the amount of income of that nature shall first be decided in accordance with the provisions of the Act before making any deductions' under Chapter VI-A. However, section 80HHC does not provide that income from exports should be included in the gross total income and that the Legislature has made a departure from other sections of Chapter VI-A in enacting section 80HHC. He also contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the current year to be taken into account. Hence, the Legislature intended section 72 to be kept out. The object appears to be to give maximum benefit to the exporter who earns foreign exchange for the country. Therefore, even though section 80AB contemplates a non obstante clause, the said section 80AB will be subject to section 80HHC to the extent of export profits being worked out from the business profits. This view is also supported by the language of section 80AB. In the case of section 80P, etc., the same formula would work. However, in those cases, the business profits are required to be computed on the basis of the provisions of the Act in their entirety including section 71 and section 72 of the Act. However, when it comes to the artificial formula for computing the export profits for the purposes of deduction from the gross total income in section 80HHC(3) the business profits shall be computed under the head 'Profits and gains of business' which, in turn, refers to section 28 to section 44D and which will exclude section 71 and section 72 of the Act. Therefore, section 80AB does not control section 80HHC(3). Therefore, section 80HHC is a complete code by itself. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit derived by the assessee from the export business. Now, we will also refer to the decisions of the Supreme Court relied on by senior counsel appearing for the applicant. Senior counsel submitted that even in a situation where the expression "profits of the business" is defined under clause (baa) of the Explanation to section 80HHC, which means profits of the business computed under the head "Profits and gains of business", the income has to be computed in accordance with the provisions of the Act which will certainly take in section 70 of the Act providing for setting off the loss incurred in the business. In that context, the senior counsel has relied on the decision of the Supreme Court in CIT v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118. There, the question before the Supreme Court was whether the capital loss could be determined and carried forward in accordance with the provisions of section 24 of the Indian Income-tax Act, 1922, when the provisions of section 12B of the Indian Income-tax Act, 1922, itself were not applicable in the assessment year 1955-56. In that case, the assessee, a private limited company, had purchased 1,124 shares of M/s. Intercontinent Travan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne Spg. and Wvg. Mills Co. Ltd. [1960] 40 ITR 142; [1960] 3 SCR 953 (SC)). In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although section 6 classifies income under six heads, the main charging provision is section 3 which levies income-tax, as only one tax, on the 'total income' of the assessee as defined in section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the 'total amount of income, profits and gains referred to in section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act.' If either of these conditions fails, the income will not be a part of the total income that can be brought to charge." According to us, the above general observations made by the Supreme Court have no application in a case of determination of profits derived from the business under section 80HHC of the Act, for as already noted, section 80HHC is a self contained one and it provides that the mode of computation of the profits d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the other provisions of this Act' and these words clearly contain a mandate that the total income of the concerned assessee must be computed in accordance with the other provisions of the Act without reference to section 80E and since in the instant case it is income from business the same as per section 29 will have to be computed in accordance with sections 30 to 43A which would include section 41(2)." The Supreme Court also noted that the assessee had contended before the High Court that the expression "total income" appearing in section 80E(1) had been used in its commercial sense and since the unabsorbed depreciation and the unabsorbed rebate has nothing to do with the commercial profits attributable to the business, the said two items would not be deductible before arriving at the figure that would be exigible to the 8% deduction. Repelling the said contention, the Supreme Court observed as follows: "First, in sub-section (1) of section 80E, the expression 'total income' is followed by the words' as computed in accordance with the other provisions of this Act' in parenthesis and the mandate of these words clearly negatives the argument that the expression 'total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with the provisions of the Act, in view of the definition of the total income in section 2(45) read with the charging section of the Act. That is the reason why the Supreme Court in Cambay Electric Supply Industrial Co. Ltd.'s case [1978] 113 ITR 84 held that it is not possible to accept the view that section 72 has no bearing or is unconnected with the computation of the total income of the assessee under the head "Profits and gains of business or profession". In other words the question of applying section 72 of the Act arises only in the computation of total income under the Act. The Appellate Tribunal in this case has relied on the decision of the Supreme Court in CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320. The Supreme Court in that case was concerned with a claim for deduction under section 80E of the Act. The said provision provided for a deduction of 8% from the profits and gains. The question was whether, for the purpose of granting relief under section 80E, the loss suffered by the assessee in the manufacture of alloy steels can be set off against the profits arising from the manufacture of automobile ancillaries. The Supreme Court observed that having regar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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