TMI Blog2001 (7) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... eal we are concerned with the assessment year 1996-97. On November 28, 1996, the return of income was filed by the appellant declaring "nil" income. The taxable income before deductions under Chapter IV-A was Rs. 4.39 crores (approximately). However, against the said taxable income, the appellant claimed deductions under Chapter VI-A. One such deduction was under section 8OHHC of Rs. 3.78 crores. The return was processed on March 3, 1997. On a perusal of the details filed along with the return of income, it was found that the assessee was an exporter of goods which were self-manufactured as well as of the goods manufactured by the sup porting manufacturers. Accordingly, the profits eligible for deduction consisted of profits from exports of self-manufactured goods ; profits from exports of goods manufactured by the supporting manufacturers and pro fits for export incentives. The appellant filed Form No. 10CCAC along with the return of income which indicated net loss from the export of goods. The break up of the loss was shown as under : Rs. Loss from goods manufactured by supporting manufacturers 6.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trores cannot be ignored. That if the contention of the assessee was to be accepted, it would mean that both, the assessee and the supporting manufacturer, would become eligible for tax concession under section 80HHC'whereas, if there was no disclaimer, none would be entitled for the said benefit. He found that the said section 8OHHC(L) came to be amended with effect from April 1, 1989, when the word "profit" came to be substituted for the expression "whole of income". He came to the conclusion that the object of this amendment was to ensure that deduction is allowed under section 80HHC only when the assessee is having profit. That, although the word "income" may include loss, for the purposes of admissibility of deduction under section 80HHC, the assessee must have profit from the activity of exports. That, the assessee can disclaim the export benefits in favour of the supporting manufacturer under the proviso to section 80HHC(l), only when the assessee has profits from the export activities because the said proviso talks of profits and not income which may include loss. He, therefore, concluded that the proviso was not applicable in the present case. Accordingly, the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases of a loss on trading of goods, the same has to be ignored and not considered with the profits from self-manufactured goods activity. He submitted that the word "profit" in section 80HHC(l) and the word "profit" in the section 80HHC(3) must get a uniform interpretation. He contended that it is now well-settled that the word "profit" under the Income-tax Act includes loss. That the word "loss" is negative profit/minus profit. He contended that the Department has given two different meanings to the word profit. He pointed out that according to the Department the word "profit" in section 80HHC(1) did not include loss, whereas the word "profit" in section 80HHC(3) included minus profit/loss. He contended that in the circumstances one of the two meanings to the word "profit" should be assigned and such meaning should be applied uniformly to the word "profit" in section 80HHC(3)(i) and in section 80HHC(3)(c). He further contended that the Department erred in setting off the loss on export of trading goods against profits on export of self-manufactured goods. He contended that such an adjustment is not provided for in section 80HHC(3)(c). He submitted that sub-clauses (i) and (ii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of self-manufactured goods. Briefly, he contended that in view of the disclaimer of the total turnover of trading goods, the losses from such activity should be ignored and only the profits from export of self-manufactured goods should be taken into account for the purposes of calculating the deduction under section 80HHC(1). Findings: We do not find any merit in the above arguments on behalf of the assessee. At the outset, for the sake of conveniences we have set out herein below section 80HHC in its entirety as it stood at the relevant time. In this appeal we are concerned with the assessment year 1996-97. "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 the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise : Provided that if the assessee, being a bolder of an Export House Certificate or a Trading House Certificate (hereafter in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : 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." From a plain reading of this section it appears to us that this legislation was brought to give deduction in respect of profits derived from the export business. It is sub-section (1) that says where an assessee is engaged in the business of export out of India of any goods to which this section applies, he will be allowed a deduction of the profits derived by the assessee from the export of such business in computing his total income. Before allowing a deduction, the profits of the assessee from the export business are to be ascertained first. In sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed deduction from the gross total income of an assessee as specified in section 80C to section 80U. Section 80A(2) lays down that the aggregate amount of the deductions under Chapter VIA shall not exceed the gross total income of the assessee. In other words, what is contemplated is a deduction from the gross total income. This aspect is important because computation of deduction is contemplated by section 80HHC(3), whereas the effect to be given to such computed deduction is contemplated in section 80HHC(1). In other words, the machinery to compute the deduction is provided in section 80HHC(3) and after computing such deduction, such amount of deduction is required to be deducted from the gross total income of the assessee in order to arrive at the taxable income/total income of the assessee as contemplated by section 80HHC(1). This distinction answers the present controversy. In other words, the deduction under section 80HHC(1) has to be a positive figure. If, after computing the deduction under section 80HHC(3)(c) in the cases of mixed exports, there is a resultant loss, it cannot be deducted from the gross total income in order to arrive at the total income. Only the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by export of self-manufactured goods. Sub-clause (b) deals with profits derived from exports of trading goods. Sub-clause (c) deals with profits from export of self-manufactured goods and trading goods. In other words, sub-clause (c) refers to mixed activities of the assessee. The entire sub-section (3) deals with computation 6f profits. The entire sub-section (3) indicates the formula for calculating the profits derived from the aforestated activities of the assessee. It is basically a machinery section. Subsection (1) provides for deduction of profits from the gross total income, whereas sub-section (3) lays down the manner of calculating the profits which, as stated above, constitute deduction, tax concession under section 80HHC(1). Therefore, the only sub-section, under section 80HHC which provides for deduction for profits retained is sub-section (1) and subsection (3) merely is in aid of sub-section section 8OHHC. We cannot assign a meaning to the word "profit" by faking a clue from the word "profit and gains" in the charging section of the Income-tax Act or from the word "profit" in the computation section 80HHC(3)(c). Similarly, as stated above, section 80HHC(3)(c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is passed on to the supporting manufacturer. It is for this reason that the proviso is introduced by the Legislature in section 80HHC(1). Under that proviso, the Export House is entitled to issue a disclaimer certificate in favour of the supporting manufacturer. The said proviso is not introduced after section 80HHC(3). The reason is clear. Section 80HHC(3)(c) provides for computation of net profit and after arriving at such profit, effect is given to the resultant figure under section 80HHC(1) which provides for deduction from gross total income only to the extent of the resultant figure calculated under section 80HHC(3)(c) in order to arrive at the taxable total income of the assessee. At this stage, we may look at the proviso to sub-section (1) ' The proviso enables the Export House to disclaim the tax concession to the extent of the export turnover of the trading goods. The proviso states that to the extent of the amount of such turnover, the Export House certifies that the deduction may be given to the supporting manufacturer. In other words, under the certificate, the Export House disclaims the deduction. The Export House does not disclaim the turnover. The Export House discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll reduce th6fesultant figure of deduction falling under section 80HHC(1). Hence, it is clear that the disclaimer can only operate if there is profit under section 80HHC(1) which, as stated above, refers only to positive figure of profit and which excludes loss. In other words, if the resultant figure is a loss, as in this case, the assessee cannot claim deduction of the loss under section 80HHC(1) from gross total income and so also, the assessee cannot ignore the loss. Our reasoning is also supported by the formula given by the circulars issued by the Department which clearly show that the assessee will have to first compute the deductions under section 80HHC(3)(c) in order to arrive at the total tax concession as if there was no disclaimer and thereafter, proportionately reduce the tax concession from the total tax concession arrived at under section 80HHC(3)(c) in proportion to the amount disclaimed. It is for this reason that in the circular the formula suggested for calculating the tax concession in eases of disclaimer is : Disclaimer export turnover Export profits = Export profits on trading goods x ---------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively and not disjunctively, particularly in view of the fact that the two sub-clauses are separated by the word "and". At this stage, it may be pointed out that earlier it was held by the Supreme Court that in cases where an assessee has two business activities whose income fell under the head "Profits and gains from business" then, for the purposes of section 80HHC, the loss from one business activity can be ignored and only the profit from a business activity of export should be taken into account. However, the section has undergone a drastic change since then and it is for this reason that clause (c) clearly states that an aggregate of the profits of the two activities should be taken together. In this case we are concerned with ascertaining the meaning of the word "profit" in clause (c). The object of aggregation of the profit is clear, viz., that the net resultant of the aggregation should be taken for the purposes of arriving at the tax concession/deduction. It is for this reason that the word "profit" in clause (c) includes loss/minus profit. Therefore, if there is a loss in export of trading goods and if there is a profit in export of self-manufactured goods, then the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to the benefit of tax concession/deduction under section 80HHC. This would defeat the very object of section 80HHC(1). In the circumstances, we hold that the word "profit" in section 80HHC(1) cannot include losses whereas the word "profit" in section 80HHC(3)(c) includes losses/minus profit. The two sections operate in completely different spheres. One is the computation/machinery section ; the other, viz., section 80HHC(1) provides for deduction from the gross total income to arrive at the total taxable income of the assessee. Section 80HHC(1), therefore, deals with the manner of effecting the deduction arrived at under section 80HHC(3)(c). In cur view, the section is clear. It is not ambiguous. Hence, the question of liberal interpretation does not arise. For the aforestated reasons, the above question is answered in the negative, i.e., in favour of the, Department and against the assessee. In other words, the loss in respect of export of trading goods cannot be ignored as contended by the assessee. We do not find any error in the judgment of the Tribunal. Before concluding, however, there is one more point which needs to be mentioned. The assessee claimed deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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