TMI Blog2000 (7) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under the head "Profits and gains of business" which, in turn, referred to sections 28 to 44D and it did not refer to section 72 of the Act. Therefore, the assessee claimed the deduction with reference to the provisions of sections 28 to 44D under the head "Profits and gains of business" of the current year. Therefore, the assessee did not set off the brought forward losses while computing the profits of the business. This computation was rejected by the Assessing Officer. Briefly, the Assessing Officer came to the conclusion that in view of section 80AB which contained a non obstante clause, the assessee was required to compute business profits by setting off the brought forward losses as contemplated by section 72 of the Income-tax Act, 1961. Being aggrieved, the assessee went in appeal to the Commissioner of Income-tax (Appeals). The assessee succeeded on this point before the Commissioner of Income-tax (Appeals) who allowed the appeal in view of the judgment of the Tribunal in the case of Salgaocar Mining Industries Ltd. v. DCIT [1997] 61 ITD 105. Being aggrieved, the Department carried the matter to the Tribunal. The Department lost the appeal before the Tribunal. Hence, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. Joseph [1997] 225 ITR 731. In fairness he also invited our attention to the contra view of the Kerala High Court in favour of the assessee in the case of CIT v. A. V. Thomas and Co. Ltd. [1997] 225 ITR 29. Mr. Inamdar, learned counsel appearing on behalf of the assessee, contended that the object of section 80HHC was to encourage exports. He contended that the object of section 80HHC was to ascertain the export profits out of the business profits. He contended that the basic formula to be applied under section 80HHC(3) to arrive at the export profits was as follows : Business profits X Export turnover ------------------------------ Total turnover He contended that, initially, the deduction under section 80HHC was based on annual turnover. Thereafter, it underwent a change under which it was based on 50 per cent. of the profits from exports of the current year plus four per cent. of foreign exchange realisations. Thereafter, the section was further amended and the deduction was required to be determined on the basis of percentage of profits to be arrived at by applying the ratio of export turnover to total turnover of the current year. The emphasis of learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at where any deduction is required to be made under any section of Chapter VI-A under the head "C" in respect of any income of the specified nature which is included in the gross total income of the assessee, then such income shall be computed in accordance with the provisions of the Act. He 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. He contended that the Legislature has made a departure from other sections of Chapter VI-A in enacting section 80HHC. He contended that section 80AB came into the picture because a controversy arose as to whether dividend income was relatable to gross income or whether it was relatable to net income. Hence, section 80AB came to be introduced and it was made applicable to all specified incomes like royalty. He contended that when this section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes any income by way of . . .". On the other hand, these words do not find place in section 80HHC. The reason is obvious. In the set of sections which start with the above words, the Legislature intended that before an assessee becomes entitled to claim relief of deduction in respect of a specified category of income like income by way of dividends, a pre-condition was required to be satisfied, viz., that such specified income should form part of the gross total income. This precondition is there in cases of sections 80P, 80HH, 80M, etc. This pre-condition is not there, however, in respect of section 80HHC(3) which primarily deals with ascertaining export profits. In the case of CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. [1997] 224 ITR 604, the Supreme Court was required to decide the question as to whether unabsorbed losses of the earlier years were required to be set off before allowing deduction under section 80P. Reading the provisions of section 80P with section 80B(5), it was held that for the purposes of making deduction under section 80P, it was necessary to determine, in the first instance, the gross total income as per the provisions of the Act. That m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a similar view with which we agree respectfully. It has been held that a reading of section 80AB would show that computation of deduction was required to be made under other sections of Chapter VI-A on the basis of the amount of income but in the case of section 80HHC the computation of deduction or the quantification of the amount of deduction was based on export turnover and not on the basis of income. This was in order to encourage exports. The Legislature clearly intended to give the benefit of deduction even if there was no income on the basis of the export turnover. In the case of CIT v. Gogineni Tobacco Ltd. [1999] 238 ITR 970, the Division Bench of the Andhra Pradesh High Court has also laid down that in computing the total income of the assessee, the deductions were required to be allowed in accordance with and subject to the provisions of section 80HHC. The said section does not say that the deduction shall be allowed from the gross total income as in the case of section 80P or in the case of section 80M as it then stood. It was held that under the circumstances, section 72 had no application. With respect, we agree with the said judgment. There is one more way of looki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untry. 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. Hence, there is no merit in this appeal. Before concluding this judgment, we may refer to the judgments cited on behalf of the Department. In the case of Motilal Pesticides (I.) Pvt. Ltd. [2000] 243 ITR 26 (SC), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard depreciation, the carried forward development rebate and also the brought forward business losses of the earlier years. As stated hereinabove, there is no dispute on the above proposition. The only point is that when it comes to export profits, the Legislature has clearly indicated that in applying the artificial formula under section 80HHC(3), the business profits shall be computed with reference to sections 28 to section 44D. In the circumstances, the judgment of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, has no application to the facts of the present case. In the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120, the Supreme Court laid down that as far as section 80M of the Income-tax Act is concerned, the deduction required to be allowed under that provision had to be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act and as forming part of the gross total income and not with reference to the full amount of dividend received by the assessee. This was in view of the specific language of section 80M which opened with the words, viz., "Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X
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