Section 80HHC of the Income-tax Act, 1961 - Deductions - Exporters

HELD Section 80HHC has been incorporated with a view to providing incentive to export houses. Even though a liberal interpretation has to be given to such a provision, the interpretation has to be as per the wordings of the section. If the wordings of the section are clear, then benefits, which are not available under the section, cannot be conferred by ignoring or misinterpreting words in the section. Sub-section (3)(a) deals with the case where the export is only of self-manufactured goods. Sub-section (3)(b) deals with the case where the export is only of trading goods. Thus, when the Legislature wanted to take exports from self-manufactured goods or trading goods separately, it has already so provided in sub-sections (3)(a) and (3)(b). It would not be denied that the word ‘profit’ in section 80HHC (1) and section 80HHC(3)(a) or (3)(b) means a positive profit. In other words, if there is a loss then no deduction would be available under section 80HHC(1) or (3)(a) or (3)(b). In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit, then the assessee will 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 clauses (i) and (ii). Between clauses (i) and (ii) the word ‘and’ appears. A plain reading of sub-section (3)(c) shows that the ‘profits from such exports’ has to be profits from export of self-manufactured goods plus profits from exports of trading goods. The profit is to be calculated in the manner laid down in sections (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 clause (i) 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. [Para 7] Further section 80-AB is also in Chapter VI-A. It starts with the words ‘where any deduction is required to be made or allowed under any section included in this Chapter’. This would include section 80HHC. Section 80-AB further provides that ‘notwithstanding anything contained in that section’. Thus, section 80-AB has been given an overriding effect over all other sections in Chapter VI-A. Section 80HHC does not provide that its provisions are to prevail over section 80-AB or over any other provision of the Act. Section 80HHC would, thus, be governed by section 80-AB. Section 80-AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration. [Para 10] Even under section 80HHC(3)(c)(i) the profit is to be adjusted profit of business. The adjusted profit of the business means a profit as reduced by the profit derived from business of exports out of India or trading goods. Thus, in calculating the profits under sub-section (3)(c)(i) one necessarily has to reduce profits under sub-section (3)(c)(ii). Thus, if there is loss then those losses in export of trading goods have to be adjusted. They cannot be ignored. A plain reading of section 80HHC makes it clear that in arriving at 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. [Para 11] The plea, that the word profit in section 80HHC(3)(c) would not include losses and if there are any losses, they are to be ignored, was clearly without substance. Firstly, it was not necessary that the word ‘profit’ must have the same meaning. The meaning of the word ‘profit’ will depend on the context in which it is used. In section 80HHC(1) it is admittedly used to indicate positive ‘profit’ because the deduction will only be of a positive profit. Section 80HHC(3) is the sub-section which provides how profits are to be worked out in computing total income. For purposes of such computation both profits and losses have to be taken into account. Thus, the word ‘profit’ in section 80HHC(3) will mean profits after taking into account losses, if any. More importantly, the term ‘profit’ in section 80HHC both in sub-section (1) and in sub-section (3) means a positive profit worked out after taking into consideration the losses, if any. Thus, the word ‘profit’ has the same meaning in sections 80HHC(1) and (3). [Para 12] Therefore, there was no merit in the instant appeal and the same was to be dismissed accordingly.