Whether deduction u/s 80HHC can be allowed from domestic business if exports business has suffered a loss?

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8912 OF 2003

JEYAR CONSULTANT & INVESTMENT PVT.LTD.  APPELLANT(S)        

VERSUS

COMMISSIONER OF INCOME TAX, MADRAS RESPONDENT(S)

BEFORE CORUM:

J. A.K. SIKRI AND J. ROHINTON FALI NARIMAN

DATE OF PRONOUNCEMENT:

APRIL 01, 2015

J U D G M E N T

A.K. SIKRI, J.

What is the correct method  of  computation  of  deductions under Section 80HHC(3) of the Income Tax Act, 1961, in the given  facts  and circumstances, is the question which needs an answer in the present appeal.

2) The given facts and circumstances, as they appear on record, are  stated  in the summary form herein below:

Finance Act of 1983 introduced Section 80HHC of the  Income Tax Act, providing  incentives  to  exporters  and  deductions  for  persons involved in the export business.  Section 80HHC(3)(b) provided  the  formula for the computation of deduction  for  persons  who  do  not  have  business exclusively of export out of India, that is  to  say,  in  cases  where  the assessee is having turnover and income from  business in India  as  well  as from the export business.  For the sake of  convenience,  relevant  portions of Section 80HHC are extracted hereinbelow:

"80HHC.  Deduction in respect of profits retained for  export  business.-(1) Where an assessee, being an  Indian  company  or  a  person  (other  than  a company) resident in India, is engaged in the business 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  holder  of  an  Export   House Certificate or a Trading House  Certificate  (hereinafter  in  this  section referred to as an Export to in clause  (b)  of  sub-section  (4a),  that  in respect of  the  amount  of  the  export  turnover  specified  therein,  the deduction  under  this  sub-section  is  to  be  allowed  to  a   supporting manufacturer, then the amount of deduction  in  the  case  of  the  assesse shall be reduced by such amount which bears to  the  total  profits  of  the export business of the assessee the same proportion as the amount of  export turnover specified in  the  said  certificate  bears  to  the  total  export turnover of the assessee.

3) For the purposes of sub-section (1), profits derived from  the  export of goods or merchandise out of India shall be -

(a)   in a case where the business  carried  on  by  the  assessee  consists exclusively of the export out of India of the goods or merchandise to  which this section applies, the profits of the  business  as  computed  under  the head "profits and gains of business or profession".

(b) in a case where the business carried  on  by  the  assessee  does  not consist exclusively of the export out of India of the goods  or  merchandise to which this section applies, the amount which bears to the profits of  the business (as computed under the head  "Profits  and  gains  of  business  or profession") the same proportion as the export turnover bears to  the  total turnover of the business carried on by the assessee."

3)  On 05.07.1990,  the  Central  Board  of  Direct  Taxes  (CBDT)  issued Circular No.564 dated 05.07.1990 giving detailed guidelines as  to  how  the deductions  under  Section  80HHC  are  to  be  calculated.    The formula prescribed by CBDT circular is as follows:

Profit of the Business  X Export Turnover

                                      Total Turnover

4)  The appellant company is engaged in the business of export  of  Marine products and also financial consultancy and trading in equity  shares. Its total business does not consist purely  of  exports  but  includes  business within  the  country  as  well  which  situation  is  covered  by Section 80HHC(3)(b), noted hereinabove.

5)    The Assessing Officer  while  dealing  with  the  assessments  of  the appellant in respect of the Assessment Year 1989-1990  took  the  view  that the deduction was not allowable on the ground that there is no  relationship between the Assessee Company and the Processors.  The appellant carried the said  order  in  appeal.   The  appeal  against  the  assessment  order  was dismissed by the Commissioner of Income Tax  (Appeals),  Madras  vide  order dated 17.08.1991.  The appellant filed  an  appeal  before  the  Income  Tax Appellate  Tribunal.   By  its  judgment  dated  24.04.1992,  the  Appellate Tribunal set aside the  order  of  the  Assessing  Officer  and  came  to  a conclusion that the appellant was entitled  to  full  relief  under  Section 80HHC and directed the Assessing Officer to grant relief to the assessee.

To read the full judgment, please find the attached file:

Attached file :

http://judis.nic.in/supremecourt/imgs1.aspx?filename=42546