Whether deduction u/s 80HHC can be allowed from domestic business if exports business has suffered a loss?
Last updated: 13 April 2015
Court :
Supreme Court of India
Brief :
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. AO held 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 CIT (Appeals). The appellant appealed before the ITAT. ITAT held that the appellant was entitled to full relief under Section 80HHC and directed the Assessing Officer to grant relief to the assessee. On remand, while giving the effect to order of ITAT, the AO found that the appellant had not earned any profits from the export of Marine products and from the said export business, it had suffered a loss. Therefore,according to AO, as per Section 80AB, the deduction under Section 80HHC could not exceed the amount of income included in the total income.Held that it is a pre-requisite that there must be profits from the export business to claim deduction u/s 80HHC.
Citation :
Jeyur Consultant &InvestmentPvt. Ltd – Appellant – Versus – CIT – Respondent
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 :
Hetvi Sheth
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