G. Santhanam, Accountant Member -
(1.) THIS is an appeal by the assessee.
(2.) The assessee is a partnership firm with previous year ending on 31-3-1988, relevant to the assessment year 1988-89. Its business consists of purchase and sale of raw rubber, coconut oil and pepper. The pepper trade consisted of both export sales and local sales. Separate accounts were maintained for raw rubber, which consisted of local sales only; for coconut oil which consisted of local sales only and for black pepper which consisted of export sales and local sales. These separate accounts were only in regard to the trading expenses. Common expenses like salary, office rent, bonus, electricity, telephone, travel, advertisement and other office expenses were also incurred by the concern which were not apportioned to the separate trading accounts maintained by the assessee in respect of rubber, coconut oil and pepper. As a result common expenses were charged against the gross profit derived from the trading in rubber, coconut oil and pepper and the net profit or loss of the entire business was ascertained. The assessee claimed deduction under Section 80HHC of the I.T. Act, 1961 in a sum of Rs. 19,22,911. The Assessing Officer in view of the features noticed in the trading account and the profit and loss account and the manner in which the profit was ascertained was of the view that the assessee was not maintaining accounts exclusively for exports and, therefore, the provisions of Section 80HHC(3)(b) of the I.T. Act, were attracted to the facts of the case. In this view of the matter, he restricted the deduction to Rs. 13,54,636 as against the claim of Rs. 19,22,911. The assessee's contention that the computation of deduction should not be done under Sub-section (3)(b) of Section 80HHC, but should rather be done under Sub-section (3)(a) of Section 80HHC was negatived by the learned CIT (Appeals). According to the CIT (Appeals), the assessee was having common management, common control and common fund and the business in rubber, coconut oil and pepper constituted the same business and, therefore, Section 80HHC(3)(b) was relevant to compute the deduction. He further held that general expenses like salary, rent, etc., had not been apportioned to the three lines of business carried on by the assessee, but were charged against the gross profit derived from each such business. Hence, he held that Sub-section (3)(b) of Section 80HHC stood attracted. This is how the CIT (Appeals) rejected the claim of the assessee. The assessee is in further appeal.
Sri A.K. Venkiteswaran for the assessee admitted that as against the export turnover of Rs. 4.94 crores in black pepper, the local sales which consisted of pinheads, light pepper, dust, etc., which are obtained in cleaning and processing of black pepper for exports amounted to only less than half a lakh rupees. The assessee's business in pepper was really for exports and the local sales of derivatives was purely incidental to the export of pepper. Therefore, it cannot be held that there was no exclusive export trade in pepper. Though the assessee was dealing in rubber and oil they were all intended for local sales only. The assessee has kept separate accounts for raw rubber, coconut oil and black pepper for export. All the expenses referable to the purchase and sale of the items intended for export viz., black pepper have been kept in separate account. No doubt, they were common expenses like salary, bonus, office expenses etc., which were referable to raw rubber and coconut oil alone and, therefore, such common expenses were not apportioned to the export trade vis-ï¿½-vis the local trade. The authorities erred in viewing that the assessee's business did not consist exclusively of exports. Even if a portion of the common expenses can be attributed to the export trade, it could be done on estimate basis in the ratio of the turnover of rubber, coconut oil and black pepper and the profits can be ascertained. Section 80HHC is intended to give a fillip to exports with a view to garner foreign exchange and the section has seen several amendments from year to year with a view to liberalise the scheme of giving incentives to exporters. Therefore, a liberal construction is called for. It was the further contention of the assessee's representative that under the head "Profits and gains of business", there could be more than one source of business, though for purpose of computing the total income they are lumped together and put under the head "Profits and gains of business". That does not mean that each distinct source of business loses its identity.
(3.) SRI C. Abraham, the learned senior departmental representative submitted that the assessee's business consisted of purchase and sale of raw rubber, coconut oil and black pepper. The assessee is having a common fund and common management. All these features constituted the same business. There were common expenses attributable to all the three distinct lines of business, but then they were not identified and apportioned to each line of business. Therefore, it cannot be contended that the assessee's business consisted exclusively of exports. Further, even in the case of black pepper, there were local sales though nominal and, therefore, in respect of black pepper, the assessee did not have exclusively an export business. Thus, he supported the order of the authorities.;