- (1.) This Appeal is against a Judgment dated 2nd July, 2001 passed by the Bombay High Court.
(2.) Briefly stated the facts are as follows : The Appellants are a Export House. They hold a certificate issued by the Chief Controller of Imports and Exports. For the Assessment Year 1996-97 the Appellants filed a return of income declaring Nil income. It is an admitted position that the taxable income, before the deductions under Chapter VIA, was Rs. 4.39 crores. However, against this taxable income the Appellants claimed various deductions. One such deduction was under Section 80-HHC for Rs. 3.78 crores. During the assessment proceedings it was found that the Appellants were exporting goods which were self-manufactured as well as goods manufactured by supporting manufacturers i.e. trading goods. It was found that the sum of Rs. 3.78 crores, which had been claimed as a deduction, was the profit from exports of self manufactured goods. It was found that from the exports of trading goods there was a loss of Rs. 6.86 crores. It was found that the Appellants had issued certificates of disclaimer in favour of the supporting manufacturers in respect of the entire export of trading goods. The Assessing Officer, therefore, held that there was a net loss from export of goods and disallowed the deduction of Rs. 3.78 crores. The Commissioner (Appeals) dismissed the Appeal filed by the Appellants on 11th October, 1999. On 29th December, 2000 the Income-tax Appellate Tribunal dismissed the Second Appeal. By the impugned Judgment the Bombay High Court has dismissed the Appeal filed under Section 260-A of the Income-tax Act.
(3.) The question for consideration is whether the Appellants are entitled to deduction under Section 80-HHC in respect of the sum of Rs. 3.78 crores by ignoring the loss of Rs. 6.86 crores. It, therefore, becomes necessary to look at Section 80-HHC of the Income-tax Act. The relevant portions of Section 80-HHC reads as follows : "80-HHC. 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 of 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 to the extent of profits, referred to in sub-section (1B) 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 (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred 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 assessee shall be reduced by such amount which bears to the [total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods.] (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), 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 to the extent of profits, referred to in sub-section (1B)], derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House. xxx xxx xxx xxx xxx xxx (3) For the purposes of sub-section (1),- (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export. (c) where the export out of India is of goods or merchandise manufactured [or processed] by the assessee and of trading goods, the profits derived from such export shall,- (i) in respect of the goods or merchandise manufactured [or processed] by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic), of Section 28, the same proportion as the export turnover bears to the total turnover of business carried on by the assessee. Explanation : For the purposes of this sub-section,- (a) "adjusted export turnover" means the export turnover as reduced by the export turnover in respect of trading goods; (b) "adjusted profits of the business" means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause (b) of sub-section (3); (c) "adjusted total turnover" means the total turnover of the business as reduced by the export turnover in respect of trading goods; (d) "direct costs" means costs directly attributable to the trading goods exported out of India including the purchase price of such goods; (e) "indirect costs" means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover; (f) "trading goods" means goods which are not manufactured or processed by the assessee. (3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be,- (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the business; (b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the profits of the business the same proportion as the turnover in respect of sale to the respective Export House or Trading House bears to the total turnover of the business carried on by the assessee. (4) The deduction under sub-section(1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of Section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.";