A.K.SIKRI, J. - (1.) 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 here in below: "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 assessee 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: Export Turnover Profit of the Business X Total Turnover ;