COMMISSIONER OF INCOME TAX Vs. T C USHA
LAWS(KER)-2003-3-33
HIGH COURT OF KERALA
Decided on March 12,2003

COMMISSIONER OF INCOME TAX Appellant
VERSUS
T C Usha Respondents

JUDGEMENT

G.SIVARAJAN, J. - (1.) THE CIT, Trivandrum has filed this appeal against the order of the Tribunal, Cochin Bench, in ITA 637/C/95, in respect of the asst. yr. 1992 -93. The respondent -assessee is an individual running a cashew business in the name and style of 'Chethana Cashews', and also doing other business; transport business and trading business in electronic goods. In this case, we are only concerned with the cashew business of the assessee. The assessee is engaged in the processing of cashewnuts and its export. The assessee had also purchased cashewnuts from outside parties and exported the same to foreign countries. The cashewnuts purchased from outside parties will hereinafter be referred to as 'trading goods' as defined in Clause (f) of Sub -section (3) of Section 80HHC of IT Act, 1961, for short 'the Act'. The assessee had profit in the export of own goods manufactured by it. But the assessee incurred loss in the export of trading goods. In the assessment for the year 1992 -93, the AO computed the deduction available under Section 80HHC of the Act by deducting the loss incurred in the export of trading goods from the profits derived from the export of own goods (manufactured goods). The assessee inter alia challenged the deduction of the loss in the computation of profits for the purpose of Section 80HHC. The first appellate authority confirmed the order of the AO on this point. In further appeal by the assessee, the Tribunal allowed the appeal on this point by relying on the decision of the Supreme Court in CIT v. Canara Workshops (P) Ltd. : [1986]161ITR320(SC) and held that the AO was not justified in setting off the negative profit in respect of the export of trading goods against the aggregate of the export profits on manufactured goods, Being aggrieved by the said order of the Tribunal, this appeal is filed by the Revenue.
(2.) THE appellant had formulated the following three questions of law on which notice was ordered : ' 1. Whether, on the facts and in the circumstances of the case, while computing the relief under Section 80HHC of the IT Act, the processing charges could be excluded from the profits of the business as also from the turnover of the business? 2. Whether, on the facts and in the circumstances of the case and in view of Expln. (ba) to Section 80HHC and Clauses (iiia), (iiib) and (iiic) of Section 28, will not turnover take into account all other receipts other than the excluded items of receipts? 3. Whether, on the facts and in the circumstances of the case, the negative profit could be set off against the aggregate of the export profits on manufactured goods, incentives and sales to export house ?' We have heard Sri P.K.R. Menon, Senior Central Government standing counsel for taxes appearing for the appellant and Sri. P. Balachandran, the learned counsel appearing for the respondent. The senior counsel for the appellant submitted that the benefit available under Section 80HHC of the Act can be worked out only after deducting the loss incurred by the assessee on the export of trading goods from the profits on the export of the manufactured goods. The senior counsel in support of the above, relied on the provisions of Section 80HHC(3)(c)(i) of the Act, r/w the provisions of Clause (baa) of the Explanation to Sub -section (3) thereof and the decisions of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) , Distributors (Baroda) (P) Ltd. v. Union of India : [1985]155ITR120(SC) and CIT v. Harprasad and Co. (P) Ltd. : [1975]99ITR118(SC) . Senior counsel further relied on the decision of the Madras High Court in CIT v. Macmillan Co. of India Ltd. : [2000]243ITR403(Mad) and the decision of the Bombay High Court in IPCA Laboratories Ltd. v. Dy. CIT : [2001]251ITR401(Bom) . The senior counsel further submitted that Section 80AB of the Act will apply in respect of the computation of the deduction available under Section 80HHC of the Act, and that by virtue of the said provisions, the profits derived from the export business as provided under Section 80HHC(3)(c)(i) of the Act can be worked out only in accordance with the provisions of the Act which includes the provisions of Sections 70 and 71 dealing with set off of loss incurred in the business.
(3.) THE learned counsel for the assessee, on the other hand, submits that Section 80HHC of the Act is a self -contained code in itself and that the computation of the deduction has to be made strictly in accordance with the said provisions, and so construed, the profits of the business referred in Sub -clause (i) of Clause (c) of Sub -section (3) of Section 80HHC r/w the provisions of Clause (baa) of the Explanation to Sub -section (3), the profit has to be worked out strictly in accordance with the provisions of Sections 30 to 44D, which falls under the head 'Income from profits and gains of business or profession and there is no question of applying the other provisions of the Act, particularly, the provisions of Sections 70 and 71 thereof. The counsel further submitted that the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) or the decision in Cloth Traders (P) Ltd. v. Addl CIT : [1979]118ITR243(SC) , rendered in the context of the provisions of Sections 80M, 80E and 80AA of the Act has no application to Section 80HHC. The counsel pointed out that those provisions opens with the words, 'Where the gross total income of an assessee being a company includes.....' and it is in those circumstances, the Supreme Court has held that the benefit under the said provisions has to be worked out in accordance with the provisions of the Act. The counsel also pointed out that Section 80HHC does not start with such words and that Section 80HHC specifically makes the expression 'the assessee is engaged in the business out of India of merchandise to which this section applies and further states that the deduction shall be allowed in accordance with and subject to the provisions of this section', which would clearly indicate that the profits derived from the export has to be arrived strictly in accordance with the provisions of this section and not by resort to the other provisions of the Act. The counsel submitted that the Tribunal has correctly applied the ratio of the decision of the Supreme Court in Canara Workshops (P) Ltd.'s case (supra). The counsel pointed out that the decisions of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) and Distributors (Baroda) (P) Ltd.'s case (supra) were distinguished in that decision. The counsel also relied on the decision of the Bombay High Court in CIT v. Shirke Construction Equipments Ltd. : [2000]246ITR429(Bom) and the decision of the Gujarat High Court in CIT v. Arvind Mills Ltd. : [2002]254ITR529(Guj) . The counsel further submitted that this Court in CIT v. A.V. Thomas and Co. Ltd. : [1997]225ITR29(Ker) has held that Section 80AB of the Act is subject to the provisions of Section 80HHC, which decision has been affirmed by the Supreme Court, by its judgment dt. 2nd April, 2002, in Civil Appeal No. 4605/1998.;


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