G.SIVARAJAN, J. -
(1.) THE Income -tax Appellate Tribunal, Cochin Bench, has referred the following questions of law to this court under Section 256(1) of the Income -tax Act, 1961, for decision at the instance of the Revenue :
'(1) Whether, on the facts and in the circumstances of the case, and on an interpretation of the relevant provisions, the Tribunal is right in law in holding on principle that the assessee is entitled to deduction under Section 80HHC of the Income -tax Act ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that the business income of the assessee as computed by the Assessing Officer in a sum of Rs. 96,49,307 which entered the total income of the assessee amounting to Rs. 1,04,40,020 should be deemed to include the income by way of exports in an extent of a sum computed in accordance with Clause (b) of Sub -section (3) of Section 80HHC ?'
(2.) THE brief facts necessary for decision of this case are as follows : The respondent -assessee is a company in which the public are substantially interested. It has income from growing and manufacturing of tea besides trading activities. In the assessment for the year 1987 -88, the assessee claimed deduction under Section 80HHC of the Act to the extent of Rs. 16,27,562. The business income of the assessee is computed as follows :
Rs.1.Kerala tea ( -) 24,31,4252. Tamil Nadu tea 5,69,3743. Trading division 22,57,0884. Other activities 92,54,270 Net business income 96,49,307 The assessee had an export turnover of Rs. 7,24,00,271. The total turnover of the assessee came to Rs. 40,82,91,806. The assessee had exported tea and had received sale proceeds in foreign exchange. The assessee claimed that the profits derived from export should be computed in accordance with Clause (b) of Sub -section (3) of Section 80HHC. The Assessing Officer, relying on the provisions of Section 80AB, held that there was actually loss from Kerala tea which was exported abroad and only a small profit from Tamil Nadu tea, the ' net result was loss and therefore in terms of Section 80AB, the assessee was not entitled to any deduction under Section 80HHC of the Act. This was confirmed in appeal by the Commissioner of Income -tax (Appeals). In second appeal by the assessee, the Tribunal allowed the claim of the assessee by holding that Section 80AB has no application to a case covered by Section 80HHC of the Act.
We have heard Sri P. K. R. Menon, learned senior Central Government standing counsel appearing for the Revenue, and Sri Anil D. Nair, learned counsel appearing for the respondent -assessee. The contention of senior counsel for the Revenue is that in the computation of profits derived from business as profit under Clause (b) of Section 80HH(3), the loss suffered has to be deducted. He, in support of the above, has relied on the decisions of the Supreme Court in CIT v. Harprasad and Co. P. Ltd. : 99ITR118(SC) and in Cambay Electric Supply Industrial Co. Ltd. v. CIT : 113ITR84(SC) . Thus, senior counsel submits that the profits derived from the business contemplated under Section 80HHC(3) has to be computed in accordance with the provisions of the Act, and in such a case, the loss suffered from the business has necessarily to be deducted in arriving at the profits derived from the export business.
(3.) ON the other hand, the contention of learned counsel for the assessee is that the profits of the business have been specifically stated to be computed under the head 'Profits and gains of the business', which take in only Sections 28 to 44D, and therefore, there is no scope for application of the provisions of Sections 70 to 72 of the Act. He also submitted that whether there is profit from the export business or not is immaterial, since Section 80HHC(3)(b) provides a particular formula for the computation of the profits derived from the export for the purpose of Section 80HHC(1). Counsel further submits that the formula is, Profits of the business x Export turnover