Rajasthan H.C : Whether, on the facts and circumstances of the case, the Tribunal has correctly construed the provisions of s. 80HHC, in the matter of computing profits and gains of their business, in the context of the said provision for granting deduction ?

High Court Of Rajasthan

CIT vs. Sharda Gum & Chemicals

Section 80HHC

Asst. Year 1989-90

Rajesh Balia & R.P. Vyas, JJ.

IT Appeal No. 25 of 2000

24th January, 2006

Counsel Appeared

Sangeet Lodha, for the Appellant : Sanjeev Johari, for the Respondent

JUDGMENT

By the court :

This appeal is directed against the order of the Tribunal, Jodhpur Bench, Jodhpur, dt. 17th Dec., 1999 [reported as Asstt. CIT vs. Sharda Gums & Chemicals (2000) 66 TTJ (Jd) 256—Ed.], in two cross-appeals arising out of assessment proceedings for the asst. yr. 1989-90. The substantial question of law framed at the time of admitting the appeal reads as under: “Whether, on the facts and circumstances of the case, the Tribunal has correctly construed the provisions of s. 80HHC, in the matter of computing profits and gains of their business, in the context of the said provision for granting deduction ?”

2. One of the assessee’s business in which the assessee is engaged is the business of export out of India of goods and merchandise to which s. 80HHC applies. In the first instance, on 31st Oct., 1989, the assessee had submitted a return of income declaring loss computed in accordance with the provisions of the Act at Rs. 62,63,970. The assessee filed a revised return for treating the cash compensatory support received during the year at Rs. 75,91,462 as income from business of export on account of amendment in the Act of 1961 by inserting cls. (iiia), (iiib) and (iiic) in s. 28 of the Act. These amendments were made with retrospective effect from 1st April, 1962, 1st April, 1967, and 1st April, 1972, respectively, vide the Finance Act, 1990. Perhaps this necessitated the filing of a revised return by the assessee on 1st May, 1990, of total income of Rs. 2,64,860 instead of the return of loss filed earlier. Computation of income under the head of “Profits and gains from business” was made by the AO at Rs. 10,75,799.

The other facts which have been noticed in the assessment proceedings were that gross turnover of the assessee of his business as a whole was Rs. 9,16,18,537, out of which export turnover amounted to Rs. 7,23,95,420 and the indigenous sales were only Rs. 1,92,23,117. In short, the approximate ratio between the turnover of the business and export turnover came to be 9.17 : 7.23. This ratio is relevant for the present controversy in hand.

If the total result of the business is in negative or loss, no deduction under s. 80HHC can be claimed if the assessee is not engaged in the business of export out of India of goods and merchandise only, but is also engaged in the other business or businesses. Since the assessee at the first instance filed a return of loss, no claim under s. 80HHC was made by the assessee. However, with the revised return, the assessee claimed deduction under s. 80HHC by showing net profit of Rs. 12,45,075.

While considering the income from “profits and gains of business”, the AO had disallowed inclusion of processing charges and the profit on sale of import licence and after deducting all these items, net balance remaining as Rs. 2,20,943 was further reduced by the deduction claimed by the assessee under s. 32AB resulting in a net negative figure of Rs. 22,592. Thus, assessing the negative income, the assessee’s claim for deduction under s. 80HHC was disallowed.

3. On appeal, the CIT(A) accepted the assessee’s claim to include profit from sale of import licence amounting to Rs. 5,55,081 as part of profit of business under s. 28(iiia). Similarly, the commission from the State Trading Corporation (STC) on export counter trade of Rs. 2,19,190 was considered as income from business or profession and was considered as part of business income. The commission on shipping, freight or adat, etc., amounting to Rs. 51,241 was also held to be in connection with the export business and hence it was also considered as forming part of business income so also processing charges of Rs. 71,174 was considered to be part and parcel of the business activities. On these issues, the CIT(A) was of the opinion that this could not have been deducted from the business income of the assessee for arriving at profit for the purpose of considering the claim of the assessee for deduction under s. 80HHC. So far as interest receipt was concerned, it was disallowed, inter alia, on the ground that the assessee himself has shown it as income from other sources and in view of this that was not considered as forming part of business income.

The CIT(A) further found that so far as deduction under s. 32AB is concerned, it was liable to be deducted from the business profits for the purpose of s. 80HHC, in the light of the provisions of s. 80AB of the Act. With these findings, the AO was directed to recompute the profits and gains from the business of the assessee and arrive at deduction to which the assessee may be entitled under s. 80HHC.

Against the order of the CIT(A), the assessee as well as the Revenue both preferred appeals before the Tribunal. The assessee did not press for his claim for computing profits and gains of business for the purpose of considering deduction under s. 80HHC without considering deduction allowable under s. 32AB and in our opinion rightly so. In view of the clear provision of s. 80AB, deduction under s. 80AB had to be considered for computing the profits and gains of business as per the provisions of the IT Act, 1961, before considering claim of deduction under Chapter VI-A.

The Revenue was aggrieved with allowing the assessee’s claim in respect of receipts from the sale of export licence; commission from sale of STC export counter and commission of shipping, freight and processing charges of job work.

The Tribunal while dismissing the appeal of the Revenue agreeing with the order of the CIT(A) in respect of the claims allowed by the CIT(A) allowed the appeal of the assessee to the extent it related to treating the interest receipts as income from business instead of income from other sources. Accordingly, the appeal of the assessee was partly allowed by order under appeal. In allowing the claim of the assessee in respect of interest, the Tribunal has reasoned that sale consideration of import licences received by the assessee on account of exports made by them has direct nexus with the export business carried on by the assessee.

One factor may also be noticed that the Revenue is supporting the adjustment made by the AO in respect of profits earned on the sale of import licence by deducting it from the profits by contending that it is not a profit arising out from the sale of goods outside India merely on account of sale of import licence and therefore this income has no connection with export business.

The substantive contention of the Revenue in this connection is that since the sale of import licence does not fall within the purview of business of selling goods and merchandise through export out of India, that cannot be considered while computing deduction under s. 80HHC.

In like way, it has been contended that since the processing charges received by the assessee has no connection with the export business, it cannot be included in the profits and gains of business for the purpose of computing deduction under s. 80HHC. A brief journey into the legal history of s. 80HHC will not be out of place to find out the true nature of enquiry for the purpose of computation of deduction under s. 80HHC. Originally s. 80HHC was inserted by the Finance Act, 1983, which, inter alia provided that where the assessee being an Indian company or a person (other than a company) who is resident in India, exports out of India during the previous year relevant to an assessment year 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, the deduction of an amount equal to one per cent of the export turnover of such goods or merchandise during the previous year and a deduction of an amount equal to five per cent of the amount by which the export turnover of such goods or merchandise during the previous year exceeds the export turnover of such goods or merchandise during the immediately preceding year be allowed in the computation of income of the assessee. Sub-s. (3) envisaged one condition that no deduction under cl. (b) of sub-s. (1) shall be allowed unless the assessee had during the immediately preceding previous year, exported out of India goods or merchandise to which this section applies. Admittedly, at the inception, the claim to deduction was directly referable to export turnover and not to the income or profit arising from the business of export out of India on such goods or other business which was by way of a general deduction from computation of taxable income. Caption of section in its original form was reading “Deduction in respect of export turnover”.

11. The case of deduction under s. 80HHC underwent change when it was substituted by the Finance Act, 1985, w.e.f. 1st April, 1986. Caption of section was amended as it stands today, i.e. “Deduction in respect of profits retained for export business”. The amended s. 80HHC provided that 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 of an amount not exceeding fifty per cent of the profits derived by the assessee from the export of such goods or merchandise. The limit of deduction was restricted to 50 per cent of such profit. Sub-s. (3) of amended s. 80HHC provided that 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” will be the profits derived from the export of goods or merchandise out of India. Secondly it provided 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.

The expression “export turnover” came to be defined by cl. (b) of the Explanation to mean “sale proceeds receivable by the assessee in convertible foreign exchange of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962.”

12. The s. 80HHC of the Act of 1961 was again amended w.e.f. 1st April, 1987. In sub-s. (1) for the portion beginning with the words “deduction of an amount” and ending with the words “Provided that”, the following was substituted, namely : “deduction equal to the aggregate of— (a) four per cent of the net foreign exchange realisation; and (b) fifty per cent of so much of the profits derived by the assessee from the export of such goods or merchandise.” Thus formulae of quantifying deduction was changed.

13. Yet again vide Finance Act, 1988, sub-s. (1) of s. 80HHC was substituted w.e.f. 1st April, 1989. Substituted sub-s. (1) provides that 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 of the whole of the income derived by the assessee from the export of such goods or merchandise. Sub-s. (1A) was inserted. After sub-s. (3), sub-ss. (3A) and (4A) were inserted. The amended provisions have envisaged deduction of the whole of the income from export of goods or merchandise under sub-s. (1) and sub-s. (1A) of s. 80HHC, thus, envisaging 100 per cent deduction on export income falling under s. 80HHC.

14. Since we are concerned with asst. yr. 1989-90, the provisions of s. 80HHC as existed on 1st April, 1989, become relevant for our consideration. The provisions of s. 80HHC to the extent they are relevant read as under :

“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 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 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 (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 cl. (b) of sub-s. (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. (2)(a) This section applies to all goods or merchandise, other than those specified in cl. (b), if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange…… (3) For the purposes of sub-s. (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……… Explanation.—For the purposes of this section,— (a) ………. (b) ‘export turnover’ means the sale proceeds receivable by the assessee in convertible foreign exchange of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962.”

15. From the aforesaid, it is noticed that for asst. yr. 1989-90, the provisions of s. 80HHC provide that profits of the business of export out of India of any goods or merchandise were to be deducted in computing the total income of the assessee from all other sources and under sub-s. (2)(a) the only condition was that the sale proceeds of such goods or merchandise exported out of India must be receivable by the assessee in convertible foreign exchange.

16. However, vide Finance Act, 1990, certain changes were made in sub-s. (2)(a). The word “receivable” was substituted by the words “received in, or brought into, India”. This substitution was made effective from 1st April, 1991, and a new condition for availing of such deduction was placed by providing that the sale proceeds must be received or brought into India within a period of six months from the end of the previous year or within such period as the competent authority may allow in this behalf.

17. Sub-s. (3) too underwent amendment after 1st April, 1989, w.e.f. 1st April, 1992, vide Finance Act, 1991.

It is relevant to mention here that by Finance (No. 2) Act of 1991, in the Explanation, cl. (aa) was inserted with retrospective effect from 1st April, 1986. Clause (ba) defining total turnover was inserted w.e.f. 1st April, 1987, and cl. (baa) was inserted w.e.f. 1st April, 1992.

18. This journey from 1983 to 1992 does reflect one thing that at every stage new provisions have been made for expanding the claim to deduction on broader canvass.

19. From the complicity of these amendments, two things come out clearly; firstly that so far as deduction is concerned, the essential condition is that it is a benefit extended to the business of export of any goods or merchandise out of India. This condition has remained unchanged throughout. How much deduction is to be allowed and what is to be the basis for computing such deduction, has been undergoing changes as we have noticed above from lower to higher degree.

20. Apparently, the AO in considering the income which is to be included in computing income from profits and gains of business or profession opined that to arrive at the commercial profits from exports made by the unit the deduction arrived at under s. 32AB and other incomes which are not the result of assessee’s export business are to be reduced from the profits as per the assessee’s books for the purpose of working out the deduction under s. 80HHC, for example income derived on account of processing charges, commission, interest, etc., etc. Apparently the opinion is in vaccuo, without noticing the provisions of the Act.

21. No reason is forthcoming from the order of the AO nor do we find any substance in the contention raised by learned counsel for the Revenue. If we read sub-s. (3) as it existed on 1st April, 1989, and considering subsequent amendments which were brought into effect retrospectively, the provision about determination of deductible amount speaks of “amount which bears to the profit of the business”. Carrying on business of export trade is the basic condition of eligibility to enter the area of claim to deduction under s. 80HHC of the Act of 1961. But that being not the question to be decided, as eligibility of the respondent assessee is not in dispute. The next step is to quantify the claim to deduction. Where an assessee is exclusively involved in business of exporting goods or merchandise out of India, its income is to be computed in terms of the provisions of the Act of 1961 relevant for the purpose of computing income under the head “Profits and gains of business” like any other business income.

22. But where export of goods and merchandise is not the exclusive business of the assessee, but he has other business also, sub-s. (3) leaves no room for doubt that where an assessee is engaged in more than one business and is not exclusively engaged in the business of export, his income from such exclusive business of export out of India of goods or merchandise is not to be separately computed, but is to be carved out in proportion from his total business income computed in accordance with the provisions of the Act. It is not the purpose of the provision that the exact profit derived of export out of India of goods or merchandise has to be computed. It is bound to be an estimation. In fact, the profits of business from export of goods or merchandise out of India where the assessee is engaged in other business also is not to be taken independent of the computation of profits and gains of business or profession of the assessee. Sub-s. (3) does not make out any retrospective amendment that for the purpose of computing deduction in respect of profits and gains of business, it should be confined only to one other activities which fall properly within the ambit of business or profession. Therefore, the AO fell into error at this junction by delving into something which was not germane for the purpose of arriving at the income from the business or profession as computed under the head “Profits and gains of business” under the provisions of the Act.

23. Sec. 80HHC as it stood during the relevant asst. yr. 1989-90 envisaged in no uncertain terms that 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 shall be profit derived from the export of goods or merchandise out of India. In computing such profit of business, no exclusion has to be made of any income which is to be assessed under the head “Profits and gains of business or profession” under Part D of Chapter IV. The AO seriously erred in excluding the profits or other income derived from one or more business by erroneously considering that such income does not relate to the business of export out of India of any goods or merchandise and thus reducing the total income of the assessee from business. Such error resulted in providing wrong edifice for computing deduction, if any, permissible under s. 80HHC.

24. In fact, on the admitted case when the assessee was not carrying on the business consisting exclusively of export outside India, but had other business, cl. (b) of sub-s. (3) was the provision under which profits of business had to be computed in the first instance and that profit was to be proportioned between “export turnover” and “total turnover” of the business” in the ratio of “total turnover” : “export turnover”.

25. It is also to be considered that export turnover has been defined in cl. (b) of the Explanation to mean “the sale proceeds receivable by the assessee in convertible foreign exchange of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962.” Thus, the profits of business are to be considered as a whole. The object is clear that where the assessee’s business consists of multiple activities including the business of export out of India of goods or merchandise, then the clear intent of the legislature was to permit only proportionate profit of the total business to the extent the business of export out of India of goods or merchandise forms part of its total business, e.g., if the assessee’s business of export out of India is only 2 per cent of its total business activities, then the legislature intended that only 2 per cent of the total Profit of business as a whole should be eligible for deduction under s. 80HHC. If, on the other hand, the business of export outside India of goods and merchandise as in the present case is shown to exist, is a substantial part of its total business, then the total profit and profit eligible for deduction under s. 80HHC will be in that ratio.

26. It may be noticed here that when the assessment year commenced on 1st April, 1989, cls. (iiia), (iiib) and (iiic) had not been inserted in s. 28, but the same have been inserted with retrospective effect vide Finance Act, 1990, which reads as under : “28. The following income shall be chargeable to income-tax under the head ‘Profits and gains of business or profession’,— (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; (ii) any compensation or other payment due to or received by,— (a) any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto; (b) any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto; (c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto; (d) any person, for or in connection with the vesting in the Government or in any corporation owned or controlled by theGovernment, under any law for the time being in force, of the management of any property or business; (iii) income derived by a trade, professional or similar association from specific services performed for its members; (iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947); (inserted w.e.f. 1st April, 1962) (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India; (inserted w.e.f. 1st April, 1967) (iiic) any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971.” (inserted w.e.f. 1st April, 1972)

Because of such retrospective insertion of cl. (iiia), (iiib) or (iiic) in s. 28, these provisions must be deemed always to be existing and in force with effect from the date the same were inserted. Since all the three provisions were inserted with effect from the years prior to 1st April, 1989, they must be deemed to be part of the IT Act as on 1st April, 1989, and governing assessment of income from these sources as income from “profits and gains of business” of the assessee. This effect of retrospectively operative legislative act hardly needs any elaboration.

In this connection, it will be pertinent to notice that s. 28 states in no uncertain terms that profits and gains of business or profession which was carried on by the assessee at any time during the previous year shall be chargeable to income-tax under the head “Profits and gains of business or profession.” Thus, by way of legislative edict, the income falling within cls. (iiia), (iiib) and (iiic) of s. 28 has to be computed as income from business or profession for the asst. yr. 1989-90 also. Because of these amendments, filing of revised return was necessitated and income from these heads was included in his income from “business or profession” by the assessee.

In view of the aforesaid legal position existing during the assessment year in question, there cannot be any justification that in the computation of income from business, items properly falling with cls. (iiia), (iiib) and (iiic) are not computed as income from business under the head “Profits and gains of business or profession”. Until the amendment that became effective w.e.f. 1st April, 1991, only, there was no provision for excluding the income falling within cls. (iiia), (iiib) and (iiic) from computation of profits of business or profession for the purpose of computing allowable deduction under s. 80HHC.

We have already noticed above that w.e.f. 1st April, 1989, special mode was provided for computing income falling under the aforesaid three heads. Only 10 per cent of the income from such income was to be included in computing profits and gains from business or profession and 90 per cent of such income was to be directly added to the allowable deduction in the proportionate profit allocated to the business of export out of India of goods and merchandise. In other words by amending the mode of computing allowable deduction under s. 80HHC, 90 per cent of profit of business falls under s. 28(iiia), (iiib) and (iiic) because part of eligible deduction outright and remaining 10 per cent too went under consideration for computing proportionate profit from the business of exporting goods and merchandise out of India resulting in enlarging the field of eligible deduction under s. 80HHC. Considering in the aforesaid light, we have no hesitation in coming to the conclusion that the claim of the assessee to deduction under s. 80HHC could not have been denied by deducting from the income attributable to income falling under cls. (iiia), (iiib) and (iiic) or otherwise falling under the head “Profits and gains of business or profession”, while computing the assessee’s total income from “Profits and gains of business” under Part D of Chapter IV in the asst. yr. 1989-90. The total turnover of the assessee was Rs. 9,16,18,373. The export turnover of the assessee was Rs. 7,23,95,420.

The claim worked out by the assessee as deduction under s. 80HHC was Rs. 7,25,801. After claiming deduction, the income returned as taxable was Rs. 2,64,860. The AO has worked out computation of claim for deduction under s. 80HHC as under :

It may further be noticed before proceeding further that final assessment of income of the assessee has been assessed at Rs. 10,75,800 from GP computed at Rs. 12,45,075. The following items that have been excluded from the profits and gains of business for the purposes of deduction under s. 80HHC : Thus, there is no dispute that before reducing profit by deduction under s. 32AB, the profits of business worked out at Rs. 12,45,075. Now, there is no dispute and in our opinion rightly so that for arriving at profit of business for the purpose of finding profit of business of export out of India of goods and merchandise, the computation of income has to be made in accordance with the other provisions of the IT Act and, therefore, deduction under s. 32AB had to be accounted for before arriving at profit of business for the purpose of s. 80HHC. It is only proportionate profits attributable to the business of export out of India of goods and merchandise which are eligible for deduction under s. 80HHC. The legislature in its wisdom has thought it fit to extend benefit of deduction firstly by including such profit in the income as mentioned in cls. (iiia), (iiib) and (iiic) of s. 28 with retrospective effect and later on by directly allocating 90 per cent of such profit to the allowable deduction. Consequently, the CIT(A) was right in allowing the appeal of the assessee by directing inclusion of income falling under cl. (iiia), (iiib) or (iiic) of s. 28 in computing profits and gains of business carried on by the assessee.

The Tribunal was also right in affirming the finding of CIT(A) in holding that the aforesaid four items are falling under the heads “Profits and gains of business” and could not have been reduced from the profit of business on the ground that since they are not the income arising out of sale of goods, they are not to be included in the computation of income from business or profession for the purpose of computing deduction under s. 80HHC. The only other ground that remains for consideration is reduction of interest receipts from computation of business profit.

The Tribunal has found that the assessee in the course of its business has borrowed sums and paid interest and bank commission to the tune of Rs. 14,33,528.32 which were allowable deduction. As against payment of interest and bank commission, the assessee has also received interest and, therefore, the net outgoing under the head of interest has been stated to be Rs. 13,06,081.92 which has been deducted while computing profits of business. It has also been noticed by the Tribunal that interest income to the tune of Rs. 68,534 directly related to the export business as such excess interest earned was credited by the bank on early payment of foreign bills of exchange. These findings are findings of fact. The AO also while reducing the profit of business for the purpose of computing income of the assessee has not treated the receipt of interest differently. It clearly goes to show that while computing the taxable income of the assessee he has taken the basis as profit shown as P&L a/c which included deduction on account of outgoing of interest as noticed above. No separate treatment has been given by the AO in considering the income from interest receipt. Neither has he adjusted the profits shown in the P&L a/c by making addition of Rs. 1,27,000 as income from interest to be treated separately nor has such income been computed under the head of income from any other sources. Under these circumstances, there is no reason to reduce profit of business as computed under the head of profits and gains of business further by such amount of interest received by the assessee after adjusting deduction allowable under s. 32AB. We, therefore, find that the order of the Tribunal does not call for any interference. It may be noticed that this amount was directly related to credit earned by the assessee in respect of his export business on account of early payment of foreign exchange bills, hence was really part of income from business of export. Had the assessee been engaged in business of exporting goods and merchandise out of India, such amount would have become part of income from such business only being incidental to such trade only.

The learned counsel for the Revenue has placed reliance on three decisions of the Kerala High Court to exclude processing charges from the computation of income from business as well as other income to be excluded from the computation of profit of business or profession for the purpose of s. 80HHC. The decisions relied on by learned counsel for the Revenue are CIT vs. T.C. Usha (2004) 187 CTR (Ker) 661 : (2003) 264 ITR 368 (Ker), CIT vs. K Rajendranathan Nair (2004) 187 CTR (Ker) 201 : (2004) 265 ITR 35 (Ker), CIT vs. Smt. T.C. Usha (2003) 185 CTR (Ker) 256 : (2004) 266 ITR 497 (Ker).

In the three judgments of the Kerala High Court, the Kerala High Court has taken the view that profit of business and total turnover referred to in sub-s. (3) of s. 80HHC are referable only to turnover of sale and purchase of goods. In coming to this conclusion, the Kerala High Court has derived support from the definition of “turnover” in the Kerala General Sales-tax Act.

We regret our inability to agree with the aforesaid view. It may be noticed that s. 28 states in no uncertain terms that profits and gains of business or profession which was carried on by the assessee at any time during the previous year shall be chargeable to income-tax under the head “Profits and gains of business or profession”. Until the amendment that became effective w.e.f. 1st April, 1991, there was no provision for excluding the income falling within cls. (iiia), (iiib) and (iiic) from the computation of profit of business or profession for the purpose of computing allowable deduction under s. 80HHC. In our opinion, the total turnover refers to turnover of the business and cannot be turnover of sale and purchase of goods as has been enunciated by the Kerala High Court in the aforesaid three cases. We do not find any justification for importing the definition of the State Sales-tax Act into the IT Act to assign a limited meaning to the expression “turnover”. We remind ourselves that the IT Act is a Central enactment and operates in different field than the State Acts of levy and collection of sales-tax. If we were to import the definition of “turnover” given in the Sales-tax Act, for the purpose of imposing tax on sale of goods, the meaning of the expression “turnover” in the IT Act will have to be read differently in different States of the Union, depending on the definition given in the respective State sales-tax laws.

It is trite to say that the meaning of any expression used in a Central enactment operating throughout the Union Territory of India cannot be interpreted differently for its implementation in different States depending on the expression defined in a particular State for a very different object. Such a result while interpreting a Central enactment cannot be envisioned. As a result of the aforesaid, we respectfully disagree with the view expressed by the Kerala High Court.

Accordingly, the appeal is dismissed and the AO is directed to recompute the deduction allowable under s. 80HHC in the light of the aforesaid principles. No order as to costs.

[Citation : 288 ITR 116]

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