High Court Of Rajasthan
CIT vs. Pesticides India Ltd.
Section 115J
Asst. Year 1990-91
Rajesh Balia & R.S. Chauhan, JJ.
IT Appeal No. 18 of 2000
9th September, 2005
Counsel Appeared
K.K. Bissa, for the Appellant : Sanjeev Johari, for the Respondent
JUDGMENT
Rajesh Balia, J. :
We have heard learned counsel for the parties.
2. The substantial questions of law which arise for consideration, as framed at the time of admission of the appeal, are as under :
“1. Whether, the bonus, the liability of which is not provided in the accounts, and which has not been incurred as an expenditure, can be deducted for the purposes of arriving at the total income under s. 115J of the IT Act ?
Whether, the guidance note of the Institute of Chartered Accountants could override the provisions of the IT Act so as to compute deduction claimed under s. 80HHC ?”
The respondent-assessee is an Indian company and is engaged in the business of manufacturing pesticides. It also exports its products outside India amongst other business. In respect of profits of such export business, s. 80HHC applied. Prior to making assessment under s. 143(3) for the asst. yr. 1990-91, the AO had issued an intimation under s. 143(1)(a) reducing the amount of claim under s. 80HHC by the assessee from Rs. 14,38,513 to Rs. 13,50,929.
The intimation under s. 143(1)(a) was set aside by the Tribunal on an application under s. 154 moved by the assessee which was then the remedy provided against the adjustments made by the AO without calling upon the assessee to explain in respect of such claims to deduction or subject to concessions or tax benefits under the Act.
In the order that came to be made finally on the application under s. 154 it was held that the process adopted by the ITO for making assessments under s. 143(1)(a) could not have been so adopted to make additions of amounts which needed a hearing and which cannot be assumed to be erroneous on face value and could be explained or debated during regular assessment. Thereafter, the regular assessment was completed under s. 143(3) by the AO on 31st March, 1990.
4. The assessee being a company is subject to the provisions of s. 115J for the asst. yr. 1990-91 with which we are concerned. Sec. 115J, inter alia, provided for a minimum level of taxation by taking the taxable income at 30 per cent of book profit shown by the assessee-company itself in its books of account prepared in accordance with Part II and Part III of Sch. VI to the Companies Act, 1956. Such amount of taxable profit in terms of s. 115J according to the certificate of the assessee’s auditors was stated to be Rs. 53,59,359. According to s. 115J of the Act of 1961, in the case of a company, whose total income as computed by the AO in accordance with the provisions of the Act of 1961, is less than 30 per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to 30 per cent of such admitted book profit. The import of the expression “book profit” was explained by the statute in the provisions of sub-s. (1A) and Explanation appended thereto of s. 115J. This provision, inter alia, provided that every assessee being a company shall for the purposes of s. 115J prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. The net profit as shown in the P&L a/c prepared under sub-s. (1A) is to be increased by certain amounts stated in cls. (a) to (ha) of the Explanation. The total sum so arrived at after the addition made in the net profit as aforesaid is to be reduced by the following sums :
(i) The amount withdrawn from reserves (other than the reserves specified in s. 80HHD) or provisions, if any such amount is credited to the P&L a/c. (ii) The amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the P&L a/c. In this connection, it may be noticed that Chapter III of the IT Act, 1961, relates to the incomes which do not form part of the total taxable income. Thus, income which is not otherwise taxable was not to be included in the book profit; and (iii) Significantly, the adjusted amount of net profit so reduced by these two items noticed above is to be further reduced by such amount of profit attributable to the business, the profits from which are eligible to deduction under s. 80HHC or s. 80HHD. The amount so attributable to the businesses referred to in s. 80HHC has to be computed in the same manner specified in sub-s. (3) of s. 80HHC or sub-s. (3) of s. 80HHD as the case may be. We are concerned in this case about computation of deduction under s. 80HHC only.
5. The assessee has filed a return showing its income at Rs. 53,33,080 being 30 per cent of its books profit in terms of s. 115J. Even according to the assessee, computation of its income under various provisions of the IT Act would be less than 30 per cent of its book profit as computed in terms of s. 115J of the IT Act, 1961. The book profit disclosed by the assessee was as per the auditor’s certificate furnished along with the return by the assessee. The AO made two additions in the book profits shown in the P&L a/c to augment 30 per cent of its total as minimum tax level profits. In other words, the AO instead of taking the net profits shown by the assessee- company in its books, recomputed the net profit by disallowing the depreciation amount and added it to the net profit to provide a higher base for arriving at the book profit in terms of the Explanation for operating s. 115J(1). Secondly, the AO reduced the computation of eligible profit under s. 80HHC by recomputing the base figure of book profit by disallowing the amount of depreciation debited in books before arriving at the net profit. Thus, the AO substituted his own amount of net profit as the base amount of book profit before operating the Explanation. The assessee’s computation has been made on the basis that it has worked out its total turnover of the business at Rs. 33,89,05,664 by reducing from the gross turnover of Rs. 40,76,73,018 a sum of Rs. 6,87,67,354 debited to the P&L a/c on account of discount and commission paid on sales of which amount was included in other expenses shown in the P&L a/c. The net turnover of the assessee’s trading after excluding therefrom discounts and commissions was taken at Rs. 33,38,05,664. The turnover of export business shown by the assessee in his books of account was at Rs. 4,06,14,099. However, the AO adjusted the export turnover at Rs. 3,90,25,999. Since the tax rebate is available on export turnover only and has direct nexus with existing ratio between total trading turnover and export turnover, the computation of eligible amount was affected when two base amounts were taken differently by the assessee and the AO, respectively.
The AO was of the opinion that since the assessee has disclosed gross turnover at Rs. 40 crores and which could not have been reduced by the amount of discounts and commissions paid on sales by making entries in the P&L a/c and Rs. 40,76,73,018 ought to have been taken as the basis for working out the ratio of the profits of the export business and the total business so as to work out a deductible amount eligible under s. 80HHC. This accounted for the reduced sum of deductible amount at Rs. 13,50,919. The assessee has originally claimed the deductible sum at Rs. 14,38,512. The AO in his intimation under s. 143(1)(a) had reduced it to Rs. 11,49,003. The reduction under s. 143(1)(a) was set aside in the order under s. 154 and the amount is to be recomputed. However, since the assessment did not rest at adjustments under s. 143(1)(a) but was subjected to regular assessment under s. 143(3) and making of adjustments under s. 143(1) (a) is otherwise subject to regular assessment, whether resorted to at the request of the assessee by the AO, the proceeding under s. 143(1)(a) loses its significance.
It may also be noticed in this connection that during the assessment proceedings, the assessee had laid claim to deduction of eligible amount at Rs. 18,25,468. However, such claim is not before us as the question suggests that the contours of this question is between the assessee’s claim in the return and the claim allowed by the AO. For the additional claim which has not been allowed by any of the authorities, no grievance appears to have been raised.
The second adjustment which the AO made in the computation of 30 per cent of the book profit submitted by the assessee was by making additions of Rs. 24,40,000 as the bonus liability accounted for in arriving at the net profit in the books of account, inter alia, on the ground that the assessee has not made any provision for the payment of bonus liability and since the account books were prepared on cash basis, the P&L a/c could not have been debited with liability of bonus on the accrual basis. Thus, firstly by increasing the net profit shown by the assessee by adding Rs. 24,40,000 on account of bonus liability shown in the books of account, then from such increased net profit, claim to deduction under s. 80HHC made by the assessee was reduced from Rs. 14,38,512 to Rs. 13,50,919. On appeal, the CIT(A) agreed with the finding recorded by the AO and dismissed the appeal vide order dt. 26th June, 1992.
On further appeal, the Tribunal found that no adjustments by additions, other than detailed under the Explns. (a) to (ha) in the book profit disclosed by the assessee can be made and therefore, addition of Rs. 24,40,000 made by the AO in net profit shown by the assessee was held to be not sustainable and deleted.
8. So far as the recomputation of eligible profits for deduction under s. 80HHC was concerned, the Tribunal was of the opinion that the computation arrived at by the assessee was in consonance with the provisions of the Act itself and also in accordance with the circular issued by the CBDT vide Circular No. 680 dt. 21st Feb., 1994, which has been published in the statute portion (1994) 117 CTR (St) 215 : (1994) 206 ITR (St) 297. Therefore, the reduction made in the amount claimed to be deductible under cl. (iii) of the proviso appended to sub-s. (1) of s. 115J was also not sustained by the Tribunal and the assessee’s computation of 30 per cent of the book profit subject to tax under s. 115J was upheld.
9. There was no controversy about the question that the net taxable income to which the P&L a/c of business was maintained in terms of the IT Act was less than 30 per cent of the book profit and therefore, assessment could have been made under s. 115J. In the aforesaid circumstances, the two questions referred to above arise for consideration in this appeal as substantial questions of law.
10. So far as the increase made in the net profits on the basis of book profits as disclosed by the assessee in the books of account in terms of sub-s. (1A) of s. 115J is concerned, it must be noticed that the provisions of s. 115J have been founded on an alternative basis for making companies liable to tax at a minimum level on the basis of the income admitted by the assessee and such liability is not founded on any computation to be made in accordance with the provisions relating to computation of taxable income under the IT Act by alternative principles. Alternative to computation of taxable income of a company in accordance with the provision is to fall back on the profits disclosed by the assessee, with permissible adjustment detailed in the Explanation. The base of such adjustment is the admitted net profit which is not to be substituted by the AO. The foundation of the provision being a minimum tax liability level on admitted basis cannot be substituted by the foundation provided by the AO which he thinks to be appropriate. The substitution of admitted profits to provide a recomputed net profit by the AO is not envisaged.
11. It is unequivocally clear that the foundation of the scheme under s. 115J for its operation is the admitted net profits as shown by the assessee in his books of account, which furnishes an alternative basis for providing the minimum tax level to be borne by the assessee. The question of making alterations/additions in such base value on general principles, which may be unaffected while computing income as per the provisions of the IT Act under the head “Profits and gains from business or profession” carried on by the assessee, cannot be invoked for making adjustments as may be considered appropriate by the AO. It is inherently clear that when the statute provided exclusively what should be taken as the foundation for finding out the taxable income on the basis of the book profit and also provided what adjustments are available to be made by way of additions and deductions from the net profit shown in the books of account, there is no room for deviating from the statutory base and finding a substitute to have different premise for the purpose of working out the taxable income by computing the book profits on its own by the AO.
12. This Court has an occasion to consider this aspect of the matter of computation of book profits under s. 115J in DB IT Ref. No. 1 of 2003, Rajasthan Spinning & Weaving Mills vs. Dy. CIT, decided on 22nd July, 2005 [reported at (2005) 199 CTR (Raj) 305—Ed.]. That was a case in which the AO had made alterations in the net profit shown by the assessee in his books of account by disallowing the claim of depreciation by entering into an exercise to find out what should be the correct and true basis to claim to depreciation for working out the P&L a/c showing a fair and reasonable profit. The Revenue has extensively referred to the terms of various other provisions of the Companies Act to contend that it is the obligation of the company to maintain its books of account to give a fair and true picture of its business for the given period. In the aforesaid decision, the Tribunal was of the opinion that the AO is required to probe into the P&L a/c of the company while considering the acceptability of the book profit shown in the P&L a/c while invoking s. 115J(1). This Court repelled this premise of the Tribunal in the following terms : “It may be noticed that s. 115J is to be resorted to in the alternative to a regular assessment by computing the taxable income of a company in accordance with the provisions of the IT Act. It is only where the result arrived at by regular assessment of the company by computing its income in accordance with the provisions of the IT Act, if the assessee’s total taxable income be less than 30 per cent of the income admitted by the assessee through declaration of book profits in its P&L a/c presented before the AGM for the purpose of distributing the dividends. This is with the object that the company is at least held liable to pay tax on 30 per cent of such admitted profits, which has been placed before the AGM for the purpose of distributing its dividends. The object of insertion of s. 115J initially w.e.f. 1st April, 1988, by the IT Act, 1961 and later on by introducing s. 115JA w.e.f. 1st April, 1997, vide the Finance (No. 2) Act, 1996 was to secure a minimum tax on the basis of admitted profits earned by the company for the purpose of distributing the dividends if the computation of income in accordance with the provisions of the IT Act yields a lesser income. The provision was thus not introduced as an alternate regular procedure to be gone into for determining the maximum tax to be collected from the company, but it was a procedure provided in the alternative to ensure that minimum tax is paid by the company on its book profits as admitted by it before distributing dividends to its shareholders.” With this clear objective in view, after examining the scheme of sub-ss. (1) and (1A) of s. 115J, the Court further held as under : “Sub-s. (1A) directed not in general way to prepare P&L a/c for the previous year in accordance with the general provisions of the Companies Act which are relevant for the various purposes, but it defined what book profit means for the purpose of s. 115J. The book profit for the purposes of s. 115J means the profit and loss mentioned in the P&L a/c, which has been prepared in accordance with the provisions of Part II and Part III of Sch. VI to the Companies Act, 1956. It did not rest merely with that requirement, but further ordained that net profit shown in the P&L a/c for the relevant previous year prepared as per sub-s. (1A) is to be increased by such items specifically detailed under cl. (a) to cl. (ha) of the Explanation and further ordained that after the book profit is augmented by additions made as per cls. (a) to (ha), it be reduced by items shown in cl. (i) to cl. (iv) relating to the amounts to be reduced from the book profits so derived. Therefore, for the purpose of s. 115J, a complete code was laid down to take the net profit as shown in the P&L a/c of the company and not the net profit as computed by the AO as per his opinion of the true and correct result of working of company as the basis for making the adjustments, which have been specified in the Explanation.”
The Court further examining the effect of the amendment brought in s. 115J stated : “Therefore, for the purpose of finding the book profit, in order to determine the 30 per cent of its profits in terms of s. 115J(1) as minimum income chargeable to tax in a particular assessment year, where the chargeable income assessed in accordance with the provisions of the IT Act, 1961, is less than 30 per cent of book profit so arrived at, the 30 per cent of the book profit so arrived at under sub-s. (1A) may be taken as the chargeable income to the tax by this deeming provision. Apparently, there is no room for redetermining the net profit as shown in the P&L a/c of the company containing relevant declarations as incorporated in the light of Part III of Sch. VI. The AO had to accept the result shown in the P&L a/c as book profit subject to the adjustment by additions or reductions, as detailed in the Explanation. The enquiry by the AO into the conceptual ‘true and fair result’ of the working of the company to be adverted to by the Tribunal is alien to the enquiry under s. 115J. As such it is not a substitute procedure laid down for recomputing the income of the assessee in a different manner by the AO himself, as he thinks proper, then he has already computed under the provisions of the IT Act. He is not required to embark upon a detailed requirement into the different aspects of the matter and recompute the net profit shown in the books of account for applying the basis to revive as book profit which he thinks ought to be the fair and true result by resorting to the conceptual theory of true and fair result, by foraying into various other provisions of the Companies Act, that may provide many other matters to be taken into account for various other purposes. For example, s. 349 (of the Companies Act) requires determination of profit for the purpose of determining the permissible limit of remuneration that could be paid to managing agents. That part of the exercise is always open to be made to the extent it is permissible under law while computing the P&L a/c of the company in accordance with the provisions of the IT Act. It is open to disallow any claim to specific deductions or exemptions of benefit of tax concessions by resorting to regular computation of income at that stage.”
13. In view of the aforesaid ambit and scope of s. 115J, it is clear that the enquiry into questions of accrual or cash distribution of one’s liability relevant for the assessment year in question was not the domain of enquiry which the AO could take for altering the net profit as the basis of making additions and deductions from the net profit as disclosed in the books of account of the assessee which were according to Parts II and III of Sch. VI to the Companies Act inasmuch as neither the auditor’s report says so nor the Revenue authorities find that the company’s accounts were not prepared in terms of Part II and Part III of Sch. VI to the Companies Act.
14. In view of the aforesaid principle explained by this Court in Rajasthan Spinning & Weaving Mills (supra), it must be held that the Tribunal was right in not sustaining the additions made by the AO in the net profit of the company. The assessee has disclosed in his books of account all relevant facts while arriving at the net profit before presenting the books of account to the AGM which has approved the accounts and on filing of the same certified by the ROC also. Additions in the net profit by disallowing the claim of deduction on account of company’s liability which otherwise is relevant to the previous year relevant to the assessment year in question cannot be sustained.
15. Coming to the second question also, we are of the opinion that the Tribunal’s finding is in accordance with the provisions of the Act and the CBDT circular referred to above by the Tribunal and it also does not go to the contrary.
16. From the narration of facts, it is apparent that the AO was of the opinion that since in the books of account, the total turnover of the trading business of the assessee was shown to be Rs. 40,76,73,018 without taking into account the discounts and commissions allowed to customers from sale bill or invoices amounting to Rs. 6,87,67,354 and if this is accounted for, the turnover comes to Rs. 33,89,05,664. While the computation by the assessee of the eligible profit for deductions under s. 80HHC was on the premise of the total trading turnover for Rs. 33,89,05,664, the AO has computed deductible amount eligible under s. 80HHC by taking the total gross turnover of Rs. 40,76,73,018. In taking the increased trading turnover, disallowance has been made of the direct expenditure incurred by the assessee in its trading business by allowing discount and commission to the customers on its sales. It has referred to non-adjustment of depreciation under s. 32 and investment in computing the total gross income for the purpose of s. 80HHC. However, ignoring the discounts and commissions directly to customers which have a direct bearing on the turnover (the aggregate of sale proceeds) for the reason stated by the AO for not accepting the total turnover one finds it difficult to accept on any reasoning. To take the accruing gross sale price as the basis of the total turnover by ignoring the discounts and commissions directly allowed on sale price in invoice is ignoring the provisions of s. 80HHC itself.
17. The expression “turnover” has reference to sale proceeds of sale of goods/services traded by the assessee. The expression “turnover” in relation to business conveys multiple meanings. In one sense, it is considered to be a volume of business, which in the case of a manufacturer may include total goods produced and disposed of in a given time or in another case may indicate turning over of capital involved in business or in yet another sense it may mean profits derived from a business in a given time. However, when turnover is used in relation to trading business, it refers to turnover of sales or volumes of sales of goods or services. Trade in broad sense means the practice of some occupation, business or profession habitually carried on as a means of livelihood or gain. However, under s. 80HHC(3) the expression “turnover” has been used in different contexts depending on the facts whether the assessee is a manufacturer or a trader in goods. Clause (a) of sub-s. (3) deals with a case where the assessee is exporting goods manufactured or processed by him. In his case, profits derived from such export are to be quantified by apportioning the profits of business in the ratio the export turnover in respect of such goods bears to the total turnover of business carried on by the assessee. In contrast, cl. (b) of sub-s. (3) of s. 80HHC refers to turnover of trading goods. It reads as under : “Sec. 80HHC(3)(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.” Similarly cl. (c) of s. 80HHC(3) deals with a case where the assessee-company’s business consists of export of goods or merchandise processed or manufactured by it as well as trading of goods simpliciter and the same distinction has been maintained.
18. In the present case, the issue is about the turnover of sale of goods only. The turnover of sales for a period in the present case, the previous year relevant to the asst. yr. 1990-91, in its ordinary sense denotes the aggregate of price received or receivable by the company in respect of sale of goods transacted by it. No other specific meaning has been assigned to it. If sale of goods is to be understood as defined in the Sale of Goods Act, the price received/receivable becomes an integral part of the sale transaction.
19. Where the sale is under invoice or bill and the price itself has been discounted in invoice on such transaction, the price received or receivable can only be the amount actually charged from the buyer. The form of bill showing the price at which goods are ordinarily sold or saleable and reduced by discount to the buyer, results in reduction of the price receivable itself. Such a discount cannot be considered exclusive of turnover of such sales. The CBDT circular referred to by the Tribunal also refers to turnover in respect of sales of goods. There is a clear finding that the total turnover of sales of the company shown in the books of account was Rs. 40,76,73,018 and the assessee has claimed its reduction by the amount of discount and commission allowed to customers from sale bill/invoices which in the books of account was shown to be separate. The fact that the sum of Rs. 6,87,67,354 was the aggregate of such discount related to total turnover of sale of goods of the assessee’s business, while the assessee’s turnover from export sale of goods was taken to be Rs. 3,90,25,999, the assessee claimed for total turnover of sales at Rs. 40,76,73,018 minus Rs. 6,87,67,354 discount/commission allowed to customers and every sale transaction on sale bills/invoices balance at Rs. 33,89,05,664. The fact that such discount was allowed on bill/invoice of every sale transaction was not disputed. In such event, the turnover of sale of goods cannot include such discount/allowance allowed at the inception or it never became a part of sale proceeds.
20. The issue may be looked from yet another aspect. In this connection, cl. (b) of sub-s. (3) of s. 80HHC needs notice which in terms referring to the concept of profits derived from export states in no uncertain terms that “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”. Thus, direct or indirect costs on sale of goods exported by the assessee had to be reduced from sale proceeds. Clause (d) of the Explanation to s. 80HHC(3) refers to costs directly attributable to the trading goods exported out of India including the purchase price of such goods and cl. (e) of the said Explanation defines indirect costs to mean costs not being direct costs, allocated in the ratio of the export turnover in respect of trading goods, to the total turnover. These two definitions make it clear that while direct costs are those that are directly referable to trading of goods exported outside India, and have nothing to do with the total costs of business, the indirect costs refer to such costs which are incurred for carrying out the total business of the assessee including export trading, as a whole and are to be apportioned in terms of the ratio which the export turnover bears to the total turnover. Clause (c) of the Explanation to s. 80HHC(3) defines “adjusted total turnover” to mean the total turnover of the business as reduced by the export turnover in respect of trading goods.
In this aspect of the matter, it cannot be doubted and argued that the sale commissions and sale discounts are not part of direct costs of the turnover attributable to business or attributable to export as the case may be. In that view of the matter, for computing the eligible profit in the manner as provided in s. 80HHC accounted for the sale and discount while computing the total turnover of the business found essential ingredient and that is what has been certified to be shown while arriving at the 30 per cent of profit of the business of the Companies Act, the book profit by computing the eligible profit for deduction under s. 80HHC in the manner laid down in s. 80HHC. The circular of the CBDT No. 680 dt. 21st Feb., 1994, which is founded on the Explanatory Note issued under the provisions of s. 115J in the earlier circular dt. 4th May, 1990 [(1990) 85 CTR (St) 1], and no other explanation which simply prefaces the provisions contained in sub-s. (3) or (3A) of s. 80HHC or sub-s. (3) of s. 80HHD in the light of cl. (iii) of the Explanation under s. 115J for emphasising that what has been ameliorating in making computation of book profit, in the matter of eligible profit provided under s. 80HHC or s. 80HHD for the purpose of computation of claiming deductions thereunder and not the exact amount which has actually been qualified as eligible deductions under s. 80HHC or s. 80HHD as the case may be, while making regular assessment.
This issue also has to be looked from the aspect of the object with which this provision has been made. The object is clear, which was further clarified vide CBDT Circular No. 559 dt. 4th May, 1990, that this deduction has been maintained to ensure that whatever tax benefit is otherwise available to an assessee in respect of matters provided in s. 80HHC or s. 80HHD by way of economic policy incentives should not be reduced by taking 30 per cent of the eligible amount also as part of the book profit arrived at under s. 115J. The P&L a/c reveals the profits of business as a whole which includes export business also. Thus, export profit becomes part of total book profit. When 30 per cent of book profit shown in P&L a/c is taken to be taxable profit, unless the eligible profit on which tax benefit is available under s. 80HHC is reduced from such total book profit, the 30 per cent of total book profit shall be inclusive of such export profit which carries with it tax exemption/concession under s. 80HHC. Clause (iii) of the Explanation to s. 115J(1A) was devised to ensure that no part of the tax benefit extended under s. 80HHC or s. 80HHD is taken away while resorting to the minimum level taxation on admitted book profits. Since at the relevant time, the entire profits of the export business and business from tourism were under the two relevant provisions to be deducted from gross profit, it carried with it 100 per cent tax exemption. The circular makes it clear that since 30 per cent of book profit as taxable income has to be arrived at by making adjustment provided under the Explanation to s. 115J(1A), the starting point of computing eligible deductions under s. 80HHC or s. 80HHD also has to be the net profit shown in the P&L a/c of the company and not the other figure. While adopting the manner of computation, depreciation of eligible amount in respect of export profit must also be the eligible export profits or tourism profit to be related to the net profit disclosed in the P&L a/c for the purpose of finding the ratio between business profit and profit from export or tourism as the case may be.
The relevant excerpts from the aforesaid circular of the CBDT are in consonance with what we have explained above : “It may be noted that while deductions under ss. 80HHC and 80HHD are related to the profits computed under the head ‘Profits and gains of business or profession’ s. 115J is concerned only with book profits. While explaining the scope of Expln. (iii) under s. 115J, it was stated in para 9.2 of the Board’s Circular No. 559, dt. 4th May, 1990, that the intention behind introduction of the said Explanation was to ensure that the provisions of s.115J, which provided for a tax on the book profits, did not take away the 100 per cent exemption which was to be allowed in respect of export profits and the profits from tourism related industry. It was also stated therein that the intention was that 100 per cent of such profits should be exempt in such cases.”
The aforesaid quotation clearly explains that the object of the CBDT circular was to explain that since taxable profits are to be based on admitted net profit as adjusted under cls. (a) to (ha) and (i) and (ii) of the Explanation to s. 115J(1A) and where the assessee is carrying on the business of export only, the whole of such profit has to be deducted from the sum so arrived at. In other cases, the ratio between total profit and export profit has to be determined by taking the net profit as adjusted above to be the total profit with reference to which turnover rates have to be arrived at. This Explanation does not militate against the concept of total turnover or turnover of trading export business. Turnover and profit are two distinct terms and not alternative or synonymous expressions for the same concept. There is no other mode due to which the computation made by the auditor for the purpose of working out the deduction under s. 80HHC from the book profits, before arriving at the 30 per cent of book profit as taxable income, was rightly held to be in accordance with the provisions of s. 80HHC. Therefore, in respect of this aspect of the matter also, which is the subject-matter of the second question, no interference is called for in the conclusions arrived at by the Tribunal.
24. The appeal, therefore, fails and is hereby dismissed. There shall be no order as to costs.
[Citation : 283 ITR 304]
