Vildirect: IncomeTax-caselaws-1989-VIL-87-ITAT-DEL

1989-VIL-87-ITAT-DEL

Equivalent Citation: ITD 031, 041,

Income Tax Appellate Tribunal DELHI

Date: 04.07.1989

EXPO MACHINERY LIMITED.

INSPECTING ASSISTANT COMMISSIONER.

BENCH

Member(s) : M. C. AGARWAL., RAM RATTAN.

JUDGMENT

Per Agarwal, JM -- This is an assessee's appeal against the order dated 27-1-1989 passed by the Commissioner of Income-tax, Delhi-VII, New Delhi in respect of the assessee's assessment for assessment year 1984-85, whereby he has set aside the assessment insofar as it related to deduction under sec. 80HHC and directing the IAC(A) to restrict the said deduction within the limits prescribed by sec. 80AB.

2. We have heard the learned counsel for the assessee and the learned Departmental Representative and have perused the material placed before us.

3. The assessee derives income, inter alia, from export of goods. The IAC(A) determined the assessee's total income at Rs. 16,62,404, out of which he allowed deduction for depreciation at Rs. 1,58,104 and deduction for entertainment expenditure under sec. 37(2A) at Rs. 5,828. The net total income as determined by the assessing officer, thus, comes to Rs. 14,98,472 out of which he allowed deduction under sec. 80HHC at Rs. 1,73,386.

4. The Commissioner initiated action under sec. 263, as, in his opinion, the export business of the assessee did not yield any income and the miscellaneous income, that was credited to the profit and loss account in the sum of Rs. 27,91,979, was not income from exports. A notice was issued to the assessee who in his objections disputed the Commissioner's assumption that there was any income to the extent of Rs. 27,91,979 credited to the profit and loss account. According to the assessee they were merely receipts from various sources and the income would have to be determined only after adjusting the corresponding expenditure. The assessee further contended that sec. 80AB had no application to the deduction admissible under sec. 80HHC. In his order under appeal the Commissioner has negatived the assessee's contention that sec. 80AB has no application. He has held that the overall limit prescribed by sec. 80AB applies to the admissible deduction. So far as the assessee's contention that the aforesaid receipts of Rs. 27,91,979 did not represent net income, the learned Commissioner did not record any finding and it appears that while directing the IAC(A) to reframe the assessment according to law he meant that the IAC(A) was to determine the assessee's income from export business and then allow the deduction under sec. 80HHC.

5. The learned counsel for the assessee contended before us that sec. 80AB could not be applied to the deduction admissible under sec. 80HHC. The relevant part of sec. 80HHC is as under :--

"80HHC(1). 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 following deductions, namely :--

(a) a deduction of an amount equal to one per cent of the export turnover of such goods or merchandise during the previous year ; and

(b) 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."

Section 80AB, on the other hand, reads as under :--

"80AB. Where any deduction is required to be made or allowed under any section (except section 80M) included in this Chapter under the heading 'C -- Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income."

Section 80AB states that it will govern all deductions under the heading "C -- Deductions in respect of certain income". Section 80HHC finds place under this heading and, therefore, if one is not careful one is likely to assume, as the learned Commissioner has done, that sec. 80AB will govern sec. 80HHC also. But it is impossible to apply sec. 80AB to sec. 80HHC because they are incompatible with each other. Section 80AB applies where deduction is required to be made in respect of any income of the nature specified in a particular section, which is included in the gross total income of the assessee. Thus, it applies where deduction is to be made from specific income from a specified source, for example, deduction under sec. 80HHA is admissible in respect of profits and gains from newly established small scale industrial undertakings in certain areas and deduction under sec. 80HHB is admissible from profits and gains from projects outsideIndia. Such deductions are to be calculated with reference to the income from the particular source. The deduction under sec. 80HHB is of an amount equal to 50 per cent of such profits and the deduction under sec. 80HHA is limited to an amount equal to 20 per cent of such profits. A reading of secs. 80HHA and 80HHB would indicate that the deductions available under these sections are a proportion of the profits earned from the particular activity and in case there are no profits no deduction can be allowed. Section 80HHC, on the other hand, does not make the income from export of goods as the basis for deduction. On the other hand, the admissible deduction is to be calculated as a percentage of the export turnover and the deduction is permissible not from the income from export business but from the total income of the assessee. Thus, there is material distinction in respect of the basis of deductions provided under other sections of heading--C on one hand and section 80HHC on the other. While the other sections, for example, 80HHA and 80HHB would get attracted only where the gross total income of an assessee includes any profits of the specified type. Section 80HHC would be attracted even if there are no such profits from export business and the assessee has merely qualifying export turnover. Even if an assessee has not earned any profits in the export business, yet if he has other incomes to constitute a total income, then the deduction calculated on the basis of export turnover will have to be allowed and the maximum permissible deduction would be limited only to such total income itself so as to reduce the total income to nil in case the deduction as per calculation is higher than the total income of the assessee. Section 80HHC has been amended w.e.f.1-4-1986, with the result that the very basis of the deduction has been changed so that the deduction permissible under the amended section is based on the net foreign exchange realised and the profits earned.

6. Section 80AB can be applied only to those deductions which are income based, i.e., a certain proportion of income from a particular source is permitted to be deducted in computing the total income. This is clear from the various other sections under the heading "C -- Deductions in respect of certain incomes". Section 80HHC is very conspicuously different and its heading itself indicates that it creates an entirely different species. The title is "Deduction in respect of export turnover". The concept of export profits or export earnings was not invoked in enacting section 80HHC, as it stood at the relevant time and, therefore, although this section is placed under the aforesaid heading yet section 80AB cannot be applied to this deduction because sections 80AB and 80HHC are incompatible with each other and sec. 80HHC operates in an entirely different field. We are, therefore, of the view that the IAC(A) had rightly allowed the deduction under sec. 80HHC from the total income of the assessee and the learned CIT's approach was erroneous and untenable. The order under appeal, therefore, is not sustainable and has to be set aside.

7. As regards the calculation of income from exports the assessee's contention was that the aforesaid amount of Rs. 27,91,979 was not the net income and whether these receipts resulted in any income could be determined only after finding out the corresponding expenditure. The contention appears to be correct and although the order under appeal does not specifically say so, we are of the view that the learned Commissioner had set aside the assessment only with the intention that the IAC(A) will determine the export profit and then allow the deduction under sec. 80HHC and that such deduction would not exceed the export profit. Such an exercise is necessary to give effect to the Commissioner's order. Since we are setting aside the order as passed by the Commissioner we need not ourselves express further on this aspect of the matter.

8. In the result, the appeal is allowed and the order under appeal is set aside and the assessment, as made by the IAC(A), is restored.

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