Jeyar Consultant and Investment Pvt. Ltd. vs. CIT (2015) 373 ITR 87 (SC).
The appellant company was engaged in the business of export of marine products and also financial consultancy and trading in equity shares. Its total business did not consist purely of exports but included business within the country.
The Assessing Officer, while dealing with the assessment of the appellant in respect of the assessment year 1989- 90 took the view that the deduction was not allowable on the ground that there was no relationship between the assessee-company and the processors. The appellant carried the said order in appeal. The appeal against the assessment order was dismissed by the Commissioner of Income-tax (Appeals). The Appellant filed an appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal set aside the order of the Assessing Officer and came to a conclusion that the appellant was entitled to full relief u/s. 80HHC and directed the Assessing Officer to grant relief to the assessee.
On remand, the Assessing Officer passed a fresh order giving effect to the orders of the Income-tax Appellate Tribunal. While giving the effect, the Assessing Officer found that the appellate had not earned any profits from the export of marine products and in fact, from the said export business, it had suffered a loss. Therefore, according to the Assessing Officer, as per section 80AB, the deduction u/s. 80HHC could not exceed the amount of income included in the total income. He found that as the income from export of marine products business was in the negative, i.e. there was a loss, the deduction u/s. 80HHC would be nil, even when the assessee was entitled to deduction under the said provision. With this order, the second round of litigation started. The assessee challenged the order passed by the Assessing Officer before the Commissioner (Appeals) contending that the formula which was applied by the Assessing Officer was different from the formula prescribed u/s. 80HHC of the Act and it was also in direct violation of the Central Board of Direct Taxes Circular dated July 5, 1990. The Commissioner (Appeals), however, dismissed the appeal of the assessee principally on the ground that u/s. 246 of the Income-tax Act, an order of the Assessing Officer giving effect to the order of the Incometax Appellate Tribunal is not an appealable order. The assessee approached the Income-tax Appellate Tribunal questioning the validity of the orders passed by the Assessing Officer and the Commissioner (Appeals). The Income-tax Appellate Tribunal also dismissed the appeal of the assessee, and upheld the order of the Assessing Officer. Challenging the order of the Income-tax Appellate Tribunal, the assessee approached the High Court u/s. 256(2) of the Act seeking reference to it. The High Court directed the Income-tax Appellate Tribunal to frame the reference and place the same before the High Court. On this direction of the High Court, the Income-tax Appellate Tribunal referred the following question to the High Court:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the deduction admissible to the assessee u/s. 80HHC is nil?”
The High Court answered this question against the assessee holding that the assessee admittedly had not earned any profits from the export of the marine products. On the other hand, it had suffered a loss. The deduction permissible u/s. 80HHC is only a deduction of the profits of the assessee from the export of the goods or merchandise. By the very terms of section 80HHC, it was clear that the assessee was not entitled to any benefit thereunder in the absence of any profits.
On further appeal by the appellant, the Supreme Court observed that there were two facets of this case which needed to be looked into. In the first instance, it had to consider as to whether the view of the High Court that the deduction was permissible u/s. 80HHC only when there are profits from the exports of the goods or merchandise was correct or it would be open to the assessee to club the income from export business as well as domestic business and even if there were losses in the export business but after setting off those against the income/ profits from the business in India, still there was net profit of the business, the benefit u/s. 80HHC would be available? The second question that would arise was as to whether the formula applied by the fora below was correct? In other words, while applying the formula, what would comprise “total turnover”?
The Supreme Court after considering its decisions in IPCA Laboratories Ltd. vs. DCIT [(2004) 260 ITR 521 (SC)] and A.M. Moosa vs. CIT [(2007) 294 ITR 1 (SC)] held that it stood settled, on the co-joint reading of the above judgments, that where there are losses in the export of one type of good (for example, self-manufactured goods) and profits from the export of other type of goods (for example trading goods) then both are to be clubbed together to arrive at net profits or losses for the purpose of applying the provisions of section 80HHC of the Act. If the net result was loss from the export business, then the deduction under the aforesaid Act is not permissible. As a fortiori, if there is net profit from the export business, after adjusting the losses from one type of export business from other type of export business, the benefit of the said provision would be granted.
The Supreme Court however noted that in both the aforesaid cases, namely, IPCA and A.M. Moosa, the Court was concerned with two business activities, both of which related to export, one from export of self manufactured goods and other in respect of trading goods, i.e., those which are manufactured by others. In other words, the court was concerned only with the income from exports.
The Supreme Court observed that in the present case, however, the fact situation was somewhat different. Here, in so far as the export business was concerned, there were losses. However, the appellate-assessee relied upon section 80HHC(3)(b), as existed at the relevant time, to contend that the profits of the business as a whole, i.e., including profits earned from the goods or merchandise within India should also be taken into consideration. In this manner, even if there were losses in the export business, but profits of indigenous business outweigh those losses and the net result was that there was profit of the business, then the deduction u/s. 80HHC should be given. The Supreme Court held that having regard to the law laid down in IPCA and A.M. Moosa, it could not agree with the appellant. From the scheme of section 80HHC, it was clear that deduction was to be provided under subsection (1) thereof which was “in respect of profits retained for export business”. Therefore, in the first instance, it had to be satisfied that there were profits from the export business. That was the prerequisite as held in IPCA and A.M. Moosa as well. S/s. (3) came into the picture only for the purpose of computation of deduction. For such an eventuality, while computing the “total turnover”, one may apply the formula stated in clause (b) of sub-section (3) of section 80HHC. However, that would not mean that even if there were losses in the export business but the profits in respect of business carried out within India were more than the export losses the benefit u/s. 80HHC would still be available. In the present case, since there were losses in the export business, the question of providing deduction u/s. 80HHC did not arise and as a consequence, there was no question of computation of any such deduction in the manner provided under s/s. (3). The Supreme Court therefore held that the view taken by the High Court was correct on the facts of this case.
With this, according to the Supreme Court there was no need to answer the second facet of the problem as the questi
