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14 Export — Deduction u/s.80HHC — Duty
drawback and cash compensatory allowance received in the year other than the
year of exports is eligible for deduction u/s.80HHC of the Act in the year of
receipt, in a case where assessee is following the cash system of accounting.
[B. Desraj v. CIT, (2008) 301 ITR 439 (SC)]
The appellant was a sole proprietor of M/s. D. R. Enterprises
engaged in the business of export of textiles/fabrics. Consequent upon exports
made by him, inward remittance came into India in foreign exchange during the
accounting year ending 31-3-1991 (A.Y. 1990-91). However, the appellant
recovered cash compensatory allowance of Rs.7,74,785 and duty drawback of
Rs.35,565 in the next accounting year ending on 31-3-1992 (A.Y. 19991-92). The
appellant, who was following cash system of accounting, claimed deduction
u/s.80HHC on the aforesaid amounts in A.Y. 1991-92, that is, in the year of
receipt.
According to the AO, admittedly, the appellant had not made
export sales during A.Y. 1991-92 and therefore, the said duty drawback and cash
compensatory allowance did not constitute eligible income deductible from the
gross total income u/s. 80HHC. On appeal, the Commissioner of Income-tax
(Appeals) took the view that the above amounts were admittedly relatable to the
sales made during the earlier year and consequently, the Assessing Officer had
wrongly rejected the appellant’s claim for deduction u/s.80HHC. The Tribunal
upheld the decision of the Commissioner of Income-tax (Appeals).
On an appeal by the Department, the Madras High Court
overruled the decision of the Tribunal on the ground that during the A.Y.
1991-92, the assessee had received cash compensatory support and duty drawback
for the exports made in the earlier year and that there were no exports made in
that year and therefore, the said amounts did not constitute eligible income for
deduction u/s.80HHC.
On an appeal by the appellant, the Supreme Court
observed that by the Finance Act, 1990 it was clarified that cash compensatory
support and duty drawback would be taxable u/s.28(iiib) and in a Circular issued
by the CBDT it was clarified that export incentives, namely, cash compensatory
support and duty drawback have to be included in the profits of the business for
computing the deduction u/s.80HHC. According to the Supreme Court, with the
issuance of the said Circular, the point was no more res integra.
The Supreme Court after noting the formula for the purpose of computing
deduction u/s.80HHC observed that the business profits included export
incentives. The Supreme Court, therefore, held that the words ‘business profits’
in the formula u/s. 80HHC(3) would include cash compensatory allowance and duty
drawback, and the AO was directed to work out the deduction in accordance with
the law as it stood during the relevant A.Y. 1991-92.
