Export profit: Company: MAT: Section 80HHC and section 115JB of Income-tax Act: When income of company is assessed u/s.115JB, assessee is entitled to deduction u/s.80HHC computed in accordance with Ss.(3) and (3A) of section 80HHC: Restriction contained in section 80AB or section 80B(5) cannot be applied and carried forward business loss or depreciation cannot be first set off leaving gross total income nil.

Dealing with the scope of computation of amount deductible u/s.80HHC of the Income-tax Act, 1961, while assessing the income of a company u/s.115JB, the Full Bench of the Kerala High Court has held as under:

“(i) The short question arising for consideration is whether the assessees, whose gross total income after setting of business and depreciation carried forward from previous years is nil, are entitled to deduction u/s.80HHC in the computation of book profits u/s.115JB(2) (iv) of the Act?

(ii) After hearing both the sides and after going through the decisions, particularly that of the Supreme Court [Ajanta Pharma v. CIT; 327 ITR 305 (SC)], we feel that the assessees are entitled to deduction u/s.80HHC computed in accordance with Ss.(3) and (3A) of section 80HHC of the Act because it is expressly so provided under clause (iv) of section 115JB(2) of the Act.

(iii) All what the Supreme Court has held is that the ceiling contained in section 80HHC(1B) is not applicable for the purposes of granting deduction under clause (iv) above in the computation of book profits. However, there is nothing to indicate in the Supreme Court decision that eligible deduction of export profit under clause (iv) above in the computation of book profit can be computed in any other manner other than what is provided in Ss.(3) and (3A) of section 80HHC of the Act. What is clearly stated in clause (iv) is that deduction of export profit in the computation of book profit is the same ‘amount of profit eligible for deduction u/s.80HHC’ computed under clause (a) or clause (b) or clause (c) of Ss.(3) or Ss.(3A) of the said section.

(iv) So much so, computation of export profits has to be done only in accordance with the method provided u/s.80HHC, which is in fact done in the computation of the business profit if the assessment was on the total income computed under the other provisions of the Act. MAT assessment is only an alternative scheme of assessment and what is clear from clause (iv) above is that even in the alternative scheme of assessment u/s.115JB, the assessee is entitled to deduction of export profit u/s.80HHC. In other words, export profits eligible for deduction u/s.80HHC is allowable under both the schemes of assessment. So much so, the assessees are certainly entitled to deduction u/s.80HHC, but it is only by following the method provided under Ss.(3) and (3A) of section 80HHC.

(v) However, by virtue of the above-referred decision of the Supreme Court, we feel the restriction contained in section 80AB or section 80B(5) could not be applied inasmuch as carry forward of business loss or depreciation should not be first set off leaving gross total income nil, which disentitles the assessees for deduction under other provisions of Chapter VIA-C which includes section 80HHC also.

(vi) But the assessees’ contention that export profit has to be computed with reference to the P&L a/c prepared under the Companies Act is equally unacceptable, because there is no such provision in section 80HHC to determine export profit with reference to P&L a/c maintained under the Companies Act.”