Section 80 HHE – Deduction respect of profits from export of computer software – For the purpose of computation of deduction only the total turnover and export turnover of the eligible business is to be considered.

Section 80 HHE – Deduction respect of profits from export of computer software –  For the purpose of computation of deduction only the total turnover and export turnover of the eligible business is to be considered.

Before the tribunal, the revenue justified the orders of the lower authorities on the ground that if the contentions of the assessee were to be accepted, the whole premise or basis of the allocation of profits as prescribed per s/s. (3) of section 80 HHE would stand defeated inasmuch as the turnover of the assessee’s export unit would be its total turnover, rendering the apportionment as of no consequence. It also relied on the decisions of Kerala high court in the case of CIT vs. Parry Agro Industries Ltd. (257 ITR 41) and Mumbai tribunal decision in the case of Ashco Industries Ltd. vs. JCIT (ITA no. 2447 /Mum/2000 dt. 14-01-2003). The decisions in the above two decisions were rendered in the context of the provisions of section 80HHC. However, the revenue justified its reliance on the said two decisions on the ground that the two sections viz., 80 HHC and 80 HHE, are para material prescribing the same computational formula to compute profit attributable to the eligible export business.

Held
According to the tribunal, the issue to be decided was whether the ‘total turnover’ for the purpose of deduction u/s. 80 HHE would be the total turnover of only the eligible units or the total turnover of all the units.

The tribunal noted that unlike the provisions in section 10A, 10B, 80 IA, 80 IB, 80HH, etc. the deduction u/s. 80 HHE is not unit specific but is business specific, i.e. the business of export of computer software. Further, it referred to a decision of the Mumbai tribunal in the case of Tessitura Monti India Pvt. Ltd. (ITA No. 7127/Mum/2010 dt. 11- 01-2013 which decision was rendered in the context of section 10B. Relying on the said decision, the tribunal observed that the qualifying profit for the purpose of computing ‘profits and gains of business or profession’ as per Explanation (d) to the section would be the profits of the computer software business and correspondingly, it would be the export and the total turnover of the said business only that would stand to be considered for apportionment u/s. 80 HHE(3).

As regards the revenue’s contention that the formula to compute profit of the business should be given the same meaning as is given u/s. 80 HHC, the tribunal noted that the provisions of section 80 HHC also requires the adjustment of sales turnover of mineral resources from the total turnover or the adjusted total turnover, in case the assessee is also engaged in the said business. Further, referring to the various legislative amendments carried out in section 80 HHC, the tribunal observed that the same were only to neutralise the anomalies that arose in the wide variety of business situations.