Section 80HHC, read with section 80AB

HIGH COURT OF MADRAS Commissioner of Income-tax v. Sharon Vaneers (P.) Ltd. P.D. DINAKARAN AND MRS. CHITRA VENKATARAMAN, JJ. T.C. (APPEAL) NO. 62 OF 2004 February 26, 2007 Section 80HHC, read with section 80AB, of the Income-tax Act, 1961 - Deductions - Exporters - Assessment year 1994-95 - Whether since section 80AB has been given an overriding effect over all other sections in Chapter VI-A, provisions of section 80AB are to be applied while determining business profits under section 80HHC - Held, yes - Whether therefore, for purpose of computing business profits under section 80HHC, unabsorbed business losses, unabsorbed depreciation and unabsorbed investment allowance of earlier years should be taken into account - Held, yes FACTS For the assessmaent year 1994-95, the assessee computed the deduction under section 80HHC before setting off of the unabsorbed depreciation, business loss and investment allowance. But, the Assessing Officer computed the deduction under section 80HHC after reducing the unabsorbed business loss, unabsorbed depreciation and unabsorbed investment allowance from the business profit of the assessee. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. On further appeal, the Tribunal held that the unabsorbed depreciation, unabsorbed business loss and unabsorbed investment allowance of the earlier years could not be deducted before granting deduction under section 80HHC. On revenue’s appeal ; HELD A plain reading of section 80HHC makes it clear that in arriving at profits earned from export of both self-manufactured goods and trading goods, the profits and losses in both trades have to be taken into consideration. If, after such adjustments, there is a positive profit the assessee would be entitled to deduction under section 80HHC(1) and if there is a loss, the assessee would not be entitled to deduction. In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit then the assessee will be entitled to deduction and if the net figure is a loss then the assessee will not be entitled to deduction. On the other hand, section 80AB has been given an overriding effect over all other sections in Chapter VI-A. But, section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provision of the Act. Section 80HHC would, thus, be governed by section 80AB. [Para 8] Therefore, it is not correct to say that section 80HHC is a self-contained provision and section 80AB cannot be applied to section 80HHC. In other words, section 80AB will prevail over any other provision in Chapter VI-A and section 80HHC would thus be governed by section 80AB. Therefore, the unabsorbed business losses, unabsorbed depreciation, etc., should be taken into account while computing the income for the purpose of deduction under section 80HHC. The Tribunal was not correct in holding that the unabsorbed depreciation, unabsorbed business loss and unabsorbed investment allowance of earlier years could not be deducted before granting deduction under section 80HHC and that the provisions of section 80AB could not be applied while determining the business profits under section 80HHC. [Para 9] In the result, the appeal was to be allowed. CASE REFERRED TO: IPCA Laboratory Ltd. v. Dy. CIT 266 [2004] ITR 521/135 Taxman 594 (SC) [Para 8] Mrs. Pushya Sitaraman for the Appellant K. Ravi for the Respondent.