Commissioner of Income Tax vs G.P.N. Cashew Exporting Co.

C.N. Ramachandran Nair, J.—The question raised in the departmental appeal is whether the Tribunal was justified in granting deduction u/s 80HHC of the Income Tax Act in respect of sale proceeds of REP licence treating it as profit in export business. We have heard Standing Counsel for the appellant and Sri P. Balakrishnan appearing for the respondent-assessee. The assessee did not file any return voluntarily for the year 1994-95. However, against Section 148 notice, assessee filed return declaring a loss of Rs. 3,96,780. The Assessing Officer disallowed many items and along with it made an addition of Rs. 7.75 lakhs towards sale proceeds of REP licence. Even though loss return was converted into positive income and tax was demanded, the Assessing Officer declined relief u/s 80HHC for the reason that if 90 per cent of the sale proceeds of REP licence is reduced in the computation of profits of business in terms of Section 80HHC(4C) (baa), then the net result will be a negative figure. However, in appeal, the CIT (Appeals) allowed the claim stating that REP licence is also income in export business. This was confirmed by the Tribunal against which this appeal is filed.

We are unable to uphold sale proceeds of REP licence as export profit. On the other hand, it is deemed business income u/s 28(iiia) of the Income Tax Act and so much so, 90 per cent of the same has to be excluded in the computation of business profit while computing relief u/s 80HHC. The Supreme Court has in Commissioner, Income Tax, Thiruvananthapuram Vs. K. Ravindranathan Nair, considered the scope of explanation referred above, though in the context of processing charges. Since the Assessing Officer has not considered total turnover and the export turnover and the percentage of profit from export business, deduction of export profit has to be made by applying formula u/s 80HHC(3) of the Act. Since relief is not computed by the Assessing Officer, we set aside the orders of the Tribunal and that of the first appellate authority and remand the matter back to the Assessing Officer to rework relief after calling for particulars from the assessee and after referring to the decision of the Supreme Court above referred. The Assessing Officer while considering relief should take into account first proviso and fifth proviso introduced to Section 80HHC(3) of the Act by the Taxation Laws Amendment Act, 2005 with retrospective effect from 1-4-1992.