ORDER
M.M. CHERIAN, A.M. :
This is an appeal by the Revenue against the order of the Commissioner of Income Tax(Appeal), Trivandrum in the case of Smt. Subhadra Ravi Karunakaran, Alleppey for the assessment year 1989-90. The assessee is carrying on business in the export of coir products, commission agency, steamer agency, etc. For the assessment year 1989-90 the assessee filed the return declaring a total income of Rs. 10,82,070. Deduction was claimed under section 80HHC to the extent of Rs. 2,57,488 in the export business. This claim was not allowed by the assessing officer on the ground that there was no profit derived from the export of coir products. In the assessees appeal, the Commissioner of Income Tax (Appeal) allowed the claim on the view that the assessees computation was in accordance with the provisions in sub-section (3)(b) of section 80HHC. Aggrieved with the order of the Commissioner of Income Tax(Appeal) the Revenue has filed this appeal before the Tribunal.
2. On behalf of the Revenue Shri Sudhakaran Pillai, the Departmental Representative submitted before us that the Commissioner of Income Tax(Appeal) was not justified in holding that the assessee was entitled to get by way of deduction under section 80HHC an amount in excess of the actual profit derived from the export of coir products. The learned Departmental Representative pointed out that the export sale during the year was only Rs. 5,36,485 on the purchases of Rs. 5,31,680 and even without considering the overhead expenses the result was a gross profit of only Rs. 4,805 and that the net result in the export business was only loss after taking into account all the overhead and incidental expenses. According to Shri Sudhakaran Pillai, when there was no profit derived from the export, the Commissioner of Income Tax(Appeal) was not justified in allowing deduction for the sum of Rs. 2,57,488 as profit derived from the export business computed in accordance with sub-section (3)(b) of section 80HHC. Drawing our attention to section 80HHC(1), the learned Departmental Representative stated that the intention of the legislature was to allow deduction of the profits derived by the assessee from the export of specified goods and merchandise and by no stretch of imagination it could be presumed that the legislature intended to allow a deduction of an amount exceeding the actual profit derived from the export business. In the present case it was not the assessees claim was that they had made a profit in the export of coir products, but the claim was that the profit for the purpose of section 80HHC should be computed in accordance with the provisions of sub-section (3)(b) and in that computation the assessee would become eligible for deduction of the sum of Rs. 2,57,488. Shri Sudhakaran Pillai contended that the confusion arose in this case by the wrong application of sub-section (3)(b) to include in the total turnover of the business, the turnover in all the activities including agency commission, handling charges, xerox copying collection, etc. It was pointed out that in the assessees computation the total turnover was taken at Rs. 25,69,969 which is the total credit in the P&L account including sundry creditors written back. The learned Departmental Representative further stated that in section 80HHC(1) deduction is allowed to an assessee being an Indian company or a person resident in India who is engaged in the business of export out of India of any goods or merchandise to which the section applies and that in sub-section (3)(b) the expression “the business carried on by the assessee” should be given the same meaning as in section 80HHC. According to Shri Sudhakaran Pillai, sub-section (3)(b) applies in a case where the export business carried on by the assessee does not consist exclusively of the export of specified goods or merchandise and only in that case the apportionment on the basis of the export turnover to the total turnover is required to be made. It was strongly contended that where the business carried on by the assessee (as in the present case) consists of export business and non-export business it would not be correct to make the computation in accordance with sub-section (3)(b). Shri Sudhakaran Pillai extend his argument by stating that unless the assessee is having income from the specified business, the corresponding deduction under section 80HHC would not be allowable. For that contention he placed reliance on the decision of the Karnataka High Court in the case of CIT v. HMT Ltd. (1993) 203 ITR 811 (Kar). For computing the relief under section 80HC, it is necessary to first find out whether any profit is derived by the assessee from the export business and included in the gross total income under section 80AB. He also relied on the decision of the Kerala High Court in the case of CIT v. V.T. Joseph (1997) 225 ITR 731 (Ker) to contend that education under section 80HHC is to be allowed only to the extent of the income from export business included in the gross total income. Reference was also made to the decision of the Kerala High Court in CIT v. Kil Kotagiri Tea & Coffee Estate Ltd. (1991) 191 ITR 283 (Ker) wherein on p. 287 the Court observed that whatever has not been included in the assessment cannot be excluded and only the amount which has been included can be excluded. Shri Sudhakaran Pillai contended that when no export profit was included in the total income, there was no amount which could be allowed as a deduction under section 80HHC as profit derived from the export business which is otherwise included in the gross total income within the meaning of section 80B(5).
3. Per contra, Shri J. Krishnan, Chartered Accountant, appearing on behalf of the assessee, strongly supported the order of the Commissioner of Income Tax(Appeal) and admitted that when the business of the assessee did not consist exclusively of export of goods, the profit derived from export activity could not be easily ascertained and so separate provisions were introduced in section 80HHC to compute the profit derived from the export activity, and the deduction allowed by the Commissioner of Income Tax(Appeal) was in accordance with the computation as provided in section 80HHC(3)(b). According to the learned representative, the scope of the provisions of sub-section (3)(b) is very clear from a plain reading. Under clause (b) when the business carried on by the assessee does not consist exclusively of export, the export profit would have to be calculated by working out the profit on the basis of the export turnover to the total turnover. Shri Krishnan referred to the Circular No. 421 issued by the CBDT on 12-6-1985 to contend that the Central Board had accepted the view that the profit derived from export business should be computed in the proportion of the export turnover to the total turnover. Reference was also made to the subsequent Circular No. 572, date 3-8-1990. I was submitted that the assessee had computed the relief on export profit in accordance with clause (b) of sub-section (3) and the same was upheld by the Commissioner of Income Tax(Appeal) for justifiable reasons. Shri Krishnan contended that the actual computation as provided in sub-section (3)(b) could not be varied merely because the assessing officer felt that the assessee was getting deduction for a higher amount than the actual profit of the business. It was strongly contended that the assessing officer had no choice but to allow the deduction in strict compliance with the provisions of sub-section 3(b) and so the direction given by the Commissioner of Income Tax(Appeal) was perfectly in order requiring no interference at this stage.
4. The assessee is an exporter of coir products. Admittedly, the profit derived from the export of coir products is entitled to the deduction under section 80HHC. But the assessee is having other business activities, even though the export business is confined to coir products only. The assessee is deriving income from commission agency, steamer agency, etc., which are not connected with the export business. From the P&L account for the year ending 31-3-1989, it can be seen that the export sales came to only Rs. 5,36,485 on the purchases of Rs. 5,31,680 giving a gross profit of only Rs. 4,805. If the overhead and other incidental expenses are also taken into account, the result in the export business would be loss only. As a matter of fact, the assessing officer rejected the assessees claim for deduction under section 80HHC for the reason that there was no profit derived from the export of specified goods or merchandise, which could be deducted under section 80HHC. But the assessee claimed deducted of Rs.2,57,488 under section 80HHC as under :
Â
Rs.
Profit from business as per the computation of total income
12,33,464
FOB value of the exports
5,36,485
Total credit in the P&L account
25,69,969
Export profit : 12,33,464 x 5,36,485 =
25,69,969
2,57,488
(The total credit of Rs. 25,69,969 in the P&L account includes the following items in addition to export sales :
Â
Rs.
Interest
47,250
Agency commission
15,78,066
Handling charges of containers
52,767
De-stuffing charges
87,018
Xerox charges
3,465
Sundry credits written back
2,63,634
The Commissioner of Income Tax(Appeal) upheld the assessees claim for deduction on the basis of the above computation.
5. The question to be considered is whether the assessee is eligible for deduction under section 80HHC on an amount in excess of the actual profit derived from the export of specified goods or merchandise. To be more precise, is the assessee entitled to the deduction even if there is no profit derived from the export and the result is a loss.
6. It is not a dispute that the assessee is having income from several sources, including income from export of coir products. Section 80HHC provides for deduction in respect of profits earned on export of goods or merchandise to which the section applies. It is provided in section 80AB that the deduction in respect of any income of the nature specified in any section in Chapter VIA is allowable only with reference to the amount of income of that nature which is derived or received by the assessee and which is included in the gross total income Section 80AB, which imposes a restriction on the deductions under any sections in Chapter VI-A, reads as under :
“Where any deduction is required to be made or allowed under any section (except section 80M) included in this chapter under the heading “C-Deductions in respect of certain incomes” in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.”
In section 80B(5) the “gross total income” is given the meaning of the total income computed in accordance with the provisions of the Act, before making any deduction in Chapter VI-A. The assessees claim is that when sub-section (3)(b) of section 80HHC provides for the computation of the profit derived from export of specified goods in a particular manner, it is not necessary to consider the restriction in section 80AB while allowing the deduction under section 80HHC. The contention of the Revenue, on the other hand, is that only to the extent of the profit from export, if any, included in the gross total income, could be allowed as a deduction under section 80HHC in view of the clear provisions of section 80AB. A perusal of the provisions of section 80HHC provides sufficient answers with reference to the determination of the income in respect to which deduction can be considered. The very marginal note, apart from the statutory contents specifies that the deduction is in respect of profits retained for export business. Section 80HHC(1) further provides the intrinsic material to show that in computing the total income of the assessee engaged in the business of export of specified goods or merchandise there shall be allowed as a deduction of the “profits derived by the assessee from the export of such goods or merchandise”. The statutory provisions thus limit the quantum of deduction inseparably with the profits derived from the export of the goods. Again, it is provided in section 80AB that the deductions specified in Chapter VI-A will be granted with reference to the net income includible in the gross total income computed in accordance with the other provisions of the Act. To be precise, the deduction in relation to the various provisions in Chapter VI-A will have to be calculated with reference to the amount of such income included in the gross total income. In the case of CIT v. V.T. Joseph (supra) the Kerala High Court held that the deduction under section 80HHC is to be allowed only to the extent of income from the export business included in the gross total income. Even though that decision was given in relation to the provisions of section 80HHC as applicable for the assessment year 1983-84, the principle laid down was that the deductions under various sections of Chapter VI-A are restricted by the provisions of section 80AB.
7. The contention of the learned representative of the assessee is that in view of the clear provisions of sub-section 3(b) of section 80HHC, the profit derived from export of specified goods is to be computed in a particular manner and that the assessing officer would have to allow the deduction on that basis. In the light of the decision of the Kerala High Court in the case of V.T. Joseph (supra). We are not inclined to agree with the learned representative that the deduction is to be allowed without considering the restrictions in section 80AB. In this context, it is necessary to see whether sub-section 3(b) provides for deduction under section 80HHC even when there is no profit derived from the export of a specified goods. We may here refer to sub-section (3) which reads as under :
(3) For the purpose of sub-section (1), profits derived from the export of goods or merchandise out of India shall be :
(a) in a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the “profits and gains of business or profession”;
(b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business (as computed under the head “profits and gains of business or profession”) the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.
In can be seen that clause (a) deals with the case where the business carried on by the assessee consists exclusively of export of specified goods. In that case the profits derived from the export of such goods or merchandise shall be the profit as computed under the head “profits and gains of business or profession”. It can be seen that when the assessee has no other export business there is no difficulty in ascertaining the correct profit derived from export of specified goods for the purpose of deduction under section 80HHC. But the difficulty arises where the assessee has in addition, (1) other export business, i.e., export of non-specified business (say commission agency or steamer agency as in the case of the present assessee). The question to be decided is whether sub-section 3(b) applies in the case (1) above or (2) above. According to the assessee, sub-section (3)(b) applies in the case in (2) above, i.e., where the assessee has business other than export, in addition to export of specified goods or merchandise and that the entire profit of the business should be considered for the computation of the “profit derived from export of specified goods”, on a proportionate basis. From the following illustration it can be seen that such a computation may result in an anomalous situation. Take the case of an assessee who is carrying on business consisting exclusively of the export of specified goods or merchandise and suppose that the result of that business is a loss. In that case the assessee would not be entitled to any deduction under section 80HHC, as in accordance with clause (a) of sub-section (3) there is no profit derived from the export of specified goods or merchandise. But if the same assessee has another business in India other than the export of specified goods or merchandise, then according to the contention raised by the learned representative in the present case, the assessee would get a deduction under section 80HHC, by applying the provisions of clause (b) of sub-section (3). This is in spite of the fact that there is no profit derived from export business and included in the total income. Such a deduction would in effect be a deduction from the profit of the non-export business. It is difficult to believe that the legislature intended to give such a deduction under section 80HHC to an exporter who is having some non-export business, while denying the relief to an exporter who has only export business. The scheme of the deduction provided in section 80HHC does not lend support to such an interpretation. If the provisions of sub-clause (b) are considered as applicable to the case of an assessee having export business in specified goods as also in non-specified goods such an anomalous result would not emerge. When the assessee is engaged in the business of export of different goods, there would be common overhead and incidental expenses incurred in the export and then it would be difficult to ascertain the correct profit derived from the export of specified goods. It is in such a situation that clause (b) provides for an apportionment of the “profit of the business” (as computed under the head “profits and gains of business or profession”), on the basis of the turnover i.e., in the ratio of export turnover to the total turnover. It may be noted that clause (b) starts with “in a case where the business carried on by the assessee does not consist exclusively of the export of goods or merchandise to which this section applies”. It is the profit of that business computed under the head “profits and gains of business or profession” that is required to be apportioned and not the entire profits of all the business carried on by the assessee. In this clause the expressions “the business carried on by the assessee”, “the profits of the business”, etc., should be understood as the export business (and not all the business of the assessee). Again, in making the apportionment the ratio to be applied is the export turnover to “the total turnover of the business carried on by the assessee”. That means the total turnover of the export business including the turnover in the export of specified goods. The computation as per clause (b) is to be thus made to arrive at the profit derived from the export of non-specified goods or merchandise, in a case where the assessees business includes export of non-specified goods. The total turnover does not include the turnover in all the business activities of the assessee. The interpretation that sub-section (3)(b) is applicable to a case of business in export of specified goods and non-specified goods, is to be favoured as that interpretation alone would make the provisions of section 80AB workable in regard to the deduction under section 80HHC. In interpreting the provisions of the statute, we have to accept an interpretation that would make the various provisions in the statute workable. In this context it would be beneficial to refer to the following observations of the Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1979) : (1980) 121 ITR 1 (SC), at p. 19 :
“If there is one rule of interpretation more well settled than any other, it is that if the language of a statutory provision is ambiguous and capable of two constructions, the construction must be adopted which will give meaning and effect to the other provisions of the enactment rather than that which will give non.”
If the profit derived from the export of specified goods is considered under sub-section (3)(b) on the basis of the profits of all the business activities, then deduction under section 80HHC will have to be allowed without applying the limitation in section 80AB. The construction which we are placing in sub-section (3)(b) of section 80HHC leaves an area of operation in section 80AB. The circulars issued by the Central Board (Circular Nos. 421 and 572) referred to by the learned representative of the assessee do not lend support to an interpretation of sub-section (3)(b) that would be section 80AB unworkable.
7.1 In the above circumstances we hold that the provisions of clause (b) of sub-section (3) have no application in computing the profit derived by the assessee from the export of specified goods or merchandise as the assessee is not having any other export business in non-specified goods. The Commissioner of Income Tax(Appeal) is, therefore, not justified in giving direction to compute the relief under section 80HH in accordance with the provisions of sub-section (3)(b) on a proportion of all the profits of the various business activities including the agency business, steamer agency, etc. Accordingly, we reverse the order of the Commissioner of Income Tax(Appeal) and restore the order of the assessing officer to the effect that the assessee is not entitled to the relief under section 80HHC in the absence of any profit derived from the export of specified goods or merchandise included in the gross total income.
8. In the result, this appeal by the Revenue is allowed.