CASE NO.: Appeal (civil) 6758 of 2001 PETITIONER: Commissioner of Income Tax, Pune RESPONDENT: Shirke Construction Equipment Ltd DATE OF JUDGMENT: 17/05/2007 BENCH: ASHOK BHAN & DALVEER BHANDARI JUDGMENT:
JUDGMENT
BHAN, J.
1. With the leave of the Court, the Commissioner of
Income Tax, Pune (for short “the Revenue”) has filed
the present appeal against the Final judgment and
order dated 24th July, 2000 passed by the High Court
of Bombay in ITA No. 458/AN/1998 by which the High
Court has affirmed the decision of the Tribunal and
dismissed the appeal filed by the Revenue. The issue
involved in this appeal relates to the provisions of the
Income Tax Act, 1961 (for short “the Act”).
2. The High Court framed the following two
questions of law for its determination:
1. Whether Section 80-AB can be applied to Section
80-HHC of the Act?
2. Whether, in determination of business profit under
Section 80HHC, the unabsorbed business losses of
the earlier years under Section 72 of the Act should be
set off?
3. The High Court has decided both the questions
against the Revenue and in favour of the assessee. On
the first point, the High Court has held that Section
80-HHC is independent of Section 80-AB and Section
80-AB does not control Section 80HHC of the Act. On
the second point, it has been held that unabsorbed
business losses of the earlier years could not be set off
against the profits from exports.
4. High Court of Kerala in CIT v. T.C. Usha [(2003)
132 Taxman 297 (Ker.)]. has also taken a similar view
and has held that the losses would not be set off
against the profits earned by an assessee from export
of the goods manufactured by it. This decisions of the
Bombay High Court in the present case and the High
Court of Kerala in C.I.T. v. T.C. Usha (supra) have
been overruled by this Court in IPCA Laboratory Ltd.
v. Dy. Commissioner of Income Tax, Mumbai [(2004)
12 SCC 742].
5. The facts in the present case are similar as that
in IPCA Laboratory Ltd. (supra), hence the same are
not restated herein. In IPCA Laboratory Ltd. (supra),
the counsel appearing for the assessee had placed
reliance on two judgments, i.e., one by the Bombay
High Court in CIT v. Shirke Construction Equiments
Ltd. [2000 246 ITR 429 Bom.], which is the judgment
impugned in the instant appeal, and another by the
High Court of Kerala in CIT v. T.C. Usha (supra).
6. Taking a contrary view, this Court in IPCA
Laboratory Ltd. (supra) has held that (i) Section 80-
HHC of the Act is not independent of Section 80-AB
and would be governed by Section 80-AB; and (ii)
losses were to be set off against the profits earned
from export of self-manufactured goods. It has further
been held in this case that Section 80 HHC would be
governed by Section 80-AB and the decision of the
Bombay High Court and the Kerala High Court taking
the contrary view does not lay down the correct law to
that extent.
7. The judgment impugned in the present case,
which, as indicated hereof, was relied has been
noticed by this Court in paragraph 7 of the judgment
in IPCA case (supra), thus:
“Mr. Dastur also relied upon the case of CIT
v. Shirke Construction Equipments Ltd.
2000 246 ITR 429 (Bom.). In this case the
Bombay High Court has held that Section
80-HHC is a complete code in itself and that
it is not controlled by Section 80-AB. It was
held that profits had to be computed under
Section 29 and Section 72 was not
applicable. It was held that carry-forward
losses could not be set off for computing
profits for the purpose of Section 80-HHC.
In this case it was also noticed that the
object was to encourage exports.”
8. The judgment of the Kerala High Court in CIT v.
T.C. Usha [(2003) 132 Taxman 297 (Ker.)], on which
reliance was placed by the assessee in IPCA
Laboratory Ltd. (supra), has been noticed by this
Court in paragraph 10 of the said judgment, thus:
“Mr. Dastur also relied upon a judgment in
the case of CIT v. T.C. Usha (2003) 132
Taxman 297 (Ker). In this case the Kerala
High Court was considering an identical
question i.e. whether the profits earned from
export of self-manufactured goods were to be
set off against loss incurred in export of
trading goods. The Kerala High Court has
accepted arguments similar to those made
by Mr. Dastur and has concluded that the
losses were not to be set off against the
profits earned from export of own
manufactured goods. In coming to this
conclusion the Kerala High Court has
proceeded on the footing that Section 80-
HHC is a self contained code and the
proceeds have to be worked out strictly in
accordance with the provisions.”
9. Paragraph 14 of the said judgment of this Court in
IPCA Laboratory Ltd. (supra), which answers the
questions, is extracted below:
“Section 80-AB is also in Chapter VI-A. It
starts with the words “where any deduction
is required to be made or allowed under any
section included in this Chapter”. This
would include Section 80-HHC. Section 80-
AB further provides that “notwithstanding
anything contained in that section”. Thus
Section 80-AB has been given an overriding
effect over all other sections in Chapter VI-A.
Section 80-AB or over any other provision of
the Act. Section 80-HHC would thus be
governed by Section 80-AB. Decisions of the
Bombay High Court and the Kerala High
Court to the contrary cannot be said to be
the correct law Section 80-AB makes it clear
that the computation of income has to be in
accordance with the provisions of the Act. If
the income has to be computed in
accordance with the provisions of the Act,
then not only profits but also losses have to
be taken into consideration.”
[Emphasis supplied]
10. As stated above, this Court has taken a contra view
to that of the High Court of Bombay, in CIT v. Shirke
Construction Equipments Ltd. [(2000) 246 ITR 429
(Bom.)] (the impugned judgment) and the decision of the
High Court of Kerala in CIT v. T.C. Usha [(2003) 132
Taxman 297 (Ker.)] and, overruling them, held that the
said decisions cannot be said to be the correct law.
11. In ITO v. Induflex Products (P) Ltd. [(2006) 1 SCC
458], this Court has held thus:
“It is no doubt true that the term `profit’ implies
positive profit which has to be arrived at after
taking into consideration the profit earned from
export of both self-manufactured goods and the
trading goods and the profits and losses in both
the trades have, thus, to be taken into
consideration.”
12. The aforesaid decision of this Court in IPCA
Laboratory Ltd. (supra) has been relied upon in a
subsequent decision of this Court in P.R. Prabhakar v.
CIT, Coimbatore [(2006) 6 SCC 86, at page 92], thus:
“The expression “income arising out of business
of export” brings within its sweep not only the
export of any goods or merchandise
manufactured or possessed by the assessee but
also the trading goods. Parliament, therefore,
intended to provide incentive when a positive
profit is earned by an exporter.”
13. Both the aforesaid decisions of this Court in IPCA
Laboratory Ltd. (supra) and Induflex Products (P) Ltd.
(supra) have been relied upon in a subsequent decision of
this Court in P.R. Prabhakar v. CIT, Coimbatore [(2006)
6 SCC 86, at page 92], as indicated above.
14. Accordingly the two points which had been posed by
the High Court for its decision are answered in the
negative, i.e., against the Revenue and in favour of the
assessee.
15. For the foregoing reasons, we are left with no other
option except to accept the appeal and set aside the
impugned judgment.
16. The appeal stands allowed accordingly. There shall
be no order as to costs.