COMMISSIONER OF INCOME TAX Vs. MYSODET (P) LTD.

JUDGEMENT

(1.) AT the instance of the Revenue, the Income Tax Appellate Tribunal, Bangalore Bench, has referred the following question of law for our opinion, under Section 256(1) of the Income Tax Act, 1961, (for short hereinafter referred to as "the Act"). Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the deduction under Section 80HHC is allowable in the hands of the assessee, when the assessee had not derived any profit from the export business?

(2.) THE facts leading to this reference are as under: The assessee is a limited company. It purchased 105 computers and peripherals for Rs. 90,91,063 and exported them and realised export sales of Rs. 90,91,063. Thus the assessee did not derive any profit from this transaction. The Income Tax Officer allowed the claim of deduction under Section 80HHC of the Act at Rs. 15,81,389. The Commissioner of Income Tax, in exercise of his power under Section 263 of the Act, held that the assessee has not derived any profit from export of commodities and therefore, the assessee is not entitled for deduction under Section 80HHC of the Act. In the appeal filed by the assessee, the Tribunal held that the deduction is allowable under Section 80HHC of the Act.

(3.) WE have heard learned Counsel appearing for the parties. The question referred for our opinion is no longer res Integra. The Supreme Court in the case of IPCA Laboratory Ltd. Vs. Deputy Commissioner of Income Tax, Mumbai, (2004) 266 ITR 521 SC , has held that 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). If there is a loss, the assessee would not be entitled to deduction. Further, it has been held that a plain reading of Sub -section (3)(c) of Section 80HHC of the Act shows that profits from such exports have to be profits of exports of self -manufactured goods plus profits of exports of trading goods. The opening words "profit derived from such exports" together with the word "and" clearly indicate that the profits have to be calculated by counting both the exports. Deduction can be permitted under Section 80HHC(1) only if there is a positive profit in the exports of both self -manufactured goods as well as trading goods. If there is a loss in either of the two, then the loss has to be taken into account for the purposes of computing the profits.