Supreme Court rules positive income from export business is required to claim Section 80HHC (of Income Tax Act, 1961) deduction.

Case Name:

Commissioner of Income Tax Vs Harrison Malayam Ltd.

Civil Appeal No(s). 5539/2004

Key Takeaways:

- To claim deduction under Section 80HHC (of Income Tax Act, 1961), the assessee must have positive income from the export business.

- The Supreme Court relied on its earlier judgment in Jeyar Consultant & Investment Pvt. Ltd. vs. Commissioner of Income Tax, Madras [2015 (4) SCALE 410], which laid down this principle.

- The court set aside the High Court's judgment and restored the order of the Assessing Officer, disallowing the Section 80HHC (of Income Tax Act, 1961) deduction claimed by the assessee.

Issue:

The central issue was whether an assessee can claim deduction under Section 80HHC (of Income Tax Act, 1961) when there is no positive income from the export business.

Facts:

- Harrison Malayalam Ltd. (the assessee) was a public limited company engaged in growing, manufacturing, and trading tea.

- For the assessment year 1987-88, the assessee claimed a deduction of Rs. 16,27,562/- under Section 80HHC (of Income Tax Act, 1961) for profits derived from export.

- However, the assessee had an overall loss from its tea business, and the income included in the total income was from other activities and services.

- The Assessing Officer disallowed the Section 80HHC (of Income Tax Act, 1961) deduction, and the Commissioner (Appeals) upheld this decision.

- The Income Tax Appellate Tribunal allowed the assessee's claim, holding that Section 80AB (of Income Tax Act, 1961) (which requires positive income) does not apply to Section 80HHC (of Income Tax Act, 1961).

- The High Court dismissed the Income Tax Department's appeal, affirming the Tribunal's decision.

Arguments:

- The Income Tax Department argued that the assessee could not claim the Section 80HHC (of Income Tax Act, 1961) deduction as there was no positive income from the export business, relying on the Supreme Court's judgment in Jeyar Consultant & Investment Pvt. Ltd. vs. Commissioner of Income Tax, Madras.

- The assessee's arguments were not mentioned in the judgment.

Key Legal Precedents:

The Supreme Court relied on its earlier judgment in Jeyar Consultant & Investment Pvt. Ltd. vs. Commissioner of Income Tax, Madras [2015 (4) SCALE 410], which categorically held that to avail the benefit of Section 80HHC (of Income Tax Act, 1961), there must be positive income from the export business.

Judgement:

The Supreme Court allowed the appeal filed by the Income Tax Department, holding that:

1. To avail the benefit of Section 80HHC (of Income Tax Act, 1961), there must be positive income from the export business.

2. The court's judgment in Jeyar Consultant & Investment Pvt. Ltd. vs. Commissioner of Income Tax, Madras squarely covers the present case.

3. The High Court's order was set aside, and the order of the Assessing Officer, disallowing the Section 80HHC (of Income Tax Act, 1961) deduction claimed by the assessee, was restored.

FAQs:

Q1: What is the significance of this Supreme Court decision?

A1: This decision clarifies the legal position that positive income from the export business is a prerequisite for claiming deduction under Section 80HHC (of Income Tax Act, 1961).

Q2: Does this decision have any implications for other assessees claiming Section 80HHC (of Income Tax Act, 1961) deduction?

A2: Yes, this decision sets a precedent that assessees must have positive income from their export business to claim the Section 80HHC (of Income Tax Act, 1961) deduction. Assessees with an overall loss from their export business may not be eligible for the deduction.

Q3: What was the reasoning behind the court's decision?

A3: The court relied on its earlier judgment in Jeyar Consultant & Investment Pvt. Ltd. vs. Commissioner of Income Tax, Madras, which categorically held that positive income from the export business is required to avail the benefit of Section 80HHC (of Income Tax Act, 1961).

Q4: What was the impact of the court's decision on the parties involved?

A4: The Income Tax Department's appeal was allowed, and the High Court's judgment was set aside. The order of the Assessing Officer, disallowing the Section 80HHC (of Income Tax Act, 1961) deduction claimed by Harrison Malayalam Ltd., was restored.

Respondent Assessee is a public Limited Company engaged in growing and manufacturing tea besides trading activities. The assessee had an export turnover of Rs.7,24,99,271/-. The total turnover of the assessee came to Rs.40,82,91,806/-. The Assessee had exported tea and had received sale proceeds in foreign exchange. The assessee claimed that the profits derived from export should be computed in accordance with clause (b) of Sub Section (3) of Section 80 (of Income Tax Act, 1961) HHC.

For the Assessment year 1987-88, Respondent claimed the deduction u/s 80HHC (of Income Tax Act, 1961) to the extent of Rs.16,27,562/-. The deduction was restricted to the profits derived from export. For this purpose, the profit derived from export had been calculated in accordance with sub section (3) of Section 80 (of Income Tax Act, 1961) HHC. However, the provisions of Section 80 (of Income Tax Act, 1961) AB was also applicable.

While completing the assessment u/s 143(3) (of Income Tax Act, 1961), it was found that there was a loss from Kerla Tea and only a small profit from Tamil Nadu Tea. The Net result of trading in tea was a loss. The business income included in the total income is actually the income from the other activities & income from services rendered, after setting off the losses from tea Ld. Assessment Officer vide its order dated 19.3.1990 held that the deduction is not permissible, as Section 80AB (of Income Tax Act, 1961) is to be applied.

Aggrieved, Respondents approached before the office of Commissioner (Appeal). Ld. Commissioner vide its order in appeal dt. 29.8.1999 appeal was partly allowed in respect that the assessing officer was not justified in estimating the value of unyielding rubber trees as on 1.1.1974 at Rs.100/- and according to the appellant it cannot be less than Rs.200/-. However, he dismissed the appeal on the grounds pertaining to the claim of reduction of

Rs.16,27,562/-.

Aggrieved, Respondent filed an appeal before income Tax Appellate Tribunal. Ld. Tribunal vide its order dt. 2.7.1997 allowed the claim of the Respondent Assessee by holding that Section 80AB (of Income Tax Act, 1961) has no application to a case covered by Section 80 (of Income Tax Act, 1961) HHC of the Act.

Aggrieved, Appellant filed an appeal before High court. High Court vide its impugned judgment and final order dated 12.3.2003 dismissed this appeal and affirmed the decision of the Tribunal.

No body is present on behalf of the respondent assessee. We have heard learned senior counsel appearing for the appellant Mr Dhruv Mehta. He has drawn our attention to the recent judgment rendered by this very Bench

in the case of Jeyar Consultant & Investment Pvt. Ltd. vs. Commnr. Of Income Tax, Madras reported in 2015 (4) SCALE 410 wherein it is categorically held that to avail the benefit of Section 80 (of Income Tax Act, 1961) HHC of the Income Tax Act there has to be positive income from the export business. The said judgment in our opinion squarely coveres the present case. The order of the High Court is accordingly set aside and the order of the Assessing Officer is restored.

The appeal is accordingly disposed of.

(A.K.SIKRI)

(ROHINTON FALI NARIMAN)

New Delhi;

Date: 10.4.2015.