The term 'profit' in Section 80-HHC of the Income Tax Act, 1961 means a positive profit worked out after considering losses, if any.

JUDGMENT

Dr. ARIJIT PASAYAT

1.Leave granted.

2.Challenge in this appeal is to the legality of order passed by a Division Bench of Kerala High Court answering the reference made to it in favour of the department and against the assessee appellant.

3.Background facts in a nutshell are as follows.

For the assessment year 1992-93, the assessee appellant had claimed deduction under Section 80-HHC of the Income Tax Act, 1961, (in short, the Act). The assessing officer disallowed the claim on the ground that the profits of the business computed under Section 80-HHC indicated a negative figure. An appeal was preferred before Commissioner of Income-Tax (Appeals), Cochin Bench, hereinafter, referred to as the CIT(A). The said appellate authority also was of the same view and dismissed the appeal. The assessee appellant preferred an appeal before the Income Tax Appellate Tribunal, Cochin Bench, in short the ITAT. By Order dated 14th September, 1995 in ITA No. 498 (Coch)/1995, the view of the assessing officer as well as of CIT(A) was affirmed. On being moved for reference, ITAT referred the following questions for adjudication by the High Court:

"(1)Whether, on the facts and circumstances of the case, the Tribunal was justified in entertaining the additional ground raised by the assessee on an issue which had not been disputed earlier before the assessing officer or the first appellate authority?

(2)Whether, on the facts and circumstances of the case, the Tribunal is right in law in holding that the payment received from the export houses under the agreements could not partake the nature of receipt towards "charges" mentioned in clause (baa) of Explanation to Sec.80HHC?

(3)Whether, on the facts and in the circumstances of the case, and on an interpretation of Sec. 8OHHC(3) would the assessee be entitled to the deduction in an amount equal to 90% of the sums referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person) and clause(iiib) and clause (iiic) of section 28, the same proportion as the export turnover bears to the total turnover to the business carried on by the assessee?

(4)Whether, on the facts and in the circumstances of the case, the Tribunal is right in its interpretation of the term profits of business?

(5)Whether, on the facts and in the circumstances of the case, the assessee is entitled to the benefits of sec. 80HHC of the Income Tax Act?

4.By the impugned Judgment, the High Court held that the view taken by the assessing officer, CIT(A) and ITAT was in order. Accordingly, as noted above, the reference was answered in favour of the department and against the assessee.

5.In support of the appeal, learned counsel for the appellant submitted that the view taken by the High Court is clearly untenable and does not reflect a true interpretation of the provision, that is, Section 80-HHC of the Act. Learned counsel for the Revenue on the other hand supported the orders stating that the view taken is unexceptional. At this juncture, it should be appropriate to take note of the relevant provision. Same reads as follows:

"80-HHC. Deduction in respect of profits retained forexport business.- (1) Where an assessee, being an Indiancompany or a person (other than a company) resident inIndia, is engaged in the business of export out of India ofany goods or merchandise to which this section applies,there shall, in accordance with and subject to theprovisions of this section, be allowed, in computing thetotal income of the assessee, a deduction to the extent ofprofits, referred to in sub-section (1-B) derived by theassessee from the export of such goods or merchandise:

Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an export house or a trading house, as the case maybe,) issues a certificate referred to in clause (b) of sub-section (4-A), that in respect of the amount of the export turnover specified the