JUDGMENT

1. Leave granted. The short question which arises for determination in this Civil Appeal is whether in the facts and circumstances of the case the Tribunal was right in holding that the deduction under Section 80HHC in respect of Duty Drawback and Cash Compensatory Support is allowable even though no export was done by the assessee during the assessment year 1991- 92.

2. Briefly stated the facts giving rise to the present dispute are as follows: Appellant is the sole proprietor of M/s D.R. Enterprises engaged in the business of export of textiles/fabrics since 1st February, 1980. As part of his business appellant has been exporting fabrics to Chittagong and Dhaka. Consequent upon exports made by the appellant, inward remittance came into India in foreign exchange on 21st August, 1989, 11th December, 1989, 28th February, 1990, 16th March, 1990, 29th March, 1990 and 31st March, 1990. In other words, inward remittance came into India during the accounting year ending 31st March, 1990, (relevant Assessment Year 1990-91). However, appellant received cash compensatory allowance amounting to Rs.7,74,785/- on 25th May, 1990 (i.e. in the next accounting year). He also received on the same day Duty Drawback of Rs.35,565/-. In other words, appellant received Duty Drawback and Cash Compensatory Allowance during the accounting year ending 31st March, 1991 corresponding to assessment year 1991-92, with which we are concerned in this Civil Appeal.

3. In this Civil Appeal we are concerned with the question as to whether the sum of Rs.7,74,785/- + Rs.34,565/- received by the appellant during the Accounting Year ending 31st March, 1991 constitute eligible income under Section 80HHC(3) of the Income Tax Act, 1961 as it stood at the relevant time.

4. One more fact needs to be mentioned. Assessee was maintaining at the relevant time cash system of accounting. There is no dispute on that aspect. According to the Assessing Officer, admittedly, appellant had not made export sales during Assessment Year 1991-92 and, therefore, the said Duty Drawback and Cash Compensatory Allowance did not constitute eligible income deductible from the gross total income under Section 80HHC.

5. Aggrieved by the assessment order the assessee had carried the matter in appeal to the CIT(Appeals) who took the view that the above amounts were admittedly relatable to the sales made during the earlier year ending 31st March, 1990 and consequently, the Income Tax Officer had wrongly rejected the appellant's claim for deduction under Section 80HHC of the Act. This view of the Commissioner was also on the basis of the formula mentioned in Section 80HHC(3) and the Circulars of CBDT No. 564 dated 5th July, 1990 and 571 dated Ist August, 1990 in which it has been specifically mentioned that in computation of deduction under Section 80HHC the business profits would include export incentives. We will come to that formula later on. Suffice it to say that the decision of the Commissioner was upheld by the Tribunal.

6. Aggrieved by the decision of the Tribunal the department carried the matter in appeal to the Madras High Court vide Tax Case (Appeal) No. 134/2003. By the impugned judgment the High Court overruled the decision of the Tribunal on the ground that during the Assessment Year 1991-92 the assessee had received Cash Compensatory Support and Duty Drawback for the exports made in the earlier year and that there were no exports made in that year and, therefore, the said amounts did not constitute eligible income for deduction under Section 80HHC. Hence, this Civil Appeal by the assessee.

7. At the outset, it may be stated that by the Finance Act, 1990, the Parliament has clarified that Cash Compensatory Support and Duty Drawback shall be taxable under Section 28 of the Income Tax Act, 1961. By the said Finance Act, 1990, clause (iiib) came to be inserted as one of the incomes chargeable to income tax under the head "business profits" vide Section 28. Clause (iiib) covers c