The essential condition for deduction under section 80HHC is a benefit extended to the business of export of any goods or merchandise out of India. The profits of business are to be considered as a whole, and the income falling within clauses (iiia), (iiib), and (iiic) of section 28 must be computed as income from business or profession for the purpose of computing allowable deduction under section 80HHC.

1. This appeal is directed against the order of the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur, dated December 17, 1999, in two cross-appeals arising out of assessment proceedings for the assessment year 1989-90. The substantial question of law framed at the time of admitting the appeal reads as under :

" Whether, on the facts and circumstances of the case, the Tribunal has correctly construed the provisions of section 80HHC, in the matter of computing profits and gains of their business, in the context of the said provision for granting deduction ?"

2. One of the assessee' s business in which the assessee is engaged in the business of export out of India of goods and merchandise to which section 80HHC applies.

3. In the first instance, on October 31, 1989, the assessee had submitted a return of income declaring loss computed in accordance with the provisions of the Act at Rs. 62,63,970. The assessee filed a revised return for treating the cash compensatory support received during the year at Rs.75,91,462 as income from business of export on account of amendment in the Act of 1961 by inserting clauses (iiia), (iiib) and (iiic) in section 28 of the Act. These amendments were made with retrospective effect from April 1, 1962, April 1, 1967, and April 1, 1972, respectively vide the Finance Act, 1990. Perhaps this necessitated the filing of a revised return by the assessee on May 1, 1990, of total income of Rs. 2,64,860 instead of the return of loss filed earlier.

4. Computation of income under the head of " Profits and gains from business" was made by the Assessing Officer at Rs. 10,75,799.

5. The other facts which have been noticed in the assessment proceedings were that gross turnover of the assessee of his business as a whole was Rs.9,16,18,537, out of which export turnover amounted to Rs. 7,23,95,420 and the indigenous sales were only Rs. 1,92,23,117. In short, the approximate ratio between the turnover of the business and export turnover came to be 9.17 : 7.23. This ratio is relevant for the present controversy in hand.

6. If the total result of the business is in negative or loss, no deduction under section 80HHC can be claimed if the assessee is not engaged in the business of export out of India of goods and merchandise only, but is also engaged in the other business or businesses. Since the assessee at the first instance filed a return of loss, no claim under section 80HHC was made by the assessee. However, with the revised return, the assessee claimed deduction under section 80HHC by showing net profit of Rs. 12,45,075.

7. While considering the income from " profits and gains of business", the Assessing Officer had disallowed inclusion of processing charges and the profit on sale of import licence and after deducting all these items, net balance remaining as Rs. 2,20,943 was further reduced by the deduction claimed by the assessee under section 32AB resulting in a net negative figure of Rs. 22,592. Thus, assessing the negative income, the assessee' s claim for deduction under section 80HHC was disallowed.

8. On appeal, the Commissioner of Income-tax (Appeals) accepted the assessee' s claim to include profit from sale of import licence amounting to Rs. 5,55,081 as part of profit of business under section 28(iiia). Similarly, the commission from the State Trading Corporation (STC) on export counter trade of Rs. 2,19,190 was considered as income from business or profession and was considered as part of business income. The commission on shipping, freight or audit, etc., amounting to Rs. 51,241 was also held to be in connection with the export business and hence it was also considered as forming part of business income so also processing charges of Rs. 71,174 was considered to be part and parcel of the business activities. On these issues, the Commissioner was of the opinion that this could not have been deducted from the business income of the assessee for arriving at profit for the purpose of considering the cl