The central legal point established in the judgment is the interpretation and application of the amendment to Section 80HHC(3) of the Income Tax Act, clarifying the entitlement to deduction for exporters based on turnover and the prospective effect of the amendment.

R. SUDHAKAR, J.

The above Tax Case (Appeals) are filed by the Revenue as against the order of the Income Tax Appellate Tribunal raising the following substantial questions of law:

"1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee was entitled to deduction on profit from sale of DEPB from its total income without fulfilling the conditions prescribed in the 3rd proviso to Section 80HHC of the Income Tax Act?

2. Whether in the facts and circumstances of the case, the Tribunal was right in overlooking the fact that in the absence of 3rd proviso to Section 80HHC of the Income Tax Act, the assessee would not be entitled to deduction of profit from sale of DEPB license from its total income in the light of Explanation (baa) to Section 80HHC and Section 28(iiie) of the Income Tax Act?"

2. The assessee is engaged in the business of manufacture of leather and leather garments. The assessment in these cases relate to the assessment years 1999-2000 and 2003-2004 and for the said assessment years, the assessee claimed deduction under Section 80HHC of the Income Tax Act. The Assessing Officer denied the said claim on the ground that the turnover of the assessee during the year exceeded Rs.10.00 crores and hence the assessee had not satisfied the twin conditions in the amended provision of Section 80HHC(3) of the Income Tax Act; consequently, the assessee was not entitled to the benefit under Section 80HHC of the Income Tax Act. Aggrieved by the same, the assessee preferred appeals before the Commissioner of Income Tax (Appeals), who by following the decision of the Gujarat High Court in the case of Avani Exports & Others V. CIT reported in 348 ITR 391 (Guj.), allowed the appeals by directing the Assessing Officer to recompute the deduction. As against the said order of the Commissioner of Income Tax (Appeals), the Revenue preferred appeals before the Income Tax Appellate Tribunal. The Tribunal, following the said decision of the Gujarat High Court, which was relied on by the Commissioner of Income Tax (Appeals), partly allowed the appeal holding as follows:

"We have heard the submissions made by the representatives of both the sides and have perused the orders of the authorities below. We find that the assessee has rightly claimed deduction under Section 80HHC in accordance with judgment of the Hon'ble Supreme Court of India in the cases of Topman Exports reported as 342 ITR 49 (SC) and IPCA Laboratory Ltd., Vs. DCIT reported as 266 ITR 521 (SC) (supra). We do not find any infirmity in the order of the CIT(Appeals) in deleting the dis-allowance made by the Assessing Officer u/s.80HHC of the Act. However, for computation of deduction, we deem it appropriate to remit the file back to the Assessing Officer. The Assessing Officer shall recompute the deduction in accordance with the decision rendered in the case of M/s.Avani Exports & Others Vs. CIT (supra). Accordingly, the appeals of the Revenue are partly allowed for statistical purposes."

3. Aggrieved by the order of the Tribunal, the Revenue has filed the present Tax Case (Appeals) raising the above-mentioned substantial questions of law.

4. Heard learned Standing Counsel appearing for the Revenue and perused the materials placed before this Court.

5. It is seen that Section 80HHC(3) of the Income Tax Act was amended by the Taxation Laws (Second Amendment) Act, 2005 with retrospective effect from 1st April, 1998 by way of adding second, third, fourth and fifth proviso to Section 80HHC(3) and inserting clause (iiid) and (iiie) in Section 28 with effect from 1st April, 1998 and 1st April 2001 respectively.

6. The dispute arose due to the condition contained in third and fourth proviso to Section 80HHC(3), which mandates satisfaction of two conditions by the assessees whose export turnover is more than Rs.10.00 crores to claim the benefit under Section 80HHC of the Income Tax Act. This amendment classified the exporters into two categori