IPCA LABORATORY LTD. versus DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI

Citation: [2004] 2 S.C.R. 1075 · Decided: 11-03-2004 · Supreme Court of India · Bench: S.N. VARIAVA · Disposal: Dismissed

Judgment (excerpt)

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IPCA LABORATORY LTD. 
A 
v. 
DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI 
MARCH 11, 2004 
[S.N.VARIA VA AND H.K. SEMA, JJ.] 
B 
Income Tax Act, 1961: 
Section 80HHC-Jncome tax-AY 1996-97-Profits retained for export c 
business-Deduction in respect of~Entitlement-Self manufactured goods as 
well as trading goods-Export of-Total income-Computation of-Assessee, 
an Export House, exported goods which were self-manufactured as well as 
goods manufactured by supporting manufacturers i.e. trading goods~Assessee 
derived profit from export of self-manufactured goods and incurred loss from 
export of trading goods-Assessee had issued certificates of disclaimer in D 
favour of supporting manufacturers-Assessee claimed deduction of the said 
profit-Assessing Officer disallowed the deduction-I~' view of the disclaimer 
and held that there was a net loss from export of goods~orrectness of-
Held: The word "profit" in S. 80HHC(l), 3(a) and 3(b) means a positive 
profit-In calculating the positive profit both the profits and the losses from 
the export of self-manufactured goods as well as trading goods have to be E 
taken into consideration-If there is a net profit, assessee is entit~ed to 
deduction-If there is a net loss assessee is not entitled to deduction. 
Section 80AB-Scope and ambit of-Held: S. 80AB prevails over all 
other Sections in Chapter VIA of the Act-Hence, S. 80HHC would be governed F 
by S. 80AB. 
Section BOHHC(l) proviso-Disclaimer-Effect on turnover-Held: A 
disclaimer enables an export house to pass on deduction-It, in no w~, 
reduces the turnover of an export house-Jn computing the total income the 
entire turnover is taken into account even though there is a disclaimer. 
G 
Words and Phrases: 
"Profit"-Meaning of-In the context of S. 80HHC of the Income Tax 
Act, 1961. 
1075 
H 
1076 
SUPREME COURT REPORTS 
[2004) 2 S.C.R. 
A 
The appellant, an export house, exported goods that were self-
manufactured as well as goods manufactured by supporting manufacturers 
i.e. trading goods. The appellant derived a profit from the export of self-
manufactured goods and incurred a loss from the export of trading goods. 
The appellant claimed a deduction under Section 80HHC of the Income 
B Tax Act, 1961 in respect of the said profit for the assessment year 1996-
97. It was found that the appellant had issued certificates of disclaimer in 
favour of the supporting manufacturers in respect of the entire export of 
trading goods. The Assessing Officer, therefore, held that there was a net 
loss from export of goods and disallowed the deduction. The Commissioner 
(Appeals), the Income Tax Appellate Tribunal and the High Court 
C dismissed the appeals filed by the appellant. Hence the appeal. 
D 
The following question arose before the Court:-
Whether an assessee is entitled to deduction under Section 80HHC 
of the Income Tax Act, 1961 in respect of the profit by ignoring the loss? 
Dismissing the appeal, the Court 
HELD: 1. Section 80HHC of the Income Tax Act, 1961 has been 
incorporated with a view to providing incentive to the export houses. Even 
though a liberal interpretation has to be given to such a provision the 
E interpretation has to be as per the wordings of this Section. If the wordings 
of a Section are clear then ben~fits, which are not availabl.e under that 
Section, cannot be conferred by ignoring or misinterpreting the words in 
that Section. (1086-C-D) 
2. The word "profit" in section 80HHC(l) and Sections 80HHC(3)(a) 
F and 3(b) means a positive profit. In other words if there is a loss then no 
deduction would be available under Section 80HHC(l) or 3(a) or 3(b). In 
arriving at the figure of positive profit, both the profits and losses will 
have to be considered. If the net figure is a positive profit then the assessee 
will be entitled to a deduction. If the net figure is a loss then the assessee 
G will not be entitled to a deduction. Section 80HHC(3)(c) deals with the 
cases where the export is of both self-manufactured goods as well as 
trading goods. A plain reading of Section 80HHC(3)(c) shows that "profits 
from such exports" has to be profits of exports of self-manufactured goods 
plus profits of exports of trading goods. The profit is to be calculated in 
the manner laid down in Section 80HHC(3)(c)(i) and (ii). The opening 
H words "profit derived from such exports" together with the word "and" 
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IPCA LABORATORY LTD. v. DY. COMMR. OF INCOME TAX 
1077 
clearly indicate that th

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