JEYAR CONSULTANT & INVESTMENT PVT. LTD.versusCOMMISSIONER OF INCOME TAX, MADRAS

                    [2015) 6 S.C.R. 979


    JEYAR CONSULTANT & INVESTMENT PVT. LTD.                   A
                             v.
      COMMISSIONER OF INCOME TAX, MADRAS
              (Civil Appeal No. 8912 of 2003)
                                                              B
                     APRIL 01, 2015.
          [A.K. SIKRI AND R. F. NARIMAN, JJ.]
      Income Tax Act, 1961- s.BOHHC (1) and (3) (b) -
Deduction in respect of profits from export business - c
Computation of-Assessee having turnover and income from
business in India as well as from export business - Denial
of deduction by the Revenue and confirmed by courts below
on the ground that assessee having not earned profit from
the export, deduction would be nil- On appeal, held: In order D
to provide deduction, the pre-requisite is to ascertain that
there are profits from the export business - If there are losses
in the export business, but profits in domestic business is
more than the export losses, benefit of s. BOHHC would not
be available - The appellant-assessee since incurred losses E
in export business, not entitled to benefit u/s. BOHHC - The
domestic income of the assessee from dividend, interest,
profit or sale of shares and fees cannot be covered by
expression 'total turnover' for the purpose of computation of
the deduction as provided uls BOHHC 3(b) and the Circular F
No. 564 dated 5. 7. 1990 issued by the Central Board of Direct
Taxes.

     Dismissing the appeal, the Court
                                                              G
       HELD: 1. From the scheme of Section 80HHC of
Income Tax Act, it is clear that deduction is to be provided
under sub-section (1) thereof which is "in respect of
profits retained for export business". Therefore, in the
first instance, it has to be satisfied that there ~re profits H
                           979
980      SUPREME COURT REPORTS               [2015] 6 S.C.R.


A from the export business. That is the pre-requisite. Sub-
  section (3) comes into picture only for the purpose of
  computation of deduction. For such an eventuality, while
  computing the "total turnover", one may apply the
  formula stated in clause (b) of sub-section (3) of
B Section 80HHC. However, that would not mean that even
  if there are losses in the export business but the profits
  in respect of business carried out within India are more
  than the export losses, benefit under Section 80HHC
  would still be available. In the present case, since there
C are losses in the export business, question of providing
  deduction under Section 80HHC does not arise and as a
  consequence, there is no question of computation of
  any such deduction in the manner provided under sub-
D section (3). [para 19] [998-E-H; 999-A]

      /pea Laboratory Ltd. v. Deputy Commissioner of Income
      Tax Mumbai (2004) 12 SCC 742: 2004 (2) SCR 1075;
      A.M. Moosa v. Commissioner of Income Tax,
      Trivandrum (2007) 9 SCR 831- relied on.
E
       2. In the present case, the domestic income in
  respect of which benefit is sought is from dividend
  income, interest income, profit or sale of shares and
  fees received from arranging finance for the assessee's
F clients. These are income simplicitor and cannot be
  covered by the expression "total turnover". Even
  otherwise, the formula as sought to be applied by the
  appellant does not become applicable on the facts of
  the present case. [para 21, 22 and 23] [999-C, H; 1001-
G 8-C]

                     Case Law Reference
  2004 (2) SCR 1075           relied on    Para 9 and 18
H (2007) 9 SCR 831            relied on    Para 9 and 18
   JEYAR CONSULTANT & INVESTMENT PVT. LTD. v.               981
        COMMNR. OF INCOME TAX, MADRAS

    CIVIL APPELLATE JURISDICTION : Civil Appeal No.          A
8912 of 2003.

     From the Judgment and Order dated 20.08.2002 of
the High Court of Judicature at Madras in T.C. No. 660 of
1~4.                                                         B

    Nikhil Nayyar, Gautam Narayan, Asmita Singh for the
Appellant. .

    N. K. Kaul, ASG, Jaideep Gupta, Nitesh Daryanani,
Sadhana Sandhu, Parvesh Thakur, Anil Katiyar for the         C
Respondent.

     The Judgment of the Court was delivered by

      A. K. SIKRI, J. 1. What is the correct method of D
computation of deductions under Section 80HHC(3) of the
Income Tax Act, 1961, in the given facts and circumstances,
is the question which needs an answer in the present appeal.

     2. The given facts and circumstances, as they appear    E
on record, are stated in the summary form herein below:

     Finance Act of 1983 introduced.Section BOHHC of the
Income Tax Act, providing incentives to exporters and
deductions for persons involved in the export business. F
Section 80HHC(3)(b) provided the formula for the
computation of deduction for persons who do net have
business exclusively of export out of India, that is to say, in
cases where the assessee is having turnover and income
from business in India as well as from the export business. G
For the sake of convenience, relevant portions of Section
80HHC are extracted hereinbelow:

  "BOHHC. Deduction in respect of profits retained for
  export business.-(1) Where an assessee, being an
                                                             H
982      SUPREME COURT REPORTS                  (2015] 6 S.C.R.


A     Indian company or a person (other than a company)
      resident in lndia,js engaged in the business export out
      of India of any goods or merchandise to which this
      section applies, there shall, in accordance with and
      subject to the provisions of this section, be allowed, in
B     computing the total income of the assessee, a
      deduction of the profits derived by the assessee from
      the export of such goods or merchandise:

      Provided that if the assessee, being a holder of an
c     Export House Certificate or a Trading House Certificate
      (hereinafter in this section referred to as an Export to
      in clause (b) of sub-section (4a), that in respect of the
      amount of the export turnover soecified therein, the
      deduction under this sub-section is to be allowed to a
D     supporting manufacturer, then the amount of deduction
      in the case of the assessee shall be reduced by such
      amount which bears to the total profits of the export
      business of the assessee the same proportion as the
      amount of export turnover specified in the said
E     certificate bears to the total export turnover of the
      assessee.

                 xx                xx            xx

 F    3. For the purposes of sub-section (1 ), profits derived
      from the export of goods or merchandise out of India
      shall be -

      (a) in a case where the business carried on by the
G     assessee consists exclusively of the export out of India
      of the goods or merchandise to which this section
      applies, the profits of the business as computed under
      the head "profits and gains of business or profession".

      (b) in a case wheiE." the business carried on by th~
H
      assessee does not consist exclusively of the export
            .      ·::···inc·!"'·   •.
  JEYAR CONSULTANT & INVESTMENT PVT. LTD. v.     983
 COMMNR. OF INCOME TAX, MADRAS [A. K. SIKRI, J.]

   out of India of the goods or merchandise to which this     A
   section applies, the amount which bears to the profits
   of the business (as computed under the head "Profits
   and gains of business or profession") the same
   proportion as the export turnover bears to the total
   turnover of the business carried on by the assessee."      B

      3. On 05.07.1990, the Central Board of Direct Taxes
(CBDT) issued Circular No.564 dated 05.07.1990 giving
detailed guidelines as to how the deductions under Section
80HHC are to be calculated. The formula prescribed by C
CBDT circular is as follows:

     Profit of the Business X Export Turnover
                              Total Turnover
                                                              D
     4. The appellant company is engaged in the business
of export of Marine products and also financial consultancy
and trading in equity shares. Its total business does not
consist purely of exports but includes business within the
country as well which situation is covered by Section         E
80HHC(3)(b), noted hereinabove.

       5. The Assessing Officer while dealing with the
 assessl"!lents of the appellant in respect of the Assessment
Year 1989-1990 took the view that the deduction was not F
allowable on the ground that there is no relationship between
theAssessee Company and the Processors. The appellant
carried the said order in appeal. The appeal against the
assessment order was dismissed by the Commissioner of
Income Tax (Appeals), Madras vide order dated 17.08.1991. G
The appellant filed an appeal before the Income Tax
Appellate Tribunal. By its judgment dated 24.04.1992, the
Appellate Tribunal set aside the order of the Assessing Officer
and came to a conclusion that the appellant was entitled to
full relief under Section 80HHC and directed the Assessing H
Officer to grant relief to the assessee.
984         SUPREME COURT REPORTS                   [2015] 6 S.C.R.


A           6. On remand, the Assessing Officer passed fresh order
      dated 28.05.1992 giving effect to the orders of the ITAT.
      While giving the effect, the Assessing Officer found that the
      appellant had not earned any profits from the export of Marine
      products and in fact, from the said export business, it had
B     suffered a loss. Therefore, according to the Assessing
      Officer, as per Section 80AB, the deduction under Section
      80HHC could not exceed the amount of income included in
      the total income. He found that as the income from export
      of Marine product business was in the negative i.e. there
C     was a loss, the deduction under Section 80HHC would be
      nil, even when the assessee is entitled to deduction under
      the said provision. With this order "'"'Cond round of litigation
      started. The assessee challenged the order passed by the
      Assessing Officer before the Commissioner (Appeals)
0
      contending that the formula which was applied by the
      Assessing Officer was different from the formula prescribed
      under Section 80HHC of the Act and it was also in direct
      violation of CBDT Circular dated 05.07.1990. The
E     Commissioner (Appeals), however, dismissed the appeal of
      the assessee principally on the ground that under Section
      246 of the Income Tax Act, an order of the Assessing Officer
      giving effect to the order of the ITAT is not an appealable
      order. The assessee approached the ITAT questioning the
 F    validity of the orders passed by the Assessing Officer and
      Commissioner (Appeals). However, ITAT also dismissed the
      appeal of the assessee vide its order dated 31.03.1993 and
      upheld the order of the Assessing Officer. Challenging the
      order of the ITAT, the assessee approached the High Court,
G     under Section 256(2) of the Act seeking reference to it. Order
      dated 03.02.1994 was passed by the High Court directing
      ITAT to frame the reference and place the same before the
      High Court. Ori this direction of the High Court, the ITAT
      referred the following question to the High Court:
H
 JEYAR CONSULTANT & INVESTMENT PVT. LTD. v.     985
COMMNR. OF INCOME TAX, MADRAS [A. K. SIKRI, J.)

     "Whether on the facts and in the circumstances of           A
  the case, the Tribunal was right in law in holding that
  the deduction admissible to the assessee under Section
  80HHC is nil?"

     7. The High Court has now pronounced on the aforesaid       B
question referred to it by the impugned judgment dated
20.08.2002 answering this question against the assessee
holding as under:

     "5. In this case, the assessment admittedly had not         c
  earned any profits from the export of the Marine
  products. On the other hand, it had suffered a loss.
  The deduction permissible under Section 80HHC is only
  a deduction of the profits of the assessee from the
  export of the goods or merchandise. By the very terms          D
  of Section 80HHC, it is clear that the assessee was
  not entitled to any benefit thereunder in the absence
  of any profits.

  The question referred to us therefore is answered              E
  against the assessee and in favour of the revenue."

      8. Special leave petition was filed against the judgment
of the High Court in which leave was granted on 10.11.2003.
This is how the appeal has come up for hearing.
                                                                 F
     . 9. Mr. Nikhil Nayyar, learned counsel appearing for the
assessee, submitted that the aforesaid reasoning of the High
Court is palpably wrong in holding that when there are losses
suffered in the export business, no deduction under Section
80HHC is permissible. According to him, while forming this G
opinion the High Court looked into sub-section (1) of Section
BOHHC alone as is clear from the order of the High Court,
and did not take into consideration provisions of sub-section
(3) thereof. His submission was that no doubt, this Court in H
986            SUPREME COURT REPORTS            [2015) 6 S.C.R.


A the case of IPCA Laboratory Ltd. v. Deputy Commissioner
  of Income Tax, Mumbai' held that the benefit of Section
  80HHC shall not be given in cases where there was loss.
  He, however, pointed out that the judgment in IPCA
  Laboratory Ltd. (supra) was explained and clarified
B subsequently by this Court in A.M. Moosa v. Commissioner
  of Income Tax, Trivandrum2 wherein it was made clear
  that in arriving at profits earned from export of both self-
  manufactured goods and trading goods, the profits and
  losses in both the trades have to be taken into consideration.
c If after such adjustments there is a positive profit, the
  assessee would be entitled to deduction under Section
  80HHC(1) and ifthere is a loss, he will not be entitled to any
  deduction. He, thus, submitted that the term "profit of
  business" would not confine to profit from export business
0
  but income both from export business as well as from
  domestic business, had to be taken into consideration.
  Therefore, even if there was a loss from the export business,
  but there was profrt from the business done within the country
E and on adjustment of loss from the export business against
  the profits from the business in India, in the balance sheet, it
  was still profit resulting into positive income, the benefit of
  Section 80HHC was admissible.

F        10. He further argued that the objective behind Section
  80HHC was to give incentive to those export houses who
  were earning foreign exchange. Even if there was loss from
  the export business, assessee had earned the foreign
  exchange and once it was found that overall there were
G profits, the following formula contained in Section 80HHC
  became applicable:

      Profit of the Business     X Export Turnover
                                     Total Turnover
H     1
          (2004) 12 sec 142
      2 (2007) 9 SCR 831
 JEYAR CONSULTANT& lNVESTMENT PVT. LTD. v.      987
COMMNR. OF INCOME TAX, MADRAS [A. K. SIKRI, J.]

       11. He also referred to the "Provisions Relating To Direct A
Taxes" stated in the Finance (No.2) Bill, 1991 presented in
the Budget of 1991-1992 and referred to the provisions
contained therein which relates to incentives for earning
foreign exchange. It makes the following reading:
                                                                  B
   "20. Under the existing provisions of Section 80HHC
  ·of the Income Tax Act, exporters are allowed. In the
   computation of their total income, a deduction of the
   entire profits derived from export of goods or
   merchandise other than mineral oil, minerals and ores.         C
   The deduction is subject to the condition that the s::iit1
   proceeds of such goods or merchandise are received
   in, or brought into, India in convertible foreign exchange.

  In view of the fact that significant value addition is         o
  achieved when a mineral is processed or when a stone
  is cut and polished, it is desirable to encourage their
  export. It is, therefore, proposed to extend the benefit
  of deduction under Section 80HHC to exporters of
  processed minerals. The list of processed minerals, in         E
  respect of which this concession is being extended, is
  being provided in a new schedule to the Income-Tax
  Act.

  The proposed amendment will take effect from the 1•1           F
  day of April, 1991 and will, accordingly, apply in relation
  to the assessment year 1991-1992 and subsequent
  years."

     12. Mr. Neeraj Kaul, ASG and Mr. Gupta, the learned G
senior counsel, appearing for the Revenue, on the other
hand, supported the view taken by the High Court. He also
specifically referred to the conclusion arrived at by the
Tribunal in support of his plea that in the instant case, formula
sought to be involved would not apply. He pointed out that H
988        SUPREME COURT REPORTS                    (2015] 6 S.C.R.


A in the present case, there was no income from indigenous
  business but it was only in the form of brokerage, dividend,
  interest etc. which, in no case, be described as "turnover"
  and be part of "total turnover". He referred to the same
  document viz. "Provisions Relating to Direct Taxes" where
B following clarification also appears:

        "It is, therefore, proposed to clarify that "profits of the
        business" for the purpose of Section 80HHC will not
        include receipts by way of brokerage, commission,
C       interest, rent, charges or any other receipt of a similar
        nature. As some expenditure might be incurred in
        earning these incomes, which in the generality of cases
        is part of common expenses, it is proposed to provide
        ad hoc 10 per cent deduction from such incomes to
D       account for these expenses."

          13. We have considered the submissions of counsel
      appearing on both sides.

E       14. There are two facets of this case which need to be
  looked into. In the first instance, we have to consider as to
  whether view of the High Court that the deduction is
  permissible under Section 80HHC only when there are profits
  from the exports of the goods or merchandise is correct or
F it would be open to the assessee to club the income from
  export business as well as domestic business and even if
  there are losses in the export business but after setting off
  those losses against the income/profits from the business in
  India, still there is net-profit of the business~the benefit under
G Section 80HHC will be available? The second question
  would arise is as to whether formula applied by the fora below
  is correct? In other words, while applying the formula, we
  have to see what would comprise "total turnover"?

H         15. Before we provide the answer to the first question,
  JEYAR CONSULTANT& INVESTMENT PVT. LTD. v.      989
 COMMNR. OF INCOME TAX, MADRAS [A. K. SIKRI, J.]

 it would be appropriate to take note of the judgments in /PCA     A
 Laboratory as well as A.M. Moosa. In /PCA Laboratory,
 the appellant was a holder of an Export House certificate
 issued by CCl&E. It exported self-manufactured goods as
 well as goods manufactured by supporting manufacturers
 i.e. trading goods. In the previous year relevant to AY 1996-     B
 97 its taxable income, before the deductions under Chapter
 VI-A, IT Act was Rs.4.39 ..crores. It had earned a profit of
 Rs. 3. 78 crores from the export of self-manufactured goods.
 However, from the exports of trading goods there was a loss
 of Rs.6.86 crores. The appellant issued certificates of           C
 disclaimer in favour of supporting manufacturers in respect
 of the entire export of the trading goods. In its return for AY
 1996-97, it claimed deduction under Section 80-HHC, IT Act
 in the sum of Rs. 3.78 crores. But, holding that there was a      D
 net loss from export of goods, the Assessing Officer
 disallowed the deduction. This order of the Assessing Officer
was unsuccessfully challenged by the appellant as all the
 authorities upto the High Court upheld that order. This Court
also, in the aforesaid judgment, concurred with the view taken     E
by the courts below. Before this Court, specific reliance was
placed on sub-section (3) of Section 80HHC and on that
basis, it was contended that in a case where the assessee
exported goods manufactured by himself as well as trading
goods, profits from the two types of exports were to be            F
considered separately and the profit in respect of one could
not be negated or set off against the loss from the other. It
was pleaded that when the main purpose behind that Section
was to given incentive for earning for an exchange, the
Section must be given an interpretatjon which would further        G
that object. It was also argued that the expression "profit"
occurring under Section 80HHC(1 ), so also in Section
80HHC(3), should be construed to mean positive profit and,
therefore, in Section 80HHC(3)(c) it would not include losses
and if there were any losses, they were to be ignored.             H
990       SUPREME COURT REPORTS                   (2015] 6 S.C.R.


A Another submission was that even when the profits were to
  be reduced by the losses, in cases of disclaimer of its turnover
  by an assessee export house in favour of a supporting
  manufacturer, the turnover of the export house got reduced
  to that extent. Therefore, it could not be taken into
B consideration for the purposes of computing profits under
  Section 80HHC(3)(c)(ii). Reliance was also placed on
  Circular No.421dated12.06.1985 of the CBDT to show that
  Section 80HHC was incorporated with a view to providing
  incentives to its exporters with requisite resources of
C modernization, technological upgradation, product
  development and other activities.

       16. None of the aforesaid arguments weighed with this
  Court. While dismissing the appeal of the appellant, the
D Court laid down the following law:

      "Although Section 80-HHC has been incorporated with
      a view to provide incentive to export houses and a liberal
      interpretation has to be given to such a provision, the
 E    interpretation has to be as per the wordings of that
      section. When the legislature wanted to take exports
      from self-manufactured goods or trading goods
      separately, it has already so provided in sub-sections
      (3)(a) and (3)(b). The word "profit" in Section 80-
 F    HHC(1) and Sections 80-HHC(3)(a) and (b) means a
      positive profit. In other words, if there is a loss then no
      deduction would be available under Section 80-HHC(1)
      or (3)(a) or (3)(b). In arriving at the figure of po~iti1.1e
      profit, both the profits and the losses will have to be
G     considered. ff the net figure is a loss then the assessee
      will not be entitled to a deduction. The opening words
      "profit derived from such exports" occurring in Section
      80-HHC(3) together with the work "and" occurring
      between clauses (i) and (ii) thereof clearly indicate that
H
 JEYAR CONSULTANT(& INVESTMENT PVT. LTD. v.     991
COMMNR. OF INCOME TAX, MADRAS [A. K. SIKRI, J.)

 the profits have to be calculated by counting both the         A
 exports.

 Under Section 80-HHC(1 ), the deduction is to be given
 in computing the total income of the assessee. In
 computing the total income of the assessee both profits        s
 as well as losses will have to be taken into
 consideration. Sections 80-AB and 80-8(5) are
 relevant. Section 80-AB has been given an overriding
 effect over all other sections in Chapter VI-A. Section
 80-HHC would thus be governed by Section 80-AB                 C
 which makes it clear that the computation of income
 has to be in accordance with the provisions of the Act.

 Moreover, even under Section 80-HHC(3)(c)(i) the profit
 is to be adjusted profit of business which means a profit      D
 as reduced by the profit derived from business of
 exports out of India of trading goods. Thus in calculating
 the profits, under Section 3(c)(i), one necessarily has
 to reduce the profits under Section 3(c)(ii). Section
 80-HHC makes it clear that in arriving at profits earned       E
 from export of both self-manufactured goods and
 trading goods, the profits and losses in both the trades
 have to be taken into consideration. If after such
 adjustments there is a positive profit the assessee
 would be entitled to deduction under Section 80-HHC(i).        F
 If there is a loss he will not be entitled to any deduction.

  In Section 80-HHC, the word "profit" is admittedly used
 to indicate positive "profit" because the deduction will
 only be of a positive profit. Section 80-HHC(3) provides       G
 how profits are to be worked out in computing total
 i[lcome. For the purposes of such computation both
 profits and losses have to be taken into account. Thus
 the word "profit" in Section 80-HHC(3) will mean profits
                                                                H
992      SUPREME COURT REPORTS                    [2015] 6 S.C.R.


A     after taking into account losses, if any. The term "profit"
      in both Sections 80-HHC(1) and 80-HHC(3) means a
      positive profit worked out after taking into consideration
      the losses, if any. Thus the word "profit" has the same
      meaning in Sections 80-HHC(1) and (3).
B
      The proviso to sub-section (1) of Section 80-HHC
      enables a disclaimer_only to enable the export house
      to pass on deductions. It in no way reduces the turnover
      of the export house. The disclaimer is only for purposes
C     of enabling the export house to pass on the deduction
      which it would have got to the supporting manufacturer.
      It follows that if no deduction is available, because there
      is a loss, then the export house cannot pass on or give
      credit of such non-existing deduction to a supporting
D     manufacturer.

      The Board circular also shows that only positive profits
      can be considered for purposes of deduction."

E       17. We find that in A.M. Moosa, this Court, in fact,
  reiterated /PCA principles, as noted above. That was a case
  where Assessing Officer had disallowed the deduction claim
  of the assessee under Section 80HHC of the Act on the
  ground that the 'profits of the business computed under
F Section 80HHC indicated a negative figure'. This view was
  accepted by all the Courts and affirmed by this Court in the
  aforesaid judgment. Before this Court. submission of the
  appellant/assessee was that a reading of Section 80HHC
  would show that where the assessee exporta goods
G manufactured by him, he would be covered by sub-section
  (3)(a) and only the profits of such business would be taken
  into account. Where the assessee exports only trading goods
  other than profits of these goods only would be taken into
  account of sub-section (3)(b). It was submitted that sub-
H section (3)(c) dealt with a case where the assessee exported
 JEYAR CONSULTANT & INVESTMENT PVT. LTD. v.     993
COMMNR. OF INCOME TAX, MADRAS [A. K. SIKRI, J.]

goods manufactured by him as well as trading goods. In             A
such a case, profits from export of goods manufactured by
the assessee were to be considered separately and the
profits from export of trading goods were to be considered
separately. If there were profits only in respect of one type
of exports then this profit could not be negatived or set off      B
from the loss from the other export. This contention was,
obviously, not accepted and brushed aside in the following
manner:

   "7. The stand needs careful consideration. Undoubtedly,         c
   Section 80-HHC has been incorporated with a view to
  providing incentive to export houses. Even though a
   liberal interpretation has to be given to such a provision,
   the interpretation has to be as per the wordings of this
   section. If the wordings of the section are clear, then         D
   benefits, which are not available under the section,
   cannot be conferred by ignoring or misinterpreting
   words in the section. In this case we are concerned
  with the wordings of sub-section (3)(c) of Section 80-
   HHC. As noted earlier, sub-section (3)(a) deals with            E
  the case where the export is only of self-manufactured
   goods. Sub- section (3}(b) deals with the case where
  the export is only of trading goods. Thus, when the
  legislature wanted to take exports from self-
                                                                   F
  manufactured goods or trading goods separately, it has
  already so provided in sub-sections (3)(a) and (3)(b}. It
  would not be denied that the word "profit" in Section
  80-HHC (1) and Sections 80- HHC(3)(a) or (3)(b)means
  a positive profit. In other words, if there is a loss then       G
  no deduction would be available under Section 80-HHC
  (1) or (3}(a} or (3)(b). In arriving at the figure of positive
  profit, both the profits and the losses will have to be
  considered. If the net figure is a positive profit, then
  the asses see will be entitled to a deduction. If the net        H
994      SUPREME COURT REPORTS                    [2015] 6 S.C.R.


A     figure is a loss then the assessee will not be entitled to
      a deduction. Sub-section (3)(c) deals with cases where
      the export is of both self-manufactured goods as well
      as trading goods. The opening part of sub-section (3)(c)
      states "profits derived from such export shall". Then
B     follow clauses (i) and (ii). Between clauses (i) and (ii)
      the word "and" appears. A plain reading of sub- section
      (3)(c) shows that "profits from such exports" has to be
      profits from exports of self-manufactured goods plus
      profits from exports of trading goods. The profit is to
c     be calculated in the manner laid down in Sections
      (3)(c)(i) and (ii). The opening words "profit derived from
      such exports" together with the word "and" clearly
      indicate that the profits have to be calculated by
      counting both the exports. It is clear from a reading of
D
      sub-section (1) of Section 80-HHC(3) that a deduction
      can be permitted only if there is a positive profit in the
      exports of both self-manufactured goods as well as
      trading goods. If there is a loss in either of the two then
E     that loss has to be taken into account for the purposes
      of computing profits.

      8. Under Section 80-HHC(1), the deduction is to be
      given in computing the total income of the assessee.
      In computing the total income of the assessee both
F
      profits as well as losses will have to be taken into
      consideration. Section 80-AB is relevant. It reads as
      follows:

      "80-AB. Where any deduction is required to be made
G     or allowed under any section included in this Chapter
      under the heading 'C'. Deductions in respect of certain
      incomes in respect of any income of the nature
      specified in that section which is included in the gross
      total income of the assessee, then, notwithstanding
H
 JEYAR CONSULTANT & INVESTMENT PVT. LTD. v.     995
COMMNR. OF INCOME TAX, MADRAS [A. K. SIKRI, J.]

 anything contained in that section, for the purpose of     A
 computing the deduction under that section, the amount
 of income of that nature as computed in accordance
 with the provision of this Act (before making any
 deduction under this Chapter) shall alone be deemed
 to be the amount of income of that nature which is         B
 derived or received by the assessee and which is
 included in his gross total income."

                                  (emphasis in original)
                                                            c
 9. Section 80-8(5) is also relevant. Section 80-8(5)
 provides that "gross total income" means total income
 computed in accordance with the provisions of the
 Income Tax Act.
                                                            D
  10. Section 80-AB is also in Chapter VI-A. It starts
 with the words "where any deduction is required to be
 made or allowed under any section included in this
 Chapter". This would include Section 80- HHC. Section
 80-AB further provides that "notwithstanding anything      E
 contained in that section". Thus Section 80-AB has
 been given an overriding effect over all other sections
 in Chapter VI-A. Section 80-HHC does not provide that
 its provisions are to prevail over Section 80-AB or over
 any other provision of the Act. Section 80-HHC would       F
 thus be governed by Section 80-AB. Decisions of the
 Bombay High Court in CIT v. Shirke Construction
 Equipment Ltd. (2000 (246) ITR 429) and the Kerala
 High Court in CIT v. T.C. Usha (2003 (132) Taxman
 297) to the contrary cannot be said to be the correct      G
 law. Section 80-AB makes it clear that the computation
 of income has to be in accordance with the provisions
 of the Act. If the income has to be computed in
 accordance with the provisions of the Act, then not only
 profits but also losses have to be taken into              H
996      SUPREME COURT REPORTS                    [2015] 6 S.C.R.


A     consideration.

      11. Even under Section 80-HHC (3) (c) (i) the profit is
      to be adjusted profit of business. The adjusted profit of
      the business means a profit as reduced by the profit
B     derived from business of exports out of India of trading
      goods. Thus in calculating the profits under sub-section
      (3)(c)(i) one necessarily has to reduce profits under
      sub-section (3)(c)(ii). As seen above, the term "profit"
      means positive profit. Thus if there is loss then those
C     losses in export of trading goods have to be adjusted.
      They cannot be ignored. A plain reading of Section 80-
      HHC makes it clear that in arriving at profits earned
      from export of both self-manufactured goods and
      trading goods, the profits and losses in both the trades
D     have to be taken into consideration. If after such
      adjustments there is a positive profit, the assessee
      would be entitled to deduction under Section 80-
      HHC(1 ). If there is a loss he will not be entitled to any
      deduction.
E
      12. It was submitted that the word "profit" in Section
      80-HHC must have the same meaning in the entire
      section, and that as the word profit in Section 80-
      HHC(1) means only positive profit, it will have the same
F     meaning in Section 80-HHC(3)(c). It is submitted that
      thus the word profit in Section 80-HHC(3)(c) would not
      include losses and if there are any losses, they are to
      be ignored. The plea is clearly without substance.
      Firstly, it is not necessary that the word "profit" must
G     have the same meaning. The meaning of the word
      "profit" will depend on the context in which it is used. In
      Section 80-HHC (1) it is admittedly used to indicate
      positive "profit" because the deduction will only be of a
      positive profit. Section 80- HHC(3) is the sub-section
H
  JEYAR CONSULTANT & INVESTMENT PVT. LTD. v.     997
 COMMNR. OF INCOME TAX, MADRAS [A. K. SIKRI, J.]

   which provides how profits are to be worked out in          A
   computing total income. For purposes of such
   computation both profits and losses have to be taken
   into account. Thus the word "profit" in Sectipn 80-
   HHC(3) will mean profits after taking into account
   losses, if any. More importantly, in our view, the term     B
   "profit" in Section 80-HHC both in sub-section (1) and
   in sub-section (3) means a positive profit worked out
   after taking into consideration the losses, if any. Thus
   the word "profit" has the same meaning in Sections
   80-HHC(1) and (3).                                          c
   13. In IPCA Laboratory Ltd. Vs. Dy. Commissioner of
   Income Tax, Mumbai, (2004) 12 SCC 742), after
   analyzing the position in the manner done above, it
   was held that the profit as contemplated under Section      D
   80-HHC (1) and Section 80-HHC (3) means positive
   profit. Said view was reiterated in Income Tax Officer,
   Bangalore Vs. lnduflex Products (P) Ltd., (2006 (1) SCC
   458). We are in respectful agreement with the view."
                                                               E
       18. It stands settled, on the co-joint reading of IPCA
 and A.M. Moosa, that where there are losses in the export
 of one type of goods (for example self-manufactured goods)
and profits from the export of other type of goods (for example
trading goods) then both are to be clubbed together to arrive F
at net-profits or losses for the· purpose of applying the
provisions of Section 80HHC of the Act. If the net result was
 loss from the export business, then the deduction under the
aforesaid Act is riot permissible. As a fortiori, if there is net
profit from the export business, after adjusting the losses G
from one type of export business from other type of export
business, the benefit of the said provision would be granted.

     19. It is also to be borne in mind that in both the
aforesaid cases namely /PCA and A.M. Moosa, the Court          H
998       SUPREME COURT REPORTS                 [2015] 6 S.C.R.


A was concerned with two business activities, both of which
  related to export, one from export of self manufactured goods
  and other in respect of trading goods i.e. those which are
  manufactured by others. In other words, the Court was
  concerned only with the income from exports. In the present
B case, however, the fact situation is somewhat different. Here,
  in so far as export business is concerned, there are losses.
  However, the appellant-assessee relies upon Section
  80HHC(3)(b), as existed at the relevant time, to contend that
  the profits of the business as a whole i.e. including profits
C earned from the goods or merchandise within India will also
  be taken into consideration. In this manner, argues the
  appellant, even if there are losses in the export business,
  but profits of indigenous business outweigh those losses
  and the net result is that there is profit of the business, then
0
  the deduction under Section SOHHC should be given.
  However, having regard to the law laid down in /PCA and
  A.M. Moosa, we cannot agree with the learned counsel for
  the appellant. From the scheme of Section SOHHC, it is
E clear that deduction is to be provided under sub-section (1)
  thereof which is "in respect of profits retained for export
  business". Therefore, in the first instance, it has to be
  satisfied that there are profits from the export business. That
  is the pre-requisite as held in /PCA and A. M. Moosa as well.
F Sub-section (3) comes into picture only for the purpose of
  computation of deduction. For such an eventuality, while
  computing the "total turnover", one may apply the formula
  stated in clause (b) of sub-section (3) of Section SOHHC.
  However, that would not mean that even if there are losses
G in the export business but the profits in respect of business
  carried out within India are more than the export losses,
  benefit under Section SOHHC would still be available. In the
  present case, since there are losses in the export business,
  question of providing deduction under Section SOHHC does
H not arise and as a consequence, there is no question of
  JEYAR CONSULTANT & INVESTMENT PVT. LTD. v.      999
 COMMNR. OF .INCOME TAX, MADRAS [A. K. SIKRI, J.]

computation of any such deduction in the manner provided          A
under sub-section (3).

       20. Therefore, we are of the opinion that the view taken
by the High Court is correct on the facts of this case. With
this, there may not be need to answer the second facet of         B
the problem as the question of computation of deduction
does not arise. However, we find that even here, the
approach of the ITAT is correct.

     21. In the present case, the domestic income in respect      c
of which benefit is sought is from dividend income, interest
income, profit or sale of shares and fees received from
arranging finance for the assessee's clients. The Tribunal
has recorded this aspect as under:
                                                                  D
      13. It is, however, seen from the assessee's Profit
  & Loss Account for the year of account ending on
  31.03.1989 that the aggregate sum of Rs.26,04,477
  (which the assessee has labeled as total turnover)
  comprised not only export turnover of Rs.16,67,084              E
  but also the following items which cannot properly be
  regarded as turnover:

  (1)   B'okercge received for arrartjng   Rs. 8, 00,321
        Finarre fer the ais:ssc:'s darrs
                                                                  F
  (2)   DivK:!erd                             Rs.5,247
  (3)   lrterest                              Rs. 7,212
  (4)   Rufit 01 saled shcres                Rs. 74,913
                                                                  G
                                            R>.~37,6931
     22. The Tribunal observed that aforesaid four items
are income simplicitor and cannot be covered by the
expression "total turnover". Following discussion of the
Tribunal in this behalf needs to be quoted:                       H
1000      SUPREME COURT REPORTS                     [2015) 6 S.C.R.


 A     "17. Now the mode and mechanics of computing the
       deduction admissible to an assessee falling under
       Section 80HHC(3)(b) clearly proceeds on the basis that
       in trading transactions profit, or, as the case may be,
       loss is embedded in the gross turnover. The most
 B     significant conclusion that flows from the said provision
       is that when Section 80HHC(3) talks of turnover, it talks
       of trading receipts and not of receipts which are of the
       nature of income to start with. It should, therefore,
       follow that the aggregate sum of Rs.9,37 ,693/- referred
 c     to supra cannot be regarded as turnover, and that by
       the same token, it should be left out of reckoning for
       purposes of computing deduction admissible to the
        assessee under Section BOHHC. If this exercise is
       done, we are back to Proposition No.1. This would
 D
       mean that the deduction admissible to the assessee
        under Section BOHHC would be nil, especially in view
        of the fact that the export business of the assessee
        has resulted in a loss.
 E                              xx xx xxx

       19. But a manufacturer may not invariably be able to
       export, in their entirety, the goods or merchandise
       manufactured. He may export a part of them and sell
 F     the rest in India. ··Given the paramount need to give
       fillip to exports, Parliament clearly intended that the
       bane.fit of Section BOHHC should not be denied in such
       cases .. But the difficulty in such cases is that the profits
       attributable to exports cannot be ascertain with
 G     precision. This is because not only the manufacturing
       activities but also the selling activities (including the
       activities connected with exports) from a continuous,
       integrated whole. Even so, the intention of Parliament,
       was to extend the benefit of Section BOHHC to the
 H
        .
 JEYAR CONSULTANT & INVESTMENT PVT. LTD. v. 1001
COMMNR. OF INCOME TAX, MADRAS [A. K. SIKRI, J.]

   extent of the profits generated by exports. With this             A
   end in view, Parliament incorporated a rule of thumb in
   Section 80HHC(3}(b). As long as the assessee has
   cleared profits in a particular year of account, export
   profits are computed by applying to total profits the ratio
   which export turnover bears to total turnover."                   B

     23. We are in agreement with the aforesaid view of the
Tribunal. Therefore, even otherwise, the formula as sought
to be applied by the appellant does not become applicable
on the facts of this case.                                  C

       24. Thus, from every angle the matter is to be looked
into, the appeal lacks merit. Same is, accordingly, dismissed
with costs.·
                                                                     D
Kalpana K. Tripathy                              Appeal dismissed.