The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that businesses can avail of benefits under Section 80HHC of Income Tax Act, 1961 even if export profits are not their exclusive source of income and it promotes trade and encourages entrepreneurial endeavors without restricting eligibility for tax incentives solely to export-oriented entities.
The assessee, MMTC Ltd., is a public-sector enterprise that exports commodities. In the assessment year 2006-07, the assessee claimed a deduction for revenue from exports under Section 80HHC of the Income Tax Act of 1961. The Assessing Officer (AO) denied the claim since the assessee had other sources of income, such as interest and dividends.
The assessee filed an appeal with the Commissioner of Income Tax (Appeals) [(CIT(A)], who granted the deduction. The IRS filed an appeal with the Income Tax Appellate Tribunal (ITAT).
The assessee argued that Section 80HHC of the Income Tax Act does not require export profits as the sole source of income and argued that export profits are not considered “profits of the business.” They also argued that the AO’s interpretation would undermine the purpose of the deduction for export profits.
The Revenue argued that the assessee’s interpretation of Section 80HHC was too broad and that other income sources, like interest and dividend income, were not “profits of the business.” It was also argued that the AO’s interpretation was consistent with the provision’s purpose of a deduction for export profits.
The ITAT observed that the assessee’s other sources of income, such as interest income and dividend income, were not derived from the same business as the export profits. This means that the other sources of income were not “profits of the business” for Section 80HHC. The AO’s interpretation of Section 80HHC would defeat the purpose of the provision, which is to provide a deduction for profits derived from export.
The Two-member Bench comprising G.S. Pannu (President) and Anubhav Sharma (Judicial Member) upheld the decision of the CIT(A) and allowed the deduction claimed by the assessee. The ITAT found that the assessee’s interpretation of Section 80HHC of Income Tax Act was correct and that the AO’s interpretation would defeat the purpose of the provision.
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