IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN TUESDAY, THE 24TH MARCH 2009 / 3RD CHAITHRA 1931 ITA.No. 34 of 2008() -------------------- ITA.169/COCH/2002 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: -------------------- THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. BY ADV. SRI.JOSE JOSEPH, SC FOR IT RESPONDENT(S): --------------- M/S.G.P.N.CASHEW EXPORTING CO., BEACH ROAD, THAMARAKKULAM, KOLLAM. ADV. SRI.P.BALAKRISHNAN (E) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24/03/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ. .................................................................... I.T. Appeal No.34 of 2008 .................................................................... Dated this the 24th day of March, 2009. JUDGMENT Ramachandran Nair, J. The question raised in the departmental appeal is whether the Tribunal was justified in granting deduction under Section 80 HHC of the Income Tax Act in respect of sale proceeds of REP licence treating it as profit in export business. We have heard Standing Counsel for the appellant and Sri.P.Balakrishnan appearing for the respondent- assessee. The assessee did not file any return voluntarily for the year 1994-95. However, against Section 148 notice, assessee filed return declaring a loss of Rs.3,96,780/-. The Assessing Officer disallowed many items and along with it made an addition of Rs.7.75 lakhs towards sale proceeds of REP licence. Even though loss return was converted into positive income and tax was demanded, the Assessing Officer declined relief under Section 80 HHC for the reason that if 90% of the sale proceeds of REP licence is reduced in the computation of profits of business in terms of Section 80 HHC(4c)(baa), then the net 2 result will be a negative figure. However, in appeal, the CIT (Appeals) allowed the claim stating that REP licence is also income in export business. This was confirmed by the Tribunal against which this appeal is filed. 2. We are unable to uphold sale proceeds of REP licence as export profit. On the other hand, it is deemed business income under Section 28(iii)(a) of the Income Tax Act and so much so, 90% of the same has to be excluded in the computation of business profit while computing relief under Section 80 HHC. The Supreme Court has in COMMISSIONER OF INCOME-TAX V. K.RAVINDRANATHAN NAIR reported in (2007) 295 ITR 228 considered the scope of Explanation referred above, though in the context of processing charges. Since the Assessing Officer has not considered total turnover and the export turnover and the percentage of profit from export business, deduction of export profit has to be made by applying formula under Section 80 HHC(3) of the Act. Since relief is not computed by the Assessing Officer, we set aside the orders of the Tribunal and that of the first appellate authority and remand the matter 3 back to the Assessing Officer to rework relief after calling for particulars from the assessee and after referring to the decision of the Supreme Court abovereferred. The Assessing Officer while considering relief should take into account first proviso and fifth proviso introduced to Section 80 HHC(3) of the Act by the Taxation Laws Amendment Act, 2005 with retrospective effect from 1.4.1992. C.N.RAMACHANDRAN NAIR Judge K.SURENDRA MOHAN Judge pms