Case: P.R. Prabhakar Vs. Commissioner of Income Tax, Coimbatore

1. The Appellant carries on business of export of its own products as also procuring export contracts for other exporters on commission. In the assessment yearhe derived in income of Rs. 56,69,321 by way of commission, whereas as an exporter of goods incurred a loss of Rs. 6,372. The value of the total exported goods outside India by the Appellant during the said assessment year was Rs. 3,67,600. He claimed a deduction in respect of aforementioned income in terms of Section 80HHC of the Income Tax Act, 1961 (for short "the Act"). Exemption claimed under the aforementioned provision was disallowed by the Assessing Officer on the premise that they having incurred loss in respect of export business, were not entitled thereto. An appeal preferred there against was rejected by the Commissioner of Income Tax (Appeal). The Income Tax Appellate Tribunal, however, on further appeal preferred by the Appellant opined that the commission received by the Appellant from the other exporters is to be taken into consideration for the said purpose.2. The Respondent aggrieved by and dissatisfied with the said decision filed an application for reference to the High Court and by an order dated 13.9.1996 the following questions were referred by theWhether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the assessee is entitled to deduction under Section 80HHC of the Income Tax Act even though the export business resulted in a loss of Rs. 6,372?2. Whether on the facts and in the circumstances of the case the Tribunal is right in law inholding that commission and brokerage for procuring export contracts for other exporters is exempt under Section 80HHC of the Act on the ground that the same is exportBy reason of the impugned judgment, the High Court opined that income derived by the Appellant towards commission/brokerage for procuring orders of export for others is not eligible to exemption from tax under Section 80HHC of the Act. Referring to the circulars issued by the Central Board of Direct Taxes (CBDT), the High Court held that although the said provision was amended with effect from 1.4.1992 by inserting an explanation whereby and whereunder the profit derived out of such commission/brokerage was confined to 10% of the income, the same, being clarificatory in nature, would have retrospective effect. On the said findings, answers to both the questions were rendered in the negative and in favour of the Revenue.

Reasoning: 9. Once it is held that the amendment carried out in 1991 by reason of Finance Act (No. 2), Act, 1991 was prospective in nature, ex facie the High Court committed a serious error in opining that the same being clarificatory in character would apply to the assessment year in question. By reason of the purported clarification issued by the CBDT in terms of the said circular, the area of exemption had not been widened. It has, in effect and substance as would appear from paragraph 32.11, been curtailed.10. By reason of such amendment, the Parliament did not intend that the income derived by way of brokerage/commission by the assessee should not be reckoned for the purpose of computing profit or loss earned by a person engaged in the business of export but by reason thereof the deduction to the extent of 10% held to be allowable thereby. We, therefore, cannot accept the submission of Mr. Dutta that the income derived by way of commission and/or brokerage by an assessee carrying on business of export became eligible to exemption to the extent of 10% for the first time with effect from 1.4.1992.11. The purport and reason for enacting Section 80HHC of the Income Tax Act indisputably was to provide incentive to export houses. It is now aprinciple of law that although the exemption provisions are to be construed strictly as regards the applicability thereof to the case of the assessee but once it is found that the same is applicable, the same are required to be interpretedis stated at the Bar that the Revenue did not prefer any appeal there against. We, for the reasons stated hereinbefore, agree with the law laid down by the Tribunal.