550. Deduction under section 80HHC and equal amount credited to reserve account for export business – Whether distribution of dividends out of such statutory reserve is utilisation for business of the assessee

1. Section 80HHC, as substituted by the Finance Act, 1985, provides that an assessee, being an Indian company or a person (other than a company) who is resident in India, exports out of India during the previous year any goods or merchandise to which this section applies, will be allowed [deduction of an amount, not exceeding 50 per cent of the profits derived by the assessee from the export of such goods or merchandise]. The proviso to this section lays down that an amount equal to the amount of the deduction claimed should be debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee.

2. The question whether distribution of dividends out of such reserve is utilisation of the reserve for the purposes of the assessee’s business has been considered by the Board. It has been decided that the provisions of the above proviso will not be infringed if dividends are distributed by the assessee out of such reserve.

Circular : No. 463 [F. No. 178/65/86-IT(A-I)], dated 11-7-1986.

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