553. Clarification regarding calculation of deductions
1. Attention is invited to Circular No. 564 dated 5-7-1990 (Sl. No. 552) explaining the deduction admissible under section 80HHC of the Income-tax Act, 1961 in respect of export profits.
2. In paragraph 5 of the aforesaid circular, it has been stated that the Finance Act, 1990 has amended section 28 of the Income-tax Act by inserting therein clauses (iiia), (iiib) and (iiic) with retrospective effect with a view to ensuring that cash compensatory support (CCS), duty drawback (DDK) and profit on sale of import entitlement licences (I/L) shall be taxable under the head “Profits and gains of business or profession” and that in view of this amendment, the export incentives would have to be included in the profits of the business for computing the deduction under section 80HHC.
3. These export incentives have also been included in the definition of ‘income’ contained in section 2(24 ) of the Income-tax Act. The amendments to section 28 as well as to section 2(24) of the Income-tax Act have been made with retrospective effect from the dates from which these incentives were made available to the exporters. Thus, CCS has been included in ‘income’ and in the list of incomes chargeable to tax under the head “Profits and gains of business or profession” with effect from 1-4-1967. The duty drawback has been so included with effect from 1-4-1972. The profits on sale of import entitlement licences have been included with effect from 1-4-1962, the date from which the Income-tax Act, 1961 came into force.
4. The Department’s view all along has been that these export incentives are revenue receipts and hence taxable.
5. The amendments made in this regard by the Finance Act, 1990 are, therefore, clarificatory in nature and have been made to put to an end to litigation which might arise regarding the taxability of these incentives.
6. In paragraph 7 of Circular No. 564 dated 5-7-1990, it has been stated that there has been lack of uniformity amongst the assessing authorities as regards the question whether export incentives form part of the total turnover and, therefore, the Finance Act, 1990 has clarified the position by inserting a definition of the term ‘total turnover’ in the Explanation below section 80HHC. According to this definition, ‘total turnover’ would exclude cash compensatory support, duty drawback and profit on sale of import entitlement licences.
7. The amendment referred to above has been made with effect from 1-4-1991. Since the amendment only clarifies the legislative intention as it always existed, the position as regards the past years would be the same as that after coming into force of the amendment. In other words, the meaning of the term ‘total turnover’ for the assessment year 1990-91 and earlier years, when the law did not contain any definition of that term, would be the same as now given in clause (bb) of the Explanation below section 80HHC.
Circular : No. 571, dated 1-8-1990.