Circular on Deduction under s.80HHC -Clarifications
June, 21st 2006
Deduction under s.80HHC
The CBDT clarified that the benefit of s.80HHC of the Income Tax Act 1961 could not be denied to an assessee claiming refund of duty drawback under the Duty Drawback Rules 1995, as s.28(iiic) of the Act referred to Customs and Central Excise Duty Drawback Rules 1971, not 1995 Rules. However, the claim of deduction was subject to the fulfilment of all other conditions provided under s.80HHC of the Act. The clarification was applicable for the AY 1996-97 and subsequent assessment years.
Deduction under section 80HHC of the Income-tax Act, 1961
Section 80-HHC of the Income-tax Act, 1961, provides for deduction from the total income in respect of profits derived from the export of goods or merchandise, which are realized in convertible foreign exchange. The manner of computation of profit derived from such export has been provided in sub-section (3) of the said section.
2. The first proviso to section 80-HHC (3) stipulates that the profits computed under sub-section (3) of section 80-HHC shall be further increased by a proportionate amount of the sums of export benefits referred to in section 28 (iiia) (not being profits on sale of a licence acquired from any other person), section 28 (iiib) and 28 (iiic). Clause (iiic) to section 28 refers to any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971.
3. Customs and Central Excise Duties Drawback Rules, 1971 was replaced by Customs and Central Excise Duties Drawback Rules, 1995 vide notification No.37/95-Cus. and C.E. dated 26.5.1995. However, no corresponding changes were made in the Income-tax Act.
4. References have been received by the Board indicating that the assessing officers are denying the claim of deduction under section 80HHC on account of duty drawback granted to the assessee in accordance with Customs and Central Excise Duties Drawback Rules, 1995 as clause (iiic) of section 28 refers to Customs and Central Excise Duty Drawback Rules, 1971.
5. The matter has been examined by the Board. Rule 18 of the Customs and Central Excise Duties Drawback Rules, 1995 provides for Repeals and Savings of the Customs and Central Excise Duties Drawback Rules, 1971.
6. Section 8 of the General Clauses Act provides that where the General Clauses Act or any Central Act or Regulation made after the commencement of the General Clauses Act, repeals and re-enacts, with or without modification, any provision of a former enactment, then references in any other enactment or in any instrument to the provision so repealed shall, unless a different intention appears, be construed as reference to the provision so re-enacted.
7. By virtue of provisions of Section 8 of General Clauses Act, 1897, read with Rule 18 of the Customs and Central Excise Duties Drawback Rules, 1995, which provides for repeals and savings of the 1971 Rules, the benefit of section 80HHC cannot be denied to an assessee claiming refund of the duty drawback under Duty Drawback Rules, 1995. However, the claim of deduction has to be allowed subject to fulfillment of all other conditions provided under section 80HHC.
8. This clarification will apply to assessment years 1996-97 and subsequent assessment years.