Section 80HHC- Deduction in Respect of Profits Retained for Export Business

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The Income Tax Act, of 1961 is the main statute of Income Tax in India. It provides for levy, administration, collection, and recovery of Income Tax.

As per Section 80HHC,

(1)If the assessee is a resident of India and an Indian company or a person, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there will, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B), derived by the assessee from the export of such goods or merchandise:

Also, if the assessee, being a holder of an Export House Certificate or a Trading House Certificate issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this subsection is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee will be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods.

(1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), there will, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B), derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House.

(1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of the profits will be an amount equal to—

(i) 11% thereof for an assessment year beginning on the 1 April 2001;

(ii) 70% thereof for an assessment year beginning on the 1 April 2002;

(iii) 50% thereof for an assessment year beginning on the 1 April 2003;

(iv) 30% thereof for an assessment year beginning on the 1 April 2004,

and no deduction will be allowed in respect of the assessment year beginning on 1 April 2005 and any subsequent assessment year.

(2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee (other than the supporting manufacturer) in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.

(b) This section does not apply to the following goods or merchandise, namely:—

(i) mineral oil; and

(ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule).

(3) For the purposes of subsection (1), —

(a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee;

(b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export;

(c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export will,—

(i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and

(ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to the export of such trading goods:

Also, the profits computed under clause (a) or clause (b) or clause (c) of this subsection will be further increased by the amount which bears to 90 % of any sum referred to in clause (iiia) (not being profits on the sale of a license acquired from any other person), and clauses (iiib) and (iiic) of section-28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee

Also, in the case of an assessee having export turnover not exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this subsection or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to 90% of any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section-28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.

Also, in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this subsection or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to 90% of any sum referred to in clause (iiid) of section-28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee if the assessee has necessary and sufficient evidence to prove that,—

(a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and

(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme:

Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this subsection or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to 90% of any sum referred to in clause (iiie) of section-28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that,—

(a) he had an option to choose either the duty drawback or the Duty-Free Replenishment Certificate, being the Duty Remission Scheme; and

(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty-Free Replenishment Certificate, being the Duty Remission Scheme.

Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to 90% of—

(a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or

(b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section-28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.

(4) The deduction under sub-section (1) will not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section-288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section:

Also, in the case of an undertaking referred to in sub-section (4C), the assessee shall also furnish along with the return of income, a certificate from the undertaking in the special economic zone containing such particulars as may be prescribed, duly certified by the auditor auditing the accounts of the undertaking in the special economic zone under the provisions of this Act or under any other law for the time being in force.

(4A) The deduction under sub-section (1A) will not be admissible unless the supporting manufacturer furnishes in the prescribed form along with his return of income, —

(a) the report of an accountant, as defined in the Explanation below sub-section (2) of section-288, certifying that the deduction has been correctly claimed on the basis of the profits of the supporting manufacturer in respect of his sale of goods or merchandise to the Export House or Trading House; and

(b) a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section:

(4C) The provisions of this section will apply to an assessee,—

(a) for an assessment year beginning after the 31 March 2004 and ending before the 1 April 2005;

(b) who owns any undertaking which manufactures or produces goods or merchandise anywhere in India (outside any special economic zone) and sells the same to any undertaking situated in a special economic zone which is eligible for deduction under section 10A and such sale shall be deemed to be export out of India for the purposes of this section.