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[2008] 305 ITR 276 [2008] 174 TAXMAN 221 (SC) SUPREME COURT OF INDIA Mysodet (P.) Ltd. v. Commissioner of Income-tax* , Bangalore S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ. CIVIL APPEAL NO. 5475 OF 2008â-  SEPTEMBER 3, 2008 Section 80HHC of the Income-tax Act, 1961 - Deductions - Exporters - Assessment year 1990-91 - Whether section 80HHC(3) fixes quantum of deduction on basis of a proportion of business profits under head 'profits and gains of business or profession', irrespective of what could strictly be described as profits derived from export of goods out of India - Held, yes - Whether therefore, an assessee carrying on composite business of domestic and export sales would be entitled to deduction under section 80HHC even if it had not derived profits from export business - Held, yes Circulars and Notifications : CBDT's Circular No. 564, dated 5-7-1990 FACTS The assessee-company had purchased certain computers for Rs. 90,91,063. It exported them and realized export sales of Rs. 90,91,063. The ITO allowed the deduction under section 80HHC by applying the ratio in terms of section 80HHC(3)(b) to the business income. The Commissioner, by invoking powers under section 263, set aside the assessment order holding that section 80HHC(1) refers to profits derived from the export business and, thus, it is with reference to such profits that deduction under section 80HHC is to be computed. The Tribunal allowed the assessee's appeal holding that profit need not be earned in the export business alone to claim special deduction under section 80HHC. On department's appeal, the High Court held that since the assessee had not earned profits from export sales during the year in question, it was not entitled to deduction under section 80HHC. On appeal to the Supreme Court : HELD Section 80A governs section 80HHC which deals with deductions in respect of profits retained for export business. The head note to section 80HHC refers to deduction in respect of profits retained for export business and not to profits retained from export business. Moreover, prior to 1-4-1986 section 80HHC referred to deduction in respect of export turnover. That phraseology has been changed later…

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