Kapadia, J.
Two important questions of law arise for determination in this appeal. Whether section 80AB applied to section 80HHC of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') Whether, in determination of business profits under section 80HHC the unabsorbed business losses of the earlier years under section 72 of the Act should be set off ?
2. The facts giving rise to this appeal, briefly, are as follows :
3. The appeal concerns the assessment year 1995-96. The assessee filed its return of income on 30-11-1995. The assessee claimed deduction under section 80HHC in respect of profits derived from exports. The export profits were calculated with reference to profits of business in proportion of the export turnover to the total turnover as per section 80HHC(3). The assessee contended that in view of section 80HHC read with Explanation (baa), profits of the business have been defined to mean profits computed under the head 'Profits of business' which, in turn, referred to sections 28 to 44D of the Act and it did not refer to section 72. Therefore, the assessee claimed the deduction with reference to the provisions of sections 28 to 44D under the head 'Profits and gains of business' of the current year. Therefore, the assessee did not set off the brought-forward losses while computing profits of the business. This computation was rejected by the assessing officer. Briefly, the assessing officer came to the conclusion that in view of section 80AB which contained a non obstante clause, the assessee was required to compute business profits by setting off the brought-forward losses as contemplated by section 72. Being aggrieved, the assessee went in appeal to the Commissioner (Appeals). The assessee succeeded on this point before the Commissioner (Appeals) who allowed the appeal in view of the judgment of the Tribunal in the case of Salgaocar Mining Industries Ltd. v. Deputy CIT . Being aggrieved, the department carried the matter to the Tribunal. The department lost the appeal before the Tribunal. Hence, this appeal under section 260A of the Act.
4. Mr. Desai, the learned senior counsel for the revenue, contended that Chapter VI-A deals with deductions to be made in computing total income. He contended that under section 80A it is expressly provided that in computing the total income of an assessee, there shall be allowed from his gross total income deductions specified in section 80C to section 80U of the Act which included section 80HHC. Mr. Desai emphasised the provisions of section 80AB of the Act which refers to deductions to be made with reference to the income included in the gross total income. Mr. Desai contended that under section 80AB, any income of a specified nature which is included in the gross total income shall be computed in accordance with the provisions of the Act. In other words, he contended that on reading section 80AB, section 80B(5) and section 80HHC it was clear that in computing the total income of an assessee, deductions specified in section 80HHC shall be allowed from the gross total income and such deduction shall not exceed the gross total income. He further contended that the gross total income was required to be computed in accordance with the provisions of the Act. That it was required to be computed before making any deduction under Chapter VI-A of the Act. Therefore, he contended that the mandate of section 80AB is that the gross total income shall be computed after setting off brought-forward business losses under section 72.
According to the learned counsel, this was the first step and the second step, thereafter, was to allow the deductions under Chapter VI-A from the resultant positive income of the previous year, if any, which is left after setting of the aforestated brought-forward business losses under section 72 of the Act. Accordingly, he contended that section 80AB controlled section 80HHC. In this connection, the learned counsel has also relied upon section 80B(5), which defines gross total income to mean total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A. Mr. Desai placed reliance on the judgments of the Supreme Court in the case of Motilal Pesticides (I) P. Ltd. v. CIT : [2000]243ITR26(SC) , so also in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) . He also relied upon the judgment of the Kerala High Court in the case of CIT v. V T Joseph : [1997]225ITR731(Ker) . In fairness he also invited our attention to the contra view of the Kerala High Court in favour of the assessee in the case of CIT v. A. V. Thomas & Co. Ltd. : [1997]225ITR29(Ker) .
5. Mr. Inamdar, the learned counsel appearing on behalf of the counsel assessee, contended that the object of section 80HHC was to encourage exports. He contended that the object of section 80HHC was to ascertain the export profits out of the business profits. He contended that the basic formula to be applied under section 80HH(3) to arrive at the export profits was as
Business profits
X
Export turnover
Total turnover
He contended that, initially, the deduction under section 80HHC was based on annual turnover. Thereafter, it underwent a change under which it was based on 50 per cent of the profits from exports of the current year plus 4 per cent of foreign exchange realisations. Thereafter, the section was further amended and the deduction was required to be determined on the basis of percentage of profits to be arrived at by applying the ratio of export turnover to total turnover of the current year. The emphasis of the learned counsel was on the current year. He contended that all throughout the Legislature has calculated the deduction on the basis of the profits of the current year and, therefore, there was no scope for taking into account the brought forward-losses of the earlier years. He further contended that section 80HHC provides for deductions to trader exporters as well as manufacturer-exporters. Therefore, section 80HHC categorically refers to profits of a given year and not the brought forward losses. He further contended that under clause (baa) profits of the business have been defined to mean profits of the business as computed under the head `profits and gains of business or profession' which clearly indicates that section 80HHC is a separate code by itself. It has its own definition of the business profits. Therefore, he contended that section 80AB cannot control section 80HHC. Mr. Inamdar further contended that when the Legislature has used the expression `profits and gains of business', the Legislature was very clear in its mind to the effect that business profits were required to be computed under the head 'profits and gains of business or profession' which covers sections 28 to 44D of the Act. The Legislature was very clear that profits of the business shall mean profits of that year. In the circumstances, he contended that section 72 has no application. He further contended that under clause (ba) of the Explanation to section 80HHC, total turnover has been defined not to include freight or insurance. A proviso was added under which the expression 'total turnover' also excluded sums referred to in sections 28(iiia), (iiib) and (iiic). Mr. Inamdar invited our attention to section 29 which, inter alia, provides that income in section 28 shall be computed in accordance with the provisions contained in section 30 to section 43D of the Act which excluded sections 71 and 72 from the computation of business profits. Mr. Inamdar further contended that section 80AB only deals with computation of specified income. Such income is required to be computed in accordance with the provisions of the Act. He contended that the purpose of section 80AB was to compute profits of a specified category. However, he pointed out that section 80AB specifically refers to deductions to be made with reference to the income included in the gross total income. He contended that under section 80AB it is provided, inter alia, that where any deduction is required to be made under any section of Chapter VI-A under the heading 'C' in respect of any income of the specified nature which is included in the gross total income of the assessee, then such income shall be computed in accordance with the provisions of the Act. He contended that the effect of section 80AB was that where any income in respect of which deduction is claimed falls under heading 'C' of Chapter VI-A is included in gross total income, then the amount of income of that nature shall first be decided in accordance with the provisions of the Act before making any deductions under Chapter VI-A. However, section 80HHC does not provide that income from exports should be included in the gross total income. He contended that the Legislature has made departure from other sections of Chapter VI-A in enacting section 80HHC. He contended that section 80AB came into picture because a controversy arose as to whether dividend income was relatable to gross income or whether it was relatable to net income. Hence, section 80AB came to be introduced and it was made applicable to all specified incomes like royalty. He contended that when this section was originally enacted, the deduction was allowed with reference to the turnover, irrespective of any income and in order to advance such intention of promoting exports, the Parliament did not provide the deduction which should be allowed if export profits were included in the gross total income. It allowed the deduction on the basis of the turnover even though there was no profit from the exports. However, such deduction was subject to section 80A(2). In other words, section 80A(2) provided a ceiling on such deduction. Subsequently, the Legislature changed the basis from turnover to profit. However, it did not provide that such specified income must be included in the gross total income. Therefore, the learned counsel submitted that section 80AB did not control section 80HHC. In the alternative, he contended that section 80HHC(3) provides for an artificial formula. It specifically refers to the current year profits. Therefore, even if the gross total income included deductions under section 72, still the question of deduction under section 80HHC(3) was required to be decided independently by taking into account export profits of a given year only. The said deduction, however, would stand limited by section 80A(2). For example, if the gross total income is Rs. 10 lakhs and deduction works out to Rs. 20 lakhs then in view of section 80A(2) the assessee will get the deduction of only Rs. 10 lakhs. He, therefore, contended that the formula under section 80HHC(3) and the computation of deduction under that section has nothing to do with the computation of gross total income. He relied upon the judgment of the Andhra Pradesh High Court in the case of CIT v. Gogineni Tobacco Ltd. : [1999]238ITR970(AP) , which has laid down that deduction shall be allowed in accordance with and subject to section 80HHC.
6. Two points arise for determination in this appeal, viz., whether section 80AB controls section 80HHC and whether while computing business profits under section 80HHC(3), the unabsorbed business losses of the earlier years under section 72 should be set off At the outset, it may be mentioned that under Chapter VI-A, there are two different sets of sections. The language used in sections 80HH, 80P, 80M as it stood, etc., is different from the language used in section 80HHC. The former set of sections start with the words, viz., 'Where the gross total income of an assessee includes any income by way of . . .'. On the other hand, these words do not find place in section 80HHC. The reason is obvious. In the set of sections which start with above words, the Legislature intended that before an assessee becomes entitled to claim relief of deduction in respect of specified category of income like income by way of dividends, a precondition was required to be satisfied, viz., that such specified income should form part of the gross total income. This pre-condition is there in cases of sections 80P, 80HH, 80M, etc. This pre-condition is not there, however, in respect of section 80HHC(3) which primarily deals with ascertaining export profits. In the case of CIT v. Kotagiri Industrial Cooperative Tea Factory Ltd. : [1997]224ITR604(SC) , the Supreme Court was required to decide the question as to whether unabsorbed losses of earlier years were required to be set off before allowing deduction under section 80P. Reading the provisions of section 80P with section 80B(5), it was held that for the purposes of making deduction under section 80P, it was necessary to determine, in the first instance, the gross total income as per the provisions of the Act. That meant that for the purposes of section 80P the gross total income was required to be decided by setting off against the income the business losses of the earlier years under section 72. This judgment did not deal with section 80HHC. However, it indicates the scope of sections 80AB and 80B(5). If one reads section 80P(1), as it then stood, it lays down that in cases where a co-operative society is an assessee and the gross total income includes any income from carrying on banking business or from running of cottage industry, etc., then such income shall be deducted in accordance with and subject to the provisions of section 80P. The important words to be noted in section 80P and similar sections under Chapter VI-A are the words 'where the gross total income includes any income'. These words, however, do not find place in section 80HHC. These words find place in section 80AB and in the sections like sections 80P, 80HH and 80M as it stood at the relevant time, etc. Section 80AB clearly indicates a non obstante clause. It says that where deduction is required to be made under any section of Chapter VI-A in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then notwithstanding anything contained in that section, for the purposes of computing deduction under that section, the amount of income of that nature shall be computed in accordance with the provisions of the Act. Therefore, while computing deduction under 80P(2), the assessing officer was required to first determine the gross total income in accordance with the provisions of the Act by setting off against the income the business losses of the earlier years as required under section 72. This is primarily because the income under section 80P(2) stood included in the gross total income as a condition to claim deduction under section 80P but when we come to section 80HHC the Legislature has not provided for any such pre-condition. This was to encourage exports. Hence, section 80HHC marks a departure from other sections in Chapter VI-A. It does not use the expression 'where the gross total income includes any income'. Hence, section 80AB does not control section 80HHC. In the case of A. V Thomas & Co. Ltd. (supra), the Kerala High Court has also taken a similar view with which we agree respectfully. It has been held that a reading of section 80AB would show that computation of deduction was required to be made under other sections of Chapter VI-A on the basis of the amount of income but in the case of section 80HHC the computation of deduction or the qualification of the amount of deduction was based on export turnover and not on the basis of income. This was in order to encourage exports. The Legislature clearly intended to give the benefit of deduction even if there was no income on the basis of the export turnover. In the case of Gogineni Tobacco Ltd. (supra), the Division Bench of the Andhra Pradesh High Court has also laid down that in computing the total income of the assessee deductions were required to be allowed in accordance with and subject to the provisions of section 80HHC. The said section does not say that the deduction shall be allowed from the gross total income as in the case of section 80P or in the case of section 80M as it then stood. It was held that under the circumstances, section 72 had no application. With respect, we agree with the said judgment. There is one more way of looking at the above question. For the purposes of computing the deduction under section 80HHC(3) the above formula of
Business profits
X
Export turnover
Total turnover
is very important. A bare reading of the section along with clauses (ba) and (baa) indicates that profits of the business were required to be computed under the head 'profits and gains of business or profession'. Section 28 and section 29 clearly lay down different types of income chargeable to income-tax under the above head. Section 28 comes under the caption `profits and gains of business'. Section 29 categorically states that the income referred to in section 28 shall be computed in accordance with the provisions contained in section 30 to section 43D. Therefore, section 72 is excluded. The object being to encourage the exports. The object being to ascertain the export profits out of the business profits. Moreover, reading of section 80HHC with the Explanations shows that profits of the current year were required to be taken into account and, hence, section 72 did not apply. The position is, therefore, clear. Section 80HHC(3) refers to the above formula. It says that export profits shall be equal to
Business profits
X
Export turnover
Total turnover
in the case of section 80P, section 80M as it then stood, and other set of sections under Chapter VI-A, the business profits in the above formula is required to be worked out by computing the same as per the provisions of the Act. This would include section 72 also. However, when it comes to section 80HHC(3), a special definition of the words' profits of the business' as mentioned in clause (baa) of the Explanation is required to be kept in mind. This clause expressly refers to profits of the business under the head 'profits and gains of business or profession'. It refers to sections 28 and 29. Therefore, the Legislature has provided for an artificial formula only in section 80HHC(3) under which the profits of the business are required to be computed on the basis of sections 28 to 44D. It excludes section 72. This is because the Legislature wanted the profits of the current year to be taken into account. Hence, the Legislature intended section 72 to be kept out. The object appears to be to give maximum benefits to the exporter who earns foreign exchange for the country. Therefore, even though section 80AB contemplates a non obstante clause, the said section 80AB will be subject to section 80HHC to the extent of export profits being worked out from the business profits. This view is also supported by the language of section 80AB. In the case of section 80P, etc., the same formula would work. However, in those cases, the business profits are required to be computed on the basis of the provisions of the Act in their entirety including section 71 and section 72. However, when it comes to the artificial formula of computing the export profits for the purposes of deduction from the gross total income in section 80HHC(3), the business profits shall be computed under the head 'profits and gains of business or profession' which, in turn, refers to section 28 to section 44D and which will exclude section 71 and section 72. Therefore, section 80AB does not control section 80HHC(3). Therefore, section 80HHC is a complete Code by itself. Hence, there is no merit in this appeal. Before concluding this judgment, we may refer to the judgments cited on behalf of the department. In the case of Motilal Pesticides (I) P. Ltd. (supra), the question was regarding computation of special deduction under section 80P of the Act. We have already discussed the above judgment in a different context to show the difference in language between section 80AB and section 80P on one hand, and section 80HHC, on the other hand. We do not wish to once again discuss the scope of the said judgment. In the case of V. T. Joseph (supra), the Kerala High Court took the view that section 80AB controls section 80HHC. However, on reading the said judgment, it is clear that the Kerala High Court, with respect, did not notice the difference in the language of section 80HHC and the other sections of Chapter VI-A like section 80HH, 80P, etc. The Kerala High Court, with respect, did not notice that section 80HHC, unlike other sections of Chapter VI-A, does not refer to deduction of gross total income. For example, in the case of section 80HH, the section starts by reciting that 'where the gross total income includes any profits derived from an industrial undertaking' which expression is not there in section 80HHC which provides also its own independent formula to work out profits for the purposes of deduction under section 80HHC(3) read with clause (baa) of the Explanation. Further, as stated hereinabove, in the same volume, another Bench of Kerala High Court in the case of A. V Thomas & Co. Ltd., (supra) has taken the view, with respect, rightly, that section 80AB refers to computation based on income whereas section 80HHC refers to computation based on export turnover. Therefore, with respect, we do not agree with the judgment of the Kerala High Court in the case of V. T. Joseph (supra). We, however, agree with the ratio of the judgment of the same court in A. V. Thomas & Co. Ltd. (supra). Mr. Desai has placed reliance on the judgment of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra). In that matter, the Apex Court was required to construe the expression 'profits and gains of business' as computed in accordance with other provisions of the Act. The Apex Court laid down that in view of the above language of section 80E(1), while computing the profits for the purposes of special deduction, the assessee was required to take into account the balancing charge, the carried-forward depreciation, the carried-forward development rebate and also the brought-forward business losses of the earlier years. As stated hereinabove, there is no dispute on the above proposition. The only point is that when it comes to export profits, the Legislature has clearly indicated that in applying the artificial formula under section 80HHC(3), the business profits shall be computed with reference to section 28 to section 44D. In the circumstances, the judgment of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra), has no application to the facts of the present case. In the case of Distributors (Baroda) (P) Ltd. v. Union of India : [1985]155ITR120(SC) , the Supreme Court laid down that as far as section 80M is concerned, the deduction required to be allowed under that provision had to be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act and as forming part of the gross total income and not with reference to the full amount of dividend received by the assessee. This was in view of the specific language of section 80M which opened with the words, viz., 'where the gross total income of an assessee includes any income by way of dividends from a domestic company'. Therefore, a condition was prescribed which was required to be fulfilled to attract section 80M. The condition was that in the gross total income the assessee should include income by way of dividends from the domestic company. Gross total income has been defined under section 80B(5) to mean income computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A. Hence, the Supreme Court held that income by way of dividends from a domestic company included in the gross total income, would be income computed in accordance with the provisions of the Act, i.e., after deducting the interest on moneys borrowed for earning such income. The Supreme Court laid down in view of the above words of section 80M that what is included in the gross total income is a particular quantum of income belonging to the specified category. Therefore, the words 'income by way of dividends' referred to not only the category of income included in the gross total income but also to the quantum of income so included. Therefore, the Supreme Court laid down that the income by way of dividends was required to be computed in accordance with the provisions of the Act. However, as stated hereinabove, the opening words of section 80M, viz., 'where the gross total income of an assessee includes any income by way of dividends from a domestic company' do not find place in section 80HHC. Therefore, the condition for claiming deduction which is there in other sections like sections 80P, 80HH, 80M (as it stood) is not there in section 80HHC. Therefore, the judgment of the Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) has no application to the facts of this case.
7. Accordingly, the appeal is dismissed with no order as to costs.