The Hindu Business Line : FIEO submits memorandum on `negative profits' to PM's council

THE exporting community is keen that the controversial issue of `negative profits' be settled in their favour. A Federation of Indian Export Organisation (FIEO) delegation, led by its President, Mr O.P. Garg, met the Chairman of the Prime Minister's Economic Advisory Council, Dr C. Rangarajan, to submit a memorandum on the issue on Wednesday.

The issue of `negative profits' and the eligibility for tax exemption under Section 80HHC of the Income Tax Act had been referred to the Prime Minister's Economic Advisory Council on July 5.

The main issue, according to the exporting community, to be decided by the Advisory Council, is regarding what constitutes `negative profits', and whether the assessee is entitled to claim exemption under section 80HHC in respect of export incentives when the export business, excluding the export incentives, reflects a loss.

The income-tax authorities had reopened a number of cases and denied exporters Section 80HHC deduction benefits if there was no positive profit from the income derived from exports (after excluding the receipts on account of incentives).

The exporting community, which is irked over the income-tax department's interpretation, has decided to organise a "protest demonstration" here on Thursday. "If profit directly derived from exports is negative, then it is a negative profit," explains a senior FIEO official. For example, if an exporter procures raw materials at Rs 100 and exports his finished goods at Rs 97, then the exporter does not make a direct profit in the transaction.

The income-tax department contends that an exporter has not made a direct profit even if an export incentive of, say, Rs 15 (granted by the government to neutralise input duties) is given to the exporter. The income tax department, therefore, is keen to bring Rs 12 (97+15-100) under tax net. The exporters are arguing against such a stance.

The FIEO has in its memorandum highlighted that the tax department's stance overlooks the fundamental purpose of the government schemes, which is to reduce the high cost of manufacture of goods by offsetting/refunding the duties paid on raw materials etc.

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