2009 (5) TMI 7 - HC - Income Tax

Whether for calculating book profit u/s 115 JB under Explanation 1 sub clause (iv) the export profits to be excluded from the book profits would be the export profits allowed as a deduction u/s. 80 HHC after restricting the deduction u/s 80 HHC(1B) OR the export profits calculated as per s.s. 3 and 3A of section 80 HHC before applying the restriction - questions of law as farmed will have to be answered in the negative in favour of the revenue and against the assessee held taht the MAT company are entitled to the same deduction of export profits u/s 80HHC as any other company involved in export in terms of section 80 HHC (1B)

Summary

Issues Involved:
1. Whether the ITAT was justified in approving the Order of the CIT(A) in allowing the Respondent to exclude export profits for the purpose of section 115 JB at a figure other than that allowed under section 80 HHC (1B).
2. Calculation of book profit under section 115 JB of the Income Tax Act, 1961, specifically whether export profits to be excluded are those allowed as a deduction under section 80 HHC after applying the restriction in sub-section 1B or before applying it.

Comprehensive, Issue-wise Detailed Analysis:

Issue 1: Approval of CIT(A) Order by ITAT
The Assessee company was assessed under Section 115 JB for the assessment year 2001-2002 and claimed that the entire export profits as computed under Section 80 HHC should be deducted, not just the percentage deduction as provided under Section 80 HHC (1B). The Assessing Officer (A.O.) restricted the deduction to 80%. The CIT(A) held that the entire profits from exports are eligible for deduction in terms of Clause (4) of Explanation (1) to Section 115JB. The ITAT upheld the CIT(A)'s decision, leading to the present appeal by the Revenue.

Issue 2: Calculation of Book Profit under Section 115 JB
The Revenue argued that the export profits to be excluded from book profits should be those allowed as a deduction under Section 80 HHC after applying the restriction in sub-section 1B. This sub-section was introduced to phase out the deduction completely by the assessment year 2005-06. The Revenue contended that the profits eligible for deduction under Section 80 HHC, as used in Section 115JB, refer to profits allowed as deduction under Section 80 HHC, meaning the amount actually allowed as a deduction under normal provisions of the Act.

On the other hand, the Assessee argued that the entire amount of export profits should be excluded from MAT, emphasizing that the purpose of reducing book profits required by clause (iv) to Explanation to Section 115JB is to ensure that export profits are not subjected to MAT. The Assessee contended that the phrase "amount of profits eligible for deduction under section 80 HHC" refers to the type of profit eligible under section 80 HHC, not the quantum of deduction.

Court's Analysis:

Literal Interpretation and Legislative Intent:
The court emphasized that it is not the role of the courts to consider what the Legislature ought to have done but to ascertain the legislative intent by applying the rules of statutory interpretation. The court must look squarely at the words of the statute and interpret them, avoiding any presumptions or assumptions.

Relevant Provisions and Historical Context:
The court examined the relevant provisions of Section 80HHC and Section 115JB, noting that Section 80HHC(1B) was introduced to phase out deductions of export profits by 1-4-2005. Section 115JB was introduced to impose a Minimum Alternate Tax (MAT) on companies, ensuring they pay some minimum tax despite various deductions available under normal provisions.

Eligible Profits and Computation:
The court noted that the term "profits eligible for deduction under section 80 HHC" means those profits computed under sub-sections (3) or (3A) and quantified in terms of sub-section (1B). The computation of profits under sub-sections (3) or (3A) is for the purpose of working out the deduction of profits available under Section 80 HHC (1B).

Avoiding Absurdity:
The court held that a literal reading of Section 80 HHC read with Section 115JB(2) Explanation (1)(iv) does not lead to an absurdity or defeat the legislative intent. The court emphasized that the object of Section 115JB was to impose tax on zero tax companies, ensuring they pay tax on book profits calculated under Section 115JB(2).

Conclusion:
The court concluded that MAT companies are not entitled to a more advantageous position than other companies regarding the deduction of export profits. Both classes of companies are entitled to the same deduction of profits in terms of Section 80 HHC(1B). The court overruled the decisions in ITAT Vs. SIMCOM and DCIT Vs. Govind Rubber and held that the Assessee's interpretation would lead to an anomaly and is not permissible.

Final Judgment:
The appeal was allowed, and the questions of law were answered in the negative, in favor of the Revenue and against the Assessee. The court held that the profits eligible for deduction under Section 80 HHC for the purpose of Section 115JB should be computed after applying the restriction in sub-section 1B.