2006 (7) TMI 112 - HC - Income Tax

Amendment by finance act to section 80HHC w.e.f. 1.4.91 is prospective so special deduction u/s 80HHC was not applicable to export of granite for the assessment years 1987-88 and 1989-90.

Summary

Issues:
1. Interpretation of Section 80HHC of the Income Tax Act regarding deduction for export of dimensional granite blocks.
2. Whether granite should be considered as a mineral for the purpose of tax deduction.
3. Applicability of the 1991 amendment to Section 80HHC to the export of granite.

Analysis:
1. The main issue in this case revolves around the interpretation of Section 80HHC of the Income Tax Act concerning the deduction for the export of dimensional granite blocks. The appellant, a partnership firm engaged in the business of blasting, excavation, cutting, and polishing granite, contended that granite should not be classified as a mineral, thereby making them eligible for the deduction under Section 80HHC. The Commissioner of Income Tax (Appeals) initially ruled in favor of the appellant, but the Income Tax Appellate Tribunal sided with the Department, leading to the current appeals. The questions raised include the eligibility of profits from the export of dimensional granite blocks for deduction under Section 80HHC.

2. The court referred to previous decisions, notably Commissioner of Income-tax Vs. Pooshya Exports P. Ltd. and Gem Granites Vs. Commissioner of Income-tax, which established that the export of granite falls outside the scope of Section 80HHC. The court emphasized that the amendment introduced in 1991 specifically excluded the benefit of Section 80HHC for the export of minerals, including granite. It was concluded that the statutory provision clearly indicates that Section 80HHC does not apply to the export of granite, and the amendment is prospective from April 1, 1991.

3. The court further analyzed the 1991 amendment to Section 80HHC in light of the judgment in Gem Granites case, where it was clarified that processed minerals like cut and polished granite are considered minerals for tax purposes. The introduction of the phrase "other than" in the amendment indicated the exclusion of a specific class of processed minerals from the general category of minerals and ores. The court upheld that the amendment widened the scope of minerals and ores entitled to the benefit of Section 80HHC, making it clear that only processed minerals subjected to cutting and polishing would qualify for the deduction.

4. Based on the precedents and the interpretation of the relevant statutory provisions, the court dismissed the appeals, affirming that the profits derived from the export of dimensional granite blocks do not qualify for deduction under Section 80HHC of the Income Tax Act for the assessment years in question. The judgment reiterated that the amendment to Section 80HHC in 1991 excludes the export of granite from the benefit of the deduction, and such exclusion applies to the specific case under consideration.

By thoroughly examining the issues and relevant legal principles, the court provided a detailed analysis leading to the dismissal of the appeals and a ruling in favor of the Revenue based on the interpretation of Section 80HHC and the exclusion of granite from the deduction eligibility.