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2006 (1) TMI 176 - AT - Income TaxInterpretation Of Statutes - deduction u/s 80HHC and 80HHD - meaning of the word goods for the purpose of s. 80HHC - Can foreign exchange consider as goods for the purpose of s. 80HHC - business of tour operator as well as dealing in foreign currency - HELD THAT - It is also well settled rule of interpretation that in case of ambiguity if two interpretations are possible then the Court should accept the one which serves the purpose or object of the Act than the construction which defeats or frustrates such purpose or object. Sec. 80HHC is a code by itself and was enacted with the sole purpose to promote the export of goods produced in India and to augment the foreign exchange reserve in order to improve the Indian economy. The ultimate purpose was to increase the foreign exchange reserves so that the Government may discharge its foreign debts in foreign currency. If the contention of assessee that foreign exchange amounts to goods is accepted then in our opinion it would frustrate and defeat the purpose or object of s. 80HHC inasmuch as it would deplete the foreign exchange reserve by sending the same to outside countries. The object of s. 80HHC would be achieved only when the word goods is held to exclude money including foreign exchange. Thus we would prefer the interpretation which serves the purpose and object of the enactment. Even on this ground we hold that foreign exchange cannot be considered as goods for the purpose of s. 80HHC. We are of the view that the decision of the Calcutta Bench 2003 (4) TMI 231 - ITAT CALCUTTA-D cannot be considered as precedent so as to bind the other co-ordinate Bench. In view of the above discussion it is held that foreign exchange cannot be considered as goods for the purpose of s. 80HHC of the Act. Since this condition is not satisfied the assessee is not entitled to deduction under s. 80HHC. The orders of the learned CIT(A) for all the years are therefore upheld on this issue. Computation of deduction u/s 80HHD - We are unable to accept the contention of the learned counsel for the assessee. If we have a bare look at the provisions of s. 80HHD(3)(b) we find that the legislature has used the words receipts of the business unlike the turnover of business in s. 80HHC(3) . There is no dispute that assessee is dealing in the foreign currency and in the course of such business there may be profit or loss as the case may be. Such activity is akin to a trader and therefore the sale proceeds of currency amount to business receipts. In this connection reference may be made to the judgment of the Hon ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT 1972 (10) TMI 4 - SUPREME COURT wherein the sale proceeds of goods sold on auction were considered to be trading receipts even though assessee was acting as an auctioneer and was entitled to commission only. If the sale proceeds in the case of an auctioneer can be considered as a business receipt we failed to understand as to how in the present case the assessee can contend that sale proceeds of a currency would not amount to business receipts. In view of the same we uphold the orders of the learned CIT(A) on this issue. In the result appeals of assessee are partly allowed. Departmental appeals for AY 1989-90 and 1990-91 are partly allowed for statistical purpose while other appeals are dismissed. The cross-objections of assessee are dismissed as infructuous.
Issues Involved:
1. Eligibility for deduction under section 80HHC of the IT Act, 1961. 2. Computation of deduction under section 80HHD of the IT Act, 1961. 3. Disallowance of depreciation on office and residential premises. 4. Disallowance of leave salary encashment. 5. Disallowance of incentive payable to Taj Group of Hotels. 6. Disallowance of entertainment expenses and club subscriptions. 7. Addition of unclaimed balances and cheques suspense account. 8. Disallowance of ad hoc entertainment expenses. 9. Disallowance of bad debts. 10. Disallowance under Rule 6B. 11. Disallowance of interior maintenance expenses. 12. Disallowance of foreign travel expenses. 13. Disallowance of software upgradation expenses. 14. Disallowance of penalty and fines. 15. Levy of penalty under section 271(1)(c) of the IT Act. Issue-wise Detailed Analysis: 1. Eligibility for Deduction under Section 80HHC: The main issue was whether foreign exchange qualifies as "goods" for deduction under section 80HHC. The Tribunal held that foreign exchange does not constitute "goods" as per the Sale of Goods Act, 1930, which excludes money from the definition of goods. Consequently, the assessee was not entitled to the deduction under section 80HHC. 2. Computation of Deduction under Section 80HHD: The Tribunal upheld the AO's decision to consider the entire sale proceeds of foreign exchange as business receipts and not just the net profit. The assessee's contention to consider only the net profit was rejected. 3. Disallowance of Depreciation on Office and Residential Premises: The Tribunal allowed depreciation for the years 1990-91 to 1992-93, following the Supreme Court judgment in Mysore Minerals vs. CIT. However, for the year 1989-90, the disallowance was upheld as the premises were not used for business purposes. 4. Disallowance of Leave Salary Encashment: The Tribunal allowed the claim based on the Supreme Court judgment in Bharat Earth Movers vs. CIT, which allows deduction for certain liabilities even if discharged in the future. 5. Disallowance of Incentive Payable to Taj Group of Hotels: The issue was not pressed by the assessee and was dismissed. 6. Disallowance of Entertainment Expenses and Club Subscriptions: The Tribunal allowed club subscriptions based on the Bombay High Court judgment in Otis Elevator Co. (India) Ltd. vs. CIT. However, the disallowance of 50% of entertainment expenses was upheld. 7. Addition of Unclaimed Balances and Cheques Suspense Account: The Tribunal deleted the additions, following the Supreme Court judgment in Chief CIT vs. Kesaria Tea Co. Ltd., which held that unilateral write-off does not imply cessation of liability. 8. Disallowance of Ad Hoc Entertainment Expenses: The Tribunal deleted the ad hoc disallowance for the years 1995-96 and 1997-98, finding no basis for the addition. 9. Disallowance of Bad Debts: The Tribunal upheld the disallowance due to the lack of evidence proving the debts were irrecoverable. 10. Disallowance under Rule 6B: The Tribunal upheld the deletion of disallowance, following the Bombay High Court decision in CIT vs. Allana Sons (P) Ltd. 11. Disallowance of Interior Maintenance Expenses: The Tribunal upheld the deletion of disallowance, considering the expenses as revenue in nature. 12. Disallowance of Foreign Travel Expenses: The Tribunal restored the disallowance made by the AO, finding no business purpose served by the travel of executives' spouses. 13. Disallowance of Software Upgradation Expenses: The Tribunal upheld the deletion of disallowance, treating the expenses as revenue in nature. 14. Disallowance of Penalty and Fines: The Tribunal upheld the disallowance, agreeing with the Revenue's contention. 15. Levy of Penalty under Section 271(1)(c): The Tribunal upheld the deletion of penalty, finding no concealment or furnishing of inaccurate particulars by the assessee. Conclusion: The Tribunal's decision provided a detailed analysis of each issue, applying relevant legal principles and precedents. The assessee's appeals were partly allowed, while the Department's appeals were partly allowed for statistical purposes or dismissed. The cross-objections of the assessee were dismissed as infructuous.
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