2002 (3) TMI 217 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under section 80HHD for receipts in Indian rupees from agents of foreign tourists.
2. Deduction under section 80HHD for foreign exchange converted by the assessee as an authorized money changer.
3. Retrospective application of the Explanation to section 80HHD(2) and sub-section (2A) added by the Finance (No. 2) Act, 1991.

Issue-wise Detailed Analysis:

1. Deduction under section 80HHD for receipts in Indian rupees from agents of foreign tourists:

The assessee claimed a deduction under section 80HHD for Rs.4,03,09,863 received in Indian rupees from agents of foreign tourists. The CIT held that the deduction was erroneously allowed as the receipts were not in convertible foreign exchange. The CIT's view was based on the fact that until the assessment year 1991-92, section 80HHD did not provide for apportioning the benefit between travel agents, hotels, and tour operators. The assessee argued that the term "convertible foreign exchange" included amounts received in Indian currency from travel agents who had converted foreign exchange. They relied on section 5 of the Expenditure Tax Act, 1987, and Rule 4 of the Expenditure Tax Rules, 1987, which deemed payments in Indian currency obtained by converting foreign exchange as foreign exchange. However, the CIT rejected this argument, noting that the benefit of the Explanation added to sub-section (2) of section 80HHD by the Finance (No. 2) Act, 1991, was intended to apply from assessment year 1992-93 onwards.

2. Deduction under section 80HHD for foreign exchange converted by the assessee as an authorized money changer:

The assessee also claimed a deduction for Rs.5,27,22,837, which was received as foreign exchange converted to Indian currency as an authorized money changer. The CIT rejected this claim, stating that no services were rendered to earn this foreign exchange, and the activity of money changing was not part of the assessee's business but a statutory requirement for obtaining recognition as a five-star hotel. The CIT noted that the assessee did not include this amount in its profit and loss account, and under section 80AB, deductions under Chapter VI-A could only be claimed if the income was included in the gross total income. The CIT concluded that the assessee was not entitled to a deduction under section 80HHD for this amount.

3. Retrospective application of the Explanation to section 80HHD(2) and sub-section (2A) added by the Finance (No. 2) Act, 1991:

The assessee argued that the Explanation added to sub-section (2) of section 80HHD and sub-section (2A) were clarificatory and should be applied retrospectively. They relied on the Supreme Court decision in CIT v. Podar Cement (P.) Ltd., which held that declaratory statutes are usually retrospective. However, the CIT and the learned Judicial Member of the Tribunal held that the Explanation and sub-section (2A) were not retrospective but applied from assessment year 1992-93 onwards. They noted that the amendment was intended to secure the benefit of section 80HHD for hotels and was not meant to clarify any ambiguity in the existing law. The learned Senior Vice President disagreed, stating that the unamended section had not been correctly interpreted, resulting in unintended benefits to one party at the cost of another. He opined that the Explanation was in the nature of a parliamentary exposition of its intent already contained in the unamended section and should be applied retrospectively.

Conclusion:

The majority opinion held that the Explanation to section 80HHD(2) and sub-section (2A) added by the Finance (No. 2) Act, 1991, were prospective and not applicable to the assessment year 1989-90. Consequently, the CIT's order directing the withdrawal of the deduction under section 80HHD for the amounts received in Indian rupees from agents of foreign tourists and for foreign exchange converted by the assessee as an authorized money changer was upheld. The appeal was dismissed.