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TMI Blog1996 (11) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... Kapoor of Delhi. This plant was insured with the New India Assurance Company Limited with whom insurance claim of Rs. 25,73,929 was made but has not been finalised so far. This plant was repaired by the assessee and the expenses of Rs. 16,47,766 have been charged in the profit and loss account during the year. During the assessment the Assessing Officer was not satisfied with the explanation of the assessee about the repair expenses and came to the conclusion after, examining the various aspects of the damages caused to the plant, that the plant was totally destroyed and it has been reconstructed during the year and treated the expenses as capital expenditure and declined to allow the claim of the assessee under section 30, 31 or 37 of the Income-tax Act. Dissatisfied, the assessee carried the matter before the CIT(A) but did not find favour from him. 22. The ld. counsel for the assessee submitted that though the seed handling plant was extensively damaged due to dust explosion, but it was repaired by the assessee to restore the same in original and working condition. The expenses incurred in repairing should be treated as revenue expenditure because no additional benefit or ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree Hari Industries. [1986] 161 ITR 249/27 Taxman 97 (Raj.) ; (v) CIT v. Mohd Ishaque, Mohd. Gulam [1994] 210 ITR 817 (MP) ; (vi) CIT v. Dasaprakash [1978] 114 ITR 210 (Mad.). 23. In oppugnation, the ld. DR submitted that in dust explosion the original structure was completely destroyed and has become totally useless and thereafter the assessee has redesigned a new plant and constructed new one after spending Rs. 52 lakhs and by using the debris of the old plant. So, the new plant has come up with different design and the expenses incurred thereon can only be called capital expenditure. The survey report from the New India Assurance Company was received by the CIT(A) which was claimed by the Assurance Co. to be kept as confidential because the claim of the assessee with the insurance company has not been settled. The ld. DR has drawn our attention to survey reports containing various photographs of the damages in the seed handling plant. From the survey report and the photographs shown in the survey reports, the complete destruction of the structure has been proved. The assessee has claimed the same amount from the insurance company, which has been claimed by it as revenue e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irable or it requires reconstruction after demolition of the damaged portion of the seed handling plant. It is abundantly clear from the photographs and other reports that the roof and some of the walls were collapsed in dust explosion. In our view the repair means to remove the damages without demolishing or disturbing the design of the structure. Once the structure is demolished and erected in its original shape, it will not amount to repair. It will be called reconstruction of the structure. At one point of time in a report the auditors of the assessee made a note in Schedule at seral No. 6 that a part of the seed handling plant of the Prestige Soya Division of the company was damaged during the year. Since the insurance claim has not been settled, the company has not made any provision. However, expenses to the tune of Rs. 16,47,766 incurred during the year on its reconstruction have been charged to the profit and loss account in the very first year the assessee treated it as reconstruction of the plant. This fact was not disputed by the assessee that during the course of reconstruction, the design and capacity of the plant was changed by the assessee. It is clear from the phot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther raised but this type of activity do not come within the four corners of the repair which will certainly amount to reconstruction of the structure. The expenses incurred in the reconstruction will be treated as capital expenditure. In the peculiar facts and circumstances of the case, there is overwhelming evidence on record which shows that the plant of the assessee was substantially damaged in dust explosion which cannot be repaired without demolishing major portion of it. Since it has been reconstructed with the changed design, the expenses incurred on it can only be treated as expenditure incurred in reconstruction of the plant. We have carefully examined the judgments quoted by the assessee as well as by the revenue and find that the ratio of all the judgments is that the expenses incurred in repair will be treated as revenue expenditure. Since we are of the view that the repair is not done in the seed handling plant, all the judgments referred to by the assessee will not render any assistance to him. In the light of the foregoing discussions, we are of the view that the CIT (A) is justified in rejecting the claim of the assessee. We also agree with the observations of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufactured goods but in case there is a loss on trading of goods, then the same has to be ignored and not to be considered with the profit from the other unit. He submitted that sub-section (1) of section 80HHC is a machinery section and it is sub-section (3) which gives out the formula of working of profit from each of the activities of the assessee. He emphasized the word " profit " and submitted that this section relates to profit of the assessee from any of the activities and in case the assessee suffers a loss from any activity, that loss has to be ignored. He submitted that both these sub-clauses (i) and (ii) of sub-clause (c) to section 80HHC(3) are independent and the profit is to be calculated separately from both the activities and thereafter it should be clubbed. If the assessee suffers a loss from any of the units, the loss should be ignored while ascertaining the profit out of the export business. The learned counsel for the assessee has drawn our attention to Chapter 8 of Tax Reference, 1994, Vol. 31, pages 411 to 416 which are placed at page Nos. 103 to 104 of the second compilation of the assessee. He argued that sub-clause (c) of the provisions of section 80HHC( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee irrespective of the nature of the profit. The profit may be a positive or negative from either of the activities, the net profit is to be computed for the purpose of allowability of deduction under section 80HHC(3). He emphasised the word ' and ' which is used as a conjecture between both the sub-clauses (i) and (ii) of sub-clause (c) of section 80HHC (3) and submitted that the main intention of the Legislature for inserting this section is to find out the net profit from both the activities of the assessee. For ascertaining the net profit both the profits though it may be positive or negative are to be clubbed, for the purpose of allowability of the deduction under section 80HHC(3). He also put an emphasis on the word ' profit ' used in sub-clause (c) of sub-section (3) and stated that the word ' profit ' means the net profit arising out of both the units of the assessee. After ascertaining the net profit, a deduction is to be given as per sub-section (1) of section 80HHC. 33. The ld. D.R. submitted that while interpreting the provisions of law, it has to be read as a whole. In order to construe the provisions of a statute, it would be just and proper to see what was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 960] 40 ITR 106 (SC). 34. We have heard the rival submissions of the parties and carefully examined the documents filed by them and the orders of the authorities below. The controversy in a narrow compass is as to how deduction under section 80HHC(3) is to be allowed in case the assessee is engaged in trading and manufacturing activities. The issue in dispute revolve around the proper interpretation of clause (c) of section 80HHC(3). Before dealing with the issue in detail we feel it proper to reproduce section 80HHC which is as under : " 80HHC(1). Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise : Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee." From a plain reading of this section it appears to us that this legislation was brought to give deduction in respect of profits derived from the export business. Its sub-section (1) says that where an assessee is engaged in the business of export out of India of any goods to which this section applies, he will be allowed a deduction of the profits derived by the assessee from the export of such business in computing his total income. Before allowing a deduction, profits of the assessee from the export business are to be ascertained first. In sub-section (3) a formula of calculating the profit from following types of export business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have also carefully examined the various judgments cited by both the parties in respect of interpretation of the relevant provisions. The ratio of all these cases are that the relevant provisions of law should be literally interpreted. If that defeats manifest object and purpose of the statute, a reasonable construction is to be followed in such cases. The Apex Court has recently held in the case of C W S. (India) Ltd v. CIT [1994] 208 ITR 649/73 Taxman 174 as under : " Literal construction may be the general rule in construing taxing enactments, but that does not mean that it should be adopted even if it leads to a discriminatory or incongruous result. When a literal interpretation leads to an absurd or unintended result, the language of the statute can be modified to accord with the intention of Parliament and to avoid absurdity. " In respect of interpretation of taxing statute, the Hon'ble Bombay High Court has observed in the case of M.H. Daryani as under : " The principle of beneficial interpretation or interpretation in favour of the assessee of a taxing statute has application only in a case where, on a proper interpretation, the Court is in doubt about the true s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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