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TMI Blog2002 (11) TMI 745X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Gujarat High Court in Ahmedabad Manufacturing and Calico Printing Co. Ltd. v. CIT [1982] 137 ITR 616 ? Before we deal with each of the above we would like to give certain brief facts and these are that the assessee an incorporated entity during the previous year relevant to the assessment year 1986-87 derived income from export of ready-made garments and it also carried on the manufacture and sale of PVC compounds. The turnover in respect of the former was Rs. 79.50 lakhs, the corresponding figure for the latter being Rs. 1,116.46 lakhs. The undisputed facts between the parties are : (1) Separate books of account are maintained for both the businesses ; (2) There are no local sales of garments. As per the assessment order the assessee s original claim under section 80HHC was Rs. 27,680, but which was thereafter revised to Rs. 1,74,453 calculated as follows : Deduction under section 80HHC : In the event of CCB being treated as capital receipt not liable to incometax. Gross total income as per revised return of income 5,41,463 Less : Duty draw back being profit derived from export not apportionable 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. of CCS and DDB being pure export profits for this assessment year deduction allowable under section 80HHC(1) was 50 per cent. of the profits derived from exports. 2,22,022 Total relief claimed : 2,36,770 Subsequently, however, an additional ground was raised before the Tribunal, reading as under : That the learned Commissioner of Income-tax (Appeals) ought to have allowed 50 per cent. of the entire profits of the year without any apportion ment in view of clear facts on record that the only export activity for the asses see during previous year was export of ready-made garments and the local business was manufacture and sale of PVC compounds. This additional ground was admitted by the Division Bench vide order sheet entry dated June 1, 1994, and during the course of the present reference learned counsel for the assessee stated that the claim for deduction would work out to a sum of Rs. 4,59,655, whereas the Revenue s case was that the same would come to Rs. 30,529 as per following calculations [reduced subsequently in writing] : Rs. Profits from export of ready-made garments as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India shall be,- (a) in a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head Profits and gains of business of profession ; (b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business (as computed under the head Profits and gains of business or profession ) the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation.-For the purpose of this section,- (a) convertible foreign exchange means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder ; (b) export turnover means the sale proceeds receivable by the assessee in convertible foreign exchange of any goods or merchandise to which this section applies and whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to any bank. The bank referred to in clause (a) to the proviso to section 138 of the Act would mean the drawee-bank on which the cheque is drawn and not all banks where the cheque is presented for collection including the bank of the payee, in whose favour the cheque is issued. The further submission of learned counsel was to the effect that the concept of the same business and separate businesses was well-known under the Income-tax Act and numerous matters had travelled to the courts and adjudicated upon for considering the allowability of expenses in the case of multiple businesses. Our attention was invited to the following judgments : (i) CIT v. Prithvi Insurance Co. Ltd. [1967] 63 ITR 632 (SC) ; (ii) Produce Exchange Corporation Ltd. v. CIT [1970] 77 ITR 739 (SC) ; (iii) Prem Spinning and Weaving Mills Co. Ltd. v. CIT [1975] 98 ITR 20 (All) ; (iv) CIT v. Shah Theatres (P.) Ltd. [1988] 169 ITR 499 (Raj) ; (v) CIT v. Hindustan Machine Tools Ltd. (No. 1.) [1989] 175 ITR 212 (Karn) ; (vi) Kanhiram Ramgopal v. CIT [1988] 170 ITR 41 (MP) ; and (vii) Kesoram Industries and Cotton Mills Ltd. v. CIT [1992] 196 ITR 845 (Cal). At this stage learned counsel refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel, the assessee in that case was admittedly carrying on one business and not multiple businesses as in the case of the present assessee and in the said same business that assessee had export turnover and had also received export fees and in these circumstances the Special Bench held that sub-clause (a) would be applicable and not sub-clause (b) since the assessee had no local turnover in the business and, therefore, was eligible for exemption on the total profits calculated under the head Profits and gains of business . According to learned counsel, in the present case, there were two separate and distinct businesses unconnected with each other and where separate books of account had been maintained. It was the submission thereafter by learned counsel that he was not seeking a decision from the present Special Bench for overruling the view expressed in International Research Park Laboratories Ltd. v. CIT (Asst.) [1995] 212 ITR (AT) 1 (Delhi) since the issues in both the appeals were different. Going back to the earlier Special Bench decision, learned counsel contended that there were a number of interveners in that case and a number of counsels argued, but none of them raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the three incentives were to be reduced from the profits and gains of business and the second stage was to apply the proviso to subsection (3) by which 90 per cent. of the three incentives was added back but in the same proportion as export turnover bears to the total turnover of the business carried on by the assessee . The submission, in other words, was that the deduction under section 80HHC got drastically reduced since what was being taken out was the absolute sum received by the assessee and what was added back was a proportionate amount and on the assumption that question (c) was decided against the assessee then the proportion became very small and pure export profits got substantially reduced and which was not the intention of the Legislature. It was submitted that the aforesaid arguments were without prejudice to the submissions made in respect of question (c) and that in case the assessee succeeded in respect of question (c) then both the numerator and denominator would become the same and the aforesaid submissions would be only academic in nature. The further submission of learned counsel was to the effect that the export incentives should not be subjected to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the finding of the tax authorities was that the assessee had profits from export business also and the matter was in fact of academic interest in so far as the assessee was concerned. The last submission of learned counsel was that if there were two views possible one in favour of the Department and the other in favour of the assessee, then the view favouring the assessee should be adopted. According to learned counsel the decision of the Supreme Court in the case of Novopan India Ltd. [1994] 73 ELT 769 which was always relied upon by the Department was not applicable as that was a case of classification/interpretation under the Customs and Excise Act and not under the Income-tax Act. It was the submission that under the Income-tax Act, it was a well-settled proposition that if there is an ambiguity in language employed then the provision must be construed in a manner that benefits the assessee . Reliance was placed for the aforesaid submissions on the judgments of the Supreme Court in CIT (Asst.) v. Thanthi Trust [2001] 247 ITR 785 ; CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 and CIT v. J. K. Hosiery Factory [1986] 159 ITR 85. On behalf of the Department, the learned De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries and Cotton Mills Ltd. v. CIT [1992] 196 ITR 845 (Cal). We have considered the rival submissions and have also perused the orders passed by the tax authorities. The various decisions cited at the Bar have also been taken into account. Coming to question No. (c) which was the one argued at length by both the parties, we would like to mention that the main submissions of learned counsel for the assessee were : (i) Clause (a) of sub-section (3) of section 80HHC was applicable and not clause (b) ; (ii) The aforesaid view was being canvassed since the assessee was having export business in garments and local business in the manufacture and sale of PVC components and separate books of account were being maintained ; and (iii) The concept of different businesses completely independent of each other was required to be considered rather than one business having different aspects. It was the strong plea of learned counsel that none of the aforesaid had been argued by any of counsel before the Special Bench in the case of International Research Park Laboratories Ltd. v. CIT (Asst.) [1995] 212 ITR (A.T.) 1 (Delhi). Learned counsel also wanted the present Special Bench to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of exporting leather goods exclusively, the entire profits on such exports would be eligible for exemption, but if he has domestic silver business, the turnover of leather goods should be aggregated with the turnover of silverware even though they are two different commodities. This aggregation has the result of diluting the export profit. Therefore, the use of the expression exclusively in section 80HHC(3)(a) should be given its plain meaning so that it pertains only to the export turnover and the aggregation of turnover contemplated by clause (b) of that subsection must operate only when there is domestic turnover in the same leather goods. If this is the meaning of the word exclusively used in section 80HHC(3)(a), then the question of aggregating the turnover of leather goods with the turnover of silver will not arise and intended profit of 100 per cent. on export of leather goods will be available to the exporter without dilution. This is supposed to be the object of enactment of section 80HHC and its various amendments from time to time. The other section of the legal luminaries has been emphatic in pressing hard their view point that the expression total turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his group also placed heavy reliance on the Central Board of Direct Taxes circulars explaining the provisions of section 80HHC whereas in respect of the same circulars the plea of the other group of counsel was that in case these were not in consonance with the legislative intent, then these need not be followed. We now go to page 54 (see [1994] 50 ITD 37) of the Report and para. 5 is relevant wherein the arguments which have been reproduced are quite akin to the ones raised in the present appeal and these are as under (see [1995] 212 ITR (A.T.) 1, 13 (Delhi) [SB]) : One argument is that when sub-section (1) of section 80HHC provided for total exemption of the profits derived by the assessee from the export of goods out of India and when clause (a) of sub-section (3) provided that in the case of an assessee dealing exclusively in the export of goods, such exemption was total, could it be reduced or allowed to be diluted by the process of apportionment of such profits on the basis of the total profits with reference to the turnovers. Counsel for the appellant in the earlier Special Bench decision canvassed the view that quantum of deduction in the case of an assessee who had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India. According to him, the application of the provisions of sub-section (3)(b) in such a case would negate the very object behind the enactment of section 80HHC because this would reduce the quantum of profits. It was also the submission that it was not the legislative will that in order to earn full exemption on the export profits he should stop local business to avoid dilution or curtailment. Such interpretation, according to him, could not be brought to bear upon the section and such interpretation, therefore, was to be avoided. The said counsel summing up his arguments before the earlier Special Bench contended that the provisions of clause (b) would arise only where there was complete identity in the goods exported and those sold in India. The said learned counsel in fact urged before the earlier Special Bench that clause (b) of sub-section (3) be read in the following manner (see [1995] 212 ITR (A.T.) 1, 17 (Delhi)) : The same proportion as the export turnover of the qualified goods bears to the total turnover of the same qualified goods in the business carried on by the assessee. Another learned counsel for one of the interveners supported the stand taken by earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account for the export business and the domestic business and his submission is also to the effect that clause (a) is applicable and not clause (b) since the application of the latter clause results in the dilution of the relief and which, according to him, could not be the legislative intent. As already mentioned by us, the present appellant was an intervener before the earlier Special Bench and we propose to set out the arguments advanced by its learned counsel and for which purpose, we extract para. 10 of the order spanning pages 59 to 61 (see [1994] 50 ITD 37), as follows (see [1995] 212 ITR (A.T.) 1, 20 (Delhi) [SB]) : Dr. S. Narayanan, learned advocate intervening at this point for and on behalf of Pearl Polymers Ltd. which was also engaged in the export of readymade garments to various countries besides having the Indian business of manufacture and sale of plastic bottles and containers and trading in plastic, chemicals, submitted pursuing the same line of thought as that of his predecessors, Shri G. C. Sharma, learned advocate and Shri R. Ganesan, learned chartered accountant, that whenever there is ambiguity in the language used by the Legislature, various modes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lk Mfg. (Wvg.) Co. Ltd. v. CIT [1983] 143 ITR 590 where the High Court held that there should be an enquiry to find out the genealogical tree from which the profits are immediately derived as contrasted with attributable . He relied upon AIR 1970 SC 1880 and the decision of the Calcutta High Court in the case of CIT v. Sutna Stone and Lime Co. Ltd. [1982] 138 ITR 37 to explain the meaning of the word derived . He then submitted that if enquiry is made into the genealogical tree of the business, it would at once become clear that the profits of business contemplated in sub-section (3) of section 80HHC are the profits dealt in the goods of the same nature and there was no possibility even remotely of considering the export turnover in chemicals and non-chemicals to be aggregated with the export of readymade garments. Anything done contrary to this, according to him, would lead to distortion, which must be totally forsaken. He also commended the approach of Shri R. Ganesan, learned chartered accountant, based upon the theory of applying the provisions of section 80AB as decided by a Single Member Bench of the Income-tax Appellate Tribunal in Asst. CIT v. Doshi Exports [1993] 45 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an absurdity. The said learned counsel also advanced an argument in respect of separate business contending that even if an assessee was carrying on business in different articles the same constituted a comprehensive business as all the activities were to be treated as a single component and not numerous businesses. This was also one of the arguments advanced by learned counsel in the present appeal when he contended that the concept of separate businesses had not been raised before the earlier Special Bench and this was being done for the first time in the present appeal. The said learned counsel also vehemently supported the Central Board of Direct Taxes circulars explaining the provisions of section 80HHC [before the earlier Special Bench]. Coming now to the arguments on behalf of the Revenue in the case of International Research Park Laboratories Ltd. s case [1995] 212 ITR (AT) 1 (Delhi) [SB], these are at pages 64 to 69 (see [1994] 50 ITD 37) of the report and to summarise these, learned senior counsel appearing on behalf of the Revenue contended (see [1995] 212 ITR (AT) 1, 26, 27 (Delhi) [SB] : (i) The meaning of section 80HHC was so plain and unambiguous and there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel for the appellant has laid stress on three aspects, namely, (a) interpretation of the provision and legislative intent ; (b) applicability of clause (a) of sub-section (3) since separate books of account were being maintained for the export business ; and (c) the consideration of the export activities as a separate and distinct business and not a part of the other business of domestic trade carried on by the assessee. A reference is made to the views expressed by the Tribunal on the aforesaid three aspects as follows : Para. 16 at page 69 of the Report (see [1994] 50 ITD 37) (see [1995] 212 ITR (AT) 1, 31 (Delhi) [SB]) : To our mind there was no such ambiguity in the language of section 80HHC(3) as to call in aid any particular rule of interpretation nor did we find any omission to be supplied by us by taking advantage of the judicial liberty permitted in extreme cases by the Supreme Court where causus omissus if found or any rough edges require to be ironed out as Lord Denning has put it and quoted with approval by the Supreme Court, so that we could embark upon such exercise. Para. 20 at page 70 (see [1994] 50 ITD 37) (see [1995] 212 ITR (AT) 1, 32 (Delhi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable for the computation of income under the head Profits and gains of business or profession and then apportioning those profits on the basis of the ratio the turnover of export bears to the total turnover. The expression total turnover used in section 80HHC(3)(b) therefore unambiguously refers to the total turnover of the entire business and not to the total turnover of the export business. There is nothing in the language to suggest that it is limited to total export turnover. The business includes not only the turnover of exports but also the domestic turnover. The expression total turnover cannot, therefore, mean the turnover of one variety of goods, namely, exports, to the exclusion of the other. While clause (a) of sub-section (3) refers to a situation where an exporter has exclusive business of export and does not have any local business, clause (b) refers to the situation, where an assessee has both exports and local turnover. If an assessee has therefore local turnover and export turnover, there is no escape from the application of the formula provided in clause (b) of sub-section (3). Those profits are computed under the head Profits and gains of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Since it is possible for an assessee to carry on business exclusively in export, clause (a) of sub-section (3) provided that the profits of the business as a whole as computed under the head Profits and gains of business or profession will be deemed to be the profits derived from the export of goods or merchandise and should be allowed as a deduction. Clause (a) of sub-section (3) did not contemplate a situation where an assessee dealing in export is in a position to ascertain or identify the profits relatable to such exports. The condition is that the person must deal exclusively in the business of exporting goods outside India. Nowhere does it say that if such a person had dealings both in export and local but if export profits are easily identifiable then only clause (a) would apply. This is reading something into the section which it does not provide. The object of clause (a) of sub-section (3) is clearly not to identify the export profits. The object of clause (a) of sub-section (3) is to find out whether the business carried on by the assessee consisted exclusively of export of goods outside India. Carrying on an exclusive export business out of India without domestic tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saged by the Legislature and is thus the legislative policy and is deliberately adopted with a view to provide incentives for export and not to curtail it by denying it to persons having local turnover. This would amount to deprivation of domestic business and a restraint on trade, which will in its wake lead to further legal complications. Therefore, when encouragement is given both for export and local business, though it is very desirable to hold in clear terms that if export profits are otherwise clearly identifiable, the whole of it should be exempted, the Legislature thought that since this method of granting exemption is fraught with litigation, it was sought to be avoided by providing this omnibus method of apportionment of profits on the basis of turnover, which is a recognised method. Para. 22 at page 75 (see [1994] 50 ITD 37) (see [1995] 212 ITR (AT) 1, 39 (Delhi) [SB]) : Section 80HHC deals with a different nature of income as to whether the income is relatable to a business exclusively consisting of export or exports and other local business. Then two sets of formulae were given. One is for total exemption of the income in case it happens to be the former and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover of the entire business must be aggregated and then only apportioned. According to us, any other interpretation would be unintended interpretation and would lead to absurdities. Para. 24 at page 76 (see [1994] 50 ITD 37) (see [1995] 212 ITR (AT) 1, 40 (Delhi) [SB]) : For these reasons, we hold that if the assessee has a business which does not consist exclusively of export of goods or merchandise outside India, then it is clause (b) that would apply and according to that clause the turnover of the entire business including export must be aggregated and the net profits of the business must be ascertained in the same manner in which the profits under the head Profits and gains of business or profession are to be computed, and that profit must be apportioned in the proportion the export turnover bears to the total turnover and the resultant amount alone shall be deemed to be the profit derived from export turnover. Para. 25 at page 77 (see [1994] 50 ITD 37) (see [1995] 212 ITR (AT) 1, 41 (Delhi) [SB]) : Another important departure of section 80HHC compared to other sections is that profits and gains of export business are not required to be computed as per the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom which the domestic turnover was derived provided it is in respect of profits and gains of business. The legislative mandate is therefore to compute the profit of the entire business and not to segregate exports or compute the profits of export separately and if they are identifiable adopt them to the entire exclusion of the operation of the provisions of clause (b) of sub-section (3). We, therefore, find ourselves unable to agree that clause (b) of sub-section (3) applies only when goods of the same nature are dealt in both in exports and locally. It is quite clear from a reading of the aforesaid that the earlier Special Bench did not find any ambiguity in the language of section 80HHC so as to call in aid any rule of interpretation and it was categorical in stating that there was no omission to be supplied and there were no rough edges required to be ironed out. It was observed by the Special Bench that the manner in which the section had been framed and the manner in which it was required to be worked and applied was to relate it to the total profits of the business on the basis of turnover and by this litigation was sought to be avoided and which would come about in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt business and the profits and gains derived from his export business are ascertainable, then his export turn over as well as the total turnover would be the same figure and he is entitled to deduction under sub-section (3)(a). But in case the assessee besides being an exporter of goods or merchandise to countries outside India also has domestic business of either the same goods or goods which are quite unconnected with his export trade or even in a case where he does not have any turnover in his domestic trade but merely gets profits and he maintains common books of account both for his export business as well as for his business in India, then his case is to be dealt with under sub-section (3)(b) and is entitled to proportionate deduction derived which is to be worked out on the following basis, namely :- Profit of the business x Export turnover Total turnover. Learned counsel in the present appeal has argued at length on the concept of same business and separate business by relying on a number of decisions and all that we have to say is that this had also been raised before the earlier Special Bench and rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We, therefore, say nothing more as this issue is concluded by the earlier Special Bench decision. Dealing with the proposition (b), this would be clearly interlinked with what has been already held by us while dealing with proposition (c) since the total turnover has to be taken for purposes of allowing relief under section 80HHC and both the parties had raised some arguments before us about the change in law brought about by the Explanation (baa) added from the assessment year 1992-93. Both the parties agreed and stated that the earlier Special Bench had held that the said Explanation would be prospective and not retrospective in nature. The assessment year before us is 1986-87 and the aforesaid Explanation would not be applicable. Before we part with this matter, we would like to categorically observe that the numerous decisions cited at the bar by the parties have been duly considered, but these were many in number and in case inadvertently one or more of them does not find a mention in the order, it does not mean that the same has been overlooked, but it is categorically to be observed that it has been taken into account. Having answered the various propositions raised bef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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