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TMI Blog2005 (6) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... It is in this context that it came to be held by the Supreme Court that the loss cannot be ignored and the profit and loss in the export of self-manufactured goods as well as in the export of trading goods needs to be considered. The decision of the Supreme Court does not hold that if there is a loss in sections 80HHC(3)(a), (b) and (c), then 90 per cent of the export incentives, as prescribed in the proviso, has to be ignored, which is the case of the Department. Rather, the Supreme Court has held that the loss cannot be ignored, but should be adjusted along with the profit. The decision of the Supreme Court was with regard to sub-clauses (i) and (ii) of section 80HHC(3)(c). It would apply on all fours. There is loss in section 80HHC(3)(a), (b) or (c) and a positive amount as per the proviso. When there is a loss in section 80HHC(3)(a), (b) and (c), it cannot be ignored. It has to be taken into account along with 90 per cent of the export incentives, as prescribed in the proviso. The intention of the Legislature is to give deduction for the profit earned by an assessee from the export of goods. So far as regards Rohan Dyes Intermediates Ltd. s case [ 2004 (8) TMI 93 - BOMBAY HIGH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the case is founded. For the present purposes, we may also accept the proposition that an unreasoned order of even the Hon ble Supreme Court may not be a binding precedent or a decision having force under Article 141 of the Constitution of India. But in our considered opinion, the decision of the Hon ble Supreme Court in the case of IPCA (supra), regarding the issue at hand, is ratio and not obiter. It fully covers the controversy. This was specifically held by the Hon ble Bombay High Court in Rohan Dyes Intermediates Ltd. s case (supra). Both IPCA s case (supra) and Rohan Dyes Intermediates Ltd. s case (supra) are to be treated as binding, for disposing of the two questions referred to this Bench. As regards the first contention, their Lordships have already considered and rejected the same with cogent reasons which need not be repeated. Besides, export incentives, despite the purpose therefore, have been made taxable under the provisions of Section 28 of the Act. Therefore, there is no question of treating them as exempt from tax on equitable grounds. Hence, both these issues are decided in favour of the Department and against the assessee, in respectful consonance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 1,91,93,598 as incentive of exports in its profit and loss account. There is a resultant loss if this incentive representing duty draw back of ₹ 1,89,01,248, and profit from sale of special import licence of ₹ 2,92,350, etc. is excluded from the income. Relying on the decision of the Madras Tribunal in the case of Krislar Diesel Engines (P.) Ltd. v. Asstt. CIT (2000) 74 ITD 414, the Assessing Officer held that the assessee is not entitled for deduction under section 80HHC, since there was a loss in export and since incentive cannot be considered as a profit derived from the export of the goods and merchandise. The Assessing Officer was of the view that as per section 80HHC, the assessee is entitled to deduction only to the extent of income, meaning thereby, that there is no eligibility for deduction under section 80HHC, if there is a negative figure of profit on account of exports. In holding that the determination of profits from exports of goods or merchandise under section 80HHC requires a direct nexus between the profits and the exports of goods and merchandise and that receipts in the form of duty draw back, cash incentives, etc., have no direct nexus with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Withdrawal Appli. 1995-96 11. CO 24/M/2000 Tata International Ltd. Withdrawal Appli. 1995-96 12. 6120/M/2002 Prama Exports Shri R. R. Vora 1999-2000 13. 6858/M/2004 Shri Anand J Shah Shri K.S. Chokshi 2001-02 14. MA 193/M/04 M/s Ela Engineers 2001-02 15. 1285/M/02 Sonal Garments Sh. Y.P. Trivedi 1998-99 16. 1512/M/2002 Sonal Garments Sh. Y.P. Trivedi 1998-99 17. 2291/M/2001 M/s Ganesh Prop. Mrs. P. Amersey Sh. V.H. Patil 1994-95 18. 3530/M/2000 M/s Ganesh Prop. Mrs. P. Amersey Sh. V.H. Patil 1995-96 19. 7882/M/2004 Uday Exports (P) Ltd. Sh. V.H. Patil 2001-02 20. 1513/M/2002 M/s Pan International Shri Y.P. Trivedi 1998-99 21. 5205/M/2002 M/s Pan International Shri Y.P. Trivedi 1998-99 22. 365/M/2002 M/s Jal Exports Shri Y.P. Trivedi 1998-99 23. 698/M/2003 M/s Jal Exports Shri Y.P. Trivedi 1999-2000 24. 7384/M/2004 M/s Jal Exports Shri Y.P. Trivedi 2001-02 25. 6666/M/2004 Sohil P. Shah Shri K.S. Chokshi 2001-02 26. 283/M/2002 M/s Ana Exports Shri Y.P. Trivedi 1998-99 27. 284/M/2002 M/s Ana Exports Shri Y.P. Trivedi 1999-2000 4.1 As evident from the above table, the assessee at serial Nos. 4 to 11, i.e., Tata International Ltd., has filed withdrawal applications. These applications ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf. (b) This section does not apply to the following goods or merchandise, namely: (i) mineral oil; and (ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule). Explanation 1. -The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Explanation 2. -For the removal of doubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch, office, warehouse or any other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch, office, warehouse or establishment, then, such transfer shall be deemed to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in sub-section (1) of section 50 of the Customs Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly attributable to the trading goods exported out of India including the purchase price of such goods; (e) indirect costs means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover; (f) trading goods means goods which are not manufactured or processed by the assessee. (3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be, (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the business; (b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the profits of the business the same proportion as the turnover in respect of sale to the respective Export House or Trading House bears to the total turnover of the business carried on by the assessee. (4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (ba) total turnover shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962): Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression total turnover shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28; (baa) profits of the business means the profits of the business as computed under the head profits and gains of business or profession as reduced by (1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India : (c) Export House Certificate or Trading House Certificate means a valid Export House Certificate or Trading House Certificate, as the case may be, issued by the Chief Controller of Imports and Exports, Government of India; (d) supporting manufacturer mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of IPCA (supra), a Special Bench in the case of Lalsons Enterprises v. Dy. CIT (2004) 89 ITD 25(Delhi) was constituted and the said Special Bench, as per decision dated 25-2-2004, held as under : (i) For the purpose of section 80HHC(3)(c), the loss arising in either export of manufactured goods or trading goods shall be set off or adjusted against the profit arisen in other business, which means that results of business of export of manufactured goods and business of export of trading goods shall be adjusted against each other. (ii) For the purpose of computing the deduction allowable under the proviso to section 80HHC(3) in respect of export incentives mentioned in section 28(iiia), (iiib) and (iiic), loss, if any, suffered by the assessee under any of clauses (a), (b) or (c) of section 80HHC(3) shall be ignored and deduction shall be allowed in respect of amount computed under the said proviso. (iii) For the purpose of applying Explanation (baa) below section 80HHC(4B) while reducing 90 per cent of the receipt by way of interest from profits of business, it is only 90 per cent of net interest remaining after allowing a set off of interest paid, which has a nexus with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used. For purposes of computation under section 80HHC(3), both profits as well as losses have to be taken into account. The word profit in section 80HHC(3) will mean profit after taking into consideration losses, if any. The term profit in section 80HHC both in sub-section (1) and sub-section (3) means a positive profit worked out after taking into account the losses, if any. Thus the word profit has the same meaning in section 80HHC(1) and (3). 13. The issue was again raised before the Mumbai Bench of the Tribunal in the case of Mangalya Trading Investment Ltd. v. Dy. CIT [IT Appeal No. 6354 (Mum.) of 1998] and the Bench, after considering the decision of the Hon ble Supreme Court, held that the decision of the Special Bench in the case of Lalsons Enterprises (supra) was not a good law. It was observed that deduction under section 80HHC(1) is available to an assessee who has derived a positive profit from the export of specified goods or merchandise. Deduction under the said section is not available to an assessee who has suffered a loss from the export and has not derived a positive profit therefrom. Such deduction is available on positive profit alone after adjusting the losses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained at pages 182 to 184 of the APB. CBDT Circular No. 571, dated 1-8-1990 has also been referred to. This, as per the ld. counsel, further clarifies that incentives are to be included in the profits of the business. This circular is at page 185 of the APB. Reference has also made to CBDT Circular No. 621 of 19-12-1991 explaining the provisions of Finance (No. 2) Act, 1991 with regard to section 80HHC (pages 190 to 193 of the APB). 20. With regard to duty drawback, it is submitted that this is derived from exports. Attention in this regard has been invited to pages 461 to 464 and the duty drawback scheme and rates contained at pages 464 to 483 of the APB. 21. It is contended that the decision of the Hon ble Supreme Court confirming the Hon ble Bombay High Court s decision in IPCA s case (supra) is also not applicable. The issue in that case was as to whether the loss in respect of export of trading goods was to be ignored while determining the assessee s entitlement to deduction under section 80HHC(3)(c) of the Act. There, the assessee had export loss from trading goods amounting to ₹ 6.86 crores. The export profit from manufacturing goods, after considering the incentive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w from it. A decision on a question that has not been argued cannot be treated as a precedent. Judgments must be read as a whole and observations in judgments should be considered in the context in which they are made and in the light of the questions that were before the Court. Observations in judgments should be read in the context in which they are stated. Judgments should not be construed as statutes. To lift a sentence from a judgment, as if it is an independent provision in a statute, and to emphasize it as declaring the law, will result in unanticipated and unexpected consequences. 25. In IPCA s case (supra), even after incentives, there was a loss. In the assessee s case, there is a positive figure after considering the incentives. In IPCA s case (supra), the assessee had given the disclaimer certificate in favour of supporting manufacturers in spite of incurring losses in trading exports. In the assessee s case, no such disclaimer certificate has been given. As the facts are different, the decision in the case of IPCA (supra) cannot be held to be a binding precedent on the assessee s case. 26. Further, the Hon ble Bombay High Court s decision in the case of Rohan Dyes Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, the learned CIT(A), Departmental Representative, assisted by Shri K.L. Maheshwari, the learned Departmental Representative have argued that the issue at hand is squarely covered by the decision of the Hon ble Supreme Court in the case of IPCA (supra). 30. It has further been contended that the Hon ble Bombay High Court, in the case of Rohan Dyes Intermediates (supra) held that the meaning of the word profit in the proviso appended to section 80HHC(3)(c) is no different than that in section 80HHC(1) and (3). It carries the same meaning, i.e., positive profit worked out after taking into consideration the losses, if any. The proviso is not an independent provision. The expression further increased is no pointer that the proviso is enacted as a separate section. The words profit derived from such exports together with the word and clearly indicate that the profits have to be calculated by counting both the exports. The word profits appearing in the proviso appended to sub-section (3)(c) of section 80HHC has to be given that meaning and clearly indicated that the profits have to be calculated by counting both the exports. 31. It has been pointed out that the issue raised in the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales which are brought into India in convertible foreign exchange. In the eventuality of loss in export also, the assessee would not be denied benefit of deduction. The decision of the Special Bench of the Tribunal in Lalsons Enterprises case (supra) was delivered on 25-2-2004. After 15 days, i.e., on 11-3-2004, the decision of the Hon ble Supreme Court was given in the case of IPCA (supra). 35. The learned Departmental Representatives have argued that in the light of the decision of the Hon ble Apex Court in IPCA s case (supra), it is now settled that section 80HHC would be governed by section 80AB and the decision of the Hon ble Bombay High Court to the contrary, in the case of CIT v. Shirke Construction Equipments Ltd. (2000) 246 ITR 429was disapproved. This view is in accordance with their Lordships earlier judgments in the cases of H.H. Sir Rama Varma v. CIT (1994) 205 ITR 433(SC), and Motilal Pesticides (I) (P.) Ltd. v. CIT (2000) 243 ITR 26(SC). 36. It has been pointed out that in view of these decisions, section 80AB will have an overriding effect over all other sections in Chapter VI-A of the Act, under the heading C , which contains section 80HHC also. It is also stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods plus profits of exports of trading goods. The profit is to be calculated in the manner laid down in sub-section (3)(c)(i) and (ii). The opening words profit derived from such exports together with the word and clearly indicate that the profits have to be calculated by counting both the exports. It is clear from a reading of sub-section (1) of section 80HHC(3) that a deduction can be permitted only if there is a positive profit in the exports of both self-manufactured goods as well as trading goods. If there is a loss in either of the two, then that loss has to be taken into account for the purposes of computing profits. The meaning of the word profit will depend on the context in which it is used. In section 80HHC(1), it is admittedly used to indicate positive profit, because the deduction will only be of a positive profit. Section 80HHC(3) is the sub-section which provides how profits are to be worked out in computing the total income. For the purposes of such computation, both profits and losses have to be taken into account. Thus, the word profit in section 80HHC(3) will mean profits after taking into account losses, if any. More importantly, the term profit in section 80HH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit (loss) and, therefore, the deduction under section 80HHC was not available to the assessee. 41. Before the High Court, it was submitted that the loss suffered by the assessee from the export of trading goods while computing the deduction under sub-section (3) of section 80HHC was required to be taken as nil; that the proviso to sub-section (3)(c) of section 80HHC is an independent provision unconnected with sub-section (3) and in view thereof, on the profits earned by the assessee on the export of merchandise manufactured by the assessee, the deduction under section 80HHC was admissible. The Division Bench judgment of the Bombay High Court in IPCA Laboratories Ltd. v. Dy. CIT (No. 1) (2001) 251 ITR 401and the judgment of the Supreme Court in IPCA Laboratory Ltd. v. Dy. CIT (2004) 266 ITR 521, conforming the Division Bench judgment of the Bombay High Court, were sought to be distinguished inter se. The decision of the Hon ble Delhi High Court in Modi Cement Ltd. v. Union of India (1992) 193 ITR 91and the decision of the Hon ble Allahabad High Court in Indo-Gulf Fertilizers Chemicals Corpn. Ltd. v. Union of India (1992) 195 ITR 485and the CBDT circular pursuant to the amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The known rule of construction of a statutory provision is that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and no other. Moreover, the language of the main provision, namely, sub-section (3) of section 80HHC, is very clear and has been held to be so by the Supreme Court. The word profit understood in the main provision has to be understood the same way in the proviso appended thereto. The expression further increased is no pointer that the proviso is enacted as a separate section. The proviso appended to clause (c) of sub-section (3) of section 80HHC reads that the profit computed, inter alia, under clause (c) of sub-section (3) 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 profit computed under clause (c) of sub-section (3) means positive profit worked out after taking into consideration the losses, if any, and therefore, the word profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f self-manufactured goods as well as in the export of trading goods needs to be considered. The decision of the Supreme Court does not hold that if there is a loss in sections 80HHC(3)(a), (b) and (c), then 90 per cent of the export incentives, as prescribed in the proviso, has to be ignored, which is the case of the Department. Rather, the Supreme Court has held that the loss cannot be ignored, but should be adjusted along with the profit. The decision of the Supreme Court was with regard to sub-clauses (i) and (ii) of section 80HHC(3)(c). It would apply on all fours. There is loss in section 80HHC(3)(a), (b) or (c) and a positive amount as per the proviso. When there is a loss in section 80HHC(3)(a), (b) and (c), it cannot be ignored. It has to be taken into account along with 90 per cent of the export incentives, as prescribed in the proviso. The intention of the Legislature is to give deduction for the profit earned by an assessee from the export of goods. So far as regards Rohan Dyes Intermediates Ltd. s case (supra), while holding that the loss in section 80HHC(3)(c) cannot be ignored or taken at nil, the Supreme Court decision in IPCA s case (supra) was relied on. It was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where applicable, be allowed. The practice of treating precedents as absolutely binding is necessary to secure the certainty of the law, predictability of decisions being more important than approximation to an ideal. Authoritative decisions must be followed, whether they are approved of or not, they being legal sources of law. Here, it becomes necessary to examine as to what part of a decision it is that is actually binding on lower courts. 50. The final and decisive portion of a judgment consists of two parts, the decision and the reason therefor : the decision in concrete or the res judicata, and the principii generalis or the general principles, on which that concrete decision of the case is founded. 51. Res judicata or the thing decided (i.e., the concrete decision of the case) is final and binding upon the parties. No court will allow to raise the matter or the issue decided once again. Res judicata pro veritate accipitur : A thing adjudicated is received as true. The only way of getting that concrete decision reversed or modified is by way of revision, review, rectification or appeal provided for under the relevant statute. 52. The ratio decidendum of a decision is the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functions, like statutory Tribunals. It has been judicially so noticed in : 1. Municipal Committee v. Hazara Singh AIR 1975 SC 1087; 2. Vishva Dutt Vashisth v. Maharashtra Watch Gramophone Co. Firm at Bombay AIR 1967 Bom. 434; and 3. Anant Baburao Sawant v. State AIR 1967 Bom. 109. 55. After having considered the submissions of the assessee and the interveners in the light of the above, we agree that obiter dicta of a High Court decision may not be binding on subordinate courts and judicial and quasi-judicial bodies. However, obiter dicta of the Hon ble Supreme Court are binding. For the present purposes, we may also accept the proposition that an unreasoned order of even the Hon ble Supreme Court may not be a binding precedent or a decision having force under Article 141 of the Constitution of India. But in our considered opinion, the decision of the Hon ble Supreme Court in the case of IPCA (supra), regarding the issue at hand, is ratio and not obiter. It fully covers the controversy. This was specifically held by the Hon ble Bombay High Court in Rohan Dyes Intermediates Ltd. s case (supra). 56. Both IPCA s case (supra) and Rohan Dyes Intermediates Ltd. s case (supra) are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying that incentives were allowed so that Indian exporters may compete in the International market, as accepted in Lalsons Enterprises case (supra), and secondly, by contending that if there is a profit of one rupee, the assessee would be entitled to deduction of 90 per cent of the incentives as per the proviso, as against the assessee who suffers a loss of one rupee and would lose the entire of incentive deductions. Thus, the difference of a meagre amount of two rupees would change the entire scenario. Such interpretation, apart from being inequitable, would lead to absurd results. 63. As regards the first contention, their Lordships have already considered and rejected the same with cogent reasons which need not be repeated. Besides, export incentives, despite the purpose therefore, have been made taxable under the provisions of Section 28 of the Act. Therefore, there is no question of treating them as exempt from tax on equitable grounds. 64. Apropos the second contention, we have to consider the language of a statutory provision as it is. Whether the result of such interpretation is equitable or not is beyond the domain of the Court. It is for the policy-makers or legislature t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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