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TMI Blog2001 (11) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... ia ? (c) Whether the provisions of section 80HHC(3)(b) would be applicable for apportionment of the export profits even in cases where the local business of the assessee is not in the same goods as are exported by it, having regard to the decision of the Hon'ble Gujarat High Court reported in 137 ITR 616?" 2. 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 assessment year 1986-87 derived income from export of readymade garments and it also carried on the manufacture and sale of PVC compounds. The turnover in respect of the former was ₹ 79.50 lakhs, the corresponding figure for the latter being ₹ 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." 3. As per the assessment order the assessee's original claim under section 80HHC was ₹ 27,680, but which was thereafter revised to ₹ 1,74,453 calculated as follows : - "Deduction under section 80HHC : In the event of CCB being trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground was raised before the Tribunal, reading as under : - "That the learned CIT (Appeals) ought to have allowed 50 per cent of the entire export profits of the year without any apportionment in view of clear facts on record that the only export activity for the assessee during previous year was export of ready-made garments and the local business was manufacture and sale of PVC compounds." 8. This additional ground was admitted by the Division Bench vide order sheet entry dated 1-6-1994 and during the course of the present reference the learned counsel for the assessee stated that the claim for deduction would work out to a sum of ₹ 4,59,655, whereas the revenue's case was that the same would come to ₹ 30,529 as per following calculations [reduced subsequently in writing] : - "Profits from export of readymade garments as per p. 6 of the paper book. 9,03,700 Pure export profits not liable to apportionment under s. 80HHC(3) as proviso to s. 80HHC(3) and Expln. (baa) added from asst. yr. 1992-93 in line with question (b). (a) CCS 1,24,635 (b) DDB 3,19,410 ₹ 4,44,045 4,44,045(A) Balance export profit eligible for exemption under s. 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation : For the purposes 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 which are exported out of India, but does 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)." 10. In the light of the aforesaid facts and the provisions of law as applicable for the assessment year under appeal, the learned counsel for the assessee advanced his arguments, at the outset, in respect of question (c) stating that the assessee carried on two businesses which had nothing in common, one being the business of export of ready-made garments in which there was no lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arate business 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. 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(Kar.) (vi) Kanhiram Ramgopal v. CIT (1988) 170 ITR 41(MP) and (vii) Kesoram Industries Cotton Mills Ltd. v. CIT (1992) 196 ITR 845(Cal.). 14. At this stage the learned counsel referred to the provisions of the Companies Act contending that in case of multiple businesses a company could not draw up a number of balance sheets as law provided preparation of only one balance sheet which would give a consolidated picture of each of its business and similarly a single profit and loss account had to be prepared. A reference was made to section 210 of the Companies Act which provided for laying before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover in the business and, therefore, was eligible for exemption on the total profits calculated under the head "profits and gains of business". According to the learned counsel, in the present case, there were two separate and distinct businesses un-connected with each other and where separate books of account had been maintained. It was the submission thereafter by the learned counsel that he was not seeking a decision from the present Special Bench for over-ruling the view expressed in International Research Park Laboratories Ltd.'s case (supra) since the issues in both the appeals were different. Going back to the earlier Special Bench decision, the learned counsel contended that there were a number of interveners in that case and a number of counsels argued, but none of them raised an argument as to what would be the legal position when there were separate businesses with separate books of account. According to the learned counsel it was not the case of the present assessee that in the same business, different undertakings should be dealt with separately and it was also not the case that where different products were being manufactured in the same business esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, 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. 22. The further submission of the learned counsel was to the effect that export incentives should not be subjected to the proportionate calculation method and in any case this issue was not before the earlier Special Bench and further the two amendments to the law (supra) were not retrospective in operation as had even been held by the Special Bench in the case of International Research Park Laboratories Ltd. (supra). 23. The further submission of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted. According to the learned counsel the decision of the Hon'ble Supreme Court in the case of Novopan India Ltd. v. Collector of Central Excise and Customs (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 judgment of the Hon'ble Supreme Court in Asstt. CIT v. Thanthi Trust (2001) 247 ITR 785CIT v. Vegetable Products Ltd. (1973) 88 ITR 192and CIT v. J.K. Hosiery Factory (1986) 159 ITR 85. 26. On behalf of the Department the learned Departmental Representative supported the orders passed by the tax authorities contending that the use of any particular word whether 'The' or 'A' would not make any difference in the interpretation of the provision and in so far as section 70 of the Income-tax Act was concerned, this referred to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (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 the learned counsel that none of the aforesaid had been argued by any of the counsels before the Special Bench in the case of International Research Park Laboratories Ltd. (supra). The learned counsel also wanted the present Special Bench to undertake the exercise of interpreting the relevant provisions of the Act as also to consider the intention behind the introduction of section 80HHC. As against the aforesaid the submission of the learned Departmental Representative as already set out earlier was that the issue was squarely covered by the earlier Special Bench decision. The aforesaid being the mail rival contentions, we would straightaway come to the Special Bench decision in the case of Internat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) of that sub-section 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 questionof 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" used in clause (b) of sub-section (3) negatived the meaning to be given to the word "exclusively" and further it meant that turnover anywhere, whether on exports or domestic, irrespective of commodities dealt in, must have to be aggregated. If in the process of aggregation export profits got diluted, it is the consequence of the legislative policy just as if the local business turns out to be more than export business, by the same process of turnover based apportionment, a slice of domestic profits would get exempted too. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 33. The 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 exported the goods or merchandise out of India and had also local turnover was to be determined by sub-section (3) and there was no basis for the proposition that the base for the deduction was the profits in exports computed as per the books of account of the assessee treating the export business as a separate business or undertaking. The plea, in other words, was that the profits of the business would, therefore, include the profits of the export business as also those of any other business carried on by the assessee. He heavily relied on the CBDT circulars explaining the provisions. 34. A learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : - "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." 36. Another learned counsel for one of the interveners supported the stand taken by the earlier counsel opposing that of the learned counsel, who was arguing on behalf of the appellant, i.e., International Research Park Laboratories Ltd. (supra). At pages 57 and 58 of the report of facts of the case of the second intervener were set out and these were that separate books of account were being maintained for the activities of exports and the business in India and the plea was that the activities of exports must be regarded as separate and distinct from the activities in India, more so, because for the export business the assessee had even prepared a separate balance sheet. As can be gathered from page 58 the assessee was manufacturing paint in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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, the learned Advocate and Shri R. Ganeshan, the learned Chartered Accountant, that whenever there is ambiguity in the language used by theLegislature, various modes of interpretations are available and when the language is plain, simple and unambiguous, literal construction otherwise known as Golden rule should be preferred to ascertain the legislative intention. Sometimes even contextual interpretation is preferable as ruled by the Supreme Court in several cases, the central idea being to find out the intention of the Parliament. Beneficial legislation which is intended to confer benefits with a view to gain an advantage for the Nation becomes a legislation in National interest. Such legislation should not narrowly be interpreted as to result in denial or curtailment of benefits, which are otherwise available on the plain reading of the section. In the Income-tax Appellate Tribunal two Benches have differently interpreted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover 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, the 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 Asstt. CIT v. Doshi Exports (1993) 45 ITD 417(Bom.). To put it short the contention of Dr. S. Narayanan is that a person carrying on exclusively export business without having any domestic sales, the entire profits of the business to be computed under the head "Profits and gains of the business" should relate exports and is entitled to total exemption but if he does not so exclusively deal in exports and if he has got local turnover, that local turnover must be of the same identity as that of exports and only then it could be said that he was not exclusively dealing in exports and therefore only in such cases both the export and domestic turnovers could be aggregated as provided for in clause (b) of sub-section (3) but if the domestic turnover is of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Special Bench]. 41. Coming now to the arguments on behalf of the Revenue in the case of International Research Park Laboratories Ltd. (supra), these are at pages 64 to 69 of the report and to summarise these, the learned senior counsel appearing on behalf of the Revenue contended : - (i) The meaning of section 80HHC was plain and unambiguous and there was no need to call for any rule of interpretation or external aid to interpret it (ii) The policy of the Government was to promote export and import and thereby to earn foreign exchange and incentive was provided to exempt a portion of the profits relatable to export turnover and if this principle was borne in mind and if sub-section (3) was read it would become apparent that the Legislature wanted to grant exemption on exports if that was the exclusive business, but if the business was so combined with the domestic turnover, then the profits attributable to the export turnover was to be arrived at by applying the formula which meant taking the total turnover of both exports and domestic business (iii) Sub-sections (1) and (3) of section 80HHC were machinery sections and which should be read as a whole, word by word, clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme 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, we could embark upon such exercise." Para 20 at page 70: - "Section 80HHC(3) is a beneficial section. It was intended to provide incentives to promote exports to earn foreign exchange for the country. The incentive provided is to exempt the profits relatable to exports. Since it is not possible to conceive of an exclusive exporter without having domestic business and it is often found impracticable to ascertain profits of export exclusively and since there is a possibility of mixing up of either overheads or costs of export with domestic or vice versa and this differentiation is likely to lead to litigation as to which part of expenses should form part of the exports and which part not and since common expenditure like fixed overheads, depreciation, interest, rent, etc., is difficult to apportion without giving rise to dispute the Legislature thought that the most convenient method freed from litigation to ascertain export profits is by the method of apportioning the total profits of the business on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover 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" and only such profits as are attributable to exports turnover by apportionment thereof are entitled to the exemption. Thus, when a person has exports as well as local business, the entire profits are to be computed in the manner laid down in that sub-section, namely, under the head "profits and gains of business or profession" and only a part of that amalgamated profits or the result of the computation has to be apportioned on the basis of the turnover. We see no words in sub-section (3) as to limit this apportionment of profit on the basis of turnover in exports and the apportionment has to be resorted to only when the same kind of goods exported are also dealt with locally. We find no support for this view in the language used by the Legislature. To our mind the Legislature has contemplated the ascertainment of total profits in the entire business and then apportion it on the basis of turnover. This is how the CBDT also understood the provision and explained it in its circulars for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sisted exclusively of export of goods outside India. Carrying on an exclusive business out of India without domestic turnover will disclose only the profits in such exclusive export business. That does not mean that the purpose of clause (a) is to find out whether the profits in export are easily identifiable even in a case where the business carried on does not consist exclusively of exports outside India of the goods or merchandise. If in addition to the export, there are dealings in India then clause (b) will automatically take over the position. With a view not to deny the benefit of exemption to persons having domestic turnover and with a view to avoid litigation, the Legislature has provided a formula to arrive at the profits in such situations where the business carried on by the assessee does not consist exclusively of the export of goods outside India. So the test for the purpose of sub-section (3) of section 80HHC is whether the assessee is carrying on business of exclusive export or exports and domestic business also. If it is the former clause (a) would apply and if it is latter clause (b) would apply. If clause (a) applies, the entire profit computed in the manner in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mer and in other case a proportionate income on the basis of apportionment of turnover. Therefore, it is a complete code by itself. Nowhere else in the IT Act one has to look to and no other provision in that Act has to be followed except applying those rules contained in the provisions of section 80HHC which are applicable to compute the income from profits and gains of business." Para 22 at pages 75 and 76: - "Shri R. Ganesan introduced section 80AB to buttress the proposition that business in each article must be taken as a separate undertaking. If that is so, exclusive export must be taken as a separate undertaking and non-exclusive export business must be taken as a different undertaking. This is not possible because the business is one. Section 80HHC uses the words "business carried on by the assessee" and not undertaking. An assessee may have the business of carrying more than one undertaking. All the undertakings put together constitute one single business coming under one single head, "profits and gains of business or profession". This is now a settled law that whatever may be the kind of business carried on by an assessee and wherever car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see under sub-section (4) or (4A) shall be in the form abovementioned, namely, 10CCAC. This Form No. 10CCAC provides in clause (2) as under : - 'We certify that the deduction to be claimed by the assessee under sub-section (1) of section 80HHC of the Income-tax Act, 1961, in respect of the assessment year............is Rs.................which has been determined on the basis of the sale proceeds received by the assessee in convertible foreign exchange. The said amount has been worked out on the basis of the details in Annexure A to this form.' This shows that the profits is to be ascertained on the basis of the sale proceeds received in convertible foreign exchange in the manner provided in Annexure "A" which we shall refer to little later and not necessarily with reference to the profits ascertained as per books even though separately maintained exclusively for export business." [Emphasis supplied by us]. Para 25 at pages 77 and 78 : - "It will be seen from the above that what is prescribed by the Legislature to arrive at the profits derived from export business in the case of combined business of export and domestic business is total turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by the Special Bench. The learned counsel before us laid great stress on this aspect of the matter as also on the question of considering exports as a separate business and not a part of the assessee's overall business. As already noted, this argument has been rejected by the earlier Special Bench. 46. During the course of the hearing the learned counsel for the appellant specifically referred to the separate order of Shri T.V. Rejagopala Rao, the then Vice-President of the Tribunal and later on President at pages 86 to 90 contending that there were separate observations which supported the stand taken in the present appeal, but we categorically observe that we do not find any such observations. We in fact find that he has wholly agreed with the views expressed by the then President of the Tribunal, who delivered the judgment on behalf of the Special Bench. The following are relevant: - Para 9 at page 89: - "So in a case where the assessee is an exporter as well as a person carrying on domestic business either in the same goods, merchandise or in different goods or only earns profits even by way of commission, he is entitled for deduction proportionately from out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Courts or a decision of the Hon'ble Apex Court have come, then nothing prevents the parties from citing these before a Division Bench as the said Division Bench would be at liberty to take an independent view on the basis of the judgment of the Hon'ble Supreme Court or a judgment of the Hon'ble High Court. In the present case in proposition (c) there is a reference to the judgment of the Hon'ble Gujarat High Court in the case of Ahmedabad Manufacturing Calico Printing Co. Ltd. v. CIT (1982) 137 ITR 616. This had been duly considered by the earlier Special Bench at page 81 of the report although with reference to the issue whether there should be profit from export of goods for claiming deduction and which has been raised in proposition (a) in the present appeal. We have gone through the entire judgment and we really do not understand as to how it helps the assessee in the present appeal vis-a-vis proposition (c), more so, when in the earlier part of this order, we have categorically held that the manner in which the relief under section 80HHC is to be worked out where the assessee has export business as also domestic business, the same being squarely covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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