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TMI Blog2009 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... and 3A of section 80 HHC before applying the restriction contained in sub section 1B of section 80 HHC?" 2. A few facts may be set out : The Assessee company was assessed under Section 115 JB of the Income Tax Act for the assessment year 2001-2002. While computing the book profits, under Section 115 JB it claimed that the entire export profits as computed under Section 80 HHC should be deducted and not percentage deduction as provided under Section 80 HHC (1B). The Assessing Officer did not accept the same. The A.O. restricted the deduction under Section 80 HHC to 80%. The assessee aggrieved, preferred an appeal before the C.I.T. (Appeals). After considering the contentions C.I.T.(A) was pleased to hold that the entire profits from exports are eligible for deduction in terms of Clause (4) of Explanation (1) to Section 115JB. Revenue aggrieved preferred an appeal before the I.T.A.T. The learned tribunal after considering the various contentions as also the order of the Special Bench in Dy. Commissioner, Range III Vs. SIMCOM Ltd. (2007) 106 ITD 193 (Mum) (SB) was pleased to dismiss the appeal preferred by the Revenue by order dated 30.11.2007. It is this order which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be given to a workable interpretation bearing in mind that MAT was introduced to ensure that companies which take advantage of deductions available under normal provisions of the Act are required to pay some minimum tax. In the alternative it is submitted that even if the term "profits" eligible for deduction under section 80 HHC" is referable to the profits calculated before applying the limitation specified in sub section 1B of section 80 HHC, one has to bear in mind the expression "subject to the conditions specified in section 80 HHC". The dictionary meaning of the word "condition" is sought to be relied upon. It is therefore, submitted that sub section 1B is the restriction and limitation to the deduction under section 80 HHC and has to be considered while calculating export profits from the book profits for the purpose of section 115JB. That also becomes apparent from the examination of the provisions of section 115 JA. The entire provisions of 80 HHC and section 115 JB would have to be considered while construing the provisions. The Finance Minister's speech and the Memorandum explaining the clauses cannot by itself be used to interpret the literal meaning of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to which we shall advert latter. Thus it is submitted that it would be beyond any doubt that the word "eligible" has to be read to mean type or class or nature of profits i.e. a qualitative description of profits and can never take within its ambit a particular proportion or quantum thereof. 4(b). The quantum of profits in respect of which a deduction is allowed under section 80 HHC of the Act is separately quantified/provided for in section 80 HHC (1B) of the Act and the resultant figure on applying this sub section can only be a sub class or part of the type of profits eligible which can (if a 100% deduction is allowed) equal the quantum of the class but must as a matter of language be something different from the class of profit. This distinction between the class/type of profit as well as the quantum/extent of profit which have to be deducted is also clear from a perusal of section 80 HHC (1) which specifically allows ".... a deduction to the extent of profits referred to in sub section 1(B)". There can be no doubt therefore, that the extent is different from the profit. The said distinction between the class/type and the extent of deduction is also clear from the opening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiles Ltd. 248 ITR 372. It is submitted that the view taken by the Special Bench in DCIT Vs. Syncone Formulations 106 ITD 193 (Bom) as also DCIT Vs. Govind Rubber Ltd. 82 TTJ 615 should be accepted. 4(d). It is lastly submitted that at any rate if two views are possible of interpretation of clause (iv), then the view in favour of the tax payer ought to be adopted. 5. With the above background, let us now consider the provisions. What the Legislature ought to have done or what language or words or expression ought to have been used, is not for the courts to consider. The duty of the court, in the event, where literal interpretation would defeat the intent of the Legislature or lead to an absurdity or the like would be to ascertain the parliamentary intent, by applying the rules of statutory interpretation as followed in our jurisdiction. A word of caution, it is only in the event when the literal interpretation would lead to an absurdity or defeat the object or intent of the Legislation and not otherwise. The principle of all fiscal legislation is that if the person sought to be taxed comes within the letter of the law he must be taxed, however, great the hardship may appear to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............. (4B) For the purposes of computing the total income under sub-section (1) or sub-section (1A) any income not charged to tax under this Act shall be excluded. (4C) ................... (emphasis supplied). Sub section (1B) was introduced by the Finance Act, 2000 with effect from 3.4.2001. That section was applicable to all, engaged in the business of export. By virtue of insertion of sub section (1B) i.e. The sun set clause, the deductions of export profits was to be discontinued from the beginning of 1.4.2005. The deductions available from 1st April, 2001 was percentagewise as set out beginning with 80% for 2001 and ending with 30% for assessment year beginning on 1.4.2004. No deduction is available after 1-4-2005 and subsequent years. 7. Section 115JB was inserted by the Finance Act,2000 with effect from 1.4.2001. "115JB(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2007, is less than ten per cent of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troduced by the Finance Act,1996 with effect from 1.4.1997. The language of section 115JA(1) is also similar to language used in Section 115J. In so far as reduction of export profits under Section 80 HHC they were not available when the Section was first introduced. But by the Finance Act, 1997 it was introduced with effect from 1.4.1998 and which reads as under: "the amount of profits eligible for deduction under section 80 HHC,computed under clause (a), (b) or (c) of sub section (3) or sub section (3A), as the case may be, of that section, and subject to the condition specified in sub sections (4) and (4A) of that section." (emphasis supplied). 10. Section 115JB was inserted by Finance Act, 2000 w.e.f. 1.4.2001. It contained (iv) to the Explanation. We have reproduced the provisions in the earlier part of the judgment. 11. In so far as MAT companies are concerned, that reduction of export profit while computing book profits was not available when Section 115 J was introduced from 1-4-1988. The benefit was given subsequently from 1-4-1989. Similarly the reduction was not available in the case of section 115JA which was introduced w.e.f. 1-4-1997. The benefit was extended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to find escape from the tyranny of the literal interpretation. It is now a well settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even "do some violence" to it, so as to achieve the obvious intention of the Legislature and produce a rational construction. The court may also in such a case read into the statutory provision a condition which, though not expressed, is implicit as constituting the basic assumption underlying the statutory provision. For that purpose the courts may use aids for fixing out the mischief the enactment seeks to avoid as also the object of the legislation. In Gurudevdatta V.K.S.S.S. Maryadit & Ors. vs. State of Maharashtra & Ors. AIR 2001 S.C., the same view was explained as under:- " Further we wish to clarify that it is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning,unless such construction leads to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as relaxed in later decisions so as to permit reports of Commissioners, including Law Commissioners and white papers to be looked at for the purpose solely of ascertaining the mischief the statute is intended to cure but not for the purpose of discovering the meaning of the words used by Parliament to effect such cure. Parliamentary debates were, however, not looked at as an aid to construction. The statement of the Minister who moved a bill in the Parliament could be looked at to ascertain the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. 16. Can the statement of object and reasons be looked int. In Gurudevdatta VKSSS Maryadit and others Vs. State of Maharashtra and Others, AIR 2001 S.C. 1980 the Supreme Court observed : "The Statements of objects and reasons need to looked into though not by itself a necessary aid as an aid to construction only, if necessary. To assessee the intent of the Legislature in the event of there being any confusion, statement of objects and reasons may be looked into and no exception can be taken therefor- this is not an indispensable requirement but when faced with an imperative nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oted that the export profits which were not eligible for tax will be exempt from the MAT and will be eligible for full deduction under Section 80 HHC. That was when section 115JA was introduced and the benefit under Section 80HHC was not available to MAT companies. This was done as a large number of representations had been received. The Memorandum, explaining the provisions of the Finance Bill 1997 was that the bill proposed to exempt the export profits under Section 80 HHC from the purview of Minimum Alternate Tax. CBDT Circular No.763 dated 18.2.1998, sets out MAT was introduced w.e.f. 1st April, 1997 and the Finance Act, 1997 exempts the export profits which are eligible under section 80HHC or under section 80 HHG from the purview of minimum alternate tax. 19. Then we have the budget speech of Finance Minister dated 29.2.2000 while introducing section 115JB. Referring to Clause 49 in the notes of clauses it was provided as under : "The book profit shall mean the net profit as shown in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956, as reduced by certain adjustments, as specified. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 80 HHC was eligible for reduction for computing the book profits. Pursuant to section 1B of section 80 HHC The deduction available to the extent provided in Section (1B) and after 1-4-2005 the deduction of export profits is discontinued. The assessees argument is that only in case of companies not covered by section 115JB to then Section 1B of section 80 HHC would apply. In so far as MAT companies are concerned, the profits eligible for deduction are as computed under sub-section (3) or (3A) of Section 80HHC without applying sub-section (10). This argument is based on the expression "computed under sub-section (3) or sub-section (3A) as the case may be. 24. For that purpose, we will have to examine the true scope and effect of section 80HHC. Section 80 HHC, the relevant provisions to which we have earlier reproduced is sub-section (1), which provides, that in computing the total income of the assessee, a deduction is to be made to the extent of profits referred to in sub section (1B) derived by the assessee from the export of such goods. The section as amended has brought in the words "deduction to the extent of profits" referred to in sub-section (1B) by Finance Act,2000 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independent of section 80 HHC (1B). To our mind, the language is clear. The literal meaning does not in any way defeat the object of the section and/or lead to an absurdity. The object of Section 115JB is to allow even MAT companies to avail of the benefit of deduction. If we consider the assessee's arguments that MAT companies are entitled to full deduction of export profits it will lead to anomaly, whereby the companies which are paying tax on total income under the normal rules, for them the deduction of export profits will be lessor than what MAT companies are entitled to. Is this a possible view. When section 115J was originally introduced, MAT companies were not entitled to deduction of profits under section 80 HHC while working out the book profits. That came to be introduced by Direct Tax Laws Amendment Act, 1989 w.e.f. 1.4.1989. A year Later. Parliament, therefore, initially had even denied to MAT companies deduction under section 115J. When Section 115JA was introduced w.e.f. 1-4-1997, Section 80HHC benefits were once again not available for MAT Companies. The amendment by Finance Act 1997 to give the benefit was w.e.f. 1.4.98. Can it now be argued that MAT companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uage there is no absurdity or ambiguity being caused or any mischief sought to be remedied. The language used in section 115JB is deduction available under section 80 HHC. It is difficult to conceive of any rational reason as to why the legislature should have thought to give MAT companies additional benefits than the other companies who are paying tax on total income and not the tax based on book profit as calculated under section 115JB. Is it possible to conceive of any degree of fairness and/or justice that MAT companies, who for some periods were denied the benefit of section 80 HHC, because of the introduction of section 115(JB) Explanation 1 (iv) are entitled to have their entire export profits reduced. The object of section 15JB or for that matter section 115J or 115 JA was to impose tax on those companies which otherwise considering various exemptions or deductions available under the Act, though making huge profits and paying large dividends were not paying any tax. It is therefore, not possible to accept the construction as sought to be advanced on behalf of the assessee, that they should be treated on a different footing in computing export profits under Section 80HHC, f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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