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TMI Blog1979 (1) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained. It was accordingly urged on its behalf that under r. 2(3) of the Income-tax (Determination of Export Profits) Rules, 1962, which were applicable, the profits on export sales was to be taken as a proportionate fraction of the profits and gains of the whole business of which such exports formed a part. On the quantum of profits in respect of which a deduction had been claimed, it was urged by the company that, in consideration of the company having exported its products, the Government had issued import entitlements on the strength of import licences to the company. It was pointed out that, on the strength of these licences, the company had imported large quantities of palm oil and other products at a rate cheaper than the rates prevailing in the home market It was submitted that the savings so effected by it should be deemed to form a part of the profit derived by it from the export of goods. The contention, in other words, was that if the profit, both actual and notional, derived by the company was taken as part of the profit from the export of goods, the company would be found to have derived profit from such export of goods and it was thus qualified for the deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the assessee that since no books of account had been maintained as regards the export business of the assessee-company, the export profits would be required to be worked out as provided in r. 2(3) of the Income-tax (Determination of Export Profits) Rules, 1962. Necessary directions were given to the ITO to work out these details. In other words, by his order (annex. " D ") the AAC fully accepted all the several contentions of the assessee-company. The ITO carried the matter in further appeal to the Income ax Appellate Tribunal. The Tribunal was of the view that it was principally concerned with the question of proper construction of s. 2(5)(i) of the Finance (No. 2) Act, 1962. In the view of the Tribunal, the essential condition for claiming the benefit of this provision was that the assessee's " total income includes any profits and gains derived from the export of any goods or merchandise out of India ". In the view of the Tribunal the words derived from the export of any goods " refer to profits and gains directly connected with the export of goods and the savings effected by the assessee-company on the import of palm oil, which was utilized by it in its own operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the profits derived by it on specified export sales. The contention of the revenue was that the totality of all export sales should be considered. In its submission, export should be regarded or accepted as constituting one business and unless the assessee was able to establish that profit was derived from such export business, considered as a whole, the assessee would not be entitled to claim the benefit of s. 2(5)(i) of the Finance (No. 2) Act, 1962. The Tribunal rejected this submission made by the ITO on the basis of the language of the provision under consideration. The phraseology employed was " from the export of any goods " and not " from the business of export of goods ". In the view of the Tribunal, the language of the provision was capable of extending the benefit granted thereunder to individual export sales in case the other conditions set out were satisfied. There was no warrant, according to the Tribunal, nor any logical reason advanced as to why the legislature should have intended to confer the benefit provided the export sales collectively produce a profit. On behalf of the revenue reliance was placed before the Tribunal on the language of sub-r. (2) of r. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er than a company, whose total income includes any profits and gains derived from the export of any goods or merchandise out of India, shall be entitled to a deduction, from the amount of income-tax and super-tax with which he is chargeable for the assessment year commencing on the 1st day of April, 1962, of an amount equal to the income tax and super-tax calculated respectively at one-tenth of the average rate of income-tax and of the average rate of super-tax on the amount of such profits and gains included in the total income.. (ii) The Central Board of Revenue may make rules for computing the amount of such profits and gains." The Rules, which were framed by Notification No. S.O. 2738, dated the 1st September, 1962, and which were expressly in, exercise of the powers conferred by s. 2(5)(ii) of the main statutory provision and sub-rr. (2), (3) and (4) of r. 2 may be fully extracted and the same read as under : " 2. Computation of qualifying income.--(1)... (2) Where in the opinion of the income-tax Officer it is possible to ascertain the profits and gains on such exports, the amount of qualifying income shall be taken as the excess of the amount of the profits and gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. It was submitted that the word " derived " , to give to it its plain dictionary meaning would mean " acquired, got, obtained, gathered ". Our attention was drawn in this connection to the definitions given of the verb " derive " and adjective " derive " to be found in Webster's Third New International Dictionary (unabridged), Vol. I, at page 608. Similarly, in the Oxford English Dictionary (1961 reprint), " derived " has been explained as " drawn, obtained, descended or deducted from a source " (Vol. III, at page 230) and it was pointed out that this meaning of " derived " was obviously based on the 6th meaning of the verb " derive " to be found at page 229 of the dictionary which was " to draw, fetch, get, gain, obtain ". It was submitted that if there was any pecuniary benefit which the assessee had got or obtained from effecting the exports, then that pecuniary benefit, whether obtained directly or indirectly, must be regarded as derived from the export sales. It was submitted further that it makes no difference whether the consideration or benefit received by the assessee from the export sales was received in cash or in kind and it equally makes no difference whether it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the assessee for the year. Under another scheme the assessee had become entitled to import licence which it sold and made a profit of Rs. 4,83,856 from such sale. In the course of the assessment year 1966-67, the assessee claimed rebate on the value of the exported goods and on the two receipts referred to above based on the provisions of s. 2(5)(a) of the Finance Act, 1966. The provisions of this Act, which are set out at page 170 of the report, are in pari materia with the provisions which we are called upon to consider and construe in our reference. In the Madras case the assessee lost before the ITO and the AAC but succeeded before the Tribunal which held that the cash subsidy and sale proceeds of import entitlements were profits from export business on which the assessee was entitled to the rebate under the provisions of the Finance Act, 1966. The matter was then carried to the High Court and the High Court was of the view that the profits and gains derived from the export of any goods or merchandise were required to be ascertained in accordance with the provisions of the I.T. Act, 1961. In the view of the High Court if the profits and gains were so ascertained, the two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or gain cannot be said to have been ' derived ' from an activity merely by reason of the fact that the said activity may have helped to earn the said income or profit in an indirect or remote manner." The Kerala High Court referred to the decision of the Privy Council in CIT v. Kamakhya Narayan Singh [1948] 16 ITR 325, which has also been noted in Saraf Trading Corporation's case [1968] 69 ITR 62 (Ker). It also considered the decision of the Supreme Court in Mrs. Bacha F. Guzdar v. CIT [1995] 27 ITR 1. It also followed its earlier unreported decision in I.T. Ref. No. 99 of 1971 which was concluded in favour of the revenue by a judgment dated 9th May, 1973. In CIT v. Kamakhya Narayan Singh [1948] 16 ITR 325, the Privy Council was considering whether interest on arrears of rent payable in respect of land used for agricultural purposes was agricultural income within the definition of that phrase contained, in s. 2(1) of the Indian I.T. Act, 1922, and was, therefore, exempt from income-tax. In the opinion of the Privy Council this was neither rent, nor revenue derived from land. In connection with this branch of the argument it was observed : " Equally clearly the interest on ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Privy Council, has been noted and applied by the Supreme Court in Mrs. Bacha F. Guzdar's case [1955] 27 ITR 1, at p. 7. In a given situation and under the various schemes in force to promote exports it is possible to envisage several different types of benefits which may be given to an exporter : (1) cash subsidy or allowance by a Government or a semi-Government agency such as the export promotion council; (2) an import entitlement or import licence which is expressly made transferable or saleable which may result in realisation of a price for the same; (3) an import entitlement or import licence which is not transferable and, therefore, not saleable but which could be utilized by the assessee to import scarce items or commodities or to import items and raw materials at prices which are less than the ruling home market prices and, therefore, result in savings to the assessee, which are capable of being measured in terms of money. It is pertinent to point out that both the Kerala and the Madras High Courts were considering the benefits of types (1) and (2) and in neither case was the court required to extend the applicability of the principle to the third type as has arisen in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and followed by the Kerala High Court in Cochin Company v. CIT [1978] 114 ITR 822. In our view, the word " derived " to be found in s. 2(5)(i) of the Finance (No. 2) Act, 1962, will have to be given a meaning consistent with what was decided in these cases and the words " derived from exports " cannot be accepted as equivalent to " referable to exports ". The learned counsel for the assessee had submitted that the view which he canvassed for our acceptance was borne out by the rules framed by the CBR in exercise of the powers conferred by cl. (ii) of sub-s. (5) of s. 2 of the Finance (No. 2) Act, 1962. It was submitted that sub-rr. (3) and (4) of r. 2 were required to be framed only because the word " derived " was required to be given the enlarged meaning as contrasted with the narrower meaning which has appealed to us. It must be pointed out that the construction to be put on the statutory provision cannot either be enlarged or restricted by the rules framed which are for purposes of computation of the qualified income. We have to consider and understand de hors the rules what income falls within the statutory provision and it is only thereafter that the rules providing for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he portion of the statutory provision which made the allowance applicable to profits and gains derived from the export of any goods or merchandise (Underlining supplied) and in the view of the Tribunal this phraseology was so obvious that the submission on behalf of the revenue was required to be rejected. We are of an identical view. The statutory provision when clear cannot be given a meaning different from the obvious one merely because of considerations of intendment or policy or of possible reasons which might have motivated the legislature in enacting the provisions or similar considerations. If the assessee has derived profit from the export of any goods and if such profit has been carried to its total income, then in respect of such profits it would be entitled to claim the allowance given by the legislature although its total export business may not have yielded a profit and in fact may have resulted, considered in totality, in a loss. In our opinion, the words are so clear, so unambiguous that no further aid to construction or interpretation is called for. In that view of the matter, the submission made on behalf of the revenue on question No. 2 will be required to be rej ..... X X X X Extracts X X X X X X X X Extracts X X X X
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