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TMI Blog2014 (3) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/2006 and allied matters in favour of the assessee and against the Revenue in the following manner : "[3.0] Having heard Shri Manish Bhatt, learned counsel appearing on behalf of the Revenue and Shri Soparkar, learned counsel appearing for assessee in respective appeals and the substantial question of law raised, referred to hereinabove, and the decisions of the Honble Supreme Court in the cases of Lakshmi Machine Works (Supra) and Shiva Tex Yarn Ltd. (Supra), we are of the opinion that the substantial question of law raised in the present tax appeals is now not res integra and the same is squarely covered against the Revenue by the decisions of the Honble Supreme Court in the cases of Lakshmi Machine Works (Supra) and Shiva Tex Yarn Ltd. (Supra). In paras 16 to 18 in the case of Lakshmi Machine Works (Supra), the Honble Supreme Court has observed and held as under: 16. The principal reason for enacting the above formula was to disallow a part of 80HHC concession when the entire deduction claimed could not be regarded as relatable to exports. Therefore, while interpreting the words "total turnover" in the above formula in Section 80HHC one has to give a schematic interpretatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over" did not include freight/insurance. He urged that since the legislature had excluded only insurance and freight, it was not open to the courts to exclude excise duty and sales tax from the concept of "total turnover" in the said formula. He contended that the word "turnover" referred to the aggregate amount for which the goods were sold and since sales tax and excise duty formed part of the value of the goods, the said two items were includible in the definition of the words "total turnover". In this connection, learned counsel placed reliance on the judgment of the Supreme Court in the case of M/s. Chowringhee Sales Bureau (supra). Reliance was also placed on "The Law and Practice of Income Tax" by Kanga and Palkhivala (eighth edition) at page 123. In support of the contention that a tax or duty is part of the dealer's trading/business receipts, even if the tax or duty is charged separately or credited to a separate account. Reliance was also placed on the judgment of the King's Bench Division in the case of Paprika, Ltd., and Another v. Board of Trade (1944)1 All E.R. 372, in which it has been held that wherever a sale attracts purchase tax, that tax affects th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word "income" includes profits and gains. The charge is not on gross receipts but on profits and gains. The charge is not on gross receipts but on profits and gains properly socalled. Gross receipts or sale proceeds, however, include profits. According to "The Law and Practice of Income Tax" by Kanga and Palkhivala, the word "profits" in Section 28 should be understood in normal and proper sense. However, subject to special requirements of the income tax, profits have got to be assessed provided they are real profits. Such profits have to be got to be ascertained on ordinary principles of commercial trading and accounting. However, the income tax has laid down certain rules to be applied in deciding how the tax should be assessed and even if the result is to tax as profits what cannot be construed as profits, still the requirements of the income tax must be complied with. Where a deduction is necessary in order to ascertain the profits and gains, such deductions should be allowed. Profits should be computed after deducting the expenses incurred for business though such expenses may not be admissible expressly under the Act, unless such expenses are expressly disallowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a report of the auditor certifying deduction based on export turnover was sufficient. This is because the very basis for computing Section 80HHC deduction was "business profits" as computed under Section 28, a portion of which had to be apportioned in terms of the above ratio of export turnover to total turnover. Section 80HHC(3) was a beneficial section. It was intended to provide incentives to promote exports. The incentive was to exempt profits relatable to exports. In the case of combined business of an assessee having export business and domestic business the legislature intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under Excess Profits Tax Act, it existed in the Business Profits Tax Act. Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of "turnover", excise duty and sales tax also cannot form part of the "turnover". Similarly, "interest" emanates from exports and yet "interest" does not involve an element of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nble Supreme Court in the case of Lakshmi Machine Works (Supra) to the facts of the cases on hand, the question raised is held against the Revenue and it is held that the learned Tribunal has not committed any error in holding that the excise duty is excise duty is to be excluded for the purpose of computation of deduction u/s. 80HHC. 3. This question therefore, deserves no further consideration and is answered in favour of the assessee and agaisnt the Revenue. 4. Second question pertains to allowance of deduction under section 80IB and 80HHC. This Court in Tax Appeal No.508/2007 and allied matters has decided the same as follows : "23. It can thus be seen that judicial opinion on the issue is split right down the middle. Delhi, Kerala and Punjab and Haryana High Courts have permitted full operation of section 80IA(9), whereas Bombay and Karnataka High Courts have held that the implication of subsection (9) of section 80IA on an assessee's claim of deduction under section 80HHC would be limited to not permitting such deduction in excess of the business profit. Under the circumstances, it is our duty to examine the statutory provisions applicable, and give an interpreta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction shall not exceed the profits and gains of eligible business of an undertaking or enterprise. If we accept the interpretation of the assessee that only effect of sub section (9) of section 80IA would be to limit the maximum permissible deduction under section 80HHC to the profits and gains of the eligible business, we would be completely ignoring the first part of the subsection. In other words, the earlier part of subsection would be rendered completely redundant, purposeless and otiose. It is well settled that the Legislature cannot be expected to have used words and expressions, which have no meaning or effect. Limiting the scope of application of subsection (9) of section 80IA only to restricting the claim of deduction under section 80HHC or for that matter under the provisions of subchapter C to Chapter VI would amount to giving no effect to the earlier portion of the subsection, which specifically provides for making a disallowance of deduction claimed by the assessee under various provisions contained in subchapter C profit or gain of an undertaking or enterprise which has already been claimed and allowed under section 80IA. In case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stante clause. Two things thus emerge in our understanding of the said provision. First in plain terms when read as a whole subsection (9) of section 80IA does not limit its effect only to disallowing deduction over and above the profit or gain of an enterprise or undertaking. Second aspect is that such provision does not have a nonobstante clause. What would be the effect of these two forces emerging from subsection (9) of section 80IA needs to be appreciated. In our opinion, the combined effect of these two factors would be that subsection (9) of section 80IA of the Act would operate as along as there is nothing contrary contained in any other provisions of subchapter C of Chapter VI. In the present case, our enquiry would be limited to finding out if there is anything contrary provided in section 80HHC of the Act. Thus, if there is any indication of legislative intent to allow the full deduction under section 80HHC of the Act irrespective of the provision contained in subsection (9) of section 80IA, such legislative intent must prevail. On the other hand, if we find that section 80HHC of the Act is not immune to outside influence, full play of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under different provisions contained in subchapter C of Chapter VI of the Act. This provision, therefore, necessarily impacts other deduction provisions including section 80HHC of the Act. Nothing contained in section 80HHC suggests that the deduction provided therein was immune from any outside influence or that the provision was impregnable by any other statute or enactment. Accepting any such theory would lead to incongruous results. Even the assessee concedes that subsection (9) of section 80IA would operate as to limiting the combined deductions to a maximum of the profits and gains from an eligible business of the undertaking or enterprise. If section 80HHC contained a protective shell making it immune from any outside influence, even this effect of subsection (9) of section 80IA could not be applied. This would completely render the provisions of sub section (9) of section 80IA redundant and meaningless. 28. It is true, as pointed out by the counsel for the assessee that in different provisions the Legislature has used different language for restricting or limiting the claim of deductions. The use of language in statutory provisions in such complex situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shy;section (9) of section 80IA disentitles an assessee from claiming deduction under any other provision of subchapter C to the extent deduction is already claimed and allowed for certain profit or gain of an undertaking or enterprise under section 80IA. Such provision, therefore, would have to be applied at the very stage to assessee's claim for deduction under section 80HHC of the Act is considered. While computing such deduction the effect of sub section (9) of section 80IA would have to be given. We do not think that in the process we are tinkering with the formula for computation of eligible profit for deduction under section 80HHC of the Act. We have noticed that different formulae have been provided for manufacturing exporter and trader and in case of an assessee whose exports comprise of both the sources. It is, therefore, at the stage of subsection (3) of section 80HHC effect of subsection (9) of section 80IA would apply. It is true that clause (baa) to explanation to section 80HHC defines a term`profits of the business'. While working out the business profits as specified therein, in terms of subsection (9) of section 80IA the profit or g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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