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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 ..... 39;, and in no case exceed the profits of gains of such eligible business of the undertaking or enterprise. It can thus be seen that sub section (9) is divided into two clear parts. First part pertains to non allowability of deduction under any other provision contained in Part C of Chapter VI to the extent of profits and gains of an enterprise or undertaking with respect to which deduction under section 80IA is claimed and allowed. The second part provides that in any case, such deduction 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 sub section. Sub section (9) of section 80IA was aimed at restricting the successive claims of deduction of the same profit or gain under different provisions contained in sub chapter C of Chapter VI of the Act. This provision, therefore, necessarily impacts other deduction provisions including section 80HHC of the Act. Nothing conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akshmi 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 interpretation to that expression. There is one more reason for giving schematic interpretation. The various amendments to Section 80HHC show that receipts by way of brokerage, commission, interest, rent etc. do not form part of business profits as they have no nexus with the activity of exports. If interest or rent was not regarded by the legislature as business profits, the question of treating the same as part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the price which the seller who is liable to pay the tax demands, but it does not cease to be the price which the buyer has to pay even if the price is expressed as cost x + purchase tax. Reliance was also placed on the judgment of the Court of Appeal in the case of Love v. Norman Wright (Builders), Ltd. # (1944) 1 All E.R. 618, in which it has been held that if a seller quotes a price of 'x' + purchase tax, the buyer has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Act [SEE: page 455 of The Law and Practice of Income Tax by Kanga and Palkhivala]. Therefore, schematic interpretation for making the formula in Section 80HHC workable cannot be ruled out. Similarly, purposeful interpretation of Section 80HHC which has undergone so many changes cannot be ruled out, particularly, when those legislative changes indicate that the legislature intended to exclude items like commission and interest from deduction on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 turnover. The object of the legislature in enacting Section 80HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, turnover was the requirement. Commission, rent, interest etc. did not involve any turnover. Therefore, 90% of such commission, interest etc. was excluded from the profits derived from the export. Therefore, even without the clarification such items did not form part of the formula in Section 80HHC(3) for the simple reason t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 sub section (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 interpretation, which, in our opinion, would best fit the language used by the Legislature and the scheme of the Act pertaining to granting deductions for various purposes under different provisions of Chapter VI. 24. We have noticed that Chapter VI of the Act pertains to deductions of certain incomes. Part A thereof contains provisions of general applicability. Under sub section (2) of section 80A, it is provided that the aggregate amount of deductions under Chapter VI shall not in any case exceed the gross total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be expected to have used words and expressions, which have no meaning or effect. Limiting the scope of application of sub section (9) of section 80IA only to restricting the claim of deduction under section 80HHC or for that matter under the provisions of sub chapter C to Chapter VI would amount to giving no effect to the earlier portion of the sub section, which specifically provides for making a disallowance of deduction claimed by the assessee under various provisions contained in sub chapter C profit or gain of an undertaking or enterprise which has already been claimed and allowed under section 80IA. In case of Aswini Kumar Khose v. Aravinda Bose reported in AIR 1952 SC 369 the Supreme Court observed that it is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application. In case of Rao Shiv Bahadur Singh v. State of Uttar Pradesh reported in AIR 1953 SC 369 the Court observed that it is incumbent on the Court to avoid a construction, if reasonably permissible on the language, which would render a part of statute devoid of any meaning or application. In our understanding, therefore, sub secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nothing contrary contained in any other provisions of sub chapter 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 sub section (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 provision of sub section (9) of section 80IA must be allowed, even if it means restricting the claim of an assessee for deduction under section 80HHC of the Act. In other words, merely because sub section (9) of section 80IA does not contain non obstante clause would not by itself mean that it can have no effect on the deduction under section 80HHC of the Act. As is well known, the Legislature uses the non obstante clause typically using expression `notwithstanding anything contained in any other provision, Act or law for the time being in force'. Ordinarily, such expression would be equivalent to saying that inspite of the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t immune from any outside influence, even this effect of sub section (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 situations must be peculiar to every situation the Legislature may seek to meet with. Merely because in some of the provisions certain disallowances are expressed in different language would not by itself mean that sub section (9) of section 80IA was aimed to have restricted and limited scope of application. 29. The contention that no such matching provision was made in section 80HHC of the Act would clearly indicate the Legislative intent also, in our opinion, is not a valid argument. Sub section (9) of section 80IA was enacted to have universal application to all deductions under sub chapter C of Chapter VI. It was neither possible nor expected of the Legislature to make individual matching provisions in large number of st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in case of an assessee whose exports comprise of both the sources. It is, therefore, at the stage of sub section (3) of section 80HHC effect of sub section (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 sub section (9) of section 80IA the profit or gain which had already been allowed deduction to the extent mentioned therein would have to be ignored. 32. This interpretation, which we have adopted, would not be disturbed by reference to section 80AB of the Act. The said section only provides that while computing a deduction under any other provisions contained in sub chapter C of Chapter VI in respect of any income specified in such section, then, notwithstanding anything contained in that section, for the purpose of computing deduction, the amount of income of that nature as computed in accordance with the provisions of the Act shall alone be deemed to be the amount of income of that nature, which is derived or received by the assess, and which is included in his gross total income. The non obstante expression used ..... X X X X Extracts X X X X X X X X Extracts X X X X
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