9911796707
TMI Blog1998 (6) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the appellant under s. 80HHC in full i.e. Rs. 4,01,63,080 restricted to gross total income i.e. Rs. 2,30,16,767 instead of Rs. 1,28,92,669. 2. The learned CIT(A) has erred in law and on facts in holding that the duty benefit derived by the assessee on the duty free imports falls within the ambit of s. 28(iiib) under the head 'Cash Assistance'." A perusal of the grounds taken clearly indicates that the main, rather only dispute in these two appeals pertains to the issue of deduction permissible to the assessee under the provisions of s. 80HHC. The assessee is a private limited company engaged in the business of manufacture and sale of art-silk sarees mainly for exports. In order to understand the controversy in its proper perspective, we will be taking the financial data taken into consideration by the AO for determining the claim of deduction under s. 80HHC and the claim made by the assessee for the asst. yr. 1992-93. 2. The assessee filed its return for the asst. yr. 1992-93 on 31st Dec., 1992 showing nil income. While examining the books of account, the AO found that the assessee has disclosed a net profit of Rs. 1,34,16,243 as per the P&L a/c. The assessee has, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction claimed by it under s. 80HHC to the extent of Rs. 2,72,83,997 should not be restricted to Rs. 58,37,786 and after considering the written submissions of the assessee furnished on various dates as mentioned in para 20 of the assessment order including the opinion of tax experts namely, Shri D.A. Desai, formerly Chairman of Law Commission and Judge of Supreme Court of India, Shri Y.P. Trivedi, Sr. Advocate, Bombay, Shri Dinesh Vyas, Sr. Advocate, Delhi and Shri R.N. Vepari, C.A. Surat, he came to the conclusion that the assessee's contention cannot be accepted as the plain reading of the provisions of s. 80HHC clearly indicates that the deduction permissible to the assessee under s. 80HHC was only Rs. 58,37,785 and not Rs. 2,72,83,997 as claimed by the assessee. 3. The main reasons given by the AO in the two assessment orders in scaling down the claim of deduction under s. 80HHC is that while working out the eligible deduction as per the provisions of s. 80HHC(3)(a), the assessee gets a figure of loss at first stage of computation, but ignores the above loss and adopts the figure at Rs. nil. According to the AO, the figure of loss arrived at the first stage of computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, s. 80HHC is an incentive provision and it has to be interpreted liberally in a manner which furthers the object of enactment rather than frustrate it. Therefore, the stand of the AO that if there is no profit at the first stage of computation as per provisions of s. 80HHC(3)(a), the assessee is not entitled to any deduction under the proviso is not sustainable. 4.1. As regards ground No. (ii) of the appeal for the asst. yr. 1993-94, the CIT(A) has held that the benefit availed of by the assessee on duty-free imports satisfies all the three inbuilt conditions of s. 28 (iiib) namely, cash assistance by whatever name called, received or receivable by any person against exports and under any scheme of Government of India. Moreover, there are two ways of getting benefit in respect of customs duty. Firstly, an exporter who is holding an advance licence may export manufactured goods and import duty free inputs i.e. without payment of customs duty. Secondly, an exporter not having advance licence may export manufactured goods and import inputs and claim duty drawback. In both the situations, customs duty is not payable or paid is claimed back. The expression 'cash assistance' is ampl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication for early fixation that the issue in dispute is covered by the decision of the Tribunal in the cases of Hindustan Fashion Ltd., Surat, A.M. Moosa and Avon Cycle, the Revenue still would like to putforward its submission relying on the decision of the Hon'ble Kerala High Court in the case of CIT vs. V.T. Joseph, the decision of the Hon'ble Supreme Court in the case of CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. as well as the decision of the Hon'ble Indore Bench of the Tribunal in the case of Prestige Foods Ltd. vs. Dy. CIT (1997) 58 TTJ (Ind) 300. Accordingly, he requested that besides the arguments advanced by him, he may be allowed to file written submissions, which are duly filed on 26th May, 1998, and the following submissions were put forward by him: Ground No. (i): "(a) Sec. 80AB of the IT Act, states that the income against which deduction is being claimed by the assessee should be such income as has been computed as per the provisions of this Act, before the deduction under s. 80HHC is made. In other words, all losses, deductions and reliefs have to be given effect to against income earned before deduction under s. 80HHC sub-s. 3(a), (b) or (c) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., expressed as under: Having regard to the law as laid down by this Court in Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) and H.H. Sir Rama Verma vs. CIT (1994) 116 CTR (SC) 55 : (1994) 205 ITR 433 (SC) it must be held that before considering the matter of deduction under s. 80P(2), the ITO had rightly set off the carried forward losses of the earlier years in accordance with s. 72 of the Act and on finding that the said losses exceeded the income he rightly did not allow any deduction under s. 80P(2) and the AAC as well as the Tribunal and the High Court were in error in taking a contrary view." In view of the above categorical decision of the apex Court there should not remain any doubt that the deduction under s. 80HHC has to be allowed only if there is a profit from the business. Since the figure so arrived at is a negative figure, no deduction is admissible to the assessee in consonance with the decision (1997) 139 CTR (SC) 359 : (1997) 224 ITR 604 (SC)." Shri Dilip Shivpuri, the learned Departmental Representative further submitted that the learned CIT(A) has engaged himself into the needless hairsplitting by ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with respect does not give the correct interpretation of s. 80HHC. It was submitted that the decision of the Chandigarh Bench in the case of Avon Cycle has simply followed the decision of Cochin Bench of the Tribunal in the case of A.M. Moosa and the decision of Indore Bench of the Tribunal in the case of Prestige Foods Ltd. was not brought to the notice of the Members of the Chandigarh Bench of the Tribunal. It was further submitted that the learned CIT(A) as well as the Tribunal in the case of A.M. Moosa as well as Avon Cycle has wrongly held that the proviso to sub-s. 3(a), (b) & (c) of s. 80HHC is an independent section and is not interlinked with the sub-sections that precede it which on the face of it is incorrect, because the proviso cannot exist by itself, because it carves out an exception to the general rule and it cannot exist in a limbo. Accordingly, it was submitted that the words used in s. 80HHC are plain and unambiguous and that they should be given effect to whatever the result since the result is not absurd, not irrelevant and not against the intention of the legislature. It was submitted that the issues raised by the assessee and his learned counsel before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dabad Bench of the Tribunal in the case of Hindustan Fashion Ltd., Surat, because in those decisions the effect of ss. 80AB, 80A as well as the decisions of the Hon'ble Kerala High Court in the case of V.T. Joseph and the Hon'ble Supreme Court in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. have not been considered. The learned Departmental Representative has also placed reliance on the following case law: (i) Forbes, Forbes Campbell & Co. Ltd. vs. CIT (1993) 114 CTR (Bom) 289 : (1994) 206 ITR 495 (Bom); (ii) M.H. Daryani vs. CIT (1993) 202 ITR 731 (Bom); (iii) CIT vs. Lokmat News Papers (P) Ltd. (1995) 126 CTR (Bom) 395 : (1995) 216 ITR 199 (Bom); (iv) CIT vs. Boots Company (I) Ltd. (1995) 125 CTR (Bom) 238 : (1995) 214 ITR 175 (Bom); (v) CIT vs. T.V. Sundaram Iyengar & Sons (P) Ltd. 1976 CTR (SC) 25 : (1976) 101 ITR 764 (SC); (vi) CIT vs. Ajay Products Ltd. (1965) 55 ITR 741 (SC); (vii) CIT vs. Sodra Devi/Damayanti Sahni (1957) 32 ITR 615 (SC); (viii) CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd.; and (ix) Distributors (Baroda) (P) Ltd. vs. Union of India & Ors. (1985) 47 CTR (SC) 349 : (1985) 155 ITR 130 (SC). 7. Shri Sanjay Kapad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 615 (SC), (1997) 139 CTR (SC) 359 : (1997) 224 ITR 604 (SC) and (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) cited supra is misplaced as the decisions relied upon are distinguishable on facts and in fact, they do not relate to the interpretation of s. 80HHC at all. The learned representative of the assessee also brought to our notice the Oxford English Dictionary meaning for the words 'reduce' inter alia as under: (i) Reduce your divisor into the smallest fraction (ii) Reduce the compound quantity to its lowest denomination, and the whole integer to the same denomination (iii) The facilities that seemed reduced to nought. Accordingly, it was submitted that a perusal of the various definitions contained in the Oxford English Dictionary, one can deduce that one can reduce something to zero but from a positive figure one cannot reduce something to arrive at a negative figure. 7.1. Shri Sanjay Kapadia, the learned Representative of the assessee, submitted that s. 80HHC was introduced in the year 1983 when in the speech of the Hon'ble Finance Minister the purpose of the section was stated to be to promote exports by judicious use of fiscal instruments. Accordingly, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oming to the ground No. 2, it was submitted by Shri Sanjay Kapadia, the learned representative of the assessee that the assessee is an exporter of synthetic fabrics operating under the Duty Exemption Entitlement Certificate (DEEC) Scheme. The assessee imported duty-free goods against export obligation or for the replacement of those materials which had gone into the production of the resultant product already exported, keeping the payment of duty in abeyance. The assessee recovered the duty so saved by encashing the same from the open market. In case, the assessee could not fulfil export obligation, the duty kept in abeyance becomes payable. Hence, it was submitted that the duty benefit on imports is directly related to export, and such encashment of duty is nothing but one form of export incentive. It was submitted that the learned AO has referred to Circular No. 621 dt. 19th Dec., 1991, to deny the benefit to the assessee; because in the said Circular, only following export incentives were included: (i) Profit on sale of exim scrips, (ii) Duty drawback, (iii) International Price Reimbursement Scheme (IPRS). It was submitted that the three export incentives considered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rejoinder, the learned Departmental Representative submitted that when there are two views possible on the interpretation of a statute, one favourable to the assessee should be adopted is not of universal application. For that, reliance was placed on the decision of the Hon'ble Bombay High Court in the case of M.H. Daryani vs. CIT. It was submitted that when the words of a statute are plain, precise and unambiguous, the principle of beneficial interpretation in favour of the assessee has no application. Accordingly, the learned Departmental Representative submitted that since in the appeal before the Tribunal the interpretation was required to be made of s. 80HHC whose plain wordings clearly support the view of the AO, the reliance of the learned authorised representative of the assessee on the decision of the Hon'ble Supreme Court in Vegetable Products Co.'s case is misplaced. 11. We have considered the rival submissions and have gone through the order passed by the AO as well as the CIT(A) along with the written submissions filed by the learned Departmental Representative as well as the three paper-books comprising of the various judgments relied upon by the assessee, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal turnover of the business carried on by the assessee." Proviso to sub-s. (3) states: "Provided that the profits computed under cl. (a) or cl. (b) or cl. (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in cl. (iiia) (not being profits on sale of a licence acquired from any other person), and cls. (iiib) and (iiic), of s. 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee." Further, Explanation to the section at cl. (baa) reads as under: "(baa) 'Profits of the business' means the profits of the business as computed under the head 'Profits and gains' of business or profession as reduced by— (a) ninety per cent of any sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipts of a similar nature included in such profits." It will not be out of place also to reproduce cls. (iiia), (iiib) and (iiic) of s. 28— "(iiia) Profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. The income of the nature is the profit derived from the export of goods. It cannot be equalled with the profits from export. Thus, even when the assessee made losses in export of an item but the overall result is a positive income, the assessee is entitled to this deduction. The non obstante clause found in s. 80AB is only to restrict the deduction to the extent of the income of the nature included in the total income. 11.2. It is further to be seen that s. 80HHC is not a charging section, but an incentive provision and the computation under the above provision is not to ascertain the real income, but deduction available to the exporters. Sub-s. (3) of s. 80 HHC begins with the words "for the purpose of sub-s. (1)", Expln. (baa) distinguishes 'profits of the business' from the 'profits and gains of business', showing that they are separate concepts for the purpose of s. 80HHC and the proviso to s. 80HHC(3) further increases the profit by export incentives. Accordingly, it has to be held that the reference in Expln. (baa) to the word 'profits of business' will denote a surplus only and not a deficit and, therefore, when the computation is to be made under s. 80HHC, loss at an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interpretation of s. 80HHC as is evident from the view of Indore Bench of the Tribunal in the case of Prestige Foods Ltd. and the decisions of Cochin Bench, Chandigarh Bench and Ahmedabad Bench in the cases referred to supra, the interpretation favourable to the assessee is required to be adopted in view of the decision of the Hon'ble Supreme Court in the case of Vegetable Products Ltd. referred to supra. The observation of the Hon'ble Bombay High Court in the case of M.H. Daryani relied upon by the learned Departmental Representative can apply only to a case where the language is unambiguous and there is no scope of having two views and the view canvassed by the AO and the learned Departmental Representative is the only possible view is not tenable; because the three Benches of the Tribunal namely, Cochin Bench, Chandigarh Bench and Ahmedabad Bench have interpreted the provisions of s. 80HHC favouring the assessee, and the Indore Bench in the case of Prestige Foods Ltd. has also not differed from the basis decision of the Cochin Bench. Thus, taking in view the totality of the facts and circumstances of the case, we are of the considered opinion that since the profit from expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is also granted relief of not paying any tax under the IT Act as per the provisions of s. 80HHC. The deductions of profit computed under cls. (a), (b) and (c) of s. 80HHC are required to be further increased by 90 per cent of any sum (meaning any export incentives by whatever name called under any scheme) referred to in cls. (iiia), (iiib) and (iiic) of s. 28 in proportion of export turnover and total turnover. Clause (iiib) refers to cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India. Thus, cl. (iiib) does not mean only receipt of cash assistance direct from the Government The words by "whatever name" called expand the meaning of the term 'cash assistance'. The addition of these words are not meaningless or an idle formality since such words are not found added elsewhere in the Act. Thus, it has to be held that cl. (iiib) was inserted to ensure that all other reliefs given in any form to the exporters not specifically covered under cl. (iiia) and (iiic) should not be left out. In this particular case, the duty payable to the Government of India, but not paid under the scheme of the Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
