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TMI Blog2004 (4) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... not susceptible to any other interpretation. Unless the case of the assessee falls under sub-s. (1) of s. 80HHC, the benefit of the proviso cannot be extended. The Hon'ble Supreme Court was concerned in IPCA Laboratories Ltd.[ 2004 (3) TMI 9 - SUPREME COURT] not only with the question referred to it but also with the interpretation of the word profit occurring in sub-ss. (1) and (3) of s. 80HHC. As already mentioned earlier, sub-s. (1) is the main provision on the basis of which the deduction is made available. It is not possible to extend the benefit of deduction de hors the provisions of sub-s. (1). Therefore, the interpretation placed by the Hon'ble Supreme Court on the word profit occurring in sub-s. (1) of s. 80HHC cannot be ignored. It is binding on us. Secondly, the Hon'ble Supreme Court has also referred to the provisions of s. 80AB which control the entire s. 80HHC including the proviso to sub-s. (3) of s. 80HHC. Thirdly, the reasoning given by the Hon'ble Special Bench of the Tribunal in Lalsons Enterprises [ 2004 (2) TMI 294 - ITAT DELHI-E] is, in our view, no longer valid in view of the judgment of the Hon'ble Supreme Court in IPCA Laboratories Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of s. 80HHC(3). 4. As the appellant had incurred loss from export of trading goods, the learned CIT(A) ought to have held that the profit from export of trading goods for the purpose of s. 80HHC(3)(b) is to be taken at Rs. Nil. The CIT(A) ought to have directed the Dy. CIT to allow deduction under the proviso. 2. From the aforesaid, it is clear that the appeal filed by the assessee raises two issues. The first issue deals with the allowability of Rs. 3,67,818 under s. 37(4) r/w s. 37(5) in respect of Ahmedabad bungalow expenses. The second issue relates to the allowability of claim of the assessee for deduction of Rs. 22,34,456 under s. 80HHC of the IT Act, 1961 ('ITA' in short). Ground No. 1: 3. As regards ground No. 1, it was fairly conceded by the learned Authorised Representative for the assessee ( AR in short) that the ground is covered against the assessee by the orders of the Tribunal in assessee's own case for earlier years as also by a Special Bench decision of the Tribunal reported in Eicher Tractors Ltd. vs. Dy. CIT (2002) 77 TTJ (Del)(SB) 681 : (2003) 84 ITD 49 (Del)(SB). Respectfully following the same, we decide ground No. 1 against the assessee and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any profit but instead has incurred a loss from exporting of goods: Total export turnover 16,55,93,559 Less: Direct cost 14,85,54,350 Indirect cost 1,96,31,392 16,81,85,742 Loss 25,92,183 Add : Export incentives received 25,03,760 Loss 88,423 Therefore, even on this count, the assessee is not entitled to claim deduction under s. 80HHC of the IT Act, 1961, and the same is rejected by me. 5. From the assessment order, as extracted above, it is clear that the assessee was denied deduction under s. 80HHC on three grounds: a. The assessee has failed to comply with the provisions of s. 80HHC(4) of the Act inasmuch as he has failed to furnish the report of the accountant in the prescribed form along with the return of income. b. The assessee has suffered loss from export of goods whereas the condition precedent for availing the deduction under s. 80HHC(1) was that the assessee must have derived profit from the export of specified goods and merchandise out of India. c. Even if the losses shown by the assessee from export of specified goods were adjusted against export incentives received by the assessee, the net result was loss and hence, the assessee, even on this count, was not entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilute the decision of the Special Bench in Lalsons with reference to the scope of the proviso. 11. Elaborating his arguments, the learned Authorised Representative took us through the question referred to the Special Bench for decision by the Hon'ble President of the Tribunal under s. 255(3) of the IT Act as also the various paragraphs in the said order to which references shall be made at appropriate places in this order. 12. The learned Authorised Representative further submitted that the Special Bench in Lalsons has categorically held that the intention behind enacting the proviso to sub-s. (3) of s. 80HHC was to compensate the exporter for the disadvantage that he suffered on account of international competition and, therefore, there was no logic in saying that if an exporter incurred a loss in the export business on account of such competition, he should also be denied the deduction with reference to export incentives or that it should be reduced by the amount of the loss. 13. His last submission was that the observations made by the Hon'ble Supreme Court in IPCA were in the nature of obiter dicta and, therefore, this Bench was not bound to be guided by them. His case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, as held by the Hon'ble Supreme Court, in IPCA, both the profits and losses would have to be considered in order to work out the positive profit. He submitted that the question of adjustment of losses against the profits was very much under the consideration of the Hon'ble Supreme Court which fact is evident from the question taken up by the Hon'ble Court for consideration as also from the reproduction of the provisions of sub-s. (1) and sub-s. (3) of s. 80HHC including the proviso to sub-s. (3) of s. 80HHC in the judgment in IPCA. He submitted that the law laid down by the Hon'ble Supreme Court in IPCA was clear in that it was the net profit after adjustment of loss that was liable to be considered for deduction under s. 80HHC(1) of the Act. According to the learned Departmental Representative, the decision of the Hon'ble Special Bench in Lalsons that loss suffered by the assessee from the export should be ignored for the purposes of the proviso to sub-s. (3) of s. 80HHC stands completely overruled by the decision of the Hon'ble Supreme Court in IPCA that both the profits and losses are now required to be considered in order to arrive at the positive figu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall, (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) In respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inasmuch as the Special Bench in the aforesaid case has held that the losses incurred by the assessee should be ignored and deduction under s. 80HHC should be allowed with reference to the export incentives alone. Perusal of the order of the Special Bench in Lalsons shows that the following question was considered by the Special Bench : (iii) Whether the proviso to s. 80HHC(3) can be applied in a case where the export profit computed as per cl. (a), (b) or (c) of sub-s. (3) or aggregate hereof, is a negative profit (loss) and if so whether the said negative profit (loss) has to be adjusted/set off against the amount of deduction allowable under the proviso to s. 80HHC(3) or the loss computed under all or any of the cls. (a), (b) or (c) of s. 80HHC(3) has to be ignored and deduction under s. 80HHC is required to be allowed on the amounts computed under proviso to s. 80HHC(3) of the IT Act? 20. In its order dealing with the aforesaid question, the Special Bench of the Tribunal has laid down the following propositions in Lalsons: (i) The proviso deals with the export incentives and envisages additional deduction for export incentives. The export incentives are first excluded from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it was not the case of the Revenue in Lalsons that in case of a loss in the export business under any of the three clauses of the sub-section, the proviso would not be attracted at all and that the assessee would not be eligible for any deduction in respect of the export incentive. In the present appeal before us, it is very much the case of the Revenue that in case of a loss in export business, the proviso would not be attracted at all and the assessee would not be eligible for any deduction in respect of the export incentives. Thus, the first issue which has been specifically raised and urged by the Revenue before us was neither before the Hon'ble Special Bench nor considered and adjudicated by it. The Special Bench has considered only issue No. 2 raised by the Revenue before us. It is, however, the contention of the Revenue before us that even the decision on the second issue in Lalsons is no longer valid in view of the recent judgment of the Hon'ble Supreme Court in IPCA which was delivered after the Special Bench had passed its order in Lalsons and was thus not before the Special Bench. 22. We have perused the judgment of the Hon'ble Supreme Court in IPCA in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 28, they are, in fact, altogether different species of income. The profits derived from export arise directly on account of the difference in the cost price and sale price of the goods exported whereas the export incentives arise as a result of the Governmental measure to enable the exporters to compete effectively in the international market. Export incentives follow the export and hence can at the most be treated as attributable to the export but not derived from the exports. Likewise, income by way of profits derived from the export accrues at the time when exports are made, but in case of export incentives the point of time at which they accrue is when the claims are made before the concerned authorities. In CIT vs. Punjab Bone Mills (1998) 146 CTR (P H) 63 : (1998) 232 ITR 795 (P H), the Hon'ble High Court has held that the right to receive cash incentive accrues to the assessee on filing the claim and that export by itself would not give rise to the income by way of cash incentive. In Metal Rolling Works (P) Ltd. vs. CIT (1982) 31 CTR (Bom) 116 : (1983) 142 ITR 170 (Bom), the Hon'ble jurisdictional High Court has held that the amounts received by the assessee on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreted the term profits used in sub-s. (1) as a positive profit. The deduction required to be made by the substantive provisions of sub-s. (1) of s. 80HHC is, therefore, dependent upon the positive profits derived by the assessee from the export and not upon the export turnover or upon the earnings of foreign exchange or upon the income of the assessee under s. 28. Once he establishes that he has a positive profit derived from the export within the meaning of sub-s. (1) and cls. (a) to (c) of sub-s. (3), he can move over to the proviso to sub-s. (3) for further increasing the said profits by the export incentives. Thus, the export incentives enter into calculation by way of further increasing the profits derived from the export and not by way of replacing or substituting the profits derived from the export within the meaning of sub-s. (1). The assessee is entitled to deduction under s. 80HHC only when he establishes that he has derived a positive profit from the export and not in a case where he suffers loss from the export or where he fails to establish that he has a positive profit derived from the export. If the intention of the legislature was to allow the deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis'. Michael D Rose John C Chommie, Federal Income Taxation 6.04, at 300. Under the head income , the same dictionary defines adjusted gross income to mean gross income minus allowable deductions specified in the tax code, Abbr. AGI. Under the head income , the same dictionary defines aggregate income to mean the combined income of the husband and wife who file a joint tax return . The term aggregate is defined by the same dictionary as meaning formed by combining into a single whole or total. The word increase , according to the Shorter Oxford Dictionary, means, inter alia, the action, process, or fact of making or becoming greater, growth, enlargement, expansion, the result of increasing, amount by which something is increased, and addition. The term increase , according to the said Law Dictionary, means 1. The extent of growth or enlargement. The term further prefixing the word increased qualifies the positive profits meaning thereby that it is only the positive profit derived by the assessee from export which can be further increased by the export incentives. In view of such clear and unambiguous words used in the second limb of the proviso, it is difficult to come to a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit (i.e., positive profit) derived from export which is to be further increased by the export incentives. Such an interpretation will make the first limb of the proviso and the provisions of sub-s. (1) and (3) of s. 80HHC otiose and redundant and will be inconsistent with the observations made in IPCA. 28. The contention of the learned Authorised Representative is that the purpose of the proviso is to extend the benefit of deduction with reference to the export incentives and hence, the applicability of the proviso deserves to be extended accordingly even to those assessees who do not derive a positive profit from the export. We are unable to agree with the submission of the learned Authorised Representative. In our view, the proviso cannot be read independently of sub-s. (3). It is not only a part of sub-s. (3) in the sense that it is a proviso to it but also its first limb derives its sustenance from cls. (a) to (c) of sub-s. (3). If there had been no proviso, the assessee would have been entitled to deduction on the positive profits derived from the export alone in terms of sub-s. (1) and cls. (a) to (c) of sub-s. (3) of s. 80HHC and thus would not have been able to claim any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricted, in terms of the provisions of sub-s. (1), to the assessees deriving profits from export. The proviso is neither capable of enlarging that field of application as mandated by the main provisions of sub-s. (1) nor has it altered the same either expressly or impliedly. Please see CIT vs. Madurai Mills 1973 CTR (SC) 223 : (1973) 89 ITR 45 (SC); CIT vs. Ajax Products Ltd. CIT vs. Indo Mercantile Bank (1959) 36 ITR 1 (SC). Similar position will exist even if the proviso is treated as independent provision. 30. In our view, the language employed in sub-s. (1) and cls. (a) to (c) of sub-s. (3) including the proviso thereto is consistently uniform, unambiguous and clear in that the applicability of the main provisions of sub-s. (1) of s. 80HHC by which the deduction is made available is restricted to the assessee's deriving profits from the export. We are, therefore, unable to ignore the specific and plain words or interpret the provisions in a manner that renders them otiose or redundant. Sub-s. (1), being the main provision by which the benefit of deduction is extended, will have primacy over the machinery and computational provisions particularly when the words used therein a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose assessees who have positive profits derived from the export. In the face of such clear expression of law, we are unable to hold that the losses suffered by the assessee should be ignored and the benefits should be given on the basis of export incentives alone without attaching any importance to the statutory language employed in sub-s. (1) and sub-s. (3) of s. 80HHC. Two, the Hon'ble Supreme Court in IPCA Laboratories has held that losses cannot be ignored and, therefore, the benefit of deduction under s. 80HHC has to be granted only to an assessee who has derived a positive profit from the export. We, therefore, reject the submission of the assessee in this behalf. 34. It was next submitted by the learned Authorised Representative that it would be unjust to deprive the assessee, a loss-making exporter, the benefit of deduction under s. 80HHC with reference to the export incentives as, according to him, loss-making exporter needed more encouragement in order to effectively compete in the international market. We are unable to agree with this submission either, for the reasons given below. (i) It is a well settled principle of law that a statutory enactment must ordinarily b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quity in a taxing provision. It is because of this that the submission of the assessee in the aforesaid case before the Supreme Court that strict interpretation of the proviso would cause hardship to small depositors as against richer ones, even if true, was held to be of no relevance. In Smt. Tarulata Shyam Ors. vs. CIT 1977 CTR (SC) 275 : (1977) 108 ITR 345 (SC), it has been held that the intention of the legislature is primarily to be gathered from the words used in the statute and once the assessee comes within the letter of law, he must be taxed, however great the hardship may appear to the judicial mind to be. 35. In view of the above, we are of the view that the language of sub-ss. (1) and (3) including the proviso thereto of s. 80HHC is clear in that the benefit of deduction has been statutorily extended to the assessees deriving a positive profit from the export and to none else. As a result we hold that the assessee, who has not derived a positive profit from the export, will not be entitled to claim deduction under s. 80HHC and that the proviso to sub-s. (3) of s. 80HHC cannot be pressed into service in cases where the assessee fails to show that he has derived a positiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of s. 80AB, whereas the Hon'ble Special Bench of the Tribunal has not considered the provisions of s. 80AB. In view of the judgment of the Hon'ble Supreme Court in IPCA Laboratories, we are of the view that losses can neither be ignored nor taken as nil. The loss incurred by the assessee must, in terms of the judgment of the Hon'ble Supreme Court in IPCA Laboratories, be adjusted against the profits as the deduction is required to be made available with reference to positive profits alone under sub-s. (1) after adjusting the losses. We are, therefore, unable to take a view contrary to the one declared so explicitly by the Hon'ble Supreme Court. 39. We shall now deal with the submissions of the learned Authorised Representative. His first submission was that the issue before the Hon'ble Supreme Court was whether the losses in export of trading goods should be adjusted against profit in export of goods manufactured by the assessee. According to him, the Supreme Court was not concerned with the interpretation of the proviso to sub-s. (3) of s. 80HHC. According to him, the effect of the proviso was considered by the Hon'ble Special Bench in Lalsons and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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