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2008 (11) TMI 434 - AT - Income TaxDeduction u/s 80HHC - gains earned by cancellation of forward foreign exchange contracts - deduction under section 80HHC in entirety or or ninety per cent - principles of Obiter dictum and ratio decidendi - Denial of deduction u/s 10A. Deduction u/s 80HHC - earned by cancellation of forward foreign exchange contracts - Nature of income - regular business income or speculation income - HELD THAT:- The facts of the instant case are mutatis mutandis similar to those considered by the Hon’ble Court in Badridas Gauridas (P.) Ltd.’s case [2003 (1) TMI 61 - BOMBAY HIGH COURT] except for the fact that here the assessee has earned profit on such foreign exchange contracts as against the loss suffered in that case. No distinguishing feature, worth the name was pointed out by the ld. DR in the facts of both the cases. We, therefore approve the view taken by the CIT(A), which is in conformity with that of the Hon’ble High Court and accordingly hold that it is a regular business income and not as speculation income. Whether gain should be considered as eligible for deduction u/s 80HHC in entirety as claimed by the assessee or ninety per cent of it be excluded in view of Explanation (baa) below section 80HHC(4C)?- HELD THAT:- From Persual of the case of K. Ravindranathan Nair [2007 (11) TMI 10 - SUPREME COURT]. It is amply clear that the foreign exchange gain on the cancellation of forward exchange contract is "independent income" and 90 per cent of the same is liable to be reduced from the business income for computing "profits of the business" as per clause (baa ) of Explanation (1 ) to section 80HHC. AO is directed to re-compute the deduction u/s 80HHC in terms of our discussion. It is absolutely impermissible to argue and for that matter for the courts or the authorities to distort the judgment of the highest court of the land by needlessly endeavouring to brand the ratio decidendi of a judgment as the obiter dictum and ignore the same. Obiter dictum is an expression of opinion by a Judge on a question immaterial to the ratio decidendi, and unnecessary for the decision of the particular case. On the other hand the ratio of a decision is the reasoning for the decision. We, therefore, hold that the remarks of the Hon’ble Supreme Court on the exclusion of 90 per cent of the independent income from the business income in terms of Explanation (baa) are ratio decidendi of the judgment and hence binding on all under Article 141 of the Constitution. Denial of deduction u/s 10A - income derived from Unit I - Whether sub-section (3) of section 10A is substantive or procedural provision - HELD THAT:- It is settled legal position that the substantive amendment is normally prospective unless stated otherwise. On the contrary the procedural provisions are regarded as applicable to pending proceedings as well. Where the statute confers power for the first time, it cannot be held that such power is meant to be exercised in respect of past periods as well. Unless retrospective operation has been assigned by the Legislature to a substantive provision, it can only be regarded as prospective. Our view is fortified by the judgment in the case of S. Subash v. CIT [1998 (11) TMI 11 - MADRAS HIGH COURT]. Sub-section (3) was amended with effect from AY 1999-2000 for allowing deduction in ten consecutive assessment years. When the amendment was carried out the assessee had completely exhausted the benefit of deduction available as per law. We are dealing with the AY 1997-98 which is the ninth year beginning with the assessment year relevant to the previous year in which the industrial undertaking began to manufacture. It is still further noted that even the period of ten consecutive assessment years from the beginning of the year in which the industrial undertaking begins to manufacture or produce articles was also over in the AY 1998-99 whereas the amendment was carried out with effect from 1-4-1999. We therefore hold that the CIT(A) was justified in denying the benefit of deduction u/s 10A. In the result, both the appeals are partly allowed for statistical purposes.
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