TMI Blog2001 (11) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 80HHC(3)(b) would be applicable for apportionment of the export profits even in cases where the local business of the assessee is not in the same goods as are exported by it, having regard to the decision of the Hon'ble Gujarat High Court reported in 137 ITR 616? 2. Before we deal with each of the above we would like to give certain brief facts and these are that the assessee an incorporated entity during the previous year relevant to assessment year 1986-87 derived income from export of readymade garments and it also carried on the manufacture and sale of PVC compounds. The turnover in respect of the former was ₹ 79.50 lakhs, the corresponding figure for the latter being ₹ 1,116.46 lakhs. The undisputed facts between the parties are : - (1) Separate books of account are maintained for both the businesses (2) There are no local sales of garments. 3. As per the assessment order the assessee's original claim under section 80HHC was ₹ 27,680, but which was thereafter revised to ₹ 1,74,453 calculated as follows : - Deduction under section 80HHC : In the event of CCB being treated as Capital receipt not liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less : Pure export profits not liable to apportionment under s. 80HHC(3)(b). (a) CCS 1,24,635 (b) DDB 3,19,410 4,44,045 Profit to be apportioned under s. 80HHC(3)(b) 2,22,053 Apportionment : 2,22,053 (Export T.O.) 1,196.96 lakhs (Total T.O.) 14,478 Add : 50 per cent of CCS and DDB being pure export profits (for this assessment year deduction allowable under s. 80HHC(1) was 50 per cent of the profits derived from exports 2,22,022 Total relief claimed 2,36,770. 7. Subsequently, however, an additional ground was raised before the Tribunal, reading as under : - That the learned CIT (Appeals) ought to have allowed 50 per cent of the entire export profits of the year without any apportionment in view of clear facts on record that the only export activity for the assessee duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount equal to the amount of the deduction claimed under this sub-section is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilized for the purposes of the business of the assessee. (2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange. (b) This section does not apply to the following goods or merchandise, namely : - (i) mineral oil and (ii) minerals and ores. (3) For the purposes of sub-section (1), profits derived from the export of goods or merchandise out of India shall be, - (a) in a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head profits and gains of business or profession (b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness' in sub-clause (1) of section 80HHC and of the word 'such' at the end of the said paragraph clearly showed that the Legislature contemplated a deduction mainly with reference to the business of export and had very little to do with the 'other business' which was not the 'same business'. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Ishar Alloy Steels Ltd. v. Jayaswals NECO Ltd. JT 2001 (3) (2) SC 144 for the following observations : 'The' is the word used before nouns, with a specifying of particularizing effect opposed to the indefinite or generalizing force of 'a' or 'an'. It determines what particular thing is meant, that is, what particular thing we are to assume to be meant. 'The' is always mentioned to denote particular thing or a person. 'The' would, therefore, refer implicitly to a specified bank and not any bank. 'The bank' referred to in clause (a) to the proviso to section 138 of the Act would mean the drawee-bank on which the cheque is drawn and not all banks where the cheque is drawn and not all banks where the cheque is presented for collection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be said that there was only one business especially since the present assessee admittedly maintained separate books of account for its separate businesses and which had been examined both by the Assessing Officer as also by the Commissioner of Income-tax (Appeals). 17. The learned counsel also drew a parallel with the provisions of the Income-tax Act, which provided a single return of income, which would include the income or losses from various heads of income and from various businesses if there were more than one. 18. Reverting back to the decision of the Special Bench of the Tribunal in the case of International Research Park Laboratories Ltd. (supra) the learned counsel stated that this was on different facts as the assessee in this case had an export turnover to the tune of ₹ 2.19 crores and also received export fees amounting to ₹ 2.04 crores. The profits and gains of business were to the tune of ₹ 1.95 crores. According to the learned counsel the assessee in that case was admittedly carrying on one business and not multiple businesses as in the case of the present assessee and in the said same business that assessee had export turnover and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover of the business carried on by the assessee. 20. The further submission of the learned counsel was that the said proviso had to be read with Explanation (baa) which was also introduced by the same Finance (No. 2) Act, 1991 with effect from 1-4-1992 and this was as follows : Explanation - (baa) profits of business means the profits of the business as computed under the head profits and gains of business or profession , as reduced by - (1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India. 21. According to the learned counsel the aforesaid two amendments to the Act recommended that when profits and gains of business were to be calculated then 90 per cent of the three incentives were to be reduced from the profits and gains of business and the second stage was to apply the proviso to sub-clause (iii) by which 90 per cent of the three incentives was added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier Special Bench of the Tribunal (supra) had not decided this issue against the assessee. In summing up his arguments in respect of question No. (b) the learned counsel contended that a sum of ₹ 1,24,635 received as CCS and ₹ 3,19,410 received as duty drawback the total coming to ₹ 4,44,045 being the pure profits were qualified for deduction under section 80HHC(1) without applying the proportionate method of clause (3) of section 80HHC. 24. Coming to the last question in the reference that is (a) the submission was that this was taken care of by the earlier Special Bench decision and further reliance was placed by the learned counsel on the judgment of the Hon'ble Bombay High Court in the case of CIT v. Shirke Construction Equipments Ltd. (2000) 246 ITR 429(Bom.). The subsequent plea, however, was to the effect that the aforesaid issue was not a matter of dispute between the Department and the assessee since the finding of the tax authorities was that the assessee had profits from export business also and the matter was in fact of academic interest in so far as the assessee was concerned. 25. The last submission of the learned counsel was that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the assessee that the matter was academic. 28. In reply the learned counsel for the assessee once again sought to distinguish the earlier Special Bench decision contending that in that case the assessee had export turnover and commission and the plea of 'separate businesses' was not canvassed. According to him 'separate businesses' were accepted by law and a reference was made to provisions of section 2(13) of the Income-tax Act, 1961. As regards the CBDT Circular (supra) relied upon by the learned Departmental Representative the learned counsel contended that this was effective from 1-4-1992 and not applicable to the year under consideration i.e. assessment year 1986-87. In support of the assessee's case as also the reply the learned counsel placed reliance on the decisions reported in the cases of Prithvi Insurance Co. Ltd. (supra), Prem Spinning Wvg. Mill Co. Ltd. (supra) and Keshoram Industries Cotton Mills Ltd. (supra). 29. We have considered the rival submissions and have also perused the orders passed by the tax authorities. The various decisions cited at the bar have also been taken into account. Coming to question (c) which was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present section presented lot more problems than it solved. While it granted 100 per cent exemption to exclusive exporters on their profits, it diluted the benefit of such exports, if he has to have domestic trade also. The provision directing the aggregation of both export and domestic turnovers for the purpose of apportioning export profits is, therefore, unintended and went directly against the intent and purpose of the legislation. Since the draftsman has failed to carry out the objects of the Parliament, such interpretation must be placed on the crucial words used in section 80HHC as to promote the object of exempting in toto the profits on export turnover irrespective of the fact that such an exporter has domestic business also. To illustrate if a person has business of exporting leather goods exclusively, the entire profits on such exports would be eligible for exemption, but if he has domestic silver business, the turnover of leather goods should have to be aggregated with the turnover of silverware even though they are two different commodities. This aggregation has the result of diluting the export profit. Therefore, the use of the expression exclusively in section 80HH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover of goods exported was aggregated with the local turnover in a different commodity then such accretion had the result of diluting the relief. As against this the other section of counsels contended that the expression total turnover meant turnover anywhere whether on exports or domestic irrespective of the commodity dealt in. It was also the submission of this group that if in the process of such aggregation the export profit got diluted, then this was the consequence of legislative policy and in case the local business was more than the export business, then by the said process of turnover based apportionment a slice of domestic profits also got exempted. It was the stand of this group of counsels that distortions were intended by the Parliament. This group also placed heavy reliance on the CBDT Circulars explaining the provisions of section 80HHC whereas in respect of the same circulars the plea of the other group of counsels was that in case these were not in consonance with the legislative intent, then these need not be followed. 32. We now go to page 55 of the report and para 5 is relevant wherein the arguments which have been reproduced are quite akin to the ones ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport business the profits on export business must be entitled to total exemption and the question of aggregating the turnover would arise only if there is local turnover in similar goods. The plea, in other words, was that it was only in case where the assessee was engaged in the export of qualifying goods and also dealt with them locally, the situation contemplated in clause (b) of sub-section (3) would come into operation. The learned counsel went on to argue that if an assessee maintained separate set of accounts in respect of export business from which profits/losses earned in the business were clearly ascertainable it was immaterial what other goods he was selling in India. According to him the application of provisions of sub-section (3)(b) in such a case would negate the very object behind the enactment of section 80HHC because this would reduce the quantum of profits. It was also the submission that it was not the legislative will that in order to earn full exemption on the export profits he should stop local business to avoid dilution or curtailment. Such interpretation, according to him, could not be brought to bear upon the section and such interpretation, therefore, wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities, the effort must be to arrive at the export profit. If export profits are otherwise available by means of maintenance of separate accounts, that profit alone must be taken as the basis subject to such allowances or deductions as are admissible in computing the income of that activity as income under the head Profits and gains of the business. 37. It is apparent that even in the present appeal the arguments of the learned counsel for the appellant have proceeded in the same direction as he has also laid great stress on maintenance of separate books of account for the export business and the domestic business and his submission is also to the effect that clause (a) is applicable and not clause (b) since the application of the latter clause results in the dilution of the relief and which, according to him, could not be the legislative intent. 38. As already mentioned by us, the present appellant was an intervener before the earlier Special Bench and we propose to set out the arguments advanced by its learned counsel and for which purpose, we extract para 10 of the order spanning pages 59 to 61, as follows : - Dr. S. Narayanan, the learned Advocate intervening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 647, the learned Advocate, Dr. Narayanan submitted that in certain circumstances even the heading of the section assumes importance and becomes relevant as an aid to interpretation. The expression used in section 80HHC is profits derived . According to Dr. Narayanan, the word derived is very important and held the key for the resolution of the controversy. The expression, derived came up for interpretation before the Madhya Pradesh High Court in the case of Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. CIT (1983) 143 ITR 590where the Hon'ble High Court held that there should be an enquiry to find out the genealogical tree from which the profits are immediately derived as contrasted from attributable . He relied upon AIR 1970 SC 1880 and the decision of the Calcutta High Court in the case of CIT v. Sutna Stone Lime Co. Ltd. (1982) 138 ITR 37to explain the meaning of the word derived . He then submitted that if enquiry is made into the genealogical tree of the business, it would at once become clear that the profits of business contemplated in sub-section (3) of section 80HHC are the profits dealt in the goods of the same nature and there was no possibility even remotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly, but contemplated aggregate profits. According to him when the object was to provide fiscal incentive to promote exports it could only be a concession in the payment of income-tax and this being the case it deliberately adopted a formula of aggregating turnover of exports with the local turnover so that in case of need such local profits would also become part of the export profits to be exempted. This, according to him, was the object of the Legislature and which could not be seen as an absurdity. The said learned counsel also advanced an argument in respect of separate business contending that even if an assessee was carrying on business in different articles the same constituted a comprehensive business as all the activities were to be treated as a single component and not numerous businesses. This was also one of the arguments advanced by the learned counsel in the present appeal when he contended that the concept of separate businesses had not been raised before the earlier Special Bench and this was being done for the first time in the present appeal. The said learned counsel also vehemently supported the CBDT circulars explaining the provisions of section 80HHC [before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the Revenue. In the subsequent paras we would refer to the operative portion of the order of the Special Bench in the case of International Research Park Laboratories Ltd. (supra) attempting thereby to show that each aspect of the matter raised in the present appeal stands considered. 43. In the present appeal, as already stated by us, the learned counsel for the appellant has laid stress on three aspects, namely, (a) interpretation of the provision and legislative intent (b) applicability of clause (a) of sub-section (3) since separate books of account were being maintained for the export business and (c) the consideration of the export activities as a separate and distinct business and not a part of the other business of domestic trade carried on by the assessee. 44. A reference is made to the views expressed by the Tribunal on the aforesaid three aspects as follows: - Para 16 at page 69 of the report: - To our mind there was no such ambiguity in the language of section 80HHC(3) as to call in aid any particular rule of interpretation nor did we find any omission to be supplied by us by taking advantage of the judicial liberty permitted in extreme cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s must be ascertained irrespective of the fact whether separate accounts were maintained for export or not, computing them by applying those rules as are applicable for the computation of income under the head Profits and gains of business or profession and then apportioning those profits on the basis of turnover of export bearing to the total turnover. The expression total turnover used in section 80HHC(3) is therefore unambiguously refers to the total turnover of the entire business and not to the total turnover of the export business. There is nothing in the language to suggest that it is limited to total export turnover. The business includes not only the turnover of exports but also the domestic turnover. The expression total turnover cannot therefore mean the turnover of one variety of goods namely exports to the exclusion of the other. While clause (a) of sub-section (3) referred to a situation where an exporter has exclusive business of export and not having any local business, clause (b) referred to the situation, where an assessee has both exports and local turnover. If an assessee has therefore local turnover and export turnover there is no escape from the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or merchandise for the purposes of deduction. Since it is possible for an assessee to carry on the business exclusively in export, then clause (a) of sub-section (3) provided that the profits of the business as a whole as computed under the head Profits and gains of business or profession will be deemed to be the profits derived from the export of goods or merchandise and should be allowed as a deduction. Clause (a) of sub-section (3) did not contemplate a situation where an assessee dealing in export is in a position to ascertain or identify the profits relatable to such exports. The condition is that the person must deal exclusively in the business of exporting goods outside India. Nowhere it said that if such a person had dealings both in export and local but if export profits are easily identifiable then only clause (a) would apply. This is reading something into the section which it did not provide. The object of clause (a) of sub-section (3) is clearly not to identify the export profits. The object of clause (a) of sub-section (3) is to find out whether the business carried on by the assessee consisted exclusively of export of goods outside India. Carrying on an exclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us the legislative policy and is deliberately adopted with a view to provide incentives for export and not to curtail it by denying it to persons having local turnover. This would amount to deprivation of domestic business and a restraint on trade, which will in its wake lead to further legal complications. Therefore, when encouragement is given both for export and local business, though it is very desirable to hold in clear terms that if export profits are otherwise clearly identifiable, the whole of it should be exempted, the Legislature thought that since this method of granting exemption is fraught with litigation, it was sought to be avoided by providing this omnibus method of apportionment of profits on the basis of turnover, which is a recognized method. Para 22 at page 75: - Section 80HHC deals with a different nature of income as to whether the income is relatable to a business exclusively consisting of export or exports and other local business. Then two sets of formulae were given. One is for total exemption of the income in case it happens to be the former and in other case a proportionate income on the basis of apportionment of turnover. Therefore, it is a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons we hold that if the assessee has a business which does not consist exclusively of export of goods or merchandise outside India, then it is clause (b) that would apply and according to that clause the turnover of the entire business including export must be aggregated and the net profits of the business must be ascertained in the same manner in which the profits under the head Profits and gains of business or profession are to be computed, and that profit must be apportioned in proportion the export turnover bears to the total turnover and the resultant amount alone shall be deemed to be the profit derived from export turnover. Para 25 at page 77: - Another important departure of section 80HHC compared to other sections is that profits and gains of export business are not required to be computed as per the books of account of the assessee but as provided for in Rule 18BBA to the prescribed Form No. 10CCAC. Rule 18BBA provided that the report of the Accountant, which is required to be furnished by an assessee under sub-section (4) or (4A) shall be in the form abovementioned, namely, 10CCAC. This Form No. 10CCAC provides in clause (2) as under : - 'We certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (3) applies only when the same nature of goods are dealt in both in exports and locally. 45. It is quite clear from a reading of the aforesaid that the earlier Special Bench did not find any ambiguity in the language of section 80HHC so as to call in aid any rule of interpretation and it was categorical in stating that there was no omission to be supplied and there were no rough edges required to be ironed out. It was observed by the Special Bench that the manner in which the section had been framed and the manner in which it was required to be worked and applied was to relate it to the total profits of the business on the basis of turnover and by this litigation was sought to be avoided and which would come about in case the parties were to contend that apportionment of any common expenditure was impro-perly made. The reference to the applicability of sub-section (a) of section (3) to the export business whether separate books of account were maintained or not was specifically ruled out by the Special Bench. The learned counsel before us laid great stress on this aspect of the matter as also on the question of considering exports as a separate business and not a part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt both for his export business as well as for his business in India, then his case is to be dealt with under sub-section (3)(b) and is entitled to proportionate deduction derived which is to be worked out on the following basis : - Profits of business Export turnover Total turnover. 47. The learned counsel in the present appeal has argued at length on the concept of same business and separate business by relying on a number of decisions and all that we have to say is that this had also been raised before the earlier Special Bench and rejected and the decisions cited were the same as brought to the notice of the earlier Special Bench. It must be appreciated that a Special Bench is constituted to settle a question on which different benches of the Tribunal have expressed a diverse opinion and one cannot ask for a reconsideration of the same decision by constituting of another Special Bench because if subsequently some decisions of the Hon'ble High Courts or a decision of the Hon'ble Apex Court have come, then nothing prevents the parties from citing these before a Division Bench as the said Division Bench would be at liberty to take an independent view o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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