TMI Blog2003 (4) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... erred before this court under section 256(1) of the Income-tax Act, 1961: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sale proceeds of Rs. 7,25,854 received by the assessee on the sale of the export licence represented capital receipt and was exempt from income-tax? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of section 28(iiia) were not applicable to the receipt of the aforesaid sum? (3) If the answer to the above questions are in the affirmative, whether the Tribunal was right in law in holding that the export licence had no cost of acquisition and the sale proceeds thereof were not liable to capital gains tax? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to the deduction under section 80HHC in spite of the fact that the audit report in Form No. 10CC-AC required to be filed along with return of income under sub-section (4) of section 80HHC was filed only before the Tribunal?" Question No. 2: Mr. Sumit Chakravarty, learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00. As soon it is an income it has to be included in the income and be taxed. Mr. R.K. Murarka, learned counsel for the assessee/respondent, on the other hand, has contended that section 10(3) provides for some exception. It is not a charging section. Therefore, this cannot be applied for charging the said receipt. According to him, section 10(3) exempts to the extent of Rs. 5,000 an income of casual or non-recurring nature. What is exempted is income, when it is casual or non-recurring. Referring to the definition of capital asset, defined in section 2(14), he points out that the licence is a capital asset. The receipt on transfer of a capital asset is a capital receipt. It is not an income as defined in section 2(24). In any event, the receipt on the transfer of the capital asset is not a receipt of an income of a casual nature within the meaning of section 10(3). If the capital receipt cannot be computed to tax under section 45 read with the computation method, an integral part of the charging section, the same cannot be charged to tax under that particular head. If it cannot be charged under that particular head, it cannot be charged under a different head. He relied on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision is not a charging section and, therefore, if a receipt cannot be charged under a different head, the aid of this provision cannot be, taken for charging the same under the provisions of section 10(3) for the purpose of taxing the same. Therefore, section 10(3) has no manner of application in such a case. Admittedly, the licence satisfies the definition of "capital asset" as defined in section 2(14). This is not in dispute. A receipt on capital assets is definitely a capital receipt chargeable as capital gains under section 45. It cannot be treated to be an income chargeable under any other head. Even if it might be an income, this income is chargeable under a particular head depending on its characteristic being receipt on transfer of a capital asset lending the characteristic of a capital receipt. Therefore, it would be chargeable under section 45. If it comes under section 45, then it has to be computed in ,he manner provided in section 48, which requires determination of the cost of acquisition in order to work out the gain. This receipt related to the assessment year 1989-90. Until 1995 section 55(2) as it stood did not include any provision for computing the cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that this is mandatory. Unless the audit report is submitted along with the return, the assessee cannot claim any deduction under sub- section (1) of section 80HHC. Therefore, the learned Tribunal was wrong in allowing the deduction. Mr. Murarka, learned counsel for the assessee, on the other hand, contends that the provisions of sub-section (4) of section 80HHC are not mandatory but directory. According to him, it is a matter of procedure. It is only a support to the claim made by the assessee. It is not a foundation of the claim. Therefore, the context in which this provision has been incorporated does not seem to disentitle the assessee from claiming the relief unless the audit report is furnished along with the return. In support of his contention, he had relied on various decisions, to which we shall be referring at a later stage. The first question to which we would like to address ourselves is with regard to the construction of sub-section (4) of section 80HHC in the light of the facts involved in this case. As pointed out by Mr. Murarka so far as the claim with regard to the export of goods and merchandise an audit report was furnished as it appears from page 28 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t mandatory in the context that a benefit of deduction is available under section 80J(6A) on fulfilment of certain conditions. Those conditions may be mandatory. The requirement of filing of the report may be mandatory. But that is not so in so far as the requirement of filing it along with the return is concerned. In a given case, if the assessee failed to file such report along with the return and filed it subsequently but before completion of the assessment, it would not be fatal. In CIT v. Punjab Financial Corporation [2002] 254 ITR 6 (P H) [FB], it was held that filing of the audit report under section 32AB(1), (5) along with the return is not mandatory. A part of the statute has to be construed with reference to the context. Whether a statute is mandatory or directory depends upon the intent of the Legislature and not upon the language in which the intent is clothed. The intention of the Legislature is to be ascertained not only from the phraseology of the provision but also by considering its nature, its design and the consequences that would follow from construing it one way or the other. The word "shall" in a statutory provision though generally taken in a mandatory sens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for removing the defect. Be that as it may, we may not be concerned with that proposition. The High Court at Calcutta in a single Bench in Murali Export House v. CIT [1999] 238 ITR 257, had occasion to deal with this question having regard to section 80HHC with reference to section 139, sub-section (5) and sub-section (9). In the said decision, it was held that the second part of sub-section (4) of section 80HHC regarding furnishing of the special audit certificate along with the return is not a mandatory provision but only a directory one. If it is found that some document required to be filed along with the return was not filed, the same may be allowed to be filed within a time specified before making any computation of the income of the assessee. The power to rectify the defective return has been clearly conferred on the Assessing Officer by sections 139(5) and 139(9) of the Act. This decision has also taken note of the fact that the filing of the certificate is mandatory and it cannot claim deduction unless the certificate is filed. But the court did not subscribe to the opinion that such deduction will not be allowed if the certificate is not filed along with return. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f audit report is related to the ascertainment of the veracity of the claim against the actuality of the export having been made. It may be a little different when the veracity of the claim is not much dependent on authentication, a situation, which is not so difficult to ascertain or prove. When by legal fiction the receipt against sale of import licence is included in export turnover, then it is the receipt against the transfer of the import licence to be authenticated in the audit report. This seems to be more a formality in that sense. Having regard to such a situation, it may, therefore, not be interpreted so strictly. Therefore, in such a case filing of the audit report at the Tribunal stage would not be fatal to disentitle the claimant. But then the Tribunal has accepted the same and remitted the matter to the Assessing Officer for making the assessment. As such it cannot be overlooked that the entitlement can still be pursued on the basis of the audit report since the assessment is yet to be made and there is a scope for making such assessment relating to the entitlement to the claim. Learned counsel for the Revenue had relied on a decision of this court in Income-tax Ref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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