TMI Blog1999 (7) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... e argued before us by counsel for the parties. At the first instance arguments were addressed in the reference petition I.T.R.C. No. 440 of 1998 relating to the assessment year 1992-93 and facts are narrated from that. Since the writ appeal also relates to the same assessment year the facts leading to the filing of the writ appeal shall be referred to as well. The assessee is engaged in the business of export of granite blocks extracted from quarries. For this year, one nil return, revised by another nil return showing different figures of income, claiming exemption of the entire amount of income as shown in the returns under the provisions of section 80HHC of the Income-tax Act, 1961 (for short "the Act"), were filed successively. The Assessing Officer (AO) processed the returns filed by the assessee under section 143(1)(a) by disallowing the claim of the assessee towards exemption under section 80HHC. The Assessing Officer rejected the claim of the assessee on the ground that since the assessee was exporting rough granites, it would not be entitled to the deduction under section 80HHC in view of the prohibition contained in sub-clause (ii) of clause (b) of sub-section (2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Karnataka High Court came to the conclusion, on the basis of the earlier circular of the Central Board of Direct Taxes that only crude granite blocks without any processing are exported by the assessee. On the basis of the factual submissions before us and also the latter circular of the Central Board of Direct Taxes dated November 1, 1995, however, we finally come to the conclusion that it is the 'Cut and polished' granite blocks (although may not be finally cut and precisely polished), which are being exported." (underlining is by the court) Regarding this finding of the Tribunal no question of law has been claimed before us. The Tribunal allowed the appeal and held that the assessee was qualified for deduction under section 80HHC in accordance with the Twelfth Schedule to the Act. Aggrieved against this, the Revenue has come up in reference. At the instance of the Revenue, the following question of law has been referred to this court for its opinion : "Whether, on facts and in the circumstances of the case, the Tribunal was right in law in allowing deduction under section 80HHC in respect of export of rough rock or granite for the assessment year 1992-93 ?" The relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upholding the validity of the circular held : "Circular No. 693 dated November 17, 1994, clarifying that rock should not only be cut into blocks, but also be polished, before it is exported to avail of the benefit of section 80HHC, is valid as it is in accordance with section 80HHC and the Twelfth Schedule to the Act. The Government's policy to encourage export of polished granite and other rocks where value addition before export is high and to discourage export of raw blocks where value addition is low, is evident from section 80HHC, as it extends its benefit not to all minerals, but only to 'processed minerals specified in the Twelfth Schedule' and the word 'processed' with reference to rocks/granite, means 'cut and polished'." On a representation made by the Association of Exporters of Granite, the Central Board of Direct Taxes issued a subsequent Circular No. 729, dated November 1, 1995, retracting its earlier view on the question of availability of deduction under section 80HHC of the exports of granite blocks and took a different view, very much favourable to the exporters. Paragraph 3 of the subsequent circular reads : "3. The Board is, therefore, of the view that whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applicable prospectively for the assessment year 1996-97 only and not in respect of the earlier years. Once the High Court had held the earlier circular of the Central Board of Direct Taxes dated November 17, 1994, to be valid and applicable to the cases of exporters of granite then the Tribunal could not resort to the subsequent circular in preference to the earlier circular. Per contra the senior counsel appearing for the assessee argued that the circular being explanatory and clarificatory is retrospective in its operation and would apply to the earlier assessment years as well. The single judge in God Granites v. Under Secretary, CBDT [1996] 218 ITR 298, while upholding the earlier circular issued by the Central Board of Direct Taxes did not preclude the central Board of Direct Taxes from taking a different view. On a representation filed by the association of exporters of granite that the Central Board of Direct Taxes had misunderstood the import of the Finance (No. 2) Act of 1991 bringing about the amendment to the provision of section 80HHC of the Act by inserting the Twelfth Schedule in the correct perspective, the Central Board of Direct Taxes revised its opinion and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue to the marketable commodity would create an eligibility for deduction. When rough granites are cut into dimensional blocks of uniform colour and size and also certain amount of dressing and polishing which would remove various natural flaws such as colour variations, etc., that would certainly amount to processing of the granite and adds value to its marketability. The Act does not specifically say that the minerals and granites should be given the final cut and be finally polished before they are exported. If such a view is taken the purpose of allowing the benefit to cut and polished minerals including granite blocks towards deduction under section 80HHC would get frustrated. It is the ultimate users of granites who would determine the shape, size and thickness of the granite blocks to be used by them and hence it is required that the final cutting of the granite blocks would have to be taken at their end. The same consideration would apply to the final polishing. The extent of final polishing required to granite blocks would depend on their actual use. It is common knowledge that for granite blocks being used for flooring purpose, the polishing need not be very fine as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was exporting partly "cut and polished" granite blocks has not been questioned by the department by raising a question of law on the ground of perversity being not based on any evidence. Rather we find from the record that it was the case of the parties before the authorities that the assessee was exporting cut and polished granite blocks. After the conclusion of the arguments and reserving the order, the judgment of the Supreme Court in Stonecra Enterprises v. CIT [1999] 237 ITR 131, came to our notice by which the view taken by this court in Stonecraft Enterprises v. CIT [1993] 204 ITR 550, was affirmed. We heard counsel for the parties afresh regarding the applicability of this judgment to the facts of this case. In our view, this judgment would not affect the merits of the present case as it is relatable to the assessment years before the coming into force of the Finance (No. 2) Act of 1991. Stonecraft Enterprises' case [1999] 237 ITR 131 (SC), was concerned with the assessment years 1985-86, 1987-88 and 1988-89. Section 80HHC(2)(b) excluded the application of section to "minerals and ores". This was the position until March 31, 1991. It was only with effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had argued that in case this court on an interpretation of the subsequent circular holds that the assessee would be entitled to deduction under section 80HHC then he does not question the correctness or otherwise of the view taken by the single judge (see [1996] 218 ITR 298 (Kar)). In view of the interpretation put by us on the subsequent circular it is held that the assessee would be entitled to the deduction under section 80HHC for the assessment year 1992-93. To that extent the order of the single judge would not be binding on the petitioner. Regarding the validity or otherwise of the earlier circular no opinion is expressed. W. P. No. 18303 of 1996 : It relates to the assessment year 1991-92. The return of income for the assessment year 1991-92 (financial year April 1, 1991 to March 31, 1992) was filed by the assessee declaring the income as nil in view of the claim of deduction under section 80HHC of the Act. Assessment thereon was completed under section 143(3) of the Act on March 24, 1994, on a total income of Rs. 1,84,531. The benefit of the deduction under section 80HHC was denied by the Assessing Officer following the decision of this court in Muddeereswara Mining I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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