TMI Blog1998 (9) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Rs. Expenses 1,200 Domestic sales 1,000 Profits 300 Exports (FOB) 500 ------ ------ 1,500 1,500 ------ ------ Profits from tea business 300 Allocation under r. 8: Income chargeable under IT Act, 40 per cent 120 Agricultural income 180 Income chargeable to income-tax 120 Less : Deduction under s. 80HHC Rs. 120 x 500 40 --------------- 1,500 80" According to the petitioner, the interpretation of the aforesaid provision by the Central Board of Direct Taxes (hereinafter referred to as "the said Board") is not in consonance with the provisions of section 80HHC read with rule 8. Dr. Pal, learned senior counsel appearing on behalf of the petitioner, submits that in terms of rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of a resident includes all income from whatever source derived, viz., (a) which is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise in India during such year or (c) accrues or arises outside India during such year. Section 14 provides for heads of income and clause D thereof refers to profits and gains of business or profession. Section 28 deals with profits and gains of business or profession. Section 29 states that the income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D. In the aforementioned context, the provision of section 80HHC has to be construed which reads thus: "(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (30) of section 10, is not includible in the total income." The scheme of the Act and the rules in relation to income from cultivation and manufacture of tea as noticed from the aforementioned provisions would clearly show that Parliament, keeping in view the inconsistencies and anomalies which may arise, considered it necessary to create a legal fiction so as to make the income derived from sale of tea grown and manufactured by the seller in India to be computed as if it were income derived from business. It does not rest there and also specifies the extent of income that is 40 per cent. thereof as to be the income which would be deemed to be income liable to tax. Before proceeding with the matter it may be noticed that in Commissioner of Agricultural Income-tax v. Periakaramalai Tea and Produce Co. Ltd. [1972] 84 ITR 643, Veeraswami C. J., speaking for a Division Bench of the Madras High Court, while considering the question of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to tax as agricultural income subject to such further deduction as the law pertaining to the levy of agricultural income-tax might allow. The question is whether rule 24 of the Income-tax Rules, 1922, rule 8 of the Income-tax Rules, 1962, can be said to form part of the definition of the term 'agricultural income' under the Act of 1922 and the Act of 1961, respectively." In the context of the aforementioned decisions, the Division Bench judgment of the Gauhati High Court reported in Assam Company Ltd. v. State of Assam [1996] 219 ITR 59, has to be considered. Although Chapter IV of the Income-tax Act, and in particular the provisions contained in section 30 to section 43D refer to the manner in which profits and gains of business, or profession has to be computed, the same, in the opinion of this court cannot be said to be exhaustive. The deductions from income for the purpose of computation of taxability of income have to be made not only keeping in view the provisions of section 30 to section 43D but also upon taking into consideration the other deductions which are permissible under section 80HHC falling under Chapter VI-A of the Act. For the purpose of granting de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself held as follows: "In the case of Tata Tea Ltd. [1988] 173 ITR 18 (SC), the Kerala Agricultural Income-tax (Amendment) Act, 1980, and the Bengal Agricultural Income-tax (Amendment) Act, 1980, were under challenge before the Supreme Court under article 32 of the Constitution. The Explanation to section 2(a)(2) of the Kerala Agricultural Income-tax Act, 1950, stated that the agricultural income derived from land used for agricultural purposes by the cultivation of tea leaves meant that portion of the income derived from the cultivation, manufacture and sale of tea as defined to be agricultural income for the purposes of the enactments relating to the Indian income-tax and the said Explanation was sought to be deleted by the Kerala Agricultural Income-tax (Amendment) Act, 1980. Similarly, in sub-section (2) of section 8 of the Bengal Agricultural Income-tax Act, 1944, it was provided that notwithstanding anything contained in that Act in the case of tea grown in West Bengal and sold by the grower himself or his agents after manufacturing, the agricultural income derived therefrom shall be deemed to be that portion of the income computed under the Indian Income-tax Act, 1922, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther allowances not of the nature of expenses can be allowed except those which are permissible under the Agricultural Income-tax Act." With utmost respect to the learned judges, it appears that the question as to how the computation of total income has to be made and particularly the intention of Parliament behind the law had not been taken into consideration in the said decision. It appears that prior to 1989, the assessee was entitled to a deduction of the whole of the income but by reason of the Direct Tax Laws (Amendment) Act, 1989, the said words were substituted by the word of "profits". The very fact that at one point of time Parliament had allowed deduction of the whole of the income in computing the total income of the assessee goes to show that such a provision was made with a view to boost up exports which is necessary for the purpose of earning foreign exchange. Section 80HHC has two parts : (i) the assessee is engaged in the business of export out of India ; and (ii) in computing the total income deduction of the profit derived from export has to be made with a view to give full effect to the aforementioned provision. Keeping in view the intention of the law maker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xample taxable income as per Circular No. 600, and as per the prayer made in the writ petition would be as under: As per Circular No. 600 As per petitioner's prayer Rs. Rs. 1. Profit of business 300 Profit of business 300 2. Income chargeable under IT Act, Less : 80HHC 100 being 40 per cent of the above 120 300 x 500 200 ----------- 1,500 3. Agricultural income 180 40 per cent of above being chargeable to income-tax 80 4. Taxable income under IT Act 120 Agricultural income 120 Less : Deduction under s. 80HHC Total income under IT ACT 80 120 x 500 40 ------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras High Court in Commr. of Agrl. I. T. v. Periakaramalai Tea and Produce Co. Ltd. [1972] 84 ITR 643 and that of the apex court in Tata Tea Ltd.'s case [1988] 173 ITR 18. Before parting with this case, it may be noticed that the learned Additional Solicitor-General, submitted that the doctrine of contemporanea exposito would be applicable in interpreting the impugned circular letter. In my considered opinion, the said doctrine has no application in the instant case as section 80HHC of the Act was inserted in the year 1983 whereas the impugned circular letter had been issued in the year 1991. It is, therefore, not a case where weight has to be given to the interpretation put upon a document at the time of its enactment. Furthermore, Parliament as also the rule-making authority would be presumed to be aware of the legal position as has been enunciated by the court. Rules framed under the 1922 Act was in pari materia with rule 8 of the 1962 Rules. Had Parliament felt any difficulty, section 80HHC or rule 8 could have been couched in a different language and in any event rule 8 could have been amended. The same having not been done, the court should be inclined to put such constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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