TMI Blog1995 (9) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... terest payable by the petitioner, disallowing the deduction claimed under section 80HHC. In the adjustment explanatory sheet attached to the said intimation, the following reason is given for the disallowance of the deduction claimed under section 80HHC : " Section 80HHC is not allowed, as the assessee is exporting cut granites (rough granites) as per section 80HHC report. As per Schedule Twelve to the Income-tax Act, section 80HHC deduction is allowed only to cut and polished granites exporting. "According to the petitioner, deduction claimed under section 80HHC was disallowed by the Assessing Officer on account of the instructions contained in Circular No. 693 dated November 17, 1994 (annexure "A") issued by the Central Board of Direct Taxes and the said circular is contrary to the provisions of the Act. Hence, the petitioner has filed this petition : (a) seeking a declaration that Circular No. 693, dated November 17, 1994, issued by the first respondent is illegal ; and (b) for quashing the intimation dated March 31, 1995 (annexure "C") issued under section 143(1)(a) of the Act. Before referring to the contentions, it is necessary to refer to the relevant provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom April 1, 1991, profits from export of processed minerals and ores specified in the Twelfth Schedule could be deducted from the computation of total income. Circular No. 693 dated November 17, 1994, issued by the Central Board of Direct Taxes is extracted below : " Subject : Benefit of section 80HHC for export of processed minerals--Clarification regarding export of cut and polished dimensional blocks, granite or other rocks. Section 80HHC of the Income-tax Act allows a deduction from the gross total income of the entire profits derived from export of goods other than minerals. Finance (No. 2) Act, 1991, extended the benefit to export of processed minerals and ores mentioned in the Twelfth Schedule to the Income-tax Act. Item (x) of the Schedule mentions 'cut and polished minerals and rocks including cut and polished granite '. 2. Some organisations and individual taxpayers have raised doubts whether the deduction under section 80HHC is available in respect of export of granite or other rocks that are cut and exported as raw blocks after being washed and cleaned. 3. The entry in the Twelfth Schedule is very clear and unambiguous and uses the term ' cut and polished '. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpret item (x) of the Twelfth Schedule. Therefore, the benefit of section 80HHC was available in respect of export of--(a) all cut and polished minerals and (b) all rocks, whether polished or unpolished, including cut and polished granite. Alternatively, it is contended that even if the interpretation put forth by the assessee is found to be not the only reasonable interpretation and the interpretation put forth by the Revenue is also found to be a reasonable interpretation, then the interpretation that is favourable to the assessee should be preferred. Thus, if one possible interpretation of item (x) was that it included unpolished rocks/granite and another possible interpretation is that item (x) referred to only cut and polished rocks/ granite, the interpretation favourable to the assessee should be followed. Reliance is placed by learned counsel for the petitioner on the decision of the Supreme Court in CIT v. Taj Mahal Hotel [1971] 82 ITR 44 ; AIR 1972 SC 168 and the decision of the House of Lords in Carter v. Bradbeer [1975] 3 All ER 158, wherein it is held that the word "includes" is used in order to enlarge the meaning of a word occurring in the statute and when it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stries v. CIT [1993] 204 ITR 550 has held that granite is a mineral even before rock and granite were specifically shown as minerals in the Twelfth Schedule. Sub-section (2) of section 80HHC provides that section 80HHC is inapplicable to minerals and ores. But while so excluding, the said sub-section, however, makes an exception in the case of "processed minerals and ores specified in the Twelfth Schedule". In other words, in respect of minerals and ores which are processed and listed in the Twelfth Schedule, the benefit of section 80HHC will be available. Therefore, when we read item (x) of the Twelfth Schedule, it should always be with reference to sub-section (2)(b)(ii) of section 80HHC which requires that the goods/merchandise specified in the Twelfth Schedule should be processed. Thus, if an assessee claims deduction. in regard to export of "rock" under section 80HHC, then the "rock" exported should be "processed rock". The petitioner would contend that marking, cutting, drilling, blasting and removal of varying shapes of rock is processing. But "processed" is defined in the Explanation to the Twelfth Schedule (extracted above). The Explanation makes it clear that for purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks" from minerals. There is no basis to read item (x) as required by the petitioner, that is "cut and polished minerals ; and rocks (including cut and polished granite)". The words do not permit it. The context does not permit it. The impugned 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". It may be of some relevance to refer to the following observations of this court in Muddeereswara's case [1993] 204 ITR 550 with reference to sub-section (2) of section 80HHC before its amendment by the Finance (No. 2) Act, 1991 (at page 558) : " It is true t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference may be made in this behalf to the decision of the Bombay High Court in Khatau Junkar Ltd. v. K. S. Pathania [1992] 196 ITR 55, wherein it is held that unless the inadmissibility of a deduction is evident and obvious (as in the case of section 154), from the return and its annexures, the Assessing Officer who wants to disallow a deduction or a claim, is bound to follow the procedure under section 143(2) of giving a notice to the assessee ; and that no substantial adjustments which require examination of evidence or which would require a hearing, are contem plated under section 143(1)(a). Hence, the intimation dated March 31, 1995 (annexure-' C '), is liable to be set aside. The petitioner is entitled to a notice under section 143 (2) even though the result of the hearing and consequen tial disposal may lead to the same result, as a consequence of this decision. In view of the above, this petition is disposed of in the following manner : (i) Prayer (i) for declaring the Circular dated November 17, 1994, as illegal, is rejected. (ii) The intimation dated March 31, 1995 (annexure "C"), is set aside and the fourth respondent is directed to reconsider the return of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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