TMI Blog2009 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... d in approving the Order of the CIT(A) in allowing Respondent to exclude export profits for the purpose of section 115 JB at the figure other than that allowed u/s. 80 HHC (1B)? 2. Whether in law for the purpose of calculating book profit under section 115 JB of the Income Tax Act, 1961 under Explanation 1 sub clause (iv) the export profits to be excluded from the book profits would be the export profits allowed as a deduction u/s. 80 HHC after restricting the deduction as per the provisions of sub section 1B of section 80 HHC of the Act or the export profits calculated as per sub section 3 and 3A of section 80 HHC before applying the restriction contained in sub section 1B of section 80 HHC?" 2. A few facts may be set out : The Assessee company was assessed under Section 115 JB of the Income Tax Act for the assessment year 2001-2002. While computing the book profits, under Section 115 JB it claimed that the entire export profits as computed under Section 80 HHC should be deducted and not percentage deduction as provided under Section 80 HHC (1B). The Assessing Officer did not accept the same. The A.O. restricted the deduction under Section 80 HHC to 80%. The assessee ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HHC" can only mean that the term refers to the export profits actually allowed as a deduction under section 80 HHC as otherwise an absurdity is created to the extent that while no full deduction is allowed of export profits under section 80 HHC, for the purpose of section 115 JB such profits are calculated and excluded from book profits which was never the intention of the legislature as brought out from the Memorandum explaining the Finance Bill 2000. While construing or interpreting the provisions of law, an interpretation that results in an absurd situation is to be avoided and preference is to be given to a workable interpretation bearing in mind that MAT was introduced to ensure that companies which take advantage of deductions available under normal provisions of the Act are required to pay some minimum tax. In the alternative it is submitted that even if the term "profits" eligible for deduction under section 80 HHC" is referable to the profits calculated before applying the limitation specified in sub section 1B of section 80 HHC, one has to bear in mind the expression "subject to the conditions specified in section 80 HHC". The dictionary meaning of the word "condition" i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit under section 80 HHC. Thus (a) profits derived from the export of goods and merchandise and (b) profits of the permitted type. The phrase has been used to take into account the type of profit above mentioned which is derived from the activity above mentioned. It is for this reason that even the predecessors to section 115JB, the same phrase was used to achieve this purpose. As a matter of construction and plain English usage the said phrase can never take within its ambit the quantum of deduction from such profits. Reference is made to expression "eligible" in its ordinary dictionary meaning to which we shall advert latter. Thus it is submitted that it would be beyond any doubt that the word "eligible" has to be read to mean type or class or nature of profits i.e. a qualitative description of profits and can never take within its ambit a particular proportion or quantum thereof. 4(b). The quantum of profits in respect of which a deduction is allowed under section 80 HHC of the Act is separately quantified/provided for in section 80 HHC (1B) of the Act and the resultant figure on applying this sub section can only be a sub class or part of the type of profits eligible whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rases in the said clause (iv). It is then submitted that if the interpretation canvassed by the Income Tax department is accepted, the words in clause (iv) i.e. ".... computed under (a), (b) and (c) of Section 80 HHC(3)......... " becomes otiose. In the alternative if the phrase is not to be considered otiose then in order to apply 80 HHC (1B) the same should have been mentioned in clause (iv) and in the absence of such mention the same cannot be applied. Reliance is then placed on Heydons' Rules of construction. Reliance is placed on the judgment of Kerala High Court in C.I.T. Vs. GTN Textiles Ltd. 248 ITR 372. It is submitted that the view taken by the Special Bench in DCIT Vs. Syncone Formulations 106 ITD 193 (Bom) as also DCIT Vs. Govind Rubber Ltd. 82 TTJ 615 should be accepted. 4(d). It is lastly submitted that at any rate if two views are possible of interpretation of clause (iv), then the view in favour of the tax payer ought to be adopted. 5. With the above background, let us now consider the provisions. What the Legislature ought to have done or what language or words or expression ought to have been used, is not for the courts to consider. The duty of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April, 2004, and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year. (2)(a)............ (3). .............. (3A) ............. (4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of Section 2888, certiying that the deduction has been correctly claimed in accordance with the provisions of this section. Provided.................... (4A) ......................... (4B) For the purposes of computing the total income under sub-section (1) or sub-section (1A) any income not charged to tax under this Act shall be excluded. (4C) ................... (emphasis supplied). Sub section (1B) was introduced by the Finance Act, 2000 with effect from 3.4.2001. That section was applicable to all, engaged in the business of export. By virtue of insertion of sub section (1B) i.e. The sun set clause, the deductions of export profits was to be discontinued from the beginning of 1.4.2005. The deductions available from 1 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clause (i) and (ii) attributable to the business, the profits from which are eligible for deduction under section 80 HHC or section 80 HHD; so, however, that such amounts are computed in the manner specified in sub section (3) or sub section (3A) of section 80 HHC or sub section (3) of section 80 HHD, as the case may be, or ...." (emphasis supplied) . The Legislature, therefore, in case of MAT Companies choose not to initially give them the benefit of reduction of export profits. 9. Section 115JA was introduced by the Finance Act,1996 with effect from 1.4.1997. The language of section 115JA(1) is also similar to language used in Section 115J. In so far as reduction of export profits under Section 80 HHC they were not available when the Section was first introduced. But by the Finance Act, 1997 it was introduced with effect from 1.4.1998 and which reads as under: "the amount of profits eligible for deduction under section 80 HHC,computed under clause (a), (b) or (c) of sub section (3) or sub section (3A), as the case may be, of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed case law. In K.P. Varghese Vs. Income Tax Officer and another, 1981 (131) ITR 597 (SC), it was observed that it is well recognized rule of construction that the statutory provisions must be so construed if possible that absurdity and mischief may be avoided. If the situation arises where the construction suggested on behalf of the Revenue would lead to wholly unreasonable and unjust result which could never have been intended by the Legislature, then it must be avoided. An interpretation must be arrived at, which avoids absurdity and mischief and makes the provisions rational and sensible unless of course the courts hands are tied and it is not possible to find escape from the tyranny of the literal interpretation. It is now a well settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even "do some violence" to it, so as to achieve the obvious intention of the Legislature and produce a rational construction. The court may also in such a case read into the statutory prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant should be admissible. The Finance Minister's speech, therefore, can be relied upon by the court for the purpose of ascertaining what was the reason for introducing that clause. Reference also may be made to the judgment in P.V. Narsimha Rao (supra) for the same purpose. The court addressing itself to the canons of construction noted that the view which prevailed earlier, with Courts in England, was that reference to Parliamentary material as an aid to statutory constructions is not permissible. The said exclusionary rule precluded the court from looking even at reports made by Commissioners on which legislation was based. The rigidity of the said rule was relaxed in later decisions so as to permit reports of Commissioners, including Law Commissioners and white papers to be looked at for the purpose solely of ascertaining the mischief the statute is intended to cure but not for the purpose of discovering the meaning of the words used by Parliament to effect such cure. Parliamentary debates were, however, not looked at as an aid to construction. The statement of the Minister who moved a bill in the Parliament could be looked at to ascertain the mischief sought to be remedied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, notes that Section 115J of the Income Tax Act levies minimum tax on "book profits" of a company. Section 115J took away the 100% exemption which was to be allowed in respect of export profits earned by the exports and tourism related industry and thus watered down the encouragement which was to be provided to such foreign exchange earning activities. It was decided that the profits, which are exempt under sections 80 HHC and 80 HHD should be excluded from the purview of section 115J w.e.f. August 1, 1989. Reference then is made to the Budget speech of Finance Minister 1996-97 introducing Section 115JA which speaks about introduction of MAT In the Budget speech of 1997-98 it was noted that the export profits which were not eligible for tax will be exempt from the MAT and will be eligible for full deduction under Section 80 HHC. That was when section 115JA was introduced and the benefit under Section 80HHC was not available to MAT companies. This was done as a large number of representations had been received. The Memorandum, explaining the provisions of the Finance Bill 1997 was that the bill proposed to exempt the export profits under Section 80 HHC from the purview of Minimu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Only those profits which are eligible and computed in terms of sub-section (3) or (3a) and quantified in terms of sub-section (1B). The computation whether under sub-section (3) or (3a) are for the purpose of sub-section (1) or (1A). Section 80HHC(1) permits a deduction to the extent or profits referred to in sub-section (1B). The only question is whether the expression in clause (a), (b) or (c) to sub-section (3) consequent on introduction of section 1B to Section 80 HHC will have a meaning different from the meaning then what was originally understood, Considering (iv) to Explanation-I of Section 115JB. 23. Until section 115JB was introduced, the whole of the profits computed under Section 80 HHC was eligible for reduction for computing the book profits. Pursuant to section 1B of section 80 HHC The deduction available to the extent provided in Section (1B) and after 1-4-2005 the deduction of export profits is discontinued. The assessees argument is that only in case of companies not covered by section 115JB to then Section 1B of section 80 HHC would apply. In so far as MAT companies are concerned, the profits eligible for deduction are as computed under sub-section (3) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4.2001 the deduction is only a percentage of the export profits as allowed therein and no reduction after 1-4-2005. This benefit of reduction was initially not made available to MAT Companies, but the benefit was extended from 1-4-1989. 26. It is then sought to be contended that the expression conditions in (iv) of Explanation 1 of Section 115JB cannot be referable to sub section (1B) of Section 80HHC as (1B) is not a condition but in the nature of computation. We have referred to the dictionary meaning of the word "Conditions". Even if we accept that (1B) of Section 80HHC is not a condition and proceed on that footing, nevertheless it is impossible of reading section 80HHC (3) or (3A) independent of section 80 HHC (1B). To our mind, the language is clear. The literal meaning does not in any way defeat the object of the section and/or lead to an absurdity. The object of Section 115JB is to allow even MAT companies to avail of the benefit of deduction. If we consider the assessee's arguments that MAT companies are entitled to full deduction of export profits it will lead to anomaly, whereby the companies which are paying tax on total income under the normal rules, for them t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable under the provisions. At the same time, in the notes of clauses it is clearly stated that the profits will be as reduced by the certain adjustments which are eligible for deduction under Section 80 HHC. The profits eligible for deduction are export profits in terms of section 80 HHC (1B). There is nothing in the Finance Minister's speech of 29.2.2000, (242) ITR 2000 to hold otherwise. We have earlier referred to rules of construction as set out in the judgments earlier quoted. The Notes of objects and reasons is only an aid to construction. That aid to construction is only when the literal reading leads to ambiguous result or absurdity. To our mind considering the literal language there is no absurdity or ambiguity being caused or any mischief sought to be remedied. The language used in section 115JB is deduction available under section 80 HHC. It is difficult to conceive of any rational reason as to why the legislature should have thought to give MAT companies additional benefits than the other companies who are paying tax on total income and not the tax based on book profit as calculated under section 115JB. Is it possible to conceive of any degree of fairness and/or justi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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