TMI Blog1998 (6) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. Rs. 4,01,63,080 restricted to gross total income i.e. Rs. 2,30,16,767 instead of Rs. 1,28,92,669. 2. The learned CIT(A) has erred in law and on facts in holding that the duty benefit derived by the assessee on the duty free imports falls within the ambit of s. 28(iiib) under the head 'Cash Assistance'." A perusal of the grounds taken clearly indicates that the main, rather only dispute in these two appeals pertains to the issue of deduction permissible to the assessee under the provisions of s. 80HHC. The assessee is a private limited company engaged in the business of manufacture and sale of art-silk sarees mainly for exports. In order to understand the controversy in its proper perspective, we will be taking the financial data taken into consideration by the AO for determining the claim of deduction under s. 80HHC and the claim made by the assessee for the asst. yr. 1992-93. 2. The assessee filed its return for the asst. yr. 1992-93 on 31st Dec., 1992 showing nil income. While examining the books of account, the AO found that the assessee has disclosed a net profit of Rs. 1,34,16,243 as per the P L a/c. The assessee has, however, claimed a deduction under s. 80HHC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-A, the assessee has ignored the negative result of the equation, and taken it at 'Nil'. In reality, the result would have been as under: -4,59,10,683 x 7,03,35,471/15,05,69,690 = - 2,14,46,211 This clearly has a major impact on the claim of deduction, as 'A + B' would amount to (-) 2,14,46,211 + 2,72,83,997 = 58,37,786. In other words, as against deduction of Rs. 2,72,83,997 claimed by the assessee, the deduction would be only Rs. 58,37,786. Accordingly, the AO required the assessee to explain as to why the deduction claimed by it under s. 80HHC to the extent of Rs. 2,72,83,997 should not be restricted to Rs. 58,37,786 and after considering the written submissions of the assessee furnished on various dates as mentioned in para 20 of the assessment order including the opinion of tax experts namely, Shri D.A. Desai, formerly Chairman of Law Commission and Judge of Supreme Court of India, Shri Y.P. Trivedi, Sr. Advocate, Bombay, Shri Dinesh Vyas, Sr. Advocate, Delhi and Shri R.N. Vepari, C.A. Surat, he came to the conclusion that the assessee's contention cannot be accepted as the plain reading of the provisions of s. 80HHC clearly indicates that the deduction permissible to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention to adjust the benefit to be allowed under the proviso, against the negative figure as computed at the first stage under s. 80HHC(3)(a), the word 'to be further increased' might not had been used. (d) Circular No. 621, dt. 19th Dec., 1991, issued by the CBDT and relied upon by the AO recognises the disadvantage faced by the exporter wherein it has been stated that the tax concession under s. 80HHC is intended to compensate an exporter for the comparative disadvantage faced by him in the international market. Thus, s. 80HHC is an incentive provision and it has to be interpreted liberally in a manner which furthers the object of enactment rather than frustrate it. Therefore, the stand of the AO that if there is no profit at the first stage of computation as per provisions of s. 80HHC(3)(a), the assessee is not entitled to any deduction under the proviso is not sustainable. 4.1. As regards ground No. (ii) of the appeal for the asst. yr. 1993-94, the CIT(A) has held that the benefit availed of by the assessee on duty-free imports satisfies all the three inbuilt conditions of s. 28 (iiib) namely, cash assistance by whatever name called, received or receivable by any pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in any case, the Tribunal has not considered the effect of the provisions of ss. 80A and 80AB of the IT Act as well as the decision of the Hon'ble Kerala High Court in the case of CIT vs. V.T. Joseph (1997) 137 CTR (Ker) 318 : (1997) 225 ITR 731 (Ker) as well as the decision of the Hon'ble Supreme Court in the case of CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. (1997) 139 CTR (SC) 359 : (1997) 224 ITR 604 (SC). Accordingly, it was submitted that although as per the submission made by the assessee in its application for early fixation that the issue in dispute is covered by the decision of the Tribunal in the cases of Hindustan Fashion Ltd., Surat, A.M. Moosa and Avon Cycle, the Revenue still would like to putforward its submission relying on the decision of the Hon'ble Kerala High Court in the case of CIT vs. V.T. Joseph, the decision of the Hon'ble Supreme Court in the case of CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. as well as the decision of the Hon'ble Indore Bench of the Tribunal in the case of Prestige Foods Ltd. vs. Dy. CIT (1997) 58 TTJ (Ind) 300. Accordingly, he requested that besides the arguments advanced by him, he may be allowed to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing deductions as per s. 80HHC(3)(a), (b) or (c), the gross total income of the assessee being profits from business, has to be arrived at and this will be arrived at after taking into consideration Explanation (baa) of the section. Thus, if the profits from business are a negative figure, there is no question of allowing any deduction under s. 80HHC in view of s. 80A. The interpretation of s. 80A and 80AB finds resonance in the findings of the Hon'ble Supreme Court in the case of CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd., expressed as under: Having regard to the law as laid down by this Court in Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) and H.H. Sir Rama Verma vs. CIT (1994) 116 CTR (SC) 55 : (1994) 205 ITR 433 (SC) it must be held that before considering the matter of deduction under s. 80P(2), the ITO had rightly set off the carried forward losses of the earlier years in accordance with s. 72 of the Act and on finding that the said losses exceeded the income he rightly did not allow any deduction under s. 80P(2) and the AAC as well as the Tribunal and the High Court were in error in taking a contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me; whereas loss represents minus income. Loss figure is negative profit. Accordingly, it was submitted that the working of deduction given by the AO in the assessment order under s. 80HHC is the correct working on a plain reading of the provisions of s. 80HHC and the learned CIT(A) has arbitrarily enlarged the scope of deduction by referring to the so-called liberal interpretation of s. 80HHC(3) relying in the decision of the Cochin Bench of the Tribunal in the case of A.M. Moosa, which, according to the learned Departmental Representative with respect does not give the correct interpretation of s. 80HHC. It was submitted that the decision of the Chandigarh Bench in the case of Avon Cycle has simply followed the decision of Cochin Bench of the Tribunal in the case of A.M. Moosa and the decision of Indore Bench of the Tribunal in the case of Prestige Foods Ltd. was not brought to the notice of the Members of the Chandigarh Bench of the Tribunal. It was further submitted that the learned CIT(A) as well as the Tribunal in the case of A.M. Moosa as well as Avon Cycle has wrongly held that the proviso to sub-s. 3(a), (b) (c) of s. 80HHC is an independent section and is not interlinke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to be reversed in this regard. 6.1. Shri Dilip Shivpuri, the learned Departmental Representative concluded his argument by submitting that the order of the learned CIT(A) for both the assessment years under consideration is required to be reversed and that of the AO is to be restored and we may prefer the view of Indore Bench of the Tribunal in the case of Prestige Foods Ltd. in preference to the views of Cochin Bench of the Tribunal in the case of A.S. Moosa, Chandigarh Bench of the Tribunal in the case of Avon Cycle as well as Ahmedabad Bench of the Tribunal in the case of Hindustan Fashion Ltd., Surat, because in those decisions the effect of ss. 80AB, 80A as well as the decisions of the Hon'ble Kerala High Court in the case of V.T. Joseph and the Hon'ble Supreme Court in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. have not been considered. The learned Departmental Representative has also placed reliance on the following case law: (i) Forbes, Forbes Campbell Co. Ltd. vs. CIT (1993) 114 CTR (Bom) 289 : (1994) 206 ITR 495 (Bom); (ii) M.H. Daryani vs. CIT (1993) 202 ITR 731 (Bom); (iii) CIT vs. Lokmat News Papers (P) Ltd. (1995) 126 CTR (Bom) 39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit to be allowed under the proviso, against the negative figure as computed at the first stage under s. 80HHC(3)(a), the word 'to be further increased' might not have been used. It was further submitted that the reliance of the learned Departmental Representative on the various decisions (1993) 114 CTR (Bom) 289 : (1994) 206 ITR 495 (Bom), (1993) 202 ITR 731 (Bom), (1995) 126 CTR (Bom) 395 : (1995) 216 ITR 199 (Bom), (1995) 125 CTR (Bom) 238 : (1995) 214 ITR 175 (Bom), 1976 CTR (SC) 25 : (1976) 101 ITR 764 (SC), (1965) 55 ITR 741 (SC), (1957) 32 ITR 615 (SC), (1997) 139 CTR (SC) 359 : (1997) 224 ITR 604 (SC) and (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) cited supra is misplaced as the decisions relied upon are distinguishable on facts and in fact, they do not relate to the interpretation of s. 80HHC at all. The learned representative of the assessee also brought to our notice the Oxford English Dictionary meaning for the words 'reduce' inter alia as under: (i) Reduce your divisor into the smallest fraction (ii) Reduce the compound quantity to its lowest denomination, and the whole integer to the same denomination (iii) The facilities that seemed reduced to nough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to the provisions of ss. 80A and 80AB, it was submitted by Shri Sanjay Kapadia, the learned authorised representative of the assessee that they rather support the case of the assessee; because as per s. 80AB, the deductions under heading 'C' of Chapter VI-A would be restricted not only to the gross total income, but also against the specific heads of income for which it is determined. It was further submitted that this section becomes operative only after having determined the deduction under s. 80HHC and not in the process of determining the said deduction. 8. Coming to the ground No. 2, it was submitted by Shri Sanjay Kapadia, the learned representative of the assessee that the assessee is an exporter of synthetic fabrics operating under the Duty Exemption Entitlement Certificate (DEEC) Scheme. The assessee imported duty-free goods against export obligation or for the replacement of those materials which had gone into the production of the resultant product already exported, keeping the payment of duty in abeyance. The assessee recovered the duty so saved by encashing the same from the open market. In case, the assessee could not fulfil export obligation, the duty kept i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) for asst. yr. 1992-93 wherein he has discussed the second ground of appeal raised by the assessee vide para 2.9 refraining to give any opinion in this regard as the same has already been accepted by the learned AO in actual finalisation of the assessment order. However, it was conceded by the authorised representative of the assessee that the position accepted by the AO for asst. yr. 1992-93 was not followed by him in the asst. yr. 1993-94 and that is why he has to address the Bench on the second ground, which is relevant only to the asst. yr. 1993-94. 10. In the rejoinder, the learned Departmental Representative submitted that when there are two views possible on the interpretation of a statute, one favourable to the assessee should be adopted is not of universal application. For that, reliance was placed on the decision of the Hon'ble Bombay High Court in the case of M.H. Daryani vs. CIT. It was submitted that when the words of a statute are plain, precise and unambiguous, the principle of beneficial interpretation in favour of the assessee has no application. Accordingly, the learned Departmental Representative submitted that since in the appeal before the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h goods or merchandise." In the case of the assessee, who is engaged in the export of goods manufactured by itself, the 'profits' of its business are to be calculated, for purposes of the deduction, as per cl. (a) of sub-s. (3) of s. 80 HHC which reads as under: (3) For the purposes of sub-s. (1), (a) Where the export out of India of goods or merchandise manufactured or processed by the assessee, the profits derived from such export, shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee." Proviso to sub-s. (3) states: "Provided that the profits computed under cl. (a) or cl. (b) or cl. (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in cl. (iiia) (not being profits on sale of a licence acquired from any other person), and cls. (iiib) and (iiic), of s. 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee." Further, Explanation to the section at cl. (baa) reads as under: "(baa) 'Profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HHC was not geared to export profits, or to state it differently, 'profit from export business' alone in a case where the business did not consist exclusively of export business. For and from asst. yr. 1992-93 the profits derived from export of goods have been given a fictional meaning for purpose of deduction. That fictional meaning has to be carried to its logical end in order to give effect to the letter and spirit of the deduction envisaged in s. 80HHC. The non obstante clause found in s. 80AB is only to restrict the deduction to the extent of the income of the nature included in the taxed income. The income of the nature is the profit derived from the export of goods. It cannot be equalled with the profits from export. Thus, even when the assessee made losses in export of an item but the overall result is a positive income, the assessee is entitled to this deduction. The non obstante clause found in s. 80AB is only to restrict the deduction to the extent of the income of the nature included in the total income. 11.2. It is further to be seen that s. 80HHC is not a charging section, but an incentive provision and the computation under the above provision is not to ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of the proviso to sub-s. (3) of s. 80HHC provides clue that the negative figure or loss worked out under cls. (a), (b) and (c) has to be ignored. If there is a positive figure under cls. (a), (b) and (c), there is no difficulty in increasing the same by 90 per cent of export incentive as stipulated in proviso to sub-s. (3) of s. 80HHC; but if the figures under cls. (a), (b) and (c) are negative, then harmonious construction suggests that those losses cannot be increased by a positive figure under sub-s. (3) to s. 80HHC and as such, are required to be ignored. Even if there is an ambiguity in the interpretation of s. 80HHC as is evident from the view of Indore Bench of the Tribunal in the case of Prestige Foods Ltd. and the decisions of Cochin Bench, Chandigarh Bench and Ahmedabad Bench in the cases referred to supra, the interpretation favourable to the assessee is required to be adopted in view of the decision of the Hon'ble Supreme Court in the case of Vegetable Products Ltd. referred to supra. The observation of the Hon'ble Bombay High Court in the case of M.H. Daryani relied upon by the learned Departmental Representative can apply only to a case where the language is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s inputs without payment of excise duty. (2) No excise duty on final product. (3) Import inputs without payment of customs duty. (4) No export duty on export of final products. (5) Bank finance at concessional rate of interest. (6) Exemption from income-tax. (7) Exemption from sales-tax. (8) Special Import Licence (SIL) for import of goods which are generally not permitted. (9) Modvat Credit/Refund of Excise Duty. (10) Duty Entitlement Pass Book (DEPB) Scheme. The abovementioned reliefs, schemes and incentives are specifically available only to an assessee who is an exporter and the assessee is also granted relief of not paying any tax under the IT Act as per the provisions of s. 80HHC. The deductions of profit computed under cls. (a), (b) and (c) of s. 80HHC are required to be further increased by 90 per cent of any sum (meaning any export incentives by whatever name called under any scheme) referred to in cls. (iiia), (iiib) and (iiic) of s. 28 in proportion of export turnover and total turnover. Clause (iiib) refers to cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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