TMI Blog2007 (3) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... ead of making a reference in section 80HHC itself. It is made so because the nexus between the deduction u/s 80HHC and the profit in a MAT regime is between the deduction and the adjusted book profit. While interpreting the provisions of the statute, it is not necessary to read down the law, unless the context demands, to make the provision workable. The expression used in section 115J and the expression used in section 115JB when compared and read together do not give any intention or expound any purpose that section 115JA is different from section 115J and section 115JB is different from section 115JA in the character and purpose of deduction u/s 80HHC in a case of MAT assessment. When the amendments do not bring out any case of such differentiation in their plain interpretation, there is no justification to strain the language and imbibe to extra-contextual meaning. The deduction u/s 80HHC in a MAT scheme is from the taxable income, which is otherwise the adjusted book profit. If no deduction is available to an assessee, the gross total income itself is the taxable income of the assessee. MAT scheme does not provide for deductions. Therefore, the interpretation is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. This Special Bench has been constituted by the hon'ble President of the Income-tax Appellate Tribunal under section 255(3) of the Income-tax Act, 1961, to decide the following issue : Whether, on facts and in law, the assessee, while computing book profits under section 115JA of the Income-tax Act, 1961, is entitled to reduce the net profit as per profit and loss account by (i) the profits eligible for deduction under section 80HHC actually computed under clause (a), (b) or (c) of sub-section (3) or sub-section (3A) as the case may be or the profits eligible for deduction under section 80HHC computed with reference to book profits (after adjustments) in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC. 2. The appeal filed by the Revenue in I. T. A. No. 2711/Mum./2003 in the case of M/s. Syncom Formulations (I) Pvt. Ltd., is the basis for constituting this Special Bench. The said appeal was placed before the Income-tax Appellate Tribunal Mumbai H Bench for hearing. In the course of hearing, the Bench found that the computation of deduction under section 80HHC vis-a-vis the implication of section 115JA have been considered by var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions held otherwise and in favour of the assessee, rendered by the Tribunal were either rendered in the context of the old provisions of section 115J or without considering the implication of the change brought in by section 115JA. The Bench further observed that the decision of the Kerala High Court in the case of CIT v. G.T. N. Textiles Ltd. [2001] 248 ITR 372 relied on by the Tribunal to hold the matter in favour of the assessee, was also rendered in the context of the old provisions of section 115J. 6. The Bench hesitated to accept the contention of the assessee that there is no difference between the language of section 115J, Explanation (iii) and section 115JA, Explanation (viii). In the circumstances, the Bench has fairly referred the following question to the hon'ble President for constituting a Special Bench. Whether, on facts and in law the assessee, while computing book profits under section 115JA of the Income-tax Act, 1961, is entitled to reduce the net profit as per profit and loss account by (i) the profits eligible for deduction under section 80HHC actually computed under clause (a), (b) or (c) of sub-section (3) or sub-section (3A) as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it eligible for deduction under section 80HHC has to be worked out under clause (a), (b) or (c) of sub-section (3) or sub-section (3A) and also subject to the conditions specified in sub-sections (4) and (4A). The elucidation of the computation of the deductible amount has a definite purpose to be served for which it is necessary to read the difference between the Explanation given under the old section 115J and the new section 115JA. 10. Learned standing counsel submitted that as far as the appeal in the matter of M/s. Syncome Formulation (I) Ltd., is concerned, the assessment year is 1999-2000 to which section 115JA applies. In the case of interveners, M/s. Crystal Granite and Marble Ltd., so also M/s. Thirumalai Chemicals Ltd., the assessment year is 1999-2000 where again the applicable provision is that of section 115JA. But in the case of the intervener, M/s. Bhushan Steel and Strips Ltd., the assessment year is 2003-04 to which the latest provision of section 115JB is applicable. 11. In the above scenario of different assessment years and differently worded sections, learned standing counsel further explained that the position canvassed by the Revenue has been empatheti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be worked out twice ; once under the normal provisions of the Income-tax Act and secondly with reference to the book profit. The deductible amount has to be worked out once for all and only once under the normal provisions of the Income-tax Act in total disregard of the book profit adopted under section 115JA/ 115JB. 14. Learned standing counsel relied on the decision of the Supreme Court in the case of Karnataka Small Scale Industries Development Corporation Ltd. v. CIT [2002] 258 ITR 770 to explain the basis of the presumption necessary to be drawn while considering various exemptions provided under the regular provisions of the Act and the working out of book profit under section 115JA/115JB. In the said case, the assessee-company, which was entitled to various deductions from its total income, was liable under section 115J to pay tax under MAT. The assessee-company contended that it could not be said that the benefits of deduction which the assessee had claimed had actually been allowed and therefore the assessee should have been permitted to carry forward the unabsorbed investment allowance or depreciation claimed for the relevant previous year. The Tribunal however held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits calculated in the regular provisions of law from section 28 onwards which forms part of the gross total income and not the deeming profit under section 115JA/115JB. He also explained that the reliance placed by the assessee as well as the Appellate Commissioners in certain orders on the decision of the Bombay High Court in the case of CIT v. Shirke Construction Equipments Ltd. [2000] 246 ITR 429, is no more good law on the character of section 80HHC as the said judgment of the Bombay High Court has been disapproved by the Supreme Court in the above decision rendered in the case of IPCA Laboratory Ltd. [2004] 266 ITR 521. 16. Learned standing counsel further invited our attention to a recent ruling given by Authority for Advance Ruling in the case of Rashtriya Ispat Nigam Ltd., In re [2006] 285 ITR 1. In the said case, the authority was examining the claim of an assessee-company to reduce the MAT profit by deducting partly by business loss carried forward and partly by unabsorbed depreciation. The authority ruled that current year's profit for the purpose of section 115JA or 115JB cannot be reduced in a manner more beneficial to the assessee ; but can be reduced only in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a nonobstante clause notwithstanding anything contained in any other provisions of this Act. . . . which declares that section 115JA is a separate code within itself. He relied on the decision of the Andhra Pradesh High Court in the case of CIT v. Navabharat Enterprises P. Ltd. (No. 2) [1988] 170 ITR 332 to explain the relevance of non obstante clause wherein the court has held that a non obstante clause is generally used in a provision to indicate that the provision should prevail despite anything to the contrary. It was decided by the Rajasthan High Court in the case of CIT v. Oil and Natural Gas Commission [2002] 255 ITR 413, that a non obstante clause has to be understood in the light of the rules laid own by the Supreme Court in South India Corporation P. Ltd. v. Secretary, Board of Revenue [1964] 15 STC 74. Learned counsel relied on the decision of the Constitution Bench of the Supreme Court in South India Corporation P. Ltd. v. Secretary, Board of Revenue [1964] 15 STC 74 to bring out the distinction between the expression subject to other provisions and the expression notwithstanding anything contained in any other provisions of the Act . The court held that the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to go back to the regular income tax profits. He explained that the basic character is similar in all the three sections 115J, 115JA and 115JB. Every type of adjustments whether upwards or downwards prescribed under the provisions of section 115JA/115JB referred to the book profit and therefore the adjustments by way of deduction in respect of section 80HHC alone cannot be different from book profit. 20. Learned counsel has made a comparison of sections 115J and 115JA in the following manner : In section 115J even though initially it was not there, the deduc tion under section 80HHC was later provided and that too with reference to the book profit. In section 115JA also, the speech of the Finance Minister expressed the same understanding by stating that export profits would be exempted from MAT and would be eligible for full deduction under section 80HHC. The Central Board of Direct Taxes Circulars also provided that export profits would be deductible under section 80HHC or section 80HHE from the purview of MAT. Again the circular issued by the Central Board of Direct Taxes stated that as the intention was that 100 per cent. export profit would be exempted, the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follow the said decision. 23. Learned counsel further contended that the reliance placed by the Revenue on the decision of the Supreme Court in the case of IPCA Laboratory Ltd. v. Deputy CIT [2004] 266 ITR 521 cannot be held relevant in the present case only for the reason that in the said decision, the Supreme Court has disapproved the judgment of the Bombay High Court in the case of CIT v. Shirke Construction Equipments Ltd. [2000] 246 ITR 429 which case was relied on by the assessees and considered by the Tribunal. The decision of the Supreme Court in the case of IPCA Laboratory Ltd. [2004] 266 ITR 521 has to be read in the facts and circumstances of that particular case and in the light of the particular issue raised before the court are considered by the court. The real concern of the Supreme Court in the case of IPCA Laboratory Ltd. [2004] 266 ITR 521 was not with section 80AB but in the matter of computing the relief under section 80HHC. 24. He further explained that the various decisions relied on by the Revenue including DCIT v. Omnitex Industries (I) Ltd., ITO v. B. D. H. Industries Ltd., G.P. Electronics Ltd. and Vipul Dye Chem Ltd. v. ACIT are not applicable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The next clause (v) provides for exemption of the amounts of profits derived by an industrial undertaking under section 80-IB. This provision also deals with book profit but subject to the conditions relating to the location of the project and the period of exemption. Clauses (vi) and (vii) similarly exempt the book profit of the undertakings specified thereon. The sum and substance of the above pattern of expression is that the amount of profits, reduced from the book profit may not have any relation to the amount of deduction contemplated in Chapter VI-A. The imbalance between the deduction under Chapter VIA and deductions under clauses (i) to (ix) of the Explanation to section 115JA is inherent in the statute itself. Learned counsel therefore submitted that in all the clauses under the Explanation under section 115JA, the amount of profits always referred to the book profit and in the case of the deduction under section 80HHC provided in clause (viii) alone it cannot be construed on a different footing. 27. Learned counsel thereafter highlighted certain changes brought in the words and expressions of sections 115JA and 115JB. The expression in section 115J is amounts wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpreting a section of no emphasis either be made or supplied. Learned counsel relied on the following in support of the above proposition : Mohammad Ali Khan v. CWT [1997] 224 ITR 672 (SC) ; and Dalmia Biscuits Ltd. v. CIT [1992] 194 ITR 749 (P H). 29. He explained that therefore the interpretation placed by the Revenue on clause (viii) would cause injustice either to the Revenue or to the assessee because of the absurdity in introducing the concept of regular profit in the provisions relating to book profit. 30. Learned counsel explained how injustice could be done to the Revenue, if the arguments of the Revenue are to be accepted. There are a number of disallowances made in computing the taxable income under the normal provisions of the Act. For example, excise duty may be debited in the profit and loss account but not paid in the previous year. It would be added back to the taxable income under section 43B, resulting in the profits computed under the regular provisions going up and consequently the quantum of deduction under section 80HHC going up. If the interpretation of the Revenue is to be accepted, the book profit would be going down further because of the high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. of gross total income. 32. Learned counsel summed up that under sections 115J, 115JA and 115JB, the legislative intention in respect of the deduction available to an assessee under section 80HHC always remained the same in spite of certain consequential amendments brought in certain expressions. He explained that there is no dispute on the fact that the book profit were to be considered for the purpose of deduction under section 80HHC when the MAT regime was governed by section 115J. The position continued in section 115JA also as evident from the speech of the Finance Minister, Explanatory Note issued by the Central Board of Direct Taxes and also by the plain reading of the law contained in section 115JA. This is the case with section 115JB also. What has been more categorically stated in section 115JA and/or 115JB is the mode of computation of the deduction within the meaning of section 80HHC, once the business profit is ascertained. But the basis of ascertaining the quantum of business profit has not been changed in section 115JA or 115JB. That always remained as the book profit as was undisputably in the case of section 115J. 33. Shri Hiro Rai appearing for the interve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsorbed depreciation or brought forward losses whichever is less may further be reduced. The scope of flexibility granted in the operation of the section 115JA ends there. As held by the Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273, the assessing authority has no authority to make any other adjustments. While computing the tax liability of an assessee under the MAT scheme, all the deductions provided under section 115JA, have to be invariably worked out within the light of the book profit. If the assessing authority is substituting the book profit to any other profit, it amounts to violation of the principles laid down by the Supreme Court in the case of Apollo Tyres Ltd. [2002] 255 ITR 273 which is quite impermissible. 36. Shri Ashwini Kumar, the learned chartered accountant appearing for the intervener M/s. Bhushan Steel and Strips Ltd., advanced his arguments in furtherance of the cause of the assessees. He explained that under section 115JA, MAT is levied with reference to the book profit disclosed in the profit and loss account prepared in accordance with the provisions of the Companies Act. It is different from profits and gains of business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int that where two views are possible, the view beneficial to the assessee needs to be followed. In support of the above proposition, he again relied on the decision of the Gauhati High Court in the case of CIT v. Maskara Tea Estate [1981] 130 ITR 955 and the decision of the Supreme Court in the case of Asst. CIT v. Thanthi Trust [2001] 247 ITR 785. The learned chartered accountant further submitted that this proposition is more relevant in the case of a deeming provision such as section 115JA of the Act, which seeks to levy tax on artificial income, where there is otherwise no liability to tax. A deeming fiction needs to be strictly construed and in the case of a conflict in interpretation, the interpretation that leaves the subject with a lighter burden, needs to be preferred. 41. Shri N. N. Mishra, the learned Commissioner of Income-tax who appeared for the Revenue along with the standing counsel sought to reply the contentions advanced by counsel appearing for the assessee and the interveners. Shri Mishra explained that no word or expression embedded in an enactment is redundant or superfluous. It is a matter of no dispute that the expressions used in section 115JA/115JB are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to an assessee under section 80HHC and do not enhance the amount of deduction at par with the book profit adopted for MAT purposes. Therefore, he submitted that the contentions of counsel appearing for the assessee are not tenable in law and may be dismissed accordingly. 45. We heard both sides in detail. In the course of hearing of this matter, counsel appearing for the assessees have sought to explain on the facts of the respective cases and the aspects of the computation of the deduction under section 80HHC, in the respective files. But we may not be able to scan through the facts of the individual cases. This is because, this Special Bench is constituted to decide the specific issue whether deduction under section 80HHC is to be worked out on the basis of regular income-tax profit or adjusted book profit in a case where section 115JA is applicable. This question alone is to be considered and decided by this Special Bench. The adjudication of the specific grounds on the basis of the facts raised in the individual appeals will be considered and disposed by the respective regular Division Benches before which the files will be placed along with the order of this Special Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 115JA, the reference has been enlarged to clauses (a), (b) and (c) in addition to sub-section (3) and sub-section (3A) embodied in the old section 115J. 8. That further conditions in sub-sections (4) and (4A) of section 80HHC also need to be complied with. 9. That this elaboration of the conditions has made it different from the provisions of section 115J. As specific reference has been made to clause (a), (b) or (c), it is apparent to read that the profit to be considered for working out the quantum of section 80HHC, deduction is the profit worked out under the normal provisions of the Income-tax Act and not the adjusted book profit under section 115JA. 10. That this process of clarification by way of amendment has been made more apparent in section 115JB brought in the statute book from the assessment year 2001-02 onwards wherein the Explanation has been given as : (iv) The amount of profits eligible for deduction under section 80HHC, computed under clause (a) or clause (b) or clause (c) of subsection (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section ; 11. That the above Explanation prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Those expressions have nothing to do with the character of the profit considered for the deduction. The relevance is only in respect of the method of computation. (3) That it is the position even with the section 115JB wherein the Explanation has not only referred to clause (a), (b) or (c) but also provided an overall restriction that the computation shall be subject to the condi tions specified in that section. This new Explanation also does not bring in any new concept but only reiterates that the computation of deduction shall be in the manner provided in section 80HHC. In the earlier section 115JA, references have also been made to sub-sections (4) and (4A). In the new section 115JB, those references have been taken out and instead a blanket declaration has been brought in, that the computation shall be subject to the conditions specified in section 80HHC. This amendment is in fact brought to take care of any conditions that may exist or may be imposed further in the matter of computation of deduction under section 80HHC. It has nothing to do with the character of profit which is to be considered for the purpose of granting the deduction which always remained the adjusted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation (iii) under section 115J(1A), which provided for deduction under section 80HHC etc. even in a MAT assessment. The deduction was to be computed in the manner specified in subsection (3) or sub-section (3A) of section 80HHC. This amendment was to be effective from the assessment year 1989-90 onwards, which of course ended with the assessment year 1990-91. 50. Thereafter, after a gap of seven years, the concept of minimum alternate tax was revived in section 115JA by the Finance (No. 2) Act, 1996 with effect from April 1, 1997. This new provision of section 115JA was operative till the assessment year 2000-01. The deduction available to exporters under section 80HHC has been retained in Explanation (viii) provided under section 115JA(1). In the new Explanation, the computation has to be made under clause (a) (b) or (c) of sub-section (3) or sub-section (3A) as the case may be. This expression is in the place of the Explanation existed under section 115J that the computation shall be made in the manner prescribed under sub-section (3) or sub-section (3A). The MAT regime has been again amended to a new section 115JB from the assessment year 2001-02 onwards. This new prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the normal provisions of the Income-tax Act. The Revenue stated that the elaboration clause (a), (b) or (c) have been made to achieve this particular purpose so that the assessees are not getting undue benefits by claiming higher amount of deduction on the basis of an enhanced book profit. The change reflected in the latest section 115JB is that in addition to the applicability of clause (a), (b) or (c) etc., the computation has to be further monitored within the provisions of section 80HHC itself. In the light of the latest section, the Revenue further contents that the expression in accordance with the provisions of section 80HHC has made it very clear that the deduction need to be computed always on the regular income-tax profit and not on the basis of the adjusted book profit. 53. In fact, this controversy was raised even at the time of the old provisions contained in section 115J. That necessitated the issue of Circular No. 680 by the Central Board of Direct Taxes on February 21, 1994, [1994] 206 ITR (St.) 297. It is stated in the Circular that certain doubts have been expressed as to whether the amount quantified under section 80HHC sub-section (3) or sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to various items are always to book profit and therefore the reference cannot be switched over to statutory profit only in respect of deduction available under section 80HHC. 54. The omission of the word in the manner of given under section 115J has sometimes been considered as justifying an adverse inference against the assessees. But if the omission had occurred, while repeating the earlier clause, some meaning would require to be assigned to such omission. But what has happened is that the earlier clause under section 115J dealt with both the relief under section 80HHC and under section 80HHD by a single clause provided under the Explanation. But thereafter it was decided to extend the relief to section 80HHE as well. Therefore, it became necessary that the entire clause to be redrafted. 55. When the MAT was reintroduced with effect from the assessment year 1997-98, it was considered necessary to omit the relief for tourism industry under section 80HHD and to include relief for software industry under section 80HHE. It was in this context that the language had necessarily to be different. The law has made it clear by having two different sub-clauses and also referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. Explanation (iv) of section 115JB sub-section (2) confines its references to clause (a), (b) or (c) of subsection (3) or sub-section (3A), which provided for the manner of computation requiring the same manner as for section 115J to be followed for section 115JA/115JB for which book income as per sub-section (2) of section 115JA/115JB will alone will be relevant. 57. As for section 115JB, the cross reference is to the same sub-sections as for section 115JA, while reference even to sub-sections (4) and (4A) were not considered necessary, so that the omission of the words in the manner of in the section, which was in general terms, does not adversely affect the relief available to an assessee under section 80HHC. 58. The relevant circular issued by the Central Board of Direct Taxes has not only made a reference to the expression in the manner of , but also made reference to the fact that the entire exercise for computing book profit tax is with reference to the book profit so that the intention is to base the relief only on book profit. The above discussion makes it clear that this reasoning given for section 115J continues to be good even in the case of section 115JA/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of tax to the Government. This is on the principle of ability to pay tax which is based on the principle of equity. When it was initially introduced in section 115J, it was a steelframe that the tax shall be payable on the book profit subject to certain adjustments of additions and deductions. No further deductions were available from the said adjusted book profit. It was the ultimate amount on which the company has to pay taxes. But later on, the Legislature itself thought it fit to protect the concessions given to exporters etc. so that the exporters are not compelled to pay tax under MAT. Therefore, even the steel-frame of section 115J was amended by the Legislature by providing exemption to export profits. The Legislature itself has thus declared that the adjusted book profit worked out under MAT scheme need not be the ultimate amount on which an assessee has to pay tax but deductions are still available in respect of export incentives etc. 61. Once the law itself has declared that the adjusted book profit is amenable for further deductions on specified grounds, in a case where section 80HHC is operational, it becomes very clear that the computation for the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved. Therefore, the Assessing Officer is not permitted to deviate from book profit while computing the deduction under section 80HHC. 64. The grievance of the Revenue is that the interpretation now proposed would be providing unexpected benefit to the assessee. That grievance is created by the Legislature itself. MAT is a deeming provision to levy tax on the book profit of the companies, overriding the provisions of deductions provided under the statute. Still the Legislature thought it fit to extent certain deductions to the assessees governed by book profit tax, in the matter of section 80HHC etc. Therefore, the apprehension pointed out by the Revenue is quite inherent. 65. While interpreting the provisions of the statute, it is not necessary to read down the law, unless the context demands, to make the provision workable. The expression used in section 115J as in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC , the expression used in section 115JA as under clause (a), (b) or (c) of sub-section (3) or sub-section (3A) . . . subject to the conditions specified in sub-sections (4) and (4A) . . . . and the expression used in section 115JB ..... X X X X Extracts X X X X X X X X Extracts X X X X
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