TMI Blog2002 (11) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... bserving as under: "It is claimed that the Assessing Officer has ignored to consider that for the purpose of computation of deduction under section 80HHC only the profit on traded and manufactured goods are to be taken into account and if there was any loss, the same had to be ignored. This issue is fully covered by the appellate order for the earlier assessment year in the case of the assessee as noted therein even when the ITAT in the case of the assessee for the assessment year 1992-93 has not examined the computation of profit under sub-section (3) of section 80HHC as read with sub-section (1) of section 80HHC as appears to be the intention of the Legislature, following the decision of the ITAT in the case of the assessee for the assessment year 1992-93, it is directed that if any loss is computed in respect of trading export or manufacturing export, the same should be ignored while working out deduction allowable to the assessee." 3.1 Being aggrieved, the Revenue has come in appeal before us. The learned D.R. vehemently contended that this issue is covered in favour of the Revenue by the judgment of Hon'ble Bombay High Court in the case of IPCA Laboratories Ltd. v. Dy. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regation method possible under clause (c) of section 80HHC(3). The net result of aggregation arrived at is further required to be increased by proportionate incentives. The issue whether in further so increasing the deduction, such loss needs to be adjusted or ignored was not before the Bombay High Court in IPCA Laboratories Ltd.'s case and, thus this has no application in the loss scenario where the deduction claim is made with reference to proportionate incentive income. With due respect to the Bombay High Court, it is submitted that the provisions of clause (b) of sub-section (4A) of the section 80HHC provide for disclaimer of the export turnover in favour of the supporting manufacturer and not disclaimed of the profits computed under sub section (3). Sub-clause (4A) reads as under; "(4A) the deduction under sub-section (1A) shall not be admissible unless the supporting manufacturer furnishes in the prescribed form along with his return of income,-- (a) The report of an account, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has correctly claimed on the basis of the profits of the supporting manufacturer in respect of his sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 'over and above', i.e., supplementing the profit as computed under sub-clauses (a), (b) and (c) under sub-section (3). In the Black's Law Dictionary the word 'further' reads as: '....'additional', and is equivalent to 'moreover, or furthermore, something beyond what has been said or likewise, or also...' From a perusal of the literal meaning of this word, it is evident that the proviso is meant to supplement the benefit envisaged under section 80HHC and not meant for the purpose of aggregation or set off. The proviso to sub-section (3) using the words 'further increased' is meant to provide more or extra benefit and, therefore, must be read independently of clauses (a), (b) and (c) in sub-section (3) of section 80HHC. This is the plain and undoubted effect of the proviso to sub section (3) of section 80HHC. Any attempt to set off the loss arrived at under the main sub-section (3) against the additional relief admissible under the proviso thereto would defeat, the purpose and legislative intent of the proviso. The proviso to sub-section (3) here operates as a substantive provision and says in unmistakable and unequivocal terms that the event of any losses computed at the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n there is no complete dedication of the property but only a partial dedication. A property may be dedicated entirely to a religious or charitable institution or to a deity. This is an instance of complete dedication. A property may be dedicated to a deity, subject to a charge that a part of the income shall be given to the grantor's heirs. A property may be given to an individual subject to, or burdened with, a charge in favour of an idol or a religious institution or for charitable purposes. An owner of property may retain the property for himself but carve out a beneficial interest therefrom in favour of the public by way of easement or otherwise. There may be many other instances where though there is a trust, it involves only a partial dedication of the property held under trust in the sense that only a part of the income of the property is utilized for religious or charitable purposes. The dichotomy between the two expressions 'wholly' and 'in part' is not based the dedication of the whole or a fractional part of the property, but between the dedication of the said property wholly for religious or charitable purposes or in part for such purposes....." The Supreme Court foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. 2. The order of the Hon'ble I.T.A.T., Chandigarh Bench, Chandigarh, which is on identical facts, is binding on the subordinate Authorities, The ITAT, Hyderabad 'B' Bench in the decision reported in [1993] 45 TTJ 282 in the case of Prasad Co. v. Deputy Commissioner of Income Tax, relying on the Supreme Court judgment in the case of Union of India v. Kanwlakshi Finance Corp. Limited [1991] 53 ELT 433, held as under:-- "Judicial propriety demands that the order of the Tribunal should not only be respected but it should be followed by a lower authority. If the authority subordinate to the Tribunal is allowed to pick up holes, gaps or some infirmities or is of the view that different line of thinking is possible, then there will be judicial chaos and there will not be any finality to litigation. This process, if permitted, will lead to unnecessary harassment to the tax payer which is not envisaged by the statue nor permitted by law. The CIT(A) is duty bound to follow the decision of the Tribunal. It is well settled that the decision of the higher authorities is binding on a lower Authority in the judicial hierarchy. Therefore, the decision of the Tribunal is binding on the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormula laid down in sub-clause (ii). The word "and" is not used to convey the idea of adjustment of losses calculated under one sub-clause against profits calculated under the other sub-clause. In fact it is not even stated that the amount arrived at under sub-clause (i) shall be added to the amount arrived at under sub-clause (ii) and the aggregate would be the profits derived from export. What is expressly conveyed is that there would be two independent figures of "profit derived from export" in a clause where the export is of two kinds of goods namely (i) goods manufactured and processed by the assessee and (ii) trading goods, and each positive figure would qualify for deduction and negative figure would be liable to be ignored. If these two figures were intended to be aggregated by algebraic method it would have been clearly stated. Similarly if negative figure was to be adjusted against positive figure that would also have been clearly stated. In the absence of any such mention, the negative figure is to be ignored or to be taken as nil and positive figure is to be treated as "profit derived from export" for the purpose of deduction. Section 80HHC contains an important provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----- 90% thereof = Rs. 4,99,52,697 Rs. 5,55,02,997 90% of Export Incentives X Export Turnover --------------- Total Turnover 26,76,37,064 4,99,52,697 X --------------- = 1,07,38,753 1,24,49,48,881 Deduction U/Sec. 80HHC A + B - C A Rs.(-) 39,89,128 B Rs.(-) 79,98,581 C Rs. 1,07,38,753 -------------- Rs. 12,48,956 -------------- 4.1 Thus, the Assessing Officer took the view that since there was loss from the export business as computed u/s 80HHC(3)(c) therefore, 90% of the export incentives as per proviso to section 80HHC(3) is to be set off against the loss so computed for the purposes of deduction available u/s 80HHC and accordingly the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been drawn should neither be ignored nor overlooked. If he does not find himself in agreement with the same, the proper procedure is to refer the binding decision and direct the papers to be placed before the Chief Justice to enable him to constitute a larger Bench to examine the question. (ii) A Division Bench of a High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High Court. If one Division Bench differs from another Division Bench of the same High Court, it should refer the case to a larger Bench. (iii) Where there are conflicting decisions of courts of co-ordinate jurisdiction, the later decisions is to be preferred if reached after full consideration of the earlier decisions. (d) The decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its own territorial jurisdiction. It is well-settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be set off against the profit from the export of self manufacturing goods. The Assessing Officer held that the assessee could disclaim the export benefits in favour of the supporting manufacturer under the proviso to section 80HHC(1) only when the assessee had profits from the export activities because the proviso talks of profits and not income which may include loss. Therefore, the Assessing Officer held that the proviso to section 80HHC(1) was not applicable to the present case and did not grant the benefit under section 80HHC to the assessee. The Commissioner of Income-tax (Appeals) held that if sub-section (1) of section 80HHC was not applicable for want of profits, then the proviso also would not apply. Accordingly, the Commissioner of Income-tax (Appeals) dismissed the appeal of the assessee. On appeal, the Tribunal held that the net result should be profits for the purpose of claiming deduction under section 80HHC, if the net result was a loss, then the assessee was not entitled to claim the benefit of deduction under section 80HHC. Under these facts of the case, the short question came before the High Court "Whether the loss in respect of export of trading goods was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd. [1982] 198 ITR 297 at page 320 has laid down the preposition how to interpret a judgment in the following manner:-- "It is neither desirable nor permissible to pick out a word or a 'sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes the colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under considerations by this court, to support their reasoning." 4.6 It is only the ratio decidendi of a case which can be binding--not the obiter dictum. Obiter, at best, may have some persuasive efficacy. Hon'ble Apex Court in the case of H.H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India AI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House. (2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out in India are received in, or brought into, India by the assessee (other than the supporting manufacturer) is convertible foreign exchange within a period of six months from the end of the previous year or where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf. (b) This section does not apply to the following goods or merchandise, namely: (i) mineral oil; and (ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule). [Explanation 1.--The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) and (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation.--For the purposes of this sub-section,-- (a) 'adjusted export turnover' means the export turnover as reduced by the export turnover in respect of trading goods; (b) 'adjusted profits of the business' means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause (b) of sub-section (3); (c) 'adjusted total turnover' means the total turnover of the business as reduced by the export turnover in respect of trading goods; (d) 'direct costs' means costs directly attributable to the trading goods exported out of India including the purchase price of such goods; (e) 'indirect costs' means cost, not being direct costs, allocate in the ratio of the export turnover in respect of trading goods to the total turnover; (f) 'trading goods' means goods which are not manufactured [or processed) by the assessee.] [(4B) For the purposes of computing the total income under sub-section (1) or sub-section (1A), any income not ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing (including processing) goods] or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export.] 4.8 From the plain reading of the aforesaid provisions of section 80HHC, it is clear that section 80HHC for computing deduction, this section lays down three stages for computation of profits derived from exports:-- (1) Firstly 'profits of the business' are to be computed as per Explanation (baa) appended below section 80HHC(4B), i.e. Profits and gains of business as computed under the head "business income" minus 90% of any sum under clauses (iiia), (iiib) and (iiic) of section 28 or any receipt by way of brokerage, commission, interest etc. (2) Secondly, proportion of the aforesaid 'profits of business' as export turnover bears to the total turnover of the business carried by the assessee is calculated. (3) Thirdly, the figure arrived at as per No. (2) above would be further increased by an amount which bears to 90% of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28, same proportion as export turnover bears to the total turnover of business as per proviso to section 80HHC(3). 4.9 In mathema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export business have to be ascertained as per section 80HHC(3) which gives a formula. Section 80HHC(3) laid down following proposition:-- (i) In sub-section (a) the export profits are to be computed when the assessee is engaged in the business of export of goods, merchandise, manufacture or processed by him. (ii) In sub-clause (b), export profits are to be computed when the assessee is engaged in the business of export of trading goods only. (iii) In sub-clause (c), the export profits are to be computed when the assessee is engaged in the business of export of goods, manufacture or processed by him and of trading goods. 4.11 Therefore, firstly the profits under clauses (a), (b) and (c) are to be computed under section 80HHC(3) of the Income-tax Act, 1961, if there is a loss computed from the business of the nature referred under clause (a), (b) or (c) and there is profit computed from the business of the nature referred to under clause (a), (b) or (c), the loss so computed will be adjusted against the profit so computed. The Bombay High Court held so in the case of IPCA Laboratories Ltd. The proviso to section 80HHC(3) shall apply subsequently. The words 'profits' and 'furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0HHC(4B) which defines the expression 'profits of the business' used in section 80HHC(3) also strengthens our view. This explanation stipulates that profits of the business as computed under the head "profits and gains of business or profession" as reduced by ninety per cent of export incentives, and receipts like brokerage, commission, interest etc. The words 'as reduced by' clearly implies that quantum of reduction is to be limited to the figure of profits which is to be reduced. While considering the meaning of the word "reduced" in section 225(3) of the Income-tax Act, it has been held by the Hon'ble Apex Court in Mohan Wahi v. CIT [2001] 248 ITR 799 that the term 'reduced' in section 225(3) would include a case where the demand consequent upon any appeal or any proceedings under the Income-tax Act has been reduced to Nil also. We may further refer to the decision of the Hon'ble Supreme Court in the case of Motor Transport Controller v. Provincial Rashtriya Motor Kamgar Union AIR 164 SC 1690 wherein Their Lordships while construing the word 'reduction' held that reduction can only be used when something is left after reduction. Thus the phraseology used by the Legislature while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that under section 80HHC(1), it has been expressly provided that where an assessee is engaged in the business of exports to which the section applies then, in computing the total income of the assessee, a deduction of the profits derived from export activity as computed under section 80HHC(3) is given. In other words, from the gross total income of the assessee, deduction under section 80HHC is given in order to arrive at the total income/taxable income of the assessee. Section 80HHC is a section which comes under Chapter VIA of the Income-tax Act. The said Chapter provides for special deductions from gross total income. One such deduction is export profits. Section 80A deals with deductions to be made under Chapter VIA in computing the total income. It lays down that in computing the total income, there shall be allowed deduction from the gross total income of an assessee as specified in section 80C to section 80U. Section 80A(2) lays down that the aggregate amount of the deductions under Chapter VIA shall not exceed the gross total income of the assessee. In other words, what is contemplated is a deduction from the gross total income. This aspect is important because compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities. If a bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in ..... 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