A.m. Moosa v. Commissioner Of Income Tax, Trivandrum

A.M. MOOSA v. COMMISSIONER OF INCOME TAX, TRIVANDRUM SEPTEMBER 10, 2007 (DR. ARIJIT PASAY AT AND D.K. JAIN, JJ.) Income Tax Act, 1961: s.80 HHC (3)(c)-Deduction under-Held: Allowable only if there is positive profit in export of both self manufac.tured goods as well as trading goods-If there is loss in either of two then that has C to be taken into account for-computing profits. Interpretation of statutes: Taxing statutes-Held: Interpretation to be as per wordings of the provision. Words and Phrases: 'profit' and 'positive profit'-Connotation of in the D context of s.80HHC(3) and s.80AB of Income Tax Act, 1961. The Assessec-appellant claimed deduction under s.80-HHC of Income Tax Act, 1961. The Assessing Officer disallowed the claim on the ground that the 'profits of the business' computed under s.80-HHC indicated a negative figure. The assessee unsuccessfully appealed before appellate authority, E Tribunal and High Court. In appeal to this Court, assessee contended that where the assessee exported goods manufactured by him as well as trading goods then the profits from export of goods manufactured by the assessee and the profits from export of trading goods were to be considered separately; that the profits only in F respect of one type of exports could not be negatived or set off against the loss from the other export; that the word 'and' ins. 80-HHC (3)(c) has to be liberally construed and cannot be taken to mean that both the profits have to be clubbed together; that the word "profit" in s.80-HHC would have the same meaning in the entire section, and as the word profit in s.80-HHC(l) means only positive profit, it will have the same meaning in s.80-HHC(3)(c). G Dismissing the appeal, the Court HELD: 1. Undoubtedly, s.80-HHC of the Income Tax Act, 1961 has been 832 SUPREME COURT REPORTS [2007) 9 S.C.R. A incorporated with a view to provide incentive to export houses. Even though a liberal interpretation has to be given to such a provision, the interpretation has to be as per the wordings of this section. If the wordings of the section are clear, then benefits, which are not available under the section, cannot be conferred by ignoring or misinterpreting words in the section. This case is concerned with the wordings of sub-s.(3)(c) of s.80-HHC. Sub-s.(3)(a) deals B with the case where the export is only of self-manufactured goods. Sub-s.(3)(b) deals with the case where the export is only of trading goods. Thus, when the legislature wanted to take exports from self manufactured goods or trading goods separately, it has already so provided in sub-ss.(3)(a) and (3)(b). It would not be denied that the word "profit" in s.80-HHC (1) and ss.80-HHC(3)(a) or C (3)(b) means a positive profit. In arriving at the figure of positive profit, both .the profits and the losses will have to be considered. If the net figure is a positive profit, then the assessee will be entitled to a deduction. If the net figure is a loss then the assessee will not be entitled to a deduction. Sub-s.(3)(c) deals with cases where the export is of both self-manufactured goods as well as trading goods. The opening part ofsub-s.(3)(c) states "profits derived from D such export shall". Then follow clauses (i) and (ii). Between clauses (i) and (ii) the word "and" appears. A plain reading ofsub-s.(3)(c) shows that "profits from such exports" has to be profits from exports of self-'!1anufactured goods plus profits from exports of trading goods. It is clear from a reading of sub-s.(i) ofs.80-llllC(3) that a deduction can be permitted only ifthere is a positive E profit in the exports of both self-manufactured goods as well as trading goods. If there is a loss in either of the two then that loss has to be taken into account for the purposes of computing profits. (Para 7( (838-F-H; 839-A-D] 831 A.M.MOOSA V. COMMR।आयकरका, 2. S.80-AB is also in Chapter VI-A. It starts with the words "where any deduction is required to be made or allowed under any section included in F this Chapter". This would include s.80-HHC. S.80-AB further provides that "notwithstanding anything contained in that section". Thus s.80-AB has been given an overriding effect over all other sections in Chapter VI-A. S.80-HHC does not provide that its provisions are to prevail over s.80-AB or over any other provision of the Act. S.80-HHC would thus be governed by s.80-AB. S.80-AB makes it clear that the computation of income has to be in accordance G with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration. (Para 101 (840-B-D) CIT v. Shirlee Construction Equipment Ltd., (2000) 246 ITR 429 and H CJTv. TC. Usha, (2003) 132 Taxman 297, disapproved. -A.M.MOOSAv.COMMROFINCOMETAX,TRIVANDRUM[PASAYAT,J.] 833 3. The plea that the word profit in s.80-HHC(3)(c) would not include A losses and if there are any losses, they are to be ignored is clearly without substance. The meaning of the word "profit" will depend on the context in which it is used. In s.80-HHC(l) it is admittedly used to indicate positive "profit" because the deduction will only be of a positive profit. S.80-HHC(3) provides how profits are to be worked out in computing total income. For B purposes of such computation both profits and losses have to be taken into account. Thus the word "profit" in s.80-HHC{3) will mean profits after taking into account losses 'if any'. The term "profit" in s.80-HHC both in sub-s. (1) and in sub-s. (3) means a positive profit worked out after taking into consideration the losses, if any. Thus the word "profit" has the same meaning in ss.80-HHC(l) and (3). (Para 12) (840-G-H; 841-A-B-CI C IPCA Laboratory Ltd. v. Dy. Commissioner of Income Tax, Mumbai, [2004] 12 SCC 742 and Income Tax Officer, Bangalore v. Indujlex Products (P) Ltd., (2006) 1 SCC 458, relied on. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4144 of2007.. D From the Judgment and Order dated 2.8.2004 of the High Court ofKerala at Emakulam in ITR No. 112of1998. TLV Iyer, S. Prasad, S.N. Jha, Karun Mehta, Jay Kishor Singh, Om Prakash Mishra and Subromonium Prasad for the Appellant. Mohan Parasaran, Addi. SG., D.L. Chidananda and B.V. Balaram Das for the Respondent. The Judgment of the Court was delivered by DR. ARIJIT PASAYA T l. Leave granted. 2. Challenge in this appeal is to the legality of order passed by a Division Bench of Kerala High Court answering the reference made to it in favour of the department and against the assessee appellant. 3. Background facts in a nutshell are as follows. For the assessment year 1992-93, the assessee appellant had claimed deduction under Section 80-HHC of the Income Tax Act, 1961, (in short, 'the Act'). The assessing officer disallowed the claim on the ground that the 'profits of the business' computed under Section 80-HHC indicated a negative H 834 SUPREME COURT REPORTS (2007] 9 S.C.R. A figure. An appeal was preferred before Commissioner of Income-Tax (Appeals), Cochin Bench, hereinafter, referred to as 'the CIT(A)'. The said appellate authority also was of the same view and dismissed the appeal. The as·sessee appellant preferred an appeal before the Income Tax Appellate Ttiounal, Cochin Bench, in short 'the IT AT'. By Order dated 14th September, 1995 in IT A B No. 498 (Coch)/1995, the view of the assessing officer as well ~s of CIT(A) was affirmed. On being moved for reference, IT AT referred the following -questions for adjudication by the High Court: "(I) Whether, on the facts and circumstances of the case, the Tribunal was justified in entertaining the additional ground raised by the assessee on an issue which had not been disputed earlier before the c assessing officer or the first appellate authority? Sec.80HHC? (2) Whether, on the fads and circumstances of the case, the Tribunal is right in law in holding that the payment received from the export houses under the agreements could not partake the nature of receipt towards "charges" mentioned in clause (baa) of Explanation to D Sec.80HHC? (3) Whether, on the facts and in the circumstances of the case; and on an interpretation of Sec. 80HHC(3) would the assessee be entitled to the deduction in an amount equal to 90% of the sums referred to E in clause (iiia) (not being profits on sale of a licence acquired from any other person) and clause (iiib) an clause (iiic) of section 28, the same proporation as the export trunover bears to the total turnover to the business carried on by the assessee? (4) Whether, on- the facts and in the circumstances of the case, the F Tribunal is right in its interpretation of the term 'profits of business'? (5) Whether, on the facts and in the circumstances of the case, the assessee is entitled to the benefits of sec. 80HHC of the Income Tax Act? G 4. By the impugned Judgment, the High Court held that the view taken by the assessing officer, CIT(A) and IT AT was in order. Accordingly, as noted above, the reference was answered in favour of the department and against the assessee. 5. In support of the appeal, learned counsel for the appellant submitted H that the view taken by the High Court is clearly untenable and does not reflect A.M.MOOSAv.COMMROFINCOMETAX,TRIVANDRUM[PASAYAT,J.)835 a true interpretation of the provision, that is, Section 80-HHC of the Act. A Learned counsel for the Revenue on the other hand supported the orders stating that the view taken is unexceptional. At this juncture, it should be appropriate to take note of the relevant provision. S11me reads as follows: "80-HHC. Deduction in respect of profits retained for export business.- (1) Where an assessee, being an Indian company or a B person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub- C section (1-B) derived by the assessee from the export of such goods or merchandise: Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an export house or a trading house, as the case D may be,) issues a certificate referred to in clause (b) of sub-section (4-A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee E from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such· trading goods. [ 2007 ] 9 (l-A) Where the assessee, being a supporting manufacturer, ha5 F during the previous year, sold goods or merchandise to any export house or trading house in respect of which the export house or trading house has issued a certificate under the proviso to sub-section (I), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction to the extent of profits, G referred to in sub-section (l-B) derived by the assessee from the sale of 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. 836 SUPREME COURT REPORTS A (3) For the purposes of sub-section (l), - (a) where the export out of India is 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 B such goods bears to the total turnover of the business carri~d on by the assessee"; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs C attributable to such export; (c) where the export out of India is of goods or merchandise manufactured [or processed] by the assessee and of trading goods, the profits derived from such export shall, - (i) in respect of the goods or merchandise manufactured [or processed] by the assessee, be the amount which bears to the adjusted profits of the business, ~he same proportion as the adjusted export turnover in respect of such go?ds bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or' clause ( c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic), of section 28, the same proportion as the export turnover bears to the total turnover of 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 0usiness" means the profits of the business A.M.MOOSAv. COMMR OF INCOME TAX, TRIVANDRUM[PASA Y AT,J.] 837 as reduced by the profits derived from the business of export out of A 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 costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total C turnover; (f) "trading goods" means goods which are not manufactured or processed by the assessee. (3A) For the purposes of sub-section (IA), profits derived by a D , supporting manufacturer from the sale of goods or merchandise shall be, - (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of E the business; 838