I) Commissioner Of Income-Tax v. Pooshya Exports P. Ltd., [2003] 262 Itr 417; And

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA The Commissioner of Income TaxTamil Nadu-III, Chennai... Applicant in both M/s.Pondy Granites25, Londons RoadChennai-10... Respondent in both PRAYER: Tax case references against the order of the Income TaxAppellate Tribunal, Madras Bench 'A', Chennai dated 28.10.1997 inI.T.A.Nos.2476 and 2477/Mds/1990 for the assessment years 1987-88 and 1988-89. against the order of the Commissioner of IncomeTax (Appeals) VI, Madras 34, dated 30.4.1990 in ITA No.97/89-90/City Cir VII for the Assessment year 1987-88 against theIncome Tax Officer City Ward VII (3) dated 31.3.1989G.I.No.73315-P/87-88 for the Assessment year 1987-88. JUDGMENT (Delivered by P.D.DINAKARAN,J.) At the instance of the Revenue, the Appellate Tribunal hasstated the case and referred to us the following question of law: "Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right in lawin holding that the assessee engaged in export of graniteis eligible for deduction under Section 80HHC for theassessment years 1987-88 and 1988-89?" 2. When the matter came on 31.1.2006, this Court passed the following order: "Since the private notice is returned with an endorsement'left', the appellant is permitted to take substituteservice by publication in an English daily having ChennaiEdition mentioning the date of hearing as 15.2.2006. Postthe matter on 15.2.2006." 3. In spite of paper publication in the Indian Express on10.2.2006, there was no representation on behalf of the respondenton 15.2.2006 and hence, we directed the Registry to print the nameof the respondent and post these cases next week. 4. Even today, there is no representation on behalf of therespondent. Hence, we are constrained to pass the following orderafter hearing the learned senior standing counsel for the Revenueas well as going through the records. 5.1. The facts of the case, in brief, are as hereunder: The assessee is engaged in quarrying and export of granites.For the assessment years under consideration the assessee hadclaimed deduction under Section 80HHC of the Income-tax Act, 1961(for brevity, "the Act") which was denied by the AssessingOfficer. 5.2. On appeal, the Commissioner of Income Tax (Appeals)following the decision of the Appellate Tribunal in I.T.A.No.1040and 1041/Mds/86, dated 19.5.1988, wherein it was held that theextraction of granites from the earth by blasting and export ofgranite stone after cutting off the rough edges amounted tomanufacturing or production of an article or thing and deductionunder Section 80J and 80HHC of the Act were available, providedother conditions for the allowance of these deductions werefulfilled, directed the Assessing Officer to allow the admissiblededuction u/s.80HHC of the Act accordingly. 5.3. On appeal by the Revenue, the Tribunal confirmed theorder of the Commissioner of Income Tax (Appeals). 6. The learned Senior Standing Counsel for the Revenuesubmits that the question of law raised in this appeal is coveredin favour of the Revenue by the decisions in: (i) Commissioner of Income-tax Vs. Pooshya Exports P. Ltd.,[2003] 262 ITR 417; and (ii) Gem Granites Vs. Commissioner of Income-tax [2004] 271ITR 322. 7. At this juncture, it is apt to refer Section 80HHC as itthen stood as follows : “Section-80HHC: Deduction in respect of profits retainedfor export business.— (1) Where an assessee, being an Indian company or a person(other than a company) resident in India, is engaged inthe business of export out of India of any goods ormerchandise to which this section applies, there shall, inaccordance with and subject to the provisions of thissection, be allowed, in computing the total income of theassessee, a deduction of the profits derived by theassessee from the export of such goods or merchandise. (i) Commissioner of Income-tax Vs. Pooshya Exports P. Ltd.,[2003] 262 ITR 417; and (ii) Gem Granites Vs. Commissioner of Income-tax [2004] 271ITR 322. 7. At this juncture, it is apt to refer Section 80HHC as itthen stood as follows : “Section-80HHC: Deduction in respect of profits retainedfor export business.— (1) Where an assessee, being an Indian company or a person(other than a company) resident in India, is engaged inthe business of export out of India of any goods ormerchandise to which this section applies, there shall, inaccordance with and subject to the provisions of thissection, be allowed, in computing the total income of theassessee, a deduction of the profits derived by theassessee from the export of such goods or merchandise. (2) (a) This section applies to all goods or merchandise,other than those specified in clause (b), if the saleproceeds of such goods or merchandise exported out ofIndia are receivable by the assessee in convertible foreignexchange. (b) This section does not apply to the following goods ormerchandise, namely :— (i) mineral oil ; and (ii) minerals and ores.” 8. By the Amendment Act 2 of 1991 an amendment to section80HHC of the Income Tax Act was brought in. The amended Sectionin so far as it is relevant reads thus: “(b) This section does not apply to the following goods ormerchandise, namely :— (i) mineral oil ; and (ii) minerals and ores (other than processed minerals andores specified in the Twelfth Schedule) . . .” 9. In the Twelfth Schedule, Item No. (x) specifies “cut andpolished minerals and rocks including cut and polished granite”. 10. The word “mineral” as used in sub-section (2)(b) tosection 80HHC is to be widely construed as has been decided bythe Apex Court in Stonecraft Enterprises v. CIT, [1999] 237 ITR131 wherein it was held : “The word ‘minerals’ in sub-section (2)(b) of section 80HHCmust be read in the context of ‘mineral oil’ and ‘ores’with which it is associated. It seems to us that thesewords taken together are intended to encompass all that maybe extracted from the earth. All minerals extracted fromthe earth, granite included must, therefore, be held to becovered by the provisions of sub-section (2)(b) of section80HHC, and the exporter thereof, is therefore, disentitledto the benefit of that section.” 11. This Court in Commissioner of Income-tax Vs. PooshyaExports P. Ltd., [2003] 262 ITR 417, after referring the relevantprovision of the statute, i.e., Section 80HHC of the Income-taxAct, held that, by virtue of the expression “the export of anygoods or merchandise to which this section applies” employed inSection 80HHC and by virtue of sub-section 2(b)(ii), whichspecifically denied the benefit of the section to export ofgranite (mineral), the benefit under section 80HHC is notavailable to the assessee; that by the Amendment Act 2 of 1991, anexception has been carved out to the specific provision whichexcluded, rather denied the benefit conferred under section 80HHCto export of minerals (granite); that the amendment brought by theFinance (No. 2) Act of 1991 to Section 80HHC is only prospectiveand effective from April 1, 1991; and that the statutoryprovision is very clear in the sense that section 80HHC is notapplicable to the export of granite. 12. That apart, the Apex Court in Gem Granites Vs.Commissioner of Income-tax [2004] 271 ITR 322, held that : 12. That apart, the Apex Court in Gem Granites Vs.Commissioner of Income-tax [2004] 271 ITR 322, held that : "There are no words of restriction which qualify the word“minerals” and it would be reasonable to assume that in theabsence of any such limitation, the word must be read toinclude all kinds of minerals in all its forms, i.e.,whether subjected to any process or not as long as itcontinued to retain the characteristics of the mineral. Tohold that the word “minerals” never included processedminerals would require our reading words of limitation intoan otherwise clear and unambiguous statutory provision.There is no dispute that granite is covered by the word“minerals” in the exclusionary clause (b) of sub-section(2) of section 80HHC. It would follow that for theunamended section 80HHC(2)(b) cut and polished granitewould also be a mineral. The introduction of the phrase “other than” in clause (b)of sub-section (2) of section 80HHC in 1991 in ouropinion,indicates the carving out of a specific class fromthe generic class of “minerals and ores”. This means, thatwere it not for the exception, the specified processedminerals and ores would have been covered by the words“minerals and ores”. It also indicates that only theminerals and ores subjected to the process of cutting andpolishing would be entitled to the benefit of section 80HHCmeaning thereby that all other species of processedminerals and ores would continue to be covered by thegeneral exclusion applicable to the generic class. The 1991amendment of section 80HHC thus conclusively demonstratesthat the words “minerals and ores” must be construed widelyand in an unrestricted manner. As has been held inMunicipal Committee v. Manilal Manekji P. Ltd., AIR 1967 SC1201 ; [1967] 2 SCR 100 and Pappu Sweets and Biscuits v.Commissioner of Trade Tax, U. P. [1998] 7 SCC 228 ; [1998]111 STC 425 (SC), subsequent legislation may be looked intoto fix the proper interpretation to be put on the statutoryprovisions as it stood earlier. The benefit of section80HHC has been extended by the amendment to a specific kindof mineral and was introduced for the first time in 1991.If we were to hold that the word “minerals” in sub-section(2)(b) never included processed minerals then the 1991amendment excepting processed minerals from theexclusionary effect of the sub-section would be renderedmeaningless and an exercise in futility." 13. Drawing support from the decisions referred supra, weare of the considered view, that the amendment brought by theFinance (No. 2) Act of 1991 to Section 80HHC of the Income Tax Actis only prospective and effective from April 1, 1991, and for theassessment years 1987-88 and 1988-89 under consideration, thestatutory provision is very clear in the sense that section 80HHCis not applicable to the export of granite. Accordingly, we holdthat the Tribunal was not right in law in holding that theassessee engaged in export of granite is eligible for deductionunder Section 80HHC for the assessment years 1987-88 and 1988-89. These references are answered in favour of the Revenue andagainst the assessee.sasi Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To: 1. The Assistant Registrar, Income-tax Appellate Tribunal, Rajaji Bhavan, Besant Nagar, Chennai (5 copies with records) 2. The Secretary, Central Board of Direct Taxes, New Delhi ( 3 copies) 3. The Income Tax Appellant Tribunal, Madras Bench A, Madras. 4. The Commissioner of Income-tax (Appeals)-VI Madras 5. The Commissioner of Income-tax, Madras. 6. The Income Tax Officer, City Ward VII(3), Madras. + 1 cc to Mrs. Pushya Sitaraman, Senior Standing Counsel forIncome Tax Dept., SR No.8100 AMB(CO)SR/25.4.2006