Ita/151/2000 Of Parry Agro Industries v. Jt.commr Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN MONDAY, THE 9TH DAY OF JULY 2012/18TH ASHADHA 1934 I.T.A.No.151 of 2000 ------------------------------------------ [AGAINST THE ORDER IN I.T.A.NO.680 (COCH)/94 DATED 4.2.1999OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN](ASSESSMENT YEAR 1989-90) ----------------- APPELLANT/APPELLANT IN T.A.:- ------------------------------------------------ M/S.PARRY-AGRO INDUSTRIES LIMITED,(FORMERLY C.W.S. (INDIA) LTD.)COCHIN. BY ADVS.SRI.E.K.NANDAKUMAR (SENIOR ADVOCATE), SRI.A.K.JAYASANKAR NAMBIAR (SENIOR ADVOCATE) SRI.ANIL D. NAIR RESPONDENT/RESPONDENT IN I.T.A.:- -------------------------------------------------------- JOINT COMMISSIONER OF INCOME TAX (ASSMT.),(PREVIOUSLY DEPUTY COMMISSIONER OF INCOME TAX (ASSMT.),SPECIAL RANGE-I, I.S.PRESS ROAD, ERNAKULAM. BY SENIOR ADVOCATE SRI.P.K.R.MENON, SENIOR COUNSEL FOR GOVERNMENT OF INDIA (TAXES) & SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOI (TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 09-07-2012, ALONG WITH I.T.A.NO.177 OF 2000 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:- Thottathil B.Radhakrishnan & K.Vinod Chandran, JJ. ----------------------------------------------------------------------- I.T.A.Nos.151 of 2000, 177 of 2000, 128 of 2000, 175 of 2000 &207 of 2000 ------------------------------------------------------------------------ Dated this, the 9[th] day of July, 2012 JUDGMENT K.Vinod Chandran,J: The above appeals relate to the assessment years 1989-90, 1990-91 and 1991-92. Since common issues areconsidered by the Tribunal for all the three years, we deem itappropriate that the matters are disposed of together, thoughthey were heard separately, however, on the same day. 2. I.T.A.Nos.151 of 2000 and 177 of 2000 are withrespect to the assessment years 1989-90, I.T.A.Nos.128 of2000 and 175 of 2000 arise from the year 1990-91 andI.T.A.No.207 of 2000 for the year 1991-92. Essentially theseappeals deal with (i) computation of profits derived from theexport of goods or merchandise out of India as contemplatedunder Section 80HHC of the Income Tax Act, 1961 (hereinafterreferred to as “the Act”), (ii) the inclusion of interest receivedfrom Fixed Deposits as “business income” entitled to bededucted under Section 32AB and (iii) the disallowance under Section 37(3) of the income claimed as expenditure to accommodate touring employees of the Company. One solitary question also arisesfor the year 1989-90, which we shall refer to shortly. 3. The assessee is a Company, mainly engaged in manufacture and sale of tea. It owns tea estates at Anamalai, SouthIndia and Deckiajuli in the State of Assam. The assessee has beenassessed for income of the business carried on at both these placesby the respondent. For the year 1989-90 while completing theassessment under Section 143(2), the assessing officer made somedisallowances. We are concerned only with the disallowancesreferred to above under Section 80HHC, Section 32AB and Section37(3) of the Act. The major disallowance was with respect to theclaim under Section 80HHC. 4. Section 80HHC provides for a deduction of the profitsderived on export by an assessee, being an Indian company orperson resident in India engaged in the business of export out ofIndia of any goods or merchandise. In computing the said profits,taking into account that, there might be cases where the assessee'sbusiness consists exclusively of the export out of India andotherwise, sub-section (3) was provided specifically with theintention to provide guidance on such computation. Sub-section (3) 4. Section 80HHC provides for a deduction of the profitsderived on export by an assessee, being an Indian company orperson resident in India engaged in the business of export out ofIndia of any goods or merchandise. In computing the said profits,taking into account that, there might be cases where the assessee'sbusiness consists exclusively of the export out of India andotherwise, sub-section (3) was provided specifically with theintention to provide guidance on such computation. Sub-section (3) provided that when the business of an assessee was exclusively ofthe export out of India of the goods or merchandise then what wasavailable for deduction as profits is the profits of the business ascomputed under the head “profits and gains of business orprofession”; by sub-section (3)(a). When the assessee was notinvolved in such exclusive business of export, then the profits entitledto deduction were to be the amount which bears to the profits of thebusiness, as computed under the head “profits and gains of businessor profession”; the same proportion as the export turnover bears tothe total turnover of the business carried on by the assessee; bysub-section (3)(b). 5. The simple formula, hence, was Export Turnover /Total Turnover X Business Turnover = Available Deduction. Theassessee claimed that the total turnover, i.e., the denominator in theabove formula, should be that of the Assam unit alone, since onlythe tea obtained from the estate at Assam were exported. Theassessing officer, however, took the stand that the denominatorshould be the total turnover of the assessee consisting of thebusiness at Assam as also in South India. The assessing officer,hence, rejected the contentions of the assessee and computed thededuction under Section 80HHC as proposed. 6. One other solitary issue arising for the year 1989-90was as to whether while computing deduction under Section 32AB,deduction of depreciation amount should be for a period of 12months or 21 months. The assessment year 1989-90 being atransitional period and the previous year being comprised of 21months, the assessing officer allowed deduction of depreciationamount of Rs.3,38,86,360/-, being the depreciation computed for 21months, to arrive at the eligible profits in accordance with theprovisions of Section 32(1) of the Act. 7. Interest income along with some other sundry receipts were disallowed as being not business income and hence excludedfrom deduction under Section 32AB. The amounts claimed asbusiness expenditure for expenses incurred at Iyerpadi and Coonorfor meeting the expenses of the employees and others on tour, inproviding them food and accommodation was disallowed as anexpenditure clearly coming within the purview of Section 37(3) of theAct. 8. On appeal by the assessee, the first appellateauthority allowed the expenditure incurred for accommodation oftouring employees having found the same to be not an expenditurecovered under Section 37(3). The finding of the first appellate 7. Interest income along with some other sundry receipts were disallowed as being not business income and hence excludedfrom deduction under Section 32AB. The amounts claimed asbusiness expenditure for expenses incurred at Iyerpadi and Coonorfor meeting the expenses of the employees and others on tour, inproviding them food and accommodation was disallowed as anexpenditure clearly coming within the purview of Section 37(3) of theAct. 8. On appeal by the assessee, the first appellateauthority allowed the expenditure incurred for accommodation oftouring employees having found the same to be not an expenditurecovered under Section 37(3). The finding of the first appellate authority was to the effect that the expenditure claimed by theassessee was not an expenditure incurred on guest house, but areimbursement of expenses which was incurred by the EstateManager to accommodate visiting employees in the house providedfor the Estate Manager. With respect to the issue of Section 32AB;interest having been found to be business income, was directed tobe allowed as a deduction under Section 32AB. The computation ofprofits entitled to deduction under Section 80HHC as done by theassessing officer was confirmed, as was the deduction ofdepreciation for 21 months.9. The assessee was in appeal before the Tribunalagainst the computation of export profits under Section 80HHC asalso the deduction of depreciation for 21 months. The Revenue wasin appeal before the Tribunal against treating interest as a deductionallowable under Section 32AB and the expenditure incurred foraccommodation of touring employees being allowed as not beingcovered under Section 37(3). The Revenue's appeals with respect tothe above issues were allowed. In the assessee's appeal, the issueof deduction of depreciation for 21 months while was upheld, thecomputation of Section 80HHC was remanded to the assessingofficer to consider whether the same would come under clause (a) of sub-section (3) or clause (b) thereof. The assessee, hence, hasraised the following questions of law for the assessment year1989-90, by the two appeals: (1)Whether on the facts and circumstances of the case wasthe Tribunal justified in holding that the appellant isentitled to deduction of export profit u/s.80HHC of theIncome Tax Act on the export profit calculated withreference to the export turnover and total turnover ofDeckiajuli alone only if business of the Deckiajuli Estateis exclusively of export of tea?the Tribunal justified in holding that the appellant isentitled to deduction of export profit u/s.80HHC of theIncome Tax Act on the export profit calculated withreference to the export turnover and total turnover ofDeckiajuli alone only if business of the Deckiajuli Estateis exclusively of export of tea? (2) Whether on the facts and circumstances of the case,was the tribunal justified in considering the claim underSection 80HHC (3)(a) of the Income Tax Act when theappellant's claim was under sub-clause (3b) ofSec.8oHHC but with reference to the export turnover,total turnover and total profit of Deckiajuli Estate alone?was the tribunal justified in considering the claim underSection 80HHC (3)(a) of the Income Tax Act when theappellant's claim was under sub-clause (3b) ofSec.8oHHC but with reference to the export turnover,total turnover and total profit of Deckiajuli Estate alone? (2) Whether on the facts and circumstances of the case,was the tribunal justified in considering the claim underSection 80HHC (3)(a) of the Income Tax Act when theappellant's claim was under sub-clause (3b) ofSec.8oHHC but with reference to the export turnover,total turnover and total profit of Deckiajuli Estate alone?was the tribunal justified in considering the claim underSection 80HHC (3)(a) of the Income Tax Act when theappellant's claim was under sub-clause (3b) ofSec.8oHHC but with reference to the export turnover,total turnover and total profit of Deckiajuli Estate alone? (3) In view of the separate, distinct and independentbusiness with separate accounts and including profit andloss accounts available for Deckiajuli Estate in Assamand in view of the fact that the appellant has exportedtea produced only in that estate should not the Tribunalhave granted the claim under clause 3(b) of Section80HHC with reference to the export turnover, totalturnover and profit of Deckiajuli Estate alone as claimedby the appellant?business with separate accounts and including profit andloss accounts available for Deckiajuli Estate in Assamand in view of the fact that the appellant has exportedtea produced only in that estate should not the Tribunalhave granted the claim under clause 3(b) of Section80HHC with reference to the export turnover, totalturnover and profit of Deckiajuli Estate alone as claimedby the appellant? (4) Whether on the facts and circumstances of the case,was the Tribunal justified in excluding interest incomeand tea subsidy in the computation of profit of theeligible business for granting relief under Section 32ABof the Income Tax Act?was the Tribunal justified in excluding interest incomeand tea subsidy in the computation of profit of theeligible business for granting relief under Section 32ABof the Income Tax Act? (5)Whether on the facts and circumstances of the case wasthe Appellate Tribunal justified in holding thatdepreciation on guest house is liable to be disallowedu/s.37(4) of the Income Tax Act?the Appellate Tribunal justified in holding thatdepreciation on guest house is liable to be disallowedu/s.37(4) of the Income Tax Act? (6) Should not the Tribunal have held that depreciationbeing an eligible deduction u/s.32 cannot be disallowedu/s.37(4) of the Income Tax Act even if such adepreciation is on the guest house?being an eligible deduction u/s.32 cannot be disallowedu/s.37(4) of the Income Tax Act even if such adepreciation is on the guest house? (7) Whether on the facts and circumstances of the case wasthe Tribunal justified in deducting depreciation for 21months in the computation of profit of the eligiblebusiness under Section 32AB of the Income Tax Actinstead of deducting depreciation for 12 months for thesaid purpose as done by the appellant?the Tribunal justified in deducting depreciation for 21months in the computation of profit of the eligiblebusiness under Section 32AB of the Income Tax Actinstead of deducting depreciation for 12 months for thesaid purpose as done by the appellant? 10. For the years 1990-91 also, the questions of lawraised by the assessee in the two appeals for the said year, viz.,I.T.A.Nos.128 of 2000 and 175 of 2000 are the questions 1 to 6 raised above. Question No.7 arises only for the assessment year1989-90. For the year 1991-92, question Nos.1 to 3 and 5 and 6 areraised in I.T.A.No.207 of 2000. We proceed to deal with thequestions of law rather than each of these appeals. 10. For the years 1990-91 also, the questions of lawraised by the assessee in the two appeals for the said year, viz.,I.T.A.Nos.128 of 2000 and 175 of 2000 are the questions 1 to 6 raised above. Question No.7 arises only for the assessment year1989-90. For the year 1991-92, question Nos.1 to 3 and 5 and 6 areraised in I.T.A.No.207 of 2000. We proceed to deal with thequestions of law rather than each of these appeals. 11. The first three questions raised by the assessee iswith respect to the computation of export profit allowable fordeduction under Section 80HHC. As noticed above, the claim of theassessee is that the denominator in the formula being ExportTurnover / Total Turnover X Business Profits = Available Deduction;is the turnover for the Assam estate alone. Hence the contention isthat in calculating the deduction under Section 80HHC andspecifically in computation of the export profits entitled to deduction,the Assam unit should be taken as a separate unit and theproportion of export turnover of that unit to the total turnover of thatunit should be applied to the total business profits of the assessee;being that disclosed under the head “profits and gains of business orprofession”. The assessee urges for that proportion of its entireprofits to be granted deduction as equivalent to the proportion ofexport turnover in the Assam unit alone. We deem it appropriate toextract the provisions coming up for interpretation in the said case asit stood in the relevant years. We say so because the present appeals deal with three years and there had been changesintroduced by the subsequent Finance Act of 1990. We, however,notice that this was not specifically taken note of by the Tribunal. Wefind that the clause extracted in the Tribunal's order for the year1989-90 was introduced only subsequently; with effect from1.4.1991. However, the discussion in the order of the Tribunal is on the relevant clause, which is extracted hereunder: Section 80HHC(1): “80HHC. Deduction in respect of profits retained forexport business.- (1) Where an assessee, being an Indiancompany or a person (other than a company) resident inIndia, is engaged in the business of export out of India ofany goods or merchandise to which this section applies,there shall, in accordance with and subject to theprovisions of this section, be allowed, in computing thetotal income of the assessee, a deduction of the profitsderived by the assessee from the export of such goods ormerchandise”. --Section 80HHC(3) as it stood in Assessment Years 198990 and-199091: “(3) For the purposes of sub-section (1), profitsderived from the export of goods or merchandise out ofIndia shall be,- (a) in a case where the business carried on by theassessee consists exclusively for the export out of Indiaand of the goods or merchandise to which this sectionapplies, the profits of the business as computed under thehead “Profits and gains of business or profession”; (b) in a case where the business carried on by theassessee does not consist exclusively of the export out ofIndia of the goods or merchandise to which this sectionapplies, the amount which bears to the profits of thebusiness (as computed under the head “Profits and gainsof business or profession”) the same proportion as theexport turnover bears to the total turnover of the businesscarried on by the assessee”. Section 80HHC(3), as substituted by Finance Act, 1990, which cameinto effect from 1.4.1991: “(3) For the purposes of sub-section (1), profitsderived from the export of goods or merchandise out ofIndia shall be the amount which bears to the profits of thebusiness (as computed under the head “Profits and gainsof business or profession”), the same proportion as theexport turnover bears to the total turnover of the businesscarried on by the assessee”. Section 80HHC(3), as substituted by Finance Act, 1990, which cameinto effect from 1.4.1991: “(3) For the purposes of sub-section (1), profitsderived from the export of goods or merchandise out ofIndia shall be the amount which bears to the profits of thebusiness (as computed under the head “Profits and gainsof business or profession”), the same proportion as theexport turnover bears to the total turnover of the businesscarried on by the assessee”. 12. The counsel for the assessee would strenuously urgebefore us that the estate at Assam was independently carried outwithout any connection with the other operations of the company and that it would even be possible to continue the business operations inthe Assam estate if the other operations of the company wereclosed. Separate books of accounts were maintained for the Assamestate and its income was also computed separately as it wassubject to agricultural income tax of that State. The tea produced inthe South Indian estates were not subject to exports and what wassubject to exports was the tea manufactured from the Assam estatealone. True, the tea manufactured at the Assam estate was alsoinvolved in local sales and hence the proportion of the exportturnover with respect to the total turnover of the Assam unit has tobe arrived at for computing the allowable deductions under Section80HHC. The said proportion, it is contended, has to be applied to thebusiness profits derived by the assessee from its entire business,i.e., the tea produced at Assam as also at South India. According tothe counsel, this interpretation would serve best the benefitconferred by the provision and the courts are bound to make such abeneficial interpretation when construing provisions conferringbenefits to the assessee. The learned counsel would canvass theabove position drawing support from a decision of the Madras HighCourt in Commissioner of Income Tax v. Madras MotorsLtd./M.M.Forgings Ltd. [(2002) 257 ITR 60] and the Delhi High Court in Commissioner of Income Tax vs. Padmini TechnologiesLtd. [(2011) 245 CTR 611]. 13. In the Madras Motors Limited case (supra), theassessee was engaged in the business of forgings, which alsoinvolved export of forgings and had other sources of business, beingthe business of selling of motorcycles, spare parts thereof andtelevision sets. In computing the deduction under Section 80HHC,the denominator taken by the assessing officer was the total turnoverwith respect to the business of the assessee in forgings,motorcycles, spare parts and television sets. The assesseecontended before the High Court that this would substantially reducetheir deduction, the denominator being more. The denominator whichought to have been adopted was the business in forgings alone,contended the assessee. The proportion to be applied for arrivingat the allowed deduction, according to the assessee, was theproportion of the export of the forgings to the actual turnover offorgings alone, i.e., export and local sales of the forgings. TheMadras High Court accepted the contention of the assessee on ananalysis of Section 80HHC. The learned Judges held that a look atsub-section (2) of Section 80HHC would indicate that the Section80HHC applies only to the goods which are not only exported out of India, but the sale proceeds of which are receivable by the assesseein convertible foreign exchange. Clause (a) of sub-section (3) wouldapply only when the assessee's business is exclusively of exportsales. In the facts of the said case, since the business in forgings ofthe assessee extended to both export and local sales, in computingthe profits; it was held that sub-section (3)(b) of Section 80HHCwould be applicable. However, giving the plain meaning to the word“business” employed in the section, it was held that it can only be: India, but the sale proceeds of which are receivable by the assesseein convertible foreign exchange. Clause (a) of sub-section (3) wouldapply only when the assessee's business is exclusively of exportsales. In the facts of the said case, since the business in forgings ofthe assessee extended to both export and local sales, in computingthe profits; it was held that sub-section (3)(b) of Section 80HHCwould be applicable. However, giving the plain meaning to the word“business” employed in the section, it was held that it can only be: “.... business relating to the goods to which thesection applies and the thrust is on the word “exclusively”.The sub-section considers a situation where theassessee's business is of exports and the assessee'sbusiness is not that of export alone. However, one thing iscertain that the business has to be only in respect of thegoods or merchandise to which the section applies”. Hence, with special emphasis on the exemption being available tothe goods or merchandise; it was held that: “The business contemplated in the section would berestricted to only the goods to which the sectionapplies and, therefore, by necessary implication eventhe total turnover of the business would be the totalturnover of the goods to which the section applies”. In such circumstances, the contention of a lower denominator beingapplied to the formula was accepted by the Madras High Court, thusexcluding the turnover of the business from other sources incomputing the total turnover. 14. We are unable to understand how the said decisionwould be applicable to the facts of the instant case. The appellantherein, being engaged in the business of tea, is not involved in thebusiness of any other goods. The tea produced by the assessee issubjected to export as also local sale. The “goods” which wouldassume significance by the words employed in Section 80HHC is“tea” and “tea” alone. In arriving at the allowable deduction underSection 80HHC, the export turnover to be taken is of tea. The totalturnover is also of tea; since the goods, subject to export, isexclusively tea. The distinction or division now attempted by theassessee with respect to the estates in Assam and South India isartificial and not permissible under the provision. 15. We have also examined the decision of the HighCourt of Delhi in Padmini Technologies case (supra). The factsrelevant to the case is also similar to the Madras case (supra).Padmini Technologies Limited managed two units, one of which wasengaged in the business of multimedia and the other in PET jars. The business of multimedia had carried out exports as well. Theissue was whether in calculating the allowable deduction underSection 80HHC, the total turnover, i.e., the denominator, shouldinclude business of PET jars. The learned counsel for the assesseelays stress on paragraph 8: “In our view, the contention is completelymisconceived. The issue involved in the present caseis : where an assessee runs and manages twoseparate units, one of which is engaged fully orpartially in earning income through exports then, in thecalculation of proportionate deductible profits, wouldthe expression 'total turnover of the business' includeonly the turnover of the export business or also that ofthe domestic business”. The contention of the learned counsel is that here the question oftwo units was considered and held in favour of the assessee and thefindings would be equally applicable in the case of the assessee. Weare afraid, the said contention is totally misconceived. True, in thefacts of the said case there were two undertakings exclusivelydealing with multimedia and PET jars. But what weighed with theCourt and prompted the Court to follow the Madras decision was therationale that the word “business” which follows the expression “total The contention of the learned counsel is that here the question oftwo units was considered and held in favour of the assessee and thefindings would be equally applicable in the case of the assessee. Weare afraid, the said contention is totally misconceived. True, in thefacts of the said case there were two undertakings exclusivelydealing with multimedia and PET jars. But what weighed with theCourt and prompted the Court to follow the Madras decision was therationale that the word “business” which follows the expression “total turnover” would have to be confined only to those goods which areexported and to which the section applies. We are of the firm opinionthat the decision cited by the learned counsel does not at all apply tothe facts of the instant case as noticed above. 16. In this context, the learned Standing Counsel for the Department pointed out that for the very same assessment year1989-90 against the very same order of the Tribunal the Revenuewas before this Court and the said appeal, numbered as I.T.A.103 of1999, was disposed of answering the question raised by theRevenue in favour of the Revenue and against the assessee by thedecision reported in Commissioner of Income-tax v. Parry Agro Industries Ltd. [(2002) 257 ITR 41]. In the said decision, we noticethe provisions under sub-section (3) relevant for the assessmentyear was correctly noticed and clause (a) related to exclusivebusiness in export and clause (b) related to business not exclusivelyof export. 17. The counsel for the assessee would draw adistinction in so far as the assessee's contention in that appeal filedby the Revenue was that there was no requirement for going intosub-section (3) and the deduction of the assessee under Section80HHC can be decided by virtue of the provisions under sub-section (1) itself. In so far as the present appeal filed by the assessee isconcerned, the learned counsel would contend that the assessee'scontention now is that the computation under Section 80HHC, in thefacts of the assessee's case, would be sub-clause (a) of sub-section(3) and not sub-clause (b) thereof. We notice that a Division Benchof this Court had expressly rejected the contention of the assesseewith respect to there being no need to have recourse to sub-section(3) and the assessee's case could be decided under sub-section (1) alone. The Division Bench noticed the words employed insub-section (3) “for the purpose of sub-section (1), profits derivedfrom the export of goods or merchandise out of India shall be .....”and held that it clearly shows that the said sub-section wholly andcompletely applies to sub-section (1). The Division Bench afteranswering the question in the following manner, issued the followingdirections: “We notice from sub-section (3)(b) that the formulafor ascertainment would be that “the entire businessincluding profits of the entire business multiplied byexport turnover divided by entire business turnoverincluding export and non-export”. This is the formula utilised for the assessment to bemade. If this be so, the order of the Appellate Tribunal requires to be modified and fresh assessment order hasto be made by the Assessing officer employing the aboveformula. The order is accordingly modified”. “We notice from sub-section (3)(b) that the formulafor ascertainment would be that “the entire businessincluding profits of the entire business multiplied byexport turnover divided by entire business turnoverincluding export and non-export”. This is the formula utilised for the assessment to bemade. If this be so, the order of the Appellate Tribunal requires to be modified and fresh assessment order hasto be made by the Assessing officer employing the aboveformula. The order is accordingly modified”. The rather valiant distinction attempted by the learned counsel forthe assessee, according to us, is non-existent. The Division Benchhas clearly held what is applicable would be sub-section (3)(b) andthat too the total turnover will be entire business turnover. In thecircumstances, there cannot be any option for the lower denominatorbeing the total turnover of the Assam unit alone. The proportion ofbusiness profits to be computed for arriving at the allowablededuction has to be made on the proportion of export turnover overof tea to the total turnover of tea. There can be no distinctionbetween tea produced in two different units. It is not so contemplatedin the provision; nor does it fall for such an interpretation from thetwo decisions cited by the learned counsel. Hence, we respectfullyfollow the Division Bench decision of this Court and answer thequestion against the assessee and in favour of the Revenue. 18. We are conscious that the provision as interpreted bythe division Bench was applicable for the assessment years 1989-90and 1990-91. The order of remand of the Tribunal, in our opinion, was not correct since it directs the Assessing Officer to verifywhether the assessee is entitled under sub-clause (a) or (b).Factually, on assessee's admission, even the Assam unit is notexclusively export-oriented and there is no question of assesseebeing covered under sub-clause (a). For the assessment years1989-90 and 1990-91, sub-clause (b) of sub-section (3) of Section80HHC will be applicable to the assessee, as held in the assessee'sown case. For the year 1991-92 the provision is as substituted byFinance Act, 1990 with effect from 1.4.1991. The earlier distinction ofexclusive export and business consisting other than that of export inclause (a) and clause (b) was substituted. The legislature might havenoticed that sub-clause (a) of sub-section (3) was redundant in so faras it states the obvious. The substituted provision distinguishedbetween manufactured or processed goods and trading goods. Thenfor the assessment year 1991-92 what would be applicable issub-clause (a) of sub-section (3) which also refers to the proportionin respect of export of goods based on the total turnover of thebusiness carried on by the assessee. The position of law on the factsof the case of the assessee does not change with the substitution.Ordinarily we would have followed the Division Bench decisionreported in (2002) 257 ITR 41, in the case of the assessee itself, with respect to the assessment year 1989-90 and answered the questionin favour of the Revenue. But we have independently considered theissue as we are conscious of the position that each assessment yeargives rise to a fresh cause of action and also considering the factthat the provision for all the assessment years were not the same;though substantially similar. Hence, the questions of law Nos.1 to 3are answered in favour of the Revenue and against the assessee. respect to the assessment year 1989-90 and answered the questionin favour of the Revenue. But we have independently considered theissue as we are conscious of the position that each assessment yeargives rise to a fresh cause of action and also considering the factthat the provision for all the assessment years were not the same;though substantially similar. Hence, the questions of law Nos.1 to 3are answered in favour of the Revenue and against the assessee. 19. The next question is with respect to the justification ofthe Tribunal's finding that interest income cannot be treated as“profit” for the purpose of computation of relief under Section 32AB.The issue is squarely covered by the decision of a Full Bench of thisCourt in the assessee's own case, reported as Parry AgroIndustries Ltd. v. Commissioner of Income Tax [(2006) 285 ITR440 (Ker)(FB)]. Respectfully following the above decision, we holdthat the assessee was not entitled to include interest income asprofits of eligible business or profession for computing the deductionunder Section 32AB of the Act. Hence, the 4[th] question also isanswered in favour of the Revenue and against the assessee. 20. We would now consider question No.7, which arisesonly in the assessment year 1989-90, being the deduction ofdepreciation for 21 months while computing deduction under Section 32AB. It is noticed by both the appellate authorities that the previousyear relevant to the assessment year 1989-90 was a transitionalperiod, comprising of 21 months. It was hence that the assessingofficer computed depreciation for a period of 21 months and took intoaccount the entire depreciation for the 21 months for computation ofdeduction under Section 32AB. The assessee's contention is thatonly the depreciation for the 12 months should have been taken intoaccount for computation. Under Section 32AB, eligible profits arearrived at after deducting depreciation computed in accordance withthe provisions of Section 32(1). Sub-section (3) of Section 32AB isclear that eligible profit would be arrived at after deducting anamount equal to depreciation computed in accordance with theprovision of sub-section (1) of Section 32. The amount that had beencomputed under Section 32(1) of the Act for the relevant assessmentyear with respect to the previous year comprising of 21 months is thedepreciation for a period of 21 months. In such circumstance, thedepreciation for the purpose of Section 32AB cannot be limited to 12months. The assessee's contention is that depreciation allowableunder Section 32(1) is to be to the depreciation determined for 21months. However, in computation of Section32AB, the same shall belimited to 12 months. The contention is only to be rejected. Hence, question No.7 raised for the assessment year 1989-90 is alsoanswered in favour of the Revenue and against the assessee. question No.7 raised for the assessment year 1989-90 is alsoanswered in favour of the Revenue and against the assessee. 21. Question Nos.5 and 6 arising for all the years is thedisallowance with respect to the expenditure incurred toaccommodate touring employees. The facts with respect to the threeyears are not similar. In the years 1989-90 and 1990-91 theassessee claimed that they were not maintaining a separate guesthouse, but had been accommodating such touring employees in thehouse of the Estate Manager itself. The expenses were claimed asbeing expenditure not covered under Section 37(3) on the premisethat these were amounts reimbursed to the Estate Manager for theexpenditure incurred by him in accommodating touring employees.The said contention cannot be countenanced, since Section 37(3) asit existed in the relevant assessment years refers to “anyexpenditure incurred by an assessee after the 31[st] day of March,1964, on advertisement or on maintenance of any residentialaccommodation including any accommodation in the nature of aguest-house or in connection with travelling by an employee or anyother person (including hotel expenses or allowances paid inconnection with such travelling)”. The assessee cannot take up acontention that reimbursement of expenses to the Estate Manager would not be for providing accommodation to touring employees and,hence, would not come within the ambit of sub-section (3) of Section37. Sub-section (3) refers specifically to “any residentialaccommodation” ... “in the nature of a guest-house” ... in connectionwith travelling by an employee or any other person”. It also includeshotel expenses or allowance paid in connection with such travelling.The assessing officer's finding on this respect, as affirmed by theTribunal, is perfectly in order and in accordance with the provisionsof the Act. However, for the year 1991-92, this question does notarise at all, since the facts would clearly show that in the said yearthe assessee had maintained two guest houses, named as“Rochdale House” and “Mounmion House”. It was in suchcircumstance that expenditure was disallowed as it has beencovered under Section 37(3). Hence, while we answer questionNos.6 and 7 against the assessee in favour of the Revenue for theyears 1989-90 and 1990-91, for the year 1991-92 we refuse toanswer the question. The said issue was decided on the factspertinent to the relevant year and there cannot be any question oflaw arising from the same. Question Nos.5 and 6 are accordinglyanswered in favour of the Revenue and against the assessee. In the result, all the questions of law raised for the subjectassessment years are answered in favour of the Revenue andagainst the assessee. The Income Tax Appeals are hencedismissed. Sd/- Thottathil B.Radhakrishnan Judge vku/- Sd/- K.Vinod Chandran Judge. - true copy -