M/S.sri Aurobindo Ashram Harpagaonworkshop Trust,(Now Known Assri Aurobindo Udyog Trust), Pondicherry v. The Deputy Commissioner Of Income Taxcircle-I, Pondichery 625 003 &The Jt. Cit Spl.rg.v,Chennai 600 034.Prayer

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19.03.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE C.V.KARTHIKEYANTax Case Nos.253 to 264 of 2008 M/s.Sri Aurobindo Ashram HarpagaonWorkshop Trust,(Now known asSri Aurobindo Udyog Trust), Pondicherry .. Appellant in All TCA Vs. The Deputy Commissioner of Income TaxCircle-I, Pondichery 625 003 &The Jt. CIT Spl.Rg.V,Chennai 600 034.Prayer:- .. Respondent in All TCA Tax Case Appeals filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, Madras 'B' Bench, Chennai, dated 2.2.2005 made in ITANos.1977/Mds/98, 1327/Mds/97, C.O.No.33/Mds/2000 in ITA No.284/Mds/2000, C.O.No.36/Mds/2000 in ITA No.516/Mds/2000, ITA Nos.516/Mds/2000, 284/Mds/2000, C.O.No.82/Mds/2003 in ITA No.623/Mds/2003, C.O.No.83/Mds/2003 in ITA No.626/Mds/2003, I.T.A.Nos.623/Mds/2003, 625/Mds/2003, 626/Mds/2003 and 629/Mds/2003. against the Order of the Commissioner of Income Tax(Appeals) VIII, made in Appeal No.24 and 25/2001-2002 and AppealNo.331/2002-2003, dated 03.01.2003, ITA.No.330/2002-2003 dated28.01.2003 and the Order of the Commissioner of Income Tax(Appeals), made in ITA.No.202/98-99, dated 16.11.1998,ITA.No.38/97-98, dated 31.08.1998 and the Order of Commissionerof Income Tax (Appeals)III, made in ITA.No.365/98-99/A.III,dated07.01.2000,ITA.No.38/1998-99dated21.12.1998,ITA.No.11/97-98/A.III dated 15.11.1999, ITA.No.22/97-98 dated31.08.1998 and ITA.No.23/1996-97, dated 18.03.1997 and againstthe Order of the Deputy/Joint Commissioner of Income Tax,Circle I, Pondicherry made in PA.No.G.I.No.645-S, G.I.No.606-A, https://hcservices.ecourts.gov.in/hcservices/ Dated27.03.2002,28.02.2000,24.03.2000,09.07.1998,28.12.1998, 17.03.1998, 14.02.1997, 27.03.2002, 21.03.1996 forthe Assessment Years 1993-1994 to 1999-2000. For Appellant: Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyar PadmanabhanFor Respondent : Mr.J.Narayanaswamy Senior Standing Counsel COMMON JUDGMENT (Delivered by DR.VINEET KOTHARI,J) The Assessee has filed these Appeals under Section 260A ofthe Act raising the following purported substantial questions oflaw arising from the order of the learned Income Tax AppellateTribunal dated 2.2.2005 partly allowing the Revenue's Appealsand dismissing the Cross Objections filed by the Assessee andthey were admitted by a co-ordinate Bench of this court on27.8.2008 by framing the the following questions of law:- "i) Whether the Tribunal is right in holding thatthe turnover of all the units of the Appellantbusiness would be taken into account indetermining the deduction under Section 80 HHCand not the turnover of the only export unit tobe taken into consideration?ii) Whether the Tribunal is right in holding thatfirst expenditure under Section 35(I)(ii) is tobe charged from the profits and then onlydeduction under Section 80 HHC of the Act is tobe computed?" 2. The relevant portion of the order passed by the Tribunalis quoted below for ready reference:- "8. We have heard the rival submissions and gonethrough the case records and the provisions ofSection 80HHC and Section 80AB of the Act. Wereproduce the provisions of Section 80HHC(3)(a)and Section 80AB as under:- "80HHC(3) For the purposes of sub-section(1),- (a) where the export out of India is ofgoods or merchandise manufactured (orprocessed) by the assessee, the profitsderived from such export shall be the https://hcservices.ecourts.gov.in/hcservices/ amount which bears to the profits of thebusiness, the same proportion as theexport turnover in respect of such goodsbears to the total turnover of thebusiness carried on by the assessee; 2. The relevant portion of the order passed by the Tribunalis quoted below for ready reference:- "8. We have heard the rival submissions and gonethrough the case records and the provisions ofSection 80HHC and Section 80AB of the Act. Wereproduce the provisions of Section 80HHC(3)(a)and Section 80AB as under:- "80HHC(3) For the purposes of sub-section(1),- (a) where the export out of India is ofgoods or merchandise manufactured (orprocessed) by the assessee, the profitsderived from such export shall be the https://hcservices.ecourts.gov.in/hcservices/ amount which bears to the profits of thebusiness, the same proportion as theexport turnover in respect of such goodsbears to the total turnover of thebusiness carried on by the assessee; 80AB: Where any deduction is required tobe made or allowed under any section (***)included in this Chapter under the heading"C.-Deductions in respect of certainincomes" in respect of an income of thenature specified in that section which isincluded in the gross total income of theassessee, then, notwithstanding anythingcontained in that section, for the purposeof computing the deduction under thatsection, the amount of income of thatnature as computed in accordance with theprovisions of this Act (before making anydeduction under this Chapter) shall alonebe deemed to be the amount of income ofthat nature which is derived or receivedby the assessee and which is included inhis gross total income." During the course of hearing, the Bench hasreferred the decision of the Hon'ble Apex Courtin the case of Ipca Laboratory Ltd. v. DCIT(2004) 266 ITR 521(SC). The learned counsel forthe assessee stated that the ratio of thedecision of the Hon'ble Supreme Court (supra)is not applicable to the present case. TheHon'ble Apex Court has held as under:- "We are unable to accept the submission ofMr.Dastur. Undoubtedly section 80HHC hasbeen incorporated with a view to providingincentive to export houses. Even though aliberal interpretation has to be given tosuch a provision the interpretation has tobe as per the wording of this section. Ifthe wordings of the section are clear thenbenefits, which are not available under thesection, cannot be conferred by ignoring ormisinterpreting words in this section. Inthis case we are concerned with thewordings of sub-section (3)(c) of section80HHC. As noted earlier sub-section (3)(a)deals with the case where the export isonly of self manufactured goods. Sub- "We are unable to accept the submission ofMr.Dastur. Undoubtedly section 80HHC hasbeen incorporated with a view to providingincentive to export houses. Even though aliberal interpretation has to be given tosuch a provision the interpretation has tobe as per the wording of this section. Ifthe wordings of the section are clear thenbenefits, which are not available under thesection, cannot be conferred by ignoring ormisinterpreting words in this section. Inthis case we are concerned with thewordings of sub-section (3)(c) of section80HHC. As noted earlier sub-section (3)(a)deals with the case where the export isonly of self manufactured goods. Sub- section 3(b) deals with the case where theexport is only of trading goods. Thus whenthe Legislature wanted to take exports fromself manufactured goods or trading goodsseparately, it has already so provided insub-sections (3)(a) and (3)(b). It wouldnot be denied that the word 'profit' insection 80HHC(1) and sections 80HHC(3)(a)and (3)(b) means a positive profit. Inother words if there is a loss then nodeduction would be available under section80HHC(1) or (3)(a) or (3)(b). In arrivingat the figure of positive profit, both theprofits and the losses will have to beconsidered. If the net figure is a positiveprofit then the assessee will be entitledto a deduction. If the net figure is a lossthen the assessee will not be entitled to adeduction. Sub-section (3)(c) deals withcases where the export is of both selfmanufactured goods as well as tradinggoods. The opening part of sub-section (3)(c) states "profits derived from suchexport shall". Then follow (i) and (ii) theword "and" appears. A plain reading of sub-section (3)(c) shows that "profits fromsuch exports" has to be profits of exportsof self manufactured goods plus profits ofexports of trading goods. The profit is tobe calculated in the manner laid down insub-sections (3)(c)(i) and (ii). Theopening works "profit derived from suchexports" together with the word "and"clearly indicate that the profits have tobe calculated by counting both the exports.It is clear from a reading of section (1)of section 80HC(3) that a deduction can bepermitted only if there is a positiveprofit in the exports of both selfmanufacture goods as well as trading goods.If there is a loss in either of the twothen that loss has to be taken into accountfor the purposes of computing profits." Under section 80HHC(1), the deduction isto be given in computing the total income ofthe assessee. In computing the total income ofthe assessee both profits as well as losseswill have to be taken into consideration.Section 80AB is relevant. It reads as follows: 80AB: Where any deduction is required tobe made or allowed under any sectionincluded in this Chapter under the heading"C-Deductions in respect of certainincomes" in respect of an income of thenature specified in that section which isincluded in the gross total income of theassessee, then, notwithstanding anythingcontained in that section, for the purposeof computing the deduction under thatsection, the amount of income of thatnature as computed in accordance with theprovisions of this Act (before making anydeduction under this Chapter) shall alonebe deemed to be the amount of income ofthat nature which is derived or receivedby the assessee and which is included inhis gross total income." 80AB: Where any deduction is required tobe made or allowed under any sectionincluded in this Chapter under the heading"C-Deductions in respect of certainincomes" in respect of an income of thenature specified in that section which isincluded in the gross total income of theassessee, then, notwithstanding anythingcontained in that section, for the purposeof computing the deduction under thatsection, the amount of income of thatnature as computed in accordance with theprovisions of this Act (before making anydeduction under this Chapter) shall alonebe deemed to be the amount of income ofthat nature which is derived or receivedby the assessee and which is included inhis gross total income." Section 80B(5) is also relevant. Section 80B(5) provides that "gross total income" meansthe total income computed in accordance withthe provisions of the Income-tax Act. Section 80AB is also in Chapter VI-A. Itstarts with the words "where any deductionis required to be made or allowed underany section of this Chapter". This wouldinclude section 80HHC. Section 80ABfurther provides that "notwithstandinganything contained in that section". Thussection 80AB has been given an overridingeffect over all other sections in ChapterVI-A. Section 80HHC does not provide thatits provisions are to prevail over section80AB or over any other provisions of theAct. Section 80HHC would thus be governedby section 80AB. The decisions of theBombay High Court and the Kerala HighCourt to the contrary cannot be said to bethe correct law. Section 80AB makes itclear that the computation of income hasto be in accordance with the provisions ofthe Act. If the income has to be computedin accordance with the provisions of theAct, then not only profits but also losseshave to be taken into consideration." We need not deliberate this issue as the Hon'ble Supreme Court has already decided the issueand held that the incomes or losses of all theunits of the assessee's business will beclubbed together and taken together in view ofthe provisions of section 80HHC(3)(a) and 80ABof the Act and accordingly deduction undersection 80HHC will be provided. In view of this,we have no hesitation in deciding this issueagainst the assessee by following the decisionof the Hon'ble Supreme Court cited supra.Accordingly, this issue is decided against theassessee and in favour of the Revenue.... 11. We have heard the rival submissions andperused the case records. It is seen that thedonation made by the assessee as claimed by it,is an expenditure on scientific research and itshould have been allowed while comparing theincome from the business. The assessee hasclaimed that first, deduction under section80HHC should have allowed and then, theexpenditure under section 35(I)(ii) has to becharged. The C.I.T.(Appeals) has given afinding that this expenditure could notapportioned to various units of business of theassessee. According to him, this expenditure hasbeen incurred out of the income that has beenearned by the various units and therefore, itshould be apportioned on the basis of theprofits of the various units earned during theyears as reflected in the individual profits andloss account of the units. In the Income-taxAct, the deductions under Chapter VIA has to becomputed and section 80AB of the Act providesthat as to how it is to be computed inaccordance with the provisions of this Act andthat income alone shall be deemed to be theamount of income of that nature which isreceived by the assessee which is to be includedin its gross total income. In view of theprovisions of section 80AB, we feel that firstthe expenditure under section 35(I)(ii) is to becharged and then deduction under section 80HHCof the Act is to be allowed. Therefore, we haveno hesitation in upholding the action of theAssessing Officer and decide the issue againstthe assessee. 3. Learned counsel for the Assessee, Mr.Vijayaraghavan hassubmitted before us that the benefit of deduction under Section80HHC of the Act ought to have been allowed to the Assessee bythe Authorities below taking only the Export Turnover of the 4Units which export its products and the total turnover of those4 Units only could have been taken as total turnover for thepurpose of computing deduction under Section 80HHC of the Act.He further submitted that even though the Assessee has variousUnits about 10 and within which only 4 Units manufacture goodsand export the same and the remaining Units are making thedomestic sales only, the turnover for the purpose of Section80HHC should be computed only based on the Export Turnover ofthe 4 units separately for export units. The other contentionraised by the learned counsel for the Assessee was that one ofthe Units of the Assessee was engaged in the business of sellingfuel as Agent for the Government Oil Company and earned only'commission' income and therefore, such income should beexcluded from the definition of 'Turnover' while computingdeduction under Section 80HHC of the Act. 4. He further submitted with regard to the issue of Section35(I)(ii) of the Act that the expenditure was incurred by theAssessee in the form of Donations made to Aurobindo Ashram.which is engaged in the business of Scientific Research and wasduly approved for the said purpose and therefore, such anexpenditure should be taken as 'Donation' covered by the scopeof Section 80GGA of the Act and therefore, it cannot be deductedfrom the business profits while computing deduction underSection 80HHC of the Act. 5. On the other hand, the learned counsel for theRespondent/Revenue Mr.J.Narayanaswamy supported the impugnedorder of the learned Tribunal and urged that deduction underSection 80HHC has to be computed in cases of Assessee havingcomposite Units where some of which are engaged in exportinggoods as per the formula given in sub- section (3) of Section80HHC of the Act which is very clear in its terms of ExportProfits earned by the Assessee. Therefore, the deduction couldbe arrived at by dividing Export Turnover by the Total Turnoverof the Assessee, and only such proportion of Export Profit willbe eligible for deduction under Section 80HHC of the Act. 6. The issue on commission business from the sale of thefuel or oil on behalf of the Government Oil Marketing Company,the learned Senior Standing Counsel submitted that such issuewas not raised before the Authorities below and therefore,cannot be permitted to be raised before this court for the firsttime under Section 260A of the Act. On the other hand, thesecond question for allowing deduction under section 35(I)(ii)of the Act he submitted that the Assessee has claimed itself the https://hcservices.ecourts.gov.in/hcservices/ said Expenditure as Expenditure on Scientific Research by way ofpayment made to the approved institution and therefore, the samealso cannot be treated as donation under Section 80GGA of theAct as claimed by the Assessee. 7. Having heard the learned counsel for the Appellant, weare of the considered opinion that both the questions framed forconsideration deserve to be answered against the Assessee and infavour of the Revenue and the Appeals filed by the Assesseedeserve to be dismissed. The reasons are as follows:- 8. Firstly, as far as the computation of Export Profits ofeach unit basis is concerned, there is no scope for computationof Export Profit and Export Turnover separately for each Unitwhereas the cases of composite units carried on by the Assesseeis clearly covered by Sub-Section (3) of Section 80HHC of theAct. The said provision is quoted below for ready reference:- " (3) For the purposes of sub-section (1),- 7. Having heard the learned counsel for the Appellant, weare of the considered opinion that both the questions framed forconsideration deserve to be answered against the Assessee and infavour of the Revenue and the Appeals filed by the Assesseedeserve to be dismissed. The reasons are as follows:- 8. Firstly, as far as the computation of Export Profits ofeach unit basis is concerned, there is no scope for computationof Export Profit and Export Turnover separately for each Unitwhereas the cases of composite units carried on by the Assesseeis clearly covered by Sub-Section (3) of Section 80HHC of theAct. The said provision is quoted below for ready reference:- " (3) For the purposes of sub-section (1),- (a) where the export out of India is of goods ormerchandise manufactured or processed by theassessee, the profits derived from such exportshall be the amount which bears to the profits ofthe business, the same proportion as the exportturnover in respect of such goods bears to thetotal turnover of the business carried on by theassessee; (b) where the export out of India is of tradinggoods, the profits derived from such export shallbe the export turnover in respect of such tradinggoods as reduced by the direct costs and indirectcosts attributable to such export;" 9. The provisions of Explanation (baa) to Section 80 HHC arealso quoted below for ready reference:- "(baa) "profits of the business" means theprofits of the business as computed under thehead "Profits and gains of business orprofession" as reduced by-- (1) ninety per cent of any sum referred to inclauses (iiia), (iiib), (iiic), (iiid) and(iiie) of section 28 or of any receipts by wayof brokerage, commission, interest, rent,charges or any other receipt of a similar natureincluded in such profits; and (2) the profits of any branch, office, warehouseor any other establishment of the assesseesituate outside India;" 10. In view of the aforesaid clear position of law as heldby Hon'ble Supreme Court in IPCA Laboratory case (supra), we areof the view that the Total Turnover of the business carried onby the Assessee has to be placed in the denominator in theformula given in sub-section (3) of Section 80HHC quoted aboveand there is no question of treating the Export Profit from theExport Units as separate units of the Assessee for the purposeof computing the benefit of deduction under sub-Section (3) ofSection 80HHC of the Act. The very purpose of reducing the'Export Profit' proportionately which may be from one or fourunits as in the present case is to give the average effect byarriving at the 'Export Turnover' as divided by the 'TotalTurnover' of the Assessee of the Assessee during the year.Therefore, the entire Turnover of the business of the Assesseeincluding the Export Turnover of the Appellant has to beincluded in the denominator of the formula stipulated in sub-section (3) of Section 80HHC of the Act viz., Export Profit xExport Turnover (of all Export Units)/Total Turnover (of EntireBusiness of Assessee including Export and other Turnover). 11. The contention of the learned counsel for the Assesseethat in view of the judgment of Hon'ble Supreme Court in CIT v.Lakshmi Machine Works ((2007) 290 ITR 667 (SC)), the receipts,which do not partake the character of turnover, have to beexcluded from the computation of turnover, is misconceived. Thesaid observation of Hon'ble Supreme Court in the case of LakshmiMachine Works (supra) was made in the context of Explanation(baa) and in that context, the Hon'ble Supreme Court held thatthe receipts like Excise Duty and Sales Tax, which are IndirectTaxes and do not have any relevance with the export of goods,have to be excluded from the computation of Total Turnover andthat decision cannot be applied in the present case. Therelevant observation of the Hon'ble Supreme Court in LakshmiMachine Works (supra) is quoted below for ready reference:- "In the case of combined business of anassessee having export business and domesticbusiness the legislature intended to have aformula to ascertain export profits byapportioning the total business profits onthe basis of turnovers. Apportionment ofprofits on the basis of turnover was acceptedas a method of arriving at export profits. This method earlier existed under Excess Profits TaxAct, it existed in the Business Profits TaxAct. Therefore, just as commission received byan assessee is relatable to exports and yet itcannot form part of "turnover", excise duty andsales tax also cannot form part of the"turnover". Similarly, "interest" emanates fromexports and yet "interest" does not involve anelement of turnover. The object of thelegislature in enacting Section 80HHC of theAct was to confer a benefit on profits accruingwith reference to export turnover. Therefore,"turnover" was the requirement. Commission,rent, interest etc. did not involve anyturnover. Therefore, 90 per cent of suchcommission, interest etc. was excluded from theprofits derived from the export. Therefore,even without the clarification such items didnot form part of the formula in Section 80HHC(3) for the simple reason that it did notemanate from the "export turnover", much lessany turnover. Even if the assessee was anexclusive dealer in exports, the saidcommission was not includible as it did notspring from the "turnover". Just as interest,commission etc. did not emanate from the"turnover", so also excise duty and sales taxdid not emanate from such turnover.Since exciseduty and sales tax did not involve any suchturnover, such taxes had to be excluded.Commission, interest, rent etc. do yieldprofits, but they do not partake of thecharacter of turnover and, therefore, they werenot includible in the "total turnover". Theabove discussion shows that income from rent,commission etc. cannot be considered as part ofbusiness profits and, therefore, they cannot beheld as part of the turnover also. In fact, inCivil Appeal No.4409 of 2005, the aboveproposition has been accepted by the A.O. [See:page No.24 of the paper book], if so, thenexcise duty and sales tax also cannot form partof the "total turnover" under Section 80HHC(3),otherwise the formula becomes unworkable. Inour view, sales tax and excise duty also do nothave any element of "turnover" which is theposition even in the case of rent, commission,interest etc. It is important to bear in mindthat excise duty and sales tax are indirecttaxes. They are recovered by the assessee on behalf of the Government. Therefore, if theyare made relatable to exports, the formulaunder Section 80HHC would become unworkable.The view which we have taken is in the light ofamendments made to Section 80HHC from time totime." 12. These observations, with great respect, cannot help thecase of the Assessee to support his contention that theTurnover of the Assessee should be restricted to the Turnover ofthe Units engaged for export only. The contention that theCommission income from the sale of fuel at the Fuel Station inone of the units of the Assessee has to be excluded from theambit and scope of Turnover cannot be accepted since the saidissue has not been raised before the Authorities below andtherefore, we cannot permit the same to be raised for the firsttime in the present Appeals under Section 260A of the Act as itdoes not arise from the order of the Tribunal. Accordingly, thequestion NO.1 framed above deserves to be answered against theAssessee and in favour of the Revenue. We hereby do so. 12. These observations, with great respect, cannot help thecase of the Assessee to support his contention that theTurnover of the Assessee should be restricted to the Turnover ofthe Units engaged for export only. The contention that theCommission income from the sale of fuel at the Fuel Station inone of the units of the Assessee has to be excluded from theambit and scope of Turnover cannot be accepted since the saidissue has not been raised before the Authorities below andtherefore, we cannot permit the same to be raised for the firsttime in the present Appeals under Section 260A of the Act as itdoes not arise from the order of the Tribunal. Accordingly, thequestion NO.1 framed above deserves to be answered against theAssessee and in favour of the Revenue. We hereby do so. 13. As far as the second question is concerned also, we donot find any merit in the contention raised on behalf of thelearned counsel for the Assessee so long as the Assessee carrieson business and has business profits as declared by him and theexpenditure incurred by way of contribution made to someapproved institution for Scientific Research is concerned, theAssessee cannot claim it as a donation covered by the provisionsof Section 80GGA of the Act so as to take it out from the scopeof computation of business profits under Chapter IV Part Dwithin which Section 35 (I)(ii) also is included. 14. The object of raising such a contention before usappears to be to take some expenditure to be treated as donationso as to take it within the scope of Chapter VI-A which.provides for deduction from the Gross Total Income, so that ahigher profit can be treated as eligible for deduction underSection 80HHC of the Act. The said change of stand by theAssessee, particularly when the said Expenditure by way ofcontribution made to the approved Scientific institution hasbeen claimed by the Assessee as business expenditure only,cannot be permitted. Therefore, the second question alsodeserves to be answered against the Assessee and in favour ofthe Revenue by holding that the Assessee is not entitled toclaim expenditure incurred under Section 35(I)(ii) of the Act asdonation under Section 80GGA of the Act so as to exclude it fromthe amount eligible for deduction under Section 80HHC of theAct. Accordingly, the Appeals of the Assessee are liable to bedismissed and the same are dismissed. No order as to costs. Sd/- Assistant Registrar(CS III)//True Copy// Sub Assistant Registrarssk.To1. The Deputy Commissioner ofIncome Tax, Circle-I, Pondichery 625 003 & The Jt. CIT SpI.Rg.V, Chennai 600 034.2. Income Tax Appellate Triburial, Madras IB' Bench, Chennai.3. The Commissioner of Income Tax(Appeals) VIII, 121, Mahatma Gandhi Road, Chennai-600 034.4. The Joint Commissioner of Income Tax, Special Range V, Chennai-34.+12ccs to Mr.J.Narayanaswamy, Advocate, S.R.Nos.25923 to 25934+1cc to M/s.Subbaraya Aiyar Padmanabhan, Advocate, S.R.No.26344Tax Case Nos.253 to 264 of 2008AK(CO)CS/05/08/2019 Tax Case Nos.253 to 264 of 2008 https://hcservices.ecourts.gov.in/hcservices/