Mumbai 400 020 v. M/S. Ajanta Pharma Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1005 OF 2008 The Commissioner of Income Tax-9 ) Aayakar Bhavan, M.K. Road, Mumbai 400 020. )).. Appellant Versus M/s. Ajanta Pharma Ltd. 98, Charkop Industrial Estate, Kandivali (West),Mumbai 400 061. )...Respondent ) ) Mr. Parag Vyas with Mr.Suresh Kumar with Mr. P.S.Sahadevan for the Appellant. Mr.J.D. Mistry with Mr.A.K. Jasani and Mr. T.C.Tripati for Respondent. CORAM: FERDINO I. REBELLO &R.S.MOHITE, JJ.DATED: 7th May, 2009 ORAL JUDGMENT (Per F.I. Rebello,J.): .Admit on the following questions: restricted the deduction under Section 80 HHC to 80%. . The assessee aggrieved, preferred an appealbefore the C.I.T. (Appeals). After consideringthe contentions C.I.T.(A) was pleased to hold thatthe entire profits from exports are eligible for deduction in terms of Clause (4) of Explanation (1) to Section 115JB. . Revenue aggrieved preferred an appeal before theI.T.A.T. The learned tribunal after consideringthe various contentions as also the order of theSpecial Bench in Dy. Commissioner, Range III Vs.SIMCOM Ltd. (2007) 106 ITD 193 (Mum) (SB) waspleased to dismiss the appeal preferred by theRevenue by order dated 30.11.2007. It is thisorder which is the subject matter of the presentappeal.3. At the hearing of this appeal on behalf of theRevenue, it has been submitted as under:- Theexport profits to be excluded from the book profitswould be export profits allowed as a deductionunder Section 80 HHC after restricting thededuction as per the provisions of sub section(1B)of Section 80HHC of the Act and not export profitscalculated as per sub section 3 and 3A of Section80HHC without applying the restrictions containedin sub section 1B of section 80 HHC as contended onbehalf of the assessee. Section 80 HHC sub section1B was introduced by the Finance Act with effect from 1.4.2001 so as to phase out the deduction completely by assessment year 2005-06. . Section 115 JB was introduced by Finance Act,2000 with effect from 1.4.2001 i.e. with effectfrom the assessment year 2001-02 replacing theerstwhile section 115JA. As per memorandum ofFinance Bill 2000, the reason to introduce the said section was to simplify the Minimum Alternate Tax(MAT).The said Memorandum clarifying theprovisions of the Finance Bill 2000 sets out"Export provisions under Section 80 HHC were keptout of the purview of the provisions during theperiod of phasing out of deductions available underthose provisions." Considering the language ofExplanation (1) of sub clause (iv), the profitseligible for deduction under Section 80 HHC, asused in Section 115JB refer to profits allowed asdeduction under Section 80 HHC. Reference is thenmade to the meaning of the expression "Eligible"from dictionaries.The therefore under Section 80 HHC as per section115JB, is only that amount which is allowed as adeduction u/s. 80 HHC under normal provisions ofthe Act. The expression "Profits eligible fordeduction under section 80 HHC" can only mean thatthe term refers to the export profits actuallyallowed as a deduction under section 80 HHC asotherwise an absurdity is created to the extentthat while no full deduction is allowed of exportprofits under section 80 HHC, for the purpose of eligible deduction therefore under Section 80 HHC as per section115JB, is only that amount which is allowed as adeduction u/s. 80 HHC under normal provisions ofthe Act. The expression "Profits eligible fordeduction under section 80 HHC" can only mean thatthe term refers to the export profits actuallyallowed as a deduction under section 80 HHC asotherwise an absurdity is created to the extentthat while no full deduction is allowed of exportprofits under section 80 HHC, for the purpose of eligible deduction section 115 JB such profits are calculated andexcluded from book profits which was never theintention of the legislature as brought out fromthe Memorandum explaining the Finance Bill 2000.While construing or interpreting the provisions oflaw, an interpretation that results in an absurdsituation is to be avoided and preference is to begiven to a workable interpretation bearing in mindthat MAT was introduced to ensure that companieswhich take advantage of deductions available undernormal provisions of the Act are required to paysome minimum tax. In the alternative it issubmitted that even if the term "profits" eligiblefor deduction under section 80 HHC" is referable tothe profits calculated before applying thelimitation specified in sub section 1B of section80 HHC, one has to bear in mind the expression"subject to the conditions specified in section 80HHC".The dictionary meaning of the word"condition" is sought to be relied upon. It istherefore, submitted that sub section 1B is therestriction and limitation to the deduction undersection 80 HHC and has to be considered whilecalculating export profits from the book profitsfor the purpose of section 115JB. That alsobecomes apparent from the examination of theprovisions of section 115 JA.provisions of 80 HHC and section 115 JB would haveto be considered while construing the provisions. The Finance Minister’s speech and the Memorandum The entire explaining the clauses cannot by itself be used tointerpret the literal meaning of the Act. Relianceis placed in the judgment of the Supreme Court in the case of P.V. Narsimha Rao Vs. State, AIR 1998SC 2120. It Is, therefore, submitted thatconsidering the language of the two provisions, itleads to the only conclusion that what has to bereduced is the amount of export profits eligiblefor deduction in terms of sub section 1B of Section80 HHC. of profits and can never take within its ambit a particular proportion or quantum thereof. matter clear beyond any doubt. Such wording is not used in this case. DCIT Vs. Govind Rubber Ltd. 82 TTJ 615 should be accepted. interpretation as followed in our jurisdiction. Aword of caution, it is only in the event when theliteral interpretation would lead to an absurdityor defeat the object or intent of the Legislationand not otherwise. The principle of all fiscallegislation is that if the person sought to betaxed comes within the letter of the law he must betaxed, however, great the hardship may appear tothe judicial mind to be. On the other hand, if theState, seeking to recover the tax, cannot bring thesubject within the letter of the law, the subjectis free, however, apparently within the spirit ofthe law the case might otherwise appear to be.Taxing statutes cannot be interpreted on anypresumptions or assumptions. The court must looksquarely at the words of the statue and interpretthem. It must interpret a taxing statute in thelight of what is clearly expressed; it cannotimply anything which is not expressed, it cannotimport provisions in the statutes so as to supplyany assumed deficiency (CST vs. Modi Sugar Mills Ltd. AIR 1961 SC 1047. 6. It would therefore, be gainful to refer to some relevant provisions of Section 80HHC. be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B) derived by the assessee from the export of Ltd. AIR 1961 SC 1047. 6. It would therefore, be gainful to refer to some relevant provisions of Section 80HHC. be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B) derived by the assessee from the export of suchgoods or merchandise: Provided.......... (1A) ................ (4C) ................... (emphasis supplied). No deduction is available after 1-4-2005 and subsequent years. 7. Section 115JB was inserted by the Finance Act,2000 with effect from 1.4.2001. (2) Every assessee, being a company, shall, for the purposes of this section, prepareits profit and loss account for the relevantprevious year in accordance with theprovisions of Parts II and III of ScheduleVI to the Companies Act, 1956 (1 of 1956). Provided ............. (a) ...... (b) ...... (c) ...... (d) ...... (e) ...... (f) ....... (g)....... (h) the amount of deferred tax and the provision therefor, if any amount referred to in clauses (a) to (h) is debited to the profit and loss account, and as reduced by-- (i) ........... (ii)........... (iii) ......... into effect from 1.4.1989, by introducing (iii) to the explanation and which reads as under : "the amounts as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clause(i) and (ii) attributable to the business,the profits from which are eligible fordeductionunder section 80 HHC or section 80HHD; so, however, that such amounts arecomputed in the manner specified in subsection (3) or sub section (3A) of section80HHCor sub section (3) of section 80 HHD, as the case may be, or ...." (emphasis supplied) . .The Legislature, therefore, in case of MAT Companies choose not to initially give them the benefit of reduction of export profits. 9. Section 115JA was introduced by the FinanceAct,1996 with effect from 1.4.1997. The languageof section 115JA(1) is also similar to languageused in Section 115J. In so far as reduction ofexport profits under Section 80 HHC they were notavailable when the Section was first introduced. But by the Finance Act, 1997 it was introduced with effect from 1.4.1998 and which reads as under: "the amount of profits eligible fordeductionunder section 80 HHC,computedunderclause (a), (b) or (c) of sub section(3)orsub section (3A),as the case may be,of that section, and subject to thecondition specified in sub sections (4) and deductions of profits to the extent referred to in sub- section (1B). profits until introduction of sub section 1B of section 80 HHC. Maharashtra & Ors. AIR 2001 S.C., the same view was explained as under:- cardinal principle of interpretation ofstatute that the words of a statute must beunderstood in their natural, ordinary orpopular sense and construed according totheir grammatical meaning,unless suchconstruction leads to some absurdity orunless there is something in the context orin the object of the statute to suggest tothe contrary. The golden rules is that thewords of a statute must prima facie be giventheir ordinary meaning. It is yet anotherrule of construction that when the words ofthe statute are clear, plain and unambiguousthen the Courts are bound to give effect tothat meaning, irrespective of theconsequences. It is said that the wordsthemselves best declare the intention of thelaw giver. The courts have adhered to theprinciple that efforts should be made togive meaning to each and every word used bythe Legislature and it is not a soundprinciple of construction to brush asidewords in a statute as being inapositesurpluses, if they can have a properapplication in circumstances conceivablewithin the contemplation of the statue...."15. Whether speeches made on the floor of theHouse were admissible in interpreting theprovisions. Speeches made by the Members of the for the purpose of ascertaining what was the reason for the purpose of ascertaining what was the reason for introducing that clause. . Reference also may be made to the judgment may be looked into but not otherwise...." . The Court then observed : mischief which the Statute was intending to remedy. The court recorded its unhesitent concurrence to the proposition. 80HHC or under section 80 HHG from the purview of minimum alternate tax. 115JB. Referring to Clause 49 in the notes of clauses it was provided as under : "The book profit shall mean the net profitas shown in the profit and loss accountprepared in accordance with the provisionsof Parts II and III of Schedule VI to theCompanies Act, 1956, as reduced by certainadjustments, as specified. The profitsreceived in convertible foreign exchange andeligible for deduction under Section 80 HHCor section 80 HHE or section 80 HHF or the Income referred to in section 10 or section 10A or section 10B shall be excluded while working out "book profits". (emphasissupplied). . In the Memorandum explaining the provisions in the Finance Bill it was provided as under : "fit or entitled to be chosen". of which something else depends". have a meaning different from the meaning then what was originally understood, Considering (iv) to Explanation-I of Section 115JB. export profits is discontinued. The assesseesargument is that only in case of companies notcovered by section 115JB to then Section 1B ofsection 80 HHC would apply. In so far as MATcompanies are concerned, the profits eligible fordeduction are as computed under sub-section (3) or(3A) of Section 80HHC without applying sub-section(10). This argument is based on the expression "computed under sub-section (3) or sub-section (3A) as the case may be. 24. For that purpose, we will have to examine the true scope and effect of section 80HHC. . Section 80 HHC, the relevant provisions to whichwe have earlier reproduced is sub-section (1),which provides, that in computing the total incomeof the assessee, a deduction is to be made to theextent of profits referred to in sub section (1B)derived by the assessee from the export of suchgoods. The section as amended has brought in thewords "deduction to the extent of profits" referredto in sub-section (1B) by Finance Act,2000 witheffect from 1.4.2001. If the construction soughtto be given by Counsel for assessee is accepted itwould make sub- section (1B) irrelevant for thepurpose of Section 115JB. Sub-Section 1B providesfor deduction in terms set out therein. Subsection (3) sets out the method of computation ofprofits. The computation of profits is, therefore, the first day of April, 2005 and any subsequent year, shall be rendered otiose. under Section 80HHC, for the purpose of Section115JB. the view taken by the Benches. Those decisions in view of this judgment stand overruled. consideration. negative in favour of the revenue and against the assessee. 32. Appeal disposed of accordingly. (R.S.MOHITE, J.) (F.I.REBELLO, J.)