The Income Tax Officer, City Circle Ii(6), Chennai v. M/S.sunshine Enterprises

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22.2.2006 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A) No.124 of 2000 The Income Tax Officer,City Circle II(6), Chennai.. Appellant Vs.M/s.Sunshine Enterprises,No.9, Vijaya Raghava Road,T.Nagar, Chennai-17.. Respondent ----- Appeal under Section 260A of the Income Tax Act, 1961 against thecommon order of the Income Tax Appellate Tribunal, Madras 'C' Bench dated11.11.1998 in ITA No.2626/Mds/1991 for the assessment year 1989-90 againstthe Order dated 8.8.91 on the file of the Commissioner of Income Tax(Appeals) VI, Madras and against the Order dated 26.12.90 on the file ofthe Income Tax Officer, City Ward II(6), Madras 6. For Appellant:Mrs.Pushya Sitaraman, Senior Standing counselJ U D G M E N T (Delivered by P.D.DINAKARAN,J.) The above tax case appeal is directed against the order of the Income-tax Appellate Tribunal dated 11.11.1998 made in ITA No.2626/Mds/1991,raising the following substantial question of law. "Whether on the facts and in the circumstances of the case theAppellate Tribunal was right in law in holding that the assesseewas entitled to deduction under Section 80 HHC of the Income TaxAct, 1961?". 2. The brief facts leading to the filing of the above appeal are asunder. 2.1. The assessee firm is engaged in the business of manufacturing andexporting granites. It has filed its return on 30.11.1989 admitting anincome of Rs.5,01,790/-. The assessee claimed relief under Section 80HHCfor the A.Y.1989-90 claiming that the activity of excavating graniteblocks, cutting and polishing them with the help of machines, amounts tomanufacture or production of an article or thing. The assessing officerturned down the claim of the assessee. Hence, the assessee went on appealbefore the Appellate Commissioner of Income Tax, who, decided the issue infavour of the assessee by following the earlier decisions of the Tribunal. 2.2. Aggrieved by the order of the Appellate Commissioner of IncomeTax, the Revenue preferred an appeal before the Appellate Tribunal, which,confirmed order of the Commissioner of Income Tax (Appeals). Hence, theRevenue preferred the above appeal. 3. Heard the learned Senior Standing counsel appearing for theappellant, who states that the issue involved in this appeal is answeredin favour of the Revenue by this Court in COMMISSIONER OF INCOME TAX VS.POOSHYA EXPORTS P. LTD.,(262 ITR 417), which has been confirmed by theSupreme Court in GEM GRANITES V. COMMISSIONER OF INCOME TAX(271 ITR 322). 4. There is no dispute that granite is covered by the word 'minerals'in the exclusionary clause (b) of sub-section (2) of Section 80HHC. Itwould follow that for the un-amended section 80HHC(2)(b) 'cut andpolished' granite would also be a mineral. The word 'mineral' as used insub-section (2)(b) to section 80HHC has been widely discussed by theSupreme Court in STPMECRAFT ENTERPRISES (237 ITR 131), wherein it has beenheld that: "The word 'minerals' in sub-section (2)(b) of section 80HHC mustbe read in the context of 'mineral oil' and 'ores' with which itis associated. It seems to us that these words taken togetherare intended to encompass all that may be extracted from theearth. All minerals extracted from the earth, granite includedmust, therefore, be held to be covered by the provisions of sub-section (2)(b) of Section 80HHC, and the exporter thereof, istherefore, dis-entitled to the benefit of that Section." It is further held therein that: "The word 'minerals' in sub-section (2)(b) of section 80HHC mustbe read in the context of 'mineral oil' and 'ores' with which itis associated. It seems to us that these words taken togetherare intended to encompass all that may be extracted from theearth. All minerals extracted from the earth, granite includedmust, therefore, be held to be covered by the provisions of sub-section (2)(b) of Section 80HHC, and the exporter thereof, istherefore, dis-entitled to the benefit of that Section." It is further held therein 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 to includeall kinds of minerals in all its forms, i.e. whether subjected toany process or not as long as it continued to retain thecharacteristics of the mineral. To hold that the word 'minerals'never included processed minerals would require our reading wordsof limitation into an otherwise clear and unambiguous statutory provision." 5. This Court in COMMISSIONER OF INCOME TAX VS. POOSHYA EXPORTS P.LTD.,(262 ITR 417), following the dictum referred to above, held that inthe absence of any particulars on record to construe that the exportedgranites are value added, the assessee is not entitled to the benefitunder Section 80HHC of the Act. 6. The above said decision of this Court has been affirmed by theSupreme Court in GEM GRANITES V. COMMISSIONER OF INCOME TAX(271 ITR 322),wherein the Supreme Court has elaborately discussed the assessees'entitlement of benefit under Section 80HHC towards 'cut and polished'granites on the basis of the Board's circulars, which reads as follows: "It is clear from the language used in Circular F.No.178/206/83-IT(A-I), dated May 22, that the CBDT gave its understanding ofsection 80HHC(2)(b) as it stood prior to the 1991 amendment withregard to diamonds and gem stones having regard to the peculiarfacts and features relating to the export and import ofdiamonds. The circular contains no reference to granite and onecannot extend the understanding of the Board with regard toexclusion of cut and polished diamonds and gem from the word'minerals' to granite in the absence of the special featuresmentioned in the 1984 circular, more so when the statute itselfhad not drawn such distinction. The 1994 and 1995 circulars both relate to the interpretation ofitem No.(x) in Schedule XII and are confined to an exposition ofthe phrase 'cut and polished' used in that item. They do notseek to interpret the word 'minerals'. The 1994 circularclarified that the phrase 'cut and polished' minerals meantexactly that and could not be extended to any other process.The 1995 circular modified the rigour of the 1994 circular tothe extent that it recognized some other process as fallingwithin the phrase 'cut and polished'. Board circulars clearlystate that the benefit of Section 80HHC was available to cut andpolished granite only with effect from April 1, 1991, by virtueof the insertion of item No.(x) in Schedule XII. 7. In view of the forgoing conclusion, we hold that the assessee whichexported granite after being cut and polished, was not entitled to claimthe deduction under Section 80HHC of the Income-tax Act, 1961, in respectof the profits from the export business for the assessment year 1988-89.Accordingly, the order of the Tribunal is set aside and the question of law is answered in favour of the Revenue and the appeal is allowed. Nocosts. Sd/-Asst. Registrar. /true copy/ To 1. The Assistant Registrar, Income Tax Appellate Tribunal,Rajaji Bhavan, Besant Nagar,Chennai 90.(with records). Sub Asst. Registrar. 2. The Secretary,Central Board of Direct Taxes, New Delhi. 3. The Commissioner of Income Tax(Appeals),VI Besant Nagar, Chennai 90. 4. The Commissioner of Income Tax,Tamil Nadu II Besant Nagar, Chennai 90. 5. The Income Tax Officer,City Circle II (6), Madras. law is answered in favour of the Revenue and the appeal is allowed. Nocosts. Sd/-Asst. Registrar. /true copy/ To 1. The Assistant Registrar, Income Tax Appellate Tribunal,Rajaji Bhavan, Besant Nagar,Chennai 90.(with records). Sub Asst. Registrar. 2. The Secretary,Central Board of Direct Taxes, New Delhi. 3. The Commissioner of Income Tax(Appeals),VI Besant Nagar, Chennai 90. 4. The Commissioner of Income Tax,Tamil Nadu II Besant Nagar, Chennai 90. 5. The Income Tax Officer,City Circle II (6), Madras. + 1 CC to M/s.Pushya Sitaraman, Advocate SR NO 8356 msr(co) gp/20.3. T.C.(A).No.124 of 2000 22.2.2006.