Income Tax Appellate Tribunal - Delhi
Asian Hotels Ltd. vs Deputy Commissioner Of Income Tax on 28 March, 2002
Equivalent citations: [2002]81ITD127(DELHI), [2003]264ITR20(DELHI)
JUDGMENT
1. This appeal of the assesses is directed against the order dt. 16th Feb., 1994, recorded by CIT, Delhi-III, New Delhi, under Section 263 of IT Act, 1961 (hereinafter referred to as Act), by which the AO was directed to withdraw the deduction under Section 80HHD of the Act to the extent it relates to the amount of Rs. 4,03,09,863 representing the receipt in Indian rupees from the tour operator of foreign tourists and the amount of Rs. 5,27,22,837 being equivalent to foreign exchange converted by the assessee as restricted money changer.
2. The relevant facts are that the assessee was found running a hotel in Delhi in the name of M/s Hyatt Regency during asst. yr. 1989-90, the year under consideration and the assessee filed return declaring income under Section 115J of the Act. It appears that assessment order purporting to be under Section 143(3) of the Act was framed on 23rd March, 1992, in which income was assessed at Rs. 47,74,667 under Section 115J of the Act. The CIT Delhi-III, New Delhi, after going through the assessment record for the year under consideration came to the conclusion that assessment order under Section 143(3) of the Act is erroneous in so far as it was prejudicial to the interest of Revenue. He proceeded to take actionunder Section 263 of the Act and issued the following notice to the assessee on 5thMarch, 1993 :
"Assessment in your case for asst. yr. 1989-90 was completed under Section 143(3) on 22nd March, 1992, on total income of Rs. 47,72,667 i.e., 30 per cent of the book profit of Rs. 1,59,15,556.
A perusal of records shows that the above said order under Section 143(3) is erroneous in sofaras it is prejudicial to the interest of Revenue for the reasons mentioned below :
You have claimed deduction of Rs. 4,07,35,775 under Section 80HHD of the Act from your book profit of Rs. 5,66,51,332. This deduction under Section 80HHD has been claimed on the basis of foreign exchange receipts shown at Rs. 28,63,38,220 which also included the following amounts :
Rs> (a) Receipt from agents of foreign tourists in Indian currency 4,03,09,863 (b) Foreign exchange converted by the assessee as an authorised money changer 5,27,22,837
The deduction under Section 80HHD is available to the first receipts of convertible foreign exchange whether it is the hotal or the travel agent or the tour operator. Upto the asst. yr. 1991-92, there is no provision in Section 80HHD for apportioning the benefit between the travel agents, hotels, tour operators etc. The receipts from agents of foreign tourists in Indian currency is therefore, cannot be deemed as a receipts in convertible foreign exchange. The deduction under Section 80HHD is, therefore, cannot be allowed in respect of these receipts.
As regards the amount of Rs. 5,27,22,837 received on "account of foreign exchange converted as an authorised money changer, there seems to be no services rendered except for converting the foreign exchange into Indian currency and no profit is earned on services by the hotel to the foreign tourists.
As per provisions of Section 80HHD of the Act, the deduction is admissible only on profits derived from services provided to foreign tourists. The deduction under Section 80HHD has, therefore, been allowed erroneously, I, therefore, propose to revise the order passed for asst. yr. 1989-90 in your case. You, are, therefore, required to. show-cause on 9th May, 1993 in person or by authorised representative to explain why the deduction under Section 80HHD should not be disallowed for the asst. yr. 1989-90,"
The assessee put in appearance before the GIT, Delhi-III, New Delhi, and submitted written submissions with averment that assessment order allowing deduction under Section 80HHD at Rs. 4,07,35,775 had rightly been completed. It was submitted further that previsions of Section 80HHD of the Act applied to the services provided to foreign tourists and receipt in relation thereto in convertible foreign exchange. The term 'convertible foreign exchange' was explained in Expln. (b) to the Section 80HHD to the effect that foreign exchange being so treated by the Reserve Bank of India (RBI) under Foreign Exchange Regulation Act (hereinafter referred to as FERA Act) 1973. The attention of the learned GIT was also invited to the definition of convertible foreign exchange as given out in Section 2(b) of FERA 1973, and contended that the receipt of convertible foreign exchange has to be in lieu of services provided to foreign tourists and that also includes amount received by the assessee from travel agents for services rendered to foreign tourists and further includes amount received consequent to foreign exchange being converted by the hotel. It was the case of the assessee that every foreign tourist is expected to make payment to a hotel in foreign exchange as per Government's Notification No. F-1/64/EC/80, dt. 20th Aug., 1981, and in case any foreign national on visit to India had paid foreign exchange to an airline or to a travel agent holding licence granted by the RBI under Section 32 of the Act and made payment in Indian currency accompanied with certificate by airline or travel agent confirming that payment made out of rupee funds obtained out of the conversion of foreign exchange by airline or travel agent then such payment are to be deemed as payment in convertible foreign exchange. The assessee further relied upon Section 5 of the Expenditure Tax Act, 1987, r/w Rule 4 of the Expenditure Tax Rules, 1987, and claimed that foreign exchange includes any payment made in Indian currency obtained by conversion of foreign exchange into Indian currency and any expenditure out of that shall be "deemed to have been incurred in foreign exchange." The plea of the assessee was that rupee payments made by the travel agents for, services rendered by the hotel to the foreign tourists are to be treated as receipt in foreign exchange.
2.1 About the amount of Rs. 5,27,22,837 foreign exchange converted by the assessee as restricted money changer, the assessee submitted that the Reserve Bank of India under Section 7 of FERA Act, 1973, grants restricted money changer's licence and assessee was granted such licence. The assessee is expected to obtain such licence to claim the status of 5 star hotel. The services so rendered by the assessee to the foreign tourist is not a profitable service rather hotel has to incur cost by way of interest on rupee floating and had to maintain an office with certain employees but in Section 80HHD all services of whatever kind, except sale of articles through shop, should be covered by term services provided by foreign exchange. The assessee claimed that service to foreign tourist as authorised money changers are not to be excluded from the definition of services provided to foreign tourist under Section 80HHD.
3. It appears that the learned GIT, New Delhi, considered the submissions of the assessee and noted that provisions of Section 80HHD are a sort of concession extended to assessees with a purpose to boost earnings in foreign exchange but these concession can be extended to assessee if that assessee fulfils the requisite conditions laid down under the provisions of that section. It was the view of the CIT that section applies to the receipts received by the assessee in convertible foreign exchange and there was no provision for 'deeming receipt' as argued by the assessee for rupee payments received by the assessee even if the same is out of convertible foreign exchange given by foreign tourist to any travel agent or airline. The plea, of the assessee about deeming provisions of Expenditure Tax Act, 1973, and exemption vide Notification No. F-1/64/EC/8, dt. 28th Aug., 1981, under FERA 1973. was found of no avail as those provisions are exemption allowed to the foreign nationals to make payments in Indian rupees received out of convertible foreign exchange and do not grant any concession or exemption to the Indian recipients. He further observed that AO was not justified in accepting the explanation of the assessee on that point in utter disregard to the Circular No. 621, dt. 19th Dec., 1991. (published at (1991) 101 OTR (St) 1] issued by CBDT which clarifies the situation for the period prior to 1st April, 1992. The learned CIT reproduced the relevant paras of that circular and observed that in the year under consideration, the benefit of Explanation added to Sub-Section (2) of Section 80HHD cannot be given to assessee as intention of legislature was to extend the benefit from asst. yr. 1992-93 onwards as clarified by CBDT in that circular. He further noted that before the addition of Explanation to Section 80HHD (2) the benefit was available to first recipient of foreign exchange.
4. So far as the amount of foreign exchange converted by the assessee as restricted money changer, the learned CIT noted that assessee had admitted not to have earned any profit out of this service allegedly rendered to foreign tourist. The activity of money changing was not part of business of the assessee but it was statutory requirement under FERA 1973, and for getting recognition as 5 star hotels. The CIT further concluded that assessee had not shown the amount of foreign exchange converted by it to the P&L a/c. The provisions of Section 80AB of the Act requires that income out of which any deduction under Chapter VI-A of the Act is being claimed, should be included in the gross total income of the assessee but admittedly the amount for which foreign exchange was converted by the assessee does not form part of gross total income of the assessee. According to the learned CIT, the assessee is not having money changing as its real business but he is only acting as a sub-agent of State Bank of India (SBI) for money changing purposes. He deposits the foreign exchange receipt with the main dealer viz., SBI at the same rate on which it was received by him. Such receipts of foreign exchange does not form part of the hotel business by any stretch of arguments. This activity which can be termed as 'a facility' being extended to foreign tourists is to attain the status of five star hotels. On the basis of all these, the learned CIT concluded that no profit was being earned by the assessee from this activity nor any element of profit can be attributed to this activity nor it is a service but a statutory necessity under FERA and for recognisation as a five star hotel and thus the foreign exchange so received cannot be included for claiming the deduction under Section 80HHD. In this context, he has also taken into consideration the Note No, 4 of Annexure I of assessee's own auditors M/s Atul Rajendra and Associates in which auditors have opined that assessee had not rendered any service against foreign exchange of Rs. 5,27,22,837 earned by the assessee for conversion thereof to Indian currency and thus no claim of the assessee under Section 80HD was allowable in that context. On the aforesaid reasoning, the AO was directed by the learned CIT to withdraw the deduction under Section 80HHD to the extent it relates to above referred to amount of Rs. 4,03,09,863 representing the receipt in Indian rupees from the tour operator/agents of foreign tourists and in respect of Rs. 5,27,22,837 being equivalent to foreign exchange converted by the assessee as restricted money changer. This order is subject-matter of appeal preferred by the assessee.
5. Shri R. Ganesan, the learned representative of the assessee, had assailed the order of the learned CIT mostly on the ground taken up by the assessee before the learned CIT- The learned counsel for the assessee took up the first plea in respect of amount of Rs. 4,03,09,863 received by the assessee in Indian currency from agents of foreign tourist out of foreign exchange received by those agents. Our attention was drawn to the definition of 'convertible foreign exchange' given in the Expln. (b) to Section 80HHD which provides that definition of above shall be the same as is given in Expln. (a) of Section 80HHC. The Section 80HHC Expln. 1 provides that 'convertible foreign exchange' means foreign exchange which is for the time being treated by the RBI as convertible foreign exchange for the purpose of FERA, 1973, and any rules made thereunder. The learned representative further pointed out that 'foreign exchange' had been defined in Section 2(b) of FERA Act as under;
"(i) all deposits, credits and balances payable in any foreign currency and any drafts, travellers cheques, letter of credit and bills of exchanger, expressed or drawn in Indian currency but payable in any foreign currency; (ii) any instrument payable, at the option of the drawee or holder thereof or any other party thereto, either in Indian currency or in foreign currency or partly in one and partly in other."
The learned counsel further pointed out that the above definition of 'convertible foreign exchange' denotes that amount received in rupees from the travel agents is to be 'deemed to be received in convertible foreign exchange'. He further referred to the provisions of Section 5 of the Expenditure Tax Act, 1987, r/w Rule 4 of the Expenditure Tax Rules, 1987, and pointed out that 'foreign exchange' includes any payment made in Indian currency obtained by conversion of foreign exchange into Indian currency and that shall be deemed to have been incurred in foreign exchange. On the basis of above, it was pleaded that the assessee had received the above amount of Rs. 4,03,09,863 in Indian currency out of foreign exchange received by these agents and that is to be deemed to have been received in convertible foreign exchange and assessee was entitled for that deduction claimed under that Section 80HHD.
6. The other plea of the learned counsel for the assessee was that the learned CIT was not justified in placing reliance on the CBDT Circular No. 621, dt. 19th Dec., 1991, and in observing that Explanation attached to Sub-Section (2) of Section 80HH was not retrospective in nature and was applicable from 1st April, 1992, and in relation to asst. yr. 1992-93. The plea in this context put up by the learned representative of the assessee was that Explanation added to Sub-Section (2) of Section 80 HHD was declaratory/clarificatory in nature and is to be treated as retrospective in nature. He submitted further that presumption against retrospective operation is not applicable to declaratory statutes. The above Explanation was an attempt made by legislature to remove doubts existing as to the common law or to give effect to the actual intention of the legislature. Such act are usually held to be retrospective. The Parliament in its wisdom thought that there had been a judicial error in denying the benefit to hotels for claiming deduction under Section 80HHD as they were the actual persons rendering the services to foreign tourist and impliedly earning foreign exchange. It was sort of a judicial error and to remove the ambiguity, legislature has added the Explanation to Sub-Section (2) of Section 80HHD extending the benefit of Section 80HHD to the correct person viz., the hotel owners who were rendering the services to the foreign tourists and the basic source of earning the foreign exchange.
Accordingly, that Explanation is to be given effect with retrospective effect and to be treated that said Explanation was from the date when Section 80HHD was brought to the statute.
7. In support of the above plea, the learned counsel for the assessee has placed reliance on the decision of CIT v. Podar Cement (P) Ltd. and Ors. (1997) 226 JTR 625 (SC) in which their Lordship of Honourable Supreme Court have laid down that presumption against retrospective operation is not applicable to declaratory statutes. A declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended. Accordingly to the learned counsel for the assessee, this clears the whole of the confusion which prevailed in the mind of CIT while interpreting the actual intention of the legislature. The learned CIT should have not placed the reliance on the CBDT Circular No. 621, dt. 19th Dec., 1991, as Explanation was to be regarded as clarificatory/declaratory in nature and applicable with retrospective effect.
8. The other plea of the learned counsel for the assessee was in respect of Rs. 5,27,22,837 amount of foreign exchange received by assessee for conversion to Indian currency in the capacity of authorised money changers. The contention of the learned counsel is that provisions of Section 80HHD are applicable to any service rendered by hotel owners to foreign tourists. The assessee had extended services to foreign tourists in respect of conversion of foreign exchange to Indian currency. This service is to be regarded as eligible service for claiming deduction under Section 80HHD as in the provisions of Section 80HHD there is no distinction in services to be rendered to the foreign tourists. It has also been the case of the assessee that no doubt it was essential condition for the assessee to act as restricted money changer to claim five star hotel status for hotel but that itself does not exclude the assessee from getting the deduction under Section 80HHD as for that assessee had been rendering the service to the foreign tourist. The observation of the CIT that it was a simple facility being extended by the assessee is not warranted. It was also stressed by the learned counsel that no doubt the assessee had not been including that amount to its P&L a/c but that fact will again not to be made basis for refusing the claim of the assessee as it is not a requirement for allowing the claim of deduction for 80HHD. The contrary observation of the learned CIT were not in the correct context. In the end, the learned counsel submitted that the AO was justified in allowing the claim of the assessee in respect of these two amounts also and the learned CIT was not justified in treating the order as erroneous so as to the prejudice to the interest of the Revenue and appeal should be allowed.
9. As against the above, the learned Departmental Representative had placed reliance on the order of the CIT-III, New Delhi, and contended that definition of other statute cannot be pressed into service for interpreting the provisions of any particular statute and reliance was placed on the decision of Bombay High Court in the case of CWT v. State Bank of India (1995) 213 FTR 1 (Bom). On the basis of that it was contended that deeming provisions of FERA 1973, and that of Expenditure Tax Act, 1987, r/w Rule 4 of Expenditure Tax Rules, 1987, cannot be used for interpretation of the provisions of Section 80HHD as those provisions are meant for these Acts It was also the contention of the learned Departmental Representative that CIT was justified in ignoring the provisions of Expenditure Tax Act r/w Rule 4 of the Expenditure Tax Rules, 1987, on the ground that those provisions provides a benefit of claiming exemption to foreign national to pay in Indian currency to hotels, etc. out of Indian currency received by them after foreign exchange converted by their agents/tour operators. This exemption cannot be pressed into service to extend to claim any benefit of Section 80HHD to the assessee who has to win or loose only when he complies the requirement of Section 80HHD.
10. The learned Departmental Representative submitted that Expln. 2 to Sub-Section (2) of 80HHD was not clarificatory/declaratory in nature but it has provided an additional benefit to hoteliers, etc. who were otherwise not entitled for the benefit of deduction under Section 80HHC prior to asst. yr. 1992-93. This was nothing but extension of the earlier provision as initially it was tour operators or tour agents who were entitled to get deduction under Section 80HHD as they were first recipient of foreign exchange from foreign tourists. The intention of the legislature was to earn maximum foreign exchange and the person who were the earners of that foreign exchange were being given benefit under different provisions of different laws and under IT Act those earners of foreign exchange were given different incentives and deduction under Section 80HHD was one of them. There should have not been two assessees to claim benefit under Section 80HHD for the same amount of foreign exchange. Not only this CBDT vide its Circular 621, dt. 19th Dec., 1991, which had been reproduced by the learned CIT in his impugned order. It has been clarified that amendment will take effect from 1st April, 1992, and shall apply to asst. yr. 1992-93 and subsequent years. This makes it abundantly clear that provisions are not retrospective in nature. Reliance has been placed on the decision of the Special Bench. Tribunal Delhi Bench, in the case of Rishirup Chemicals (P) Ltd. v. ITO (1991) 39 TTJ (Del) (SB) 660 : (1991) 36 ITD 35 (Del) (SB) in which it has been held that no statute shall be construed to have retrospective operation unless such a construction appear very clearly at the time of passing of the Act or arises by necessary and distinct implication. If nothing was mentioned in the proviso that would be retrospective and legislature had taken care to see that said provisions will apply from 1st April, 1988, then it is very difficult to say that it was intended to apply retrospectively either by construction or by necessary implication. The learned Departmental Representative was of the view that in view of the above analogy laid down by the Special Bench of Tribunal which squarely applies to the Explanation added to Sub-Section 2 of Section 80HHD, it cannot be said that said Explanation was clarificatory/declaratory in nature and having retrospective effect. The contention was that the assessee had not received foreign exchange at the first instance and he was not entitled to get deduction on the amount of Indian rupees which he received from tour operators/agents out of foreign exchange they received.
11. About the other amount of Rs. 5,27,22,837 received by assessee as foreign exchange for conversion, the same was the submission of the learned Departmental Representative as were taken by the CIT. It was pleaded that no services were rendered by the assessee to earn foreign exchange but it was necessary for assessee to act as restricted money changer to claim the status of five star hotels. The facility of money changer being extended by the assessee to foreign tourists cannot be regarded as service. Apart from it, even if it is treated as service then the assessee had not received any profit out of it nor it has been included in the P&L a/c. It was also the contention of the learned Departmental Representative that provisions of Section 80HHD(l)(b) had not been complied with by the assessee as deduction under Section 80HHD can be extended if remaining profits referred to in Clause (a) are debited to the P&L a/c of the previous year in respect of which the deduction is to be allowed and credited to the reserve account to be utilised for the purpose of the business of assessee and in the case in hand admittedly no amount had passed through P&L a/c. Further inviting our attention to Section 80AB, the learned Departmental Representative pointed out that all the deductions under Chapter VI-A of the Act are to be claimed if that income is included in the gross total income of the assessee. The assessee had not included the above referred to two amounts in total gross income of the previous year and thus claim was not allowable. Reliance was also placed on the decision of Tribunal Cochin Bench in the case of CIT v. Subadra Ravi Katunakaran (1998) 66 TTD 353 (Coch). The conclusion of the learned Departmental Representative was that CIT had discussed both the points in detail and concluded rightly against the assessne and no interference is called for in the order and the same should be confirmed.
12. We have considered the submissions of the learned counsel for the assessee as well as that of the learned Departmental Representative and perused the impugned order as well as gone through the citations referred to above. Before appreciating the submissions it will be in the fitness of things to give out the necessary provisions as were appearing at the very inception of Section 80HHD.
"80 HHD(l): Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of a hotel or of a tour operator; approved by the prescribed authority in this behalf or of a travel agent, there shall, in accordance with and subject to the provisions of this section, be allowed. In computing the total income of the assessee, a deduction of a sum equal to the aggregate of:
(a) fifty per cent of the profits derived by him from services provided to foreign tourists; and
(b) so much of the amount out of the remaining profits referred to in Clause (a) as is debited to the P&L a/c of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee in the manner laid down in Sub-Section (4) : Provided that a hotel or, as the case may be, a tour operator approved-by the prescribed authority on or after the 30th day of November, 1989, and before the 1st day of October, 1991, shall be deemed to have been approved by the prescribed authority for the purposes of this section in relation to the assessment year commencing on the 1st day of April, 1989 or the 1st day of April, 1990, or, as the case may be, the 1st day of April, 1991, if the assessee was engaged in the business of such hotel or as such tour operator during the previous year relevant to any of the said assessment years.
(2) This section applies only to services provided foreign tourists the receipts in relation to which are received within a period of six months from the end of the previous year or, where the Chief GIT or CIT is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief CIT or CIT may allow in this behalf.
By Finance (No. 2) Act, 1991, the following Explanation and Sub-Section 2A was added w.e.f. 1st April, 1992.
Explanation : For the purposes of this sub-section, any payment received by an assessee, engaged in the business of a hotel or of a tour operator or of a travel agent, in Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer, (from another hotelier, tour operator or travel agent, as the case may be) on behalf of a foreign tourist or group of foreign tourist, shall be deemed to have been received by the assessee in convertible foreign exchange if the person making the payment furnishes to the assessee a certificate specified in Sub-Section (2A).
(2A) Every person making payment to an assessee referred to in the Explanation to Sub-Section (2) out of Indian currency obtained by conversion of foreign exchange received from or on behalf of a foreign tourist or a group of foreign tourists shall furnish to that assessee a certificate in the prescribed format indicating the amount received in foreign exchange, its conversion into Indian currency and such other particulars as may be prescribed-"
For the claim of the assessee in respect of receipt of Rs. 4,03,09,863 the contention of the assessee is that the assessee is entitled for deduction in respect of that amount received by assessee in Indian currency from agents/tour operators of foreign tourists who actually received foreign exchange from foreign tourists. The plea is that there was ambiguity in the Sub-Sections (1) and (2) that is why legislature in its wisdom sought to remove that ambiguity by bringing an Explanation to make it clear that even hotelier or other tour operators or travel agents who obtained any amount in Indian currency from other hotelier, other tour operators or travel agents who obtained foreign exchange, then such hotel owners, tour operators or. travel agents shall be deemed to have received convertible foreign exchange for the purpose of claiming deduction under Section 80HHD. As against this, the contention of the learned Departmental Representative is that these provisions are not retrospective but applicable from 1st April, 1992, onwards as the same have been made effective from that day. We have gone through the reasoning of their Lordships of Honourable Supreme Court in the case of CIT v. Podar Cement (P) Ltd. (supra) and to examine as to whether the Explanation is clarificatory and retrospective in nature or not, we have to go through the very intention of the legislature which brought the said Explanation to the statute and for that we had been able to lay our hands on the memorandum explaining provisions in Finance (No. 2 Bill, 1991). The very purpose for bringing Explanation to Sub-Section (2) to Section 80HHD and Sub-Section (2A) to that section are appearing at (1991) 190 FTR (St) 301 which read as follows :
"Modification of provisions relating to earnings in foreign exchange by hotels, tour operators, etc.
49. Under the existing provisions of Section 80HHD of the IT Act. a resident taxpayer engaged in the business of an approved hotel, or as an approved tour operator or a travel agent is allowed a deduction, in computing its total income, of an amount equal to :
(i) 50 per cent of the profits derived from services provided to foreign tourists, payment for which is received in convertible foreign exchange; and (ii) so much of the remaining profits referred to above as are credited to a reserve fund to be utilised for the purpose of the business of the taxpayer in the prescribed manner.
The amount credited to the reserve account may be utilised for any of the specified purposes within a period of five years following the year in which the amount is credited to the reserve account.
In many cases, the foreign tourists visit India on a package tour and make a lump sum payment, in foreign exchange, to a tour operator in India. The Indian tour operator, thereafter, makes payments to the hotels where the tourist groups are lodged. Since the foreign exchange is received only by the tour operator, it is only he who can claim the tax concession under Section 80HHD. The hotel owner is denied the benefit of Section 80HHD, even though the payment for service to the foreign tourists rendered by the hotel may constitute the major part of the expenditure by the foreign tourists in India. The hotel industry is also denied the benefit of creating tax-free reserves for the purpose of construction or expansion of hotels, conference or convention centres and acquiring adventure sports facilities.
With a view to seeming the benefits under Section 80HHD for hotels, it is proposed to amend Section 80HHD to provide that, in cases where payments for services to the foreign toursits provided by an approved hotel, an approved tour operator or a travel agent are received in Indian currency from another hotel, tour operator, travel agent airline, the person providing the service to the foreign tourists will be eligible for deduction under Section 80HHD in relation to profits derived from provision of such services. This will be subject to the condition that the payment in Indian currency is made out of funds obtained by conversion of foreign exchange brought into India, through an authorised dealer in foreign exchange, by the tour operator, the travel agent, the airline or the other hotel, on behalf of the foreign tourist. In such cases, persons in receipt of foreign exchange from or on behalf of the foreign tourists and making payment to an approved hotel, tour operator; etc. which had provided services to the foreign tourists will not be allowed deduction under Section 80HHD insofar as it relates to such payments. The person claiming the deduction will be required to furnish, along with the return of income, a certificate obtained from the person making payment in Indian currency out of foreign exchange paid by the foreigner.
The proposed amendment will take effect from 1st April, 1992, and will, accordingly, apply in relation to asst. yr. 1992-93 and subsequent years."
[Emphasis, italicised in print, supplied by us] The perusal of the above make it abundantly clear that the very intention of the legislature to bring Explanation and Section (2A) to Section 80HHD(2) was to secure the benefit under Section 80HHD for hotels and the said Explanation was not at all clarificatory or declaratory, otherwise, the legislature must have made it clear about its intention. In the case of Podar Cement (P) Ltd. and Ors. (supra) their Lordship have quoted with approval the extract from the book "Principal of Statutory Interpretation" VI Edn. by Honourable Justice G.P. Singh and the same is as under;
"The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Grains and approved by the Supreme Court for modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute-Such Acts are usually held to be retrospective. The usual reason for passing a declarator Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word "enacted". But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to be substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory and is in plain terms retrospective. In the absence of clear words indicating that the amending act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and therefore, if the principal Act was existing law when the Constitution came into force the amending Act also will be part of the existing law."
Their Lordship have also observed that the above extract is factual based on the judgment of the apex Court as well as English decisions. Applying the above to the facts, it is very clear that the words used by the legislature in the memorandum explaining the provisions of Finance (No. 2) Bill, 1991, is to 'secure the benefit of Section 80HHD' to hotels and the legislature have not used the word 'declared' or 'enacted'. Accordingly, the intention of the legislature is clear that it has not clarified any ambiguity nor cured any judicial error in the existing statute but it has enlarged/extended the benefit to other class of assessees besides the existing assessees. In other words, it is the benefit extended to hotels while earlier it was only available to tour operators or tour agents. This intention of the legislature can be inferred from other attending circumstances Explanation added to that section requires a certificate to be filed by hotels from the person who makes the payment in the hotels in Indian currency and that certificate had been specified in Sub-Section (2A) which was also added to Sub-Section(2) of 80HHD. These were the specific requirements to be complied with by the assessee and it cannot be said that it was in anyway clarificatory or declaratory to the existing provisions. But it required further compliance from the assessee to whom this benefit was extended. There appears to be some ambiguity to even Explanation so added by Finance (No. 2) Act, 1991, and that ambiguity was again cured by the legislature by subsequent Finance Act, 1994, which had provided the proportionate amount on which deduction can be claimed by tour operators, agents of foreign tourist and hotels. It shows that the intention of the legislature was clear as it has provided benefits to hotels who used to receive Indian currency from tour operators or tour agents of foreign tourists out of foreign exchange received by those persons from foreign tourists and thus the Explanation was applicable from the date it came into operation i.e., 1st April, 1992, and was not having retrospective operation.
13. Even if for the sake of argument, we presume that that adding of Explanation and Sub-Section(2A) to the existing provisions of Section 80HHD were having retrospective effect and be taken as existing on statute from the date when original provisions of Section 80HHD were brought in the income-tax then there will be various difficulties. If assessee is allowed to claim benefit under Section 80HHD in view of the Explanation so added and treated to be retrospective in nature, then already audit of the assessee for asst. yr. 1989-90 was over and if he wants to claim benefit then he was required to give certificate as prescribed under newly added Sub-Section (2A) to Section 80HHD and auditors will not be in a position to re-audit the accounts book and to give the necessary certificate. Another problem will be faced by the Revenue as already tour operators/agents must have claimed the benefit under Section 80HHD received by them from the foreign tourists and if the assessee is also allowed to claim benefit under the amended provisions of Section 80HHD and particularly in view of the Explanation added to Section 80HHD{2) then the same foreign exchange will be subject-matter of deduction under Section 80HHD twice, i.e., one by tour operators/agents and again by hotel owners who actually rendered the service. This situation will create ambiguity and that appears to be the reason that legislature in its wisdom had made the provision of newly added Explanation and Sub-Section(2A) applicable from asst. yr. 1992-93 onwards particularly and not prior to it. This interpretation of newly added provisions will not be in confirmity with the very intention of the legislature, rather it will be against the very intention and such interpretation is not warranted. On the basis of these, we conclude that CIT{A) was justified in repelling the contrary submissions of the assessee and rightly appreciated the provisions of the Explanation and Sub-Section(2A) which were brought on the statute from 1st April, 1992.
14. So far as the amount of Rs. 5,27,22,837 received by the assessee as foreign exchange for conversion into Indian rupees, admittedly as per conditions imposed by the RBI, the assessee after receiving foreign exchange from foreign tourist is supposed to hand over that foreign exchange to SBI immediately on the same rate and in such transactions no profit is being earned by the assessee. It being contra-transaction, it is not a part of P&L a/c of the assessee. The assessee had admitted that no profit is being earned by him on account of conversion of foreign exchange into Indian rupees rather assessee incurred expenses for employees who are rendering this facility to foreign tourists. It is also an admitted fact that as per classification governed by the star system of tourism department, 5,4 or 3 star hotels are having money changing facility and this cannot be termed as service. As assessee is having five star hotel status for its hotel, it was essential prerequisite for the assessee to obtain restricted money changing licence and to provide this facility to foreign tourist. Accordingly, this is not a sort of service but it is a facility which is embedded in the assessee on account of its 5 star status.
15. Apart from it, it is admitted fact that the assessee had not included that amount on this conversion of foreign exchange into Indian currency to their P&L a/c. Section 80AB of the Act provides that deduction under Chapter VI-A can only be allowed if the income of the nature specified in that section in which claim is made, is included in the gross total income of the assessee. In the case in hand, the assessee has not included this amount of Rs. 5,27,22,837 to its gross total income and thus the CIT(A) was justified in treating this amount as not eligible for claiming deduction under Section 80HHD.
16. As observed earlier, claim of the assessee can only be allowed for deduction under Section 80HHD if all conditions under the provisions of that section have been fulfilled. Under Section 80HHD(1) 50 per cent of the profit derived from him from services provided to foreign tourists are to be claimed at deduction, but under Section 80HHD(4)(b) of the Act remaining 50 per cent profits are supposed to be debited to the P&L a/c of the previous year in respect of which the deduction is to be allowed and credited to the reserve account to be utilised for the purposes of business of the assessee in the manner laid down in Sub-Section (4). The contention of the learned Departmental Representative is correct when he argued that assessee has not complied with this condition as in respect of Rs. 5,27,22,837 as no profit had been earned by the assessee out of this receipt of foreign exchange nor 50 per cent of such profit had been debited to the P&L a/c for creation of reserve account. Non-compliance of this again shall be a ground for rejecting the claim of the assessee for this amount and order of CIT (A) on that score was justified.
17. On the aforesaid discussion, we are of the considered opinion that approach of the learned.. CIT in passing the impugned order was befitting to the requirement of the Section 80HHD and that order had lightly been recorded requiring no interference. Appeal is devoid of all forces and liability to be dismissed.
18. In the result, the appeal is dismissed.
V. DONGZATHANG, SEWIOfi VICE PRESIDENT: 4th Jan., 1999 I have carefully gone through the order of my brother. A perusal of the amended provisions make it abundantly clear that the intention of the legislature to bring Explanation and Sub-Section (2A) to Section 80HHD(2) was to secure the benefit under Section 80HHD for hotels. The question before us is whether this Explanation and Sub-Section (2A) added by the Finance (No. 2) Act, 1991, is clarificatory and retrospective in nature. In the case of Podar Cement (P) Ltd. & Ors. (supra) cited by the learned authorised representative of the assessee, their Lordships have quoted with approval the extract from the book "Principles of Statutory Interpretation (6th Edn. 1996) by Hon'ble Justice G.P. Singh as under :
"Declaratory statutes ;
The presumption against retrospective operations not applicable to declaratory statutes. As stated in raies and approved by the Supreme Court: 'for modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act regard must be had to the substance rather than to the form. If a new Act is to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law. retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarin'catory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law when the Constitution came into force, the amending Act also will be part of the existing law."
The Hon'ble Supreme Court also had an occasion to consider the Expln. 2 inserted in Section 64 of the IT Act, 1961, w.e.f. 1st April, 1980, by the Finance Act, 1979 which reads as follows : "For the purpose of this section, 'income' includes 'loss'."
The Hon'ble Supreme Court cited with approval the decision of the Hon'ble Madhya Pradesh High Court in CIT v. Badri Prasad Agarwal (1983) 142 ITR 353 (MP) which has been referred to with approval by the Hon'ble Supreme Court in the case of CIT v. J.H. Gotta (1985) 156 ITR 323 (SC) as follows :
"Speaking generally, subsequent legislation cannot be used for construction of an earlier statute but if an enactment is really ambiguous, subsequent legislation can be used as a parliamentary exposition of the former (See Craies on Statute Law, 7th Edn. pp. 147 and 148). This principle was recently applied by the Supreme Court in construing Section 15(b) of the Central Sales-tax Act, as it stood before its amendment by Act No. 61 of 1972, and the amendment introduced by this Amending Act, though not retrospective, was used as a parliamentary exposition of its intent contained in the unamended section (See Manickam & Co. v. State of Tamil Nadu (1977) 39 STC 12 : AIR 1977 SC 518). The Explanation added in Section 64 by the Finance Act, 1979, though not in terms retrospective, serves as a parliamentary exposition of the meaning of the word 'income' as used in the unamended section, for, that word, in the context of Section 64, was really ambiguous and had given rise to diverse meanings."
If the case before us is examined in the light of the above decisions, it is clearly seen that the unamended provisions of Section 80HHD were ambiguous and had given rise to diverse meanings, in that both the first recipient of the foreign exchange who did not render services in terms of the section could get the benefit whereas the real persons who rendered the required services were left out without deriving the benefit intended by the Parliament. To plug the loophole the Parliament inserted Explanation and also Sub-Section (2A) by the Finance (No. 2) Act, 1991. The amended section is intended to ensure proper sharing of the benefit by the entitled persons. In the case of tour operator or a travel agent, he will be allowed to retain the amount to the extent it was earned by him for the services rendered. The remaining amount transferred to the hotels for the services provided by them will also be entitled for benefit of the deduction under Section 80HHD in the hands of the hotel.
Keeping in view the above intentions of the Parliament, it is seen that the original unamended section has not been correctly interpreted resulting in unintended benefit to one party at the cost of the other. There is also possibility of giving benefit much is excess of the intended benefit by the legislature. That is, giving benefit to the first recipient and the person who actually rendered the entitled services. There is, therefore, ambiguity in the provisions and it is possible to interpret the provision in such a way so as to give benefit to both the parties. To make-clear that intentions, the present Explanation has been inserted. It is, therefore, in the nature of a parliamentary exposition of its intent already contained in the unamended section and the same has to be applied while determining the concession to be allowed to the assessee. In that view of the matter, the deduction allowed by the AO to the assessee who rendered the prescribed services cannot be said to. be an order which is erroneous and prejudicial to the interest of the Revenue. Since the intention of the Parliament in the unamended section has been correctly applied by the AO, it cannot be said to be an error which is prejudicial to the interest of the Revenue, that can be interfered with by the CIT under Section 263 of the Act.
The Hon'ble Supreme Court considered the effect of retrospective legislation in the context of Section 154 of the Act. It was held that rectification under this section must be of a mistake which is a mistake in the light of the law in force at the time when the order sought to be rectified was passed. If, however, subsequent legislation comes with express retrospective effect, what is a mistake in the light of such retrospective legislation may be rectified under this section, because, applying the well-established principle that full effect must be given to a statutory fiction and it should be carried to its logical conclusion, it is the amended law which must be held to have been in force at the time when the order sought to be rectified was passed Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd. (1958) 34 ITR 143 (SC). Conversely, what is a mistake apparent from the record at the time of the passing of the order may cease to be so in the light of subsequent legislation brought in with retrospective effect [Narayan Row v. Ishwarlal Bhagwandas (1965) 57ITR 149 (SC)] In the light of the above, it cannot be said that the benefit of deduction allowed to the assessee for the receipt from agents of foreign tourists for the services provided to foreign tourists cannot be a mistake or an error prejudicial to the Revenue in view of the parliamentary exposition in the form of Explanation inserted by the Finance (No. 2) Act, 1991.
Even in any case, there being two possible interpretations and views in the unamended section, it cannot be said that the order of the AO is erroneous and prejudicial to the interest of the Revenue. In that view of the matter, we hold that the CIT was not justified in denying the deduction under Section 80HHD on the receipt from agents of foreign tourist in Indian currency amounting to Rs. 4,03,09,863 for services rendered to the foreign tourists.
With regard to the provisions of Sub-Section (2A) inserted by the said Finance Act, I am of the view that this is only a machinery provision for allowing the correct amount of deduction under the above section. In this particular case, there is no doubt about the genuineness of the services and the payments received by the assessee. The mere machinery provisions will not deprive the assessee of its right to have the deduction, if the said deduction is entitled under the amended provisions. The learned CIT also did not invoke this provision for setting aside the order of the AO and the question is to be limited to the legal aspect of the entitlement.
With regard to the claim of deduction under the above section in regard to foreign exchange, converted by the assessee as an authorised money changer amounting to Rs. 5,27,22,837, we are of the view that the same cannot be considered for deduction under the above section. Since the intentions of the Parliament have been made absolutely clear by the Explanation and Sub-Section (2A) inserted by the Finance (No. 2) Act, 1991, it will no more be possible for us to hold that the assessee would be entitled to deduction under Section 80HHD on the mere conversion of foreign exchange without rendering any qualifying services as stipulated under the above section. To that extent, the learned CIT was justified in cancelling the deduction under the above section.
REFERENCE UNDER Section 255(4) OP THE IT ACT, 1961 12th Jan., 1999 As we are having difference of opinion in the above referred to appeal, we refer the following question to the Hon'ble President, ITAT, Mumbai: "Whether on the facts and in the circumstances of the case, the provisions of Explanation to Section (2) and Section (2A) added to Section 80HHD of IT Act, 1961, by Finance (No. 2) Act, 1991 w.e.f. 1st April, 1992, can be used as a parliamentary exposition for allowing the claim of assessee under Section 80HHD of the Act for asst. yr. 1989-90 though the same is not retrospective ?"
R.M. Mehta, Vice-President (As Third Member) 28th March, 2002
1. The following question has been referred to me under Section 255(4) of the IT Act, 1961, there being a difference of opinion between the learned Members constituting the Division Bench :
"Whether on the facts and in the circumstances of the case, the provisions of Explanation to Section (2) and Section (2A) added to Section 80HHD of IT Act, 1961, by Finance (No. 2) Act, 1991, w.e.f. 1st April, 1992, can be used as a parliamentary exposition for allowing the claim of assessee under Section 80HHD of the Act for asst. yr 1989-90 though the same is not retrospective ?"
2. The facts of the case has been detailed at length in the orders passed by the learned Members constituting the Division Bench and there is no difference on this aspect of the matter, but to deal with the controversy and resolve it, certain basis facts are required to be stated and these are as under:
3. The assessee in this case is running a hotel in Delhi in the name of M/s Hyatt Regeny vis-a-vis the year under consideration, which is asst. yr. 1989-90. The assessment order was passed in this case on 23rd March, 1992, on an income of Rs. 47,74,667 under Section 115J of the Act.
4. The CIT on going through the record came to the conclusion that the said assessment order was erroneous insofar as it was prejudicial to the interest of Revenue and he, therefore, issued a notice under Section 263 to the assessee on 5th March, 1993. The said notice is reproduced at p. 2 of the order of the Tribunal and a perusal thereof shows that deduction under Section 80HHD had been initially claimed on foreign exchange receipts amounting to Rs. 28,63,38,220, which included the following two amounts :
Rs.
"(a) Receipt from agents of foreign tourists in Indian currency. 4,03,09,863
(b) Foreign exchange converted by the assessee as an authorised money changer. 5,27,22,837
5. In the present reference there is no dispute on item (b) since both the learned members opined that deduction under Section 80HHD was not available and to that extent the order passed by the CIT under Section 263 was valid and required to be upheld. There was, however, a difference of opinion in respect of item (a) and the CIT in the notice pointed out that deduction under Section 80HHD was available to the first recipient of convertible foreign exchange whether it was a hotel or a travel agent or the tour operator. That upto asst. yr. 1991-92 there was no provision for appropriating the benefit between the aforesaid three categories and the receipts from the agents of foreign tourists in Indian currency could not be deemed to be a receipt in convertible foreign exchange. The view of the CIT in other words, was that the sum of Rs. 4 crores and odd was not entitled to the deduction under Section 80HHD.
6. In proceedings before the CIT under Section 263 the assessee - vehemently supported the action of the AO in allowing necessary deduction under Section 80HHD on the amounts of Rs. 4 crores and odd. A reference was made to the Foreign Exchange Regulation Act hereinafter referred to as FERA Act, 1973, with reference to the term "convertible foreign exchange" and Government Notification dt. 20th Aug., 1981. dealing with the payments in foreign exchange by foreign tourists was also referred to. Reliance was also placed on provisions of Section 5 of the Expenditure Tax Act, 1987 r/w Section 4 of the Expenditure Tax Rules, 1987, to contend that foreign exchange included payment made in Indian currency obtained by conversion of foreign exchange into Indian currency and any expenditure out of that was "deemed to have been incurred in foreign exchange". The plea, in other words, was that rupee payments made by travel agents for services rendered by the hotel to the foreign tourists were to be treated as receipts in foreign exchange.
7. The CIT considered the submissions of the assessee observing that provisions of Section 80HHD were a sort of concession extended to assessees with a view to boost earnings in foreign exchange, but such concession could be extended only if the requisite conditions laid down by the relevant provisions of the Act stood fulfilled. According to the CIT the section applied to amounts received by the assessee in convertible foreign exchange and there was no provision for a "deeming receipt" and treating the rupee payments received by the assessee as such. The relevant provisions of the Expenditure Act, 1973, cited as also Notification dt. 28th Aug., 1981, issued under the FERA, 1973 were found to be inapplicable. The CIT in fact observed that the AO was not justified in accepting the explanation of the assessee on the point at issue in utter disregard to Circular No. 621, dt. 19th Dec., 1991 [published at issued by the CBDT which clarified the situation for the period prior to 1st April, 1992. According to the CIT the benefit of the Explanation added to Sub-Section (2) of Section 80HHD could not be given to the assessee as the intention of the legislature was to extend the benefit from asst. yr. 1992-93 onwards. It was noted by the CIT that prior to the addition of the Explanation aforesaid the benefit under Section 80HHD was available only to the first recipient of the foreign exchange. In the final analysis, the CIT directed the AO to withdraw the deduction under Section 80HHD to the extent it related to the sum of Rs. 4,03.09,863, representing the receipts in Indian rupee from the tour operations/agents of foreign tourists.
8. Being aggrieved with the action of the CIT the assessee filed an appeal to the Tribunal and the matter was argued at length before the Division Bench. The main arguments advanced on behalf of the assessee were as under:
(i) With reference to the definition of "convertible foreign exchange" given in Expln. (b) to Section 80HHD and the term "foreign exchange" as defined in FERA Act, 1973, the conclusion would be that amounts received in rupees from travel agents were to be deemed to be received in convertible foreign exchange"; (ii) With reference to provisions of Section 5 of the Expenditure Tax Act, 1987, r/w Rule 4 of the Expln. Tax Rules, 1987, "foreign exchange" included any payment made in Indian currency obtained by conversion of foreign exchange into Indian currency and which shall be deemed to have been incurred in foreign exchange;
(iii) On the basis of the aforesaid, the plea was that the assessee had received the sum of Rs. 4 crores and odd in Indian currency out of foreign exchange received by those agents and which was to be deemed to have been received in convertible foreign exchange and the assessee was, therefore, entitled to the deduction claimed under Section 80HHD;
(iv) The CIT was not justified in placing reliance on CBDT Circular No. 621, dt. 19th Dec., 1991, in observing that Explanation attached to Sub-Section (2) of Section 80HHD was not clarificatory in nature and was applicable from 1st April, 1992 i.e., in relation to asst. yr, 1992-93;
(v) That Explanation added to Sub-Section (2) of Section 80HHD was clarificatory in nature and was to be treated as restrospective in operation;
(vi) The aforesaid Explanation was an attempt by the legislature to remove doubts existing as to the common law or to give effect to the actual intention of the legislature and such Act was usually to be treated as retrospective; and
(vii) The Parliament in its wisdom thought that there had been a judicial error in denying the benefits to hotels for claiming deduction under Section 80HHD as they were the actual persons rendering the services to foreign tourists and impliedly earning foreign exchange. The Explanation was added to remove the ambiguity as it was a sort of a judicial error.
9. In support of the aforesaid submissions, reliance was placed on the judgment of the Hon'ble Supreme Court in the case of C/T v. Podai Cement (P) Ltd. and Ors. (1997) 226 ITR 625 (SC).
10. On behalf of the Revenue the learned Departmental Representative vehemently supported the order of the CIT passed under Section 263 contending that the definition of other statutes could not be pressed into service for interpreting the provisions of any particular statute and hence placed reliance on the decision of the Bombay High Court in the case of CWT v. State Bank of India (1995) 213 ITR 1 (Bom).
11. On the basis of the aforesaid it was contended that the deeming provisions of FERA Act, 1973, and those of the Expenditure Tax Act, 1987, read with relevant rule of the Expenditure Tax Rules, 1987 could not be used for 'interpreting the provisions of Section 80HHD. The further plea was that the aforesaid provisions were not at all applicable as these merely provided a benefit to foreign nationals to pay to hotels in Indian currency the same having been obtained by conversion of their foreign exchange.
12. The further submission on behalf of the Revenue was that Expln. 2 to Sub-Section (2) of Section 80HHD was not clarificatory in nature inasmuch as it provided an additional benefit to hotels, etc. who otherwise were not entitled for the benefit of deduction under Section 80HHD prior to asst. yr. 1992-93. It was the plea that it was merely an extension of the earlier provision which initially was given to tour operators/foreign agents, who were entitled to get the deduction under Section 80HHD being the first recipient of the foreign exchange from foreign tourists. The further plea on the part of the Department was that two assessees could not claim benefit of Section 80HHD for the same amount of foreign exchange and referring to CBDT Circular No. 621, dt. 19th Dec., 1991, it was the plea that this clarified that the amendment would have effect from 1st April, 1992, and would apply to 1992-93 and subsequent years. The plea, in other words, was that the provisions were not retrospective in nature.
13. In support of the numerous arguments advanced the Department placed reliance on the Special Bench decision of the Delhi Benches of the Tribunal in the case of Rishirup Chemicals (P) Ltd. v. ITO (1991) 39 TTJ (Del) (SB) 660 : (1991) 36 ITD 35 (Del) (SB) in which it has been held that no statute shall be construed to have-retrospective operation unless such a construction appeared very clearly at the time of the passing of the Act or arises by necessary and distinct implication. Further, if nothing was mentioned in the proviso that it would be retrospective and the legislature had taken care to see that the provisions would apply from a particular date/assessment year, then it was difficult to see that it was intended to apply retrospectively either by construction or by necessary implication.
14. In concluding the learned Departmental Representative urged that the proviso not being retrospective in nature and the assessee not being the recipient of the foreign exchange it should be held that it was not entitled to get deduction on the receipt in Indian currency from tour operators/agents, which in turn was out of the foreign exchange received by them.
15. The learned Judicial Member wrote the initial order and he, at the outset, reproduced the provisions of Section 80HHD along with the Explanation, which had been added by. Finance (No. 2) Act, 1991 w.e.f. 1st April, 1992. He also extracted at p. 17 of his order the "purpose" for adding Explanation to Sub-Section (2) of Section 80HHD and Sub-Section (2A) to the said section as appearing in 190 FTR (St) 301. After doing so the learned JM observed at p. 19 of his order that perusal thereof made it abundantly clear that the intention of the legislature was to secure the benefit under Section 80HHD for hotels and the said Explanation was not clarificatory or declaratory, otherwise, the legislature would have made its intention quite clear. He at this stage referred to the judgment of the Hon'ble Supreme Court in the case of Podar Cement (P) Ltd. and Ors. (supra) where Their Lordships had quoted with approval an extract from the book "Principles of Statutory Interpretation" by Hon'ble Justice G.P. Singh (VIth Edition, 1996). This is reproduced at p. 19 by the learned JM and again at pp. 25 and 26 by the then Senior Vice President, who ultimately differed with the view expressed by the learned JM.
16. Coming back to the order of the learned JM in considering the application of the aforesaid views expressed on the question of interpretation, he observed that in the memorandum explaining the relevant provisions the intention which had been highlighted was to "secure the benefit of Section 80HHD" to hotels and the legislature had not used the words "declared" or "enacted". According to the learned JM the legislature had not clarified any ambiguity and nor had it cured any judicial error in the existing statute but it had merely enlarged the scope extending the benefit to other classes of assessees besides the existing assessees. In other words, the benefit which was earlier available to tour operators/agents has been extended to hotels.
17. Further, according to the learned JM, the intention of the legislature could be inferred from other circumstances and that being that Explanation added to the section required a certificate to be filed by the hotels and the same having been obtained from the person, who made the payments to the hotels in Indian currency and such certificate had been specified in Sub-Section (2A) which was also added to Sub-Section (2) to Section 80HHD by the same amending Act. This requirement, according to the learned JM, was to be complied with by an assessee and it could not be said that it was in anyway clarificatory or declaratory to the existing provisions. It was further noted that there appeared to be some ambiguity to even the Explanation added by Finance (No. 2) Act, 1991 and which was cured by the subsequent Finance Act, 1994 which provided for a proportionate amount to be taken into account on which deduction could be claimed by tout operators, agents of foreign tourists and the hotels. According to the learned JM, the intention of the legislature was clear inasmuch as it had provided benefits to. hotels who used to receive Indian currency from tour operators or tour agents of foreign tourists out of the foreign exchange received by such persons from the foreign tourists and thus, the Explanation was applicable from the date it came into operation i.e., 1st April, 1992, and it did not have retrospective effect. The learned JM went further assuming that the Explanation had retrospective effect, but highlighted numerous difficulties if such a view was taken and these being :
There was a requirement to file a certificate of an auditor and the audit of the assessee for asst. yr. 1989-90 was over long back and if it wanted to claim the benefit, then it was required to file the said certificate of the auditor and which the auditor would not be in a position to give since the accounts could not be re-audited. The Revenue would have also allowed benefit of Section 80HHD to tour operators/agents In respect of the foreign exchange received by them and if the assessee was also to claim benefit under the amended provisions retrospectively, then the same foreign exchange receipt would be the subject-matter of deduction under Section 80HHD twice i.e. one by the tour operators/agents and again by the hotel owners, who actually rendered the services.
18. According to the learned JM the legislature in its wisdom had taken into account such a situation and had made the provision prospective i.e., effective asst. yr. 1992-93 onwards. In the final analysis, the learned JM held that the CIT was justified in rejecting the submissions of the assessee to the contrary and that he had rightly appreciated the impact of the Explanation as also Sub-Section (2A) both of which had been brought on the statute book w.e.f. 1st April, 1992.
19. The then Hon'ble Senior Vice President who headed the Division Bench, however, did not agree with the view expressed by the learned JM and by means of a separate order opined that the Explanation was retrospective in nature since there was an ambiguity in the unamended provisions of Section 80HHD whereby the first recipient of the foreign exchange was entitled to the benefit of Section 80HHD without rendering any services and the real persons who had rendered the required services derived no behalf under the same section. According to the learned Senior Vice President the Parliament by inserting the Explanation as also Section (2A) intended to ensure proper sharing of the benefit by the entitled persons inasmuch as the tour operator or the travel agent would be allowed to retain the amount to the extent it was earned by him for the services rendered and the remaining amount transferred to the hotels for the services provided by them would be entitled to the benefit of the deduction -under Section 80HHD in the hands of the hotel.
20. The learned Senior Vice President was of the view that the original unamended section had not been correctly interpreted resulting in unintended benefit to one party at the cost of the other. According to him there was a possibility of benefit being given much in excess of that intended by the legislature. The view, in other words, was that there was ambiguity in the provisions and it was possible to interpret the provisions in such a way so as to give benefit to both the parties and to make clear this intention the Explanation in question had been inserted. In conclusion the learned Senior Vice President opined that the order of the AO allowing deduction to the assessee could not be termed as erroneous and prejudicial to the interests of the Revenue inasmuch as the intention of the Parliament in the unamended section had been correctly applied by the AO. It was, therefore, held that the CIT could not have interfered with such a view of the AO by invoking provisions of Section 263.
21. In coming to the conclusion that he did the learned senior Vice President referred to the judgment of the Hon'ble Supreme Court in the case of CIT v. J.H. Gotla (1985) 156 ITR 323 (SC), the judgment of the same Court in the case of M.K. Venkatachalam, ITO and Anr. v. Bombay Dyeing & Manufacturing Co. Ltd. (1958) 34 ITR 143 (SC) and the case of S.A.L. Narayan Row and Anr. v. Ishwarial Bhagwandas and Anr. (1965) 57 JTR 149 (SC).
22. Before me the matter was argued at length by both the parties, the learned counsel for the assessee reiterating the arguments advanced before the Division Bench. It was highlighted by him that the hotels were not getting any benefit under Section 80HHD in respect of the amount which had been passed over to the hotels in Indian rupees, but after conversion for foreign exchange. It was also emphasized by the learned counsel that it was the hotel, which provided the actual services whereas the tour operator was only instrumental in getting the business and working out an itinerary for the foreign tourists. According to the learned counsel, three categories of persons should have received the benefit of Section 80HHD i.e., a tour operator, a travel agent and a hotel, but prior to the insertion of the Explanation only two categories probably the tour operator and the travel agent were getting the benefit and the third category i.e. the hotel was deprived of. the same and by the insertion of the Explanation the benefit had also been provided to a hotel, which rendered most of the services to the foreign tourists. The plea, in other words, was that this had obviously been the intention of the legislature, but there being some doubt/different interpretation being accorded the legislature by insertion of Explanation w.e.f. 1st April, 1992, sought to set right the anomaly, remove the ambiguous situation and allow the rightly relief/exemption to which a hotel was entitled under Section 80HHD and considering all these aspects of the matter, the Explanation was required to be considered as explanatory/declaratory and, therefore, retrospective in operation rather than prospective.
23. Before we come to the case laws cited by the learned counsel, we may mention that he sought to buttress his argument by referring to the other amendments carried out in the IT Act by identical language and which had been held to be retrospective in nature. To mention one such reference, the learned counsel brought to our notice provisions of Section 54E{3). The decisions relied upon were as follows :
(i) CIT v. Podar Cement (P) Ltd. and Ors. (supra);
(ii) CIT v. J.H. Gotia (supra);
(iii) CIT v. P. Doraiswamy Chetty (1990) 183- ITR 559 (SC);
(iv) CIT v. U.P. Hotels Ltd. (2001) 116 Taxman 555 (All);
(v) Shantaben Govindlal Patel v. CIT (2001) 249 ITR 682 (Guj);
(vi) S. Gopal Reddy v. CIT (1990) 181 ITR 305 (AP);
(vii) Union of India and Anr. v. fT. Joseph Vilangatil (1991) 190 ITR 305 (Ker);
(viii) Paramanand Das Brij Bhushan Dass and Ors. v. Union of India;
(ix) CIT v. U.P. Co-operative Federation Ltd. (1989) 176 ITR 345 (SC).
(x) CIT v. C. Chandrashekar (1984) 145 TTR 429 (Kar);
(xi) Allied Motors (P) Ltd. v. CIT (1998) 224 ITR 677 (SC);
(xii) Kolhapur Cane Sugar Works Ltd. v. Union of India and Ors. (2000) 2 SCC 536; and
(xiii) Un-reported decision of the Delhi Benches of the Tribunal in the case of M/s Bhagwan Dass Khanna Enterprises v. Asstt. CIT in ITA No. 300 (Del) of 1994 dt. 19th June, 2000. [reported at (2001) 73 TTJ (Del) 213 --Ed.]
24. The learned Departmental Representative on behalf of the Department vehemently supported the order passed by the learned JM treating the Explanation as prospective rather than retrospective. According to her, the intention of the legislature was to provide a special deduction to assessees earning foreign exchange and the stress was on foreign exchange and not on services provided. In referring to CBDT Circular No. 559, dt. 4th/5th May, 1990, [published at it was sought to be emphasized by the learned Departmental Representative that deduction under Section 80HHD was available to only the first recipient of the foreign exchange and prior to the amendment it was only the tour operators/travel agents, who were getting the benefit of Section 80HHD as it was these two categories, who attached foreign tourists to India and not the hotels. The plea, in other words, was that it was never the intention till 14th April, 1992, to give the benefit to a hotel, which earned income in Indian currency even with reference to the services provided to foreign tourists.
25. The learned Departmental Representative also referred at length to the order passed by the learned JM contending, at the outset, that the unreported decision of the Delhi Benches of the Tribunal in the case of M/s Bhagwan Dass Khanna Enterprises v. Asstt. CIT (supra) had not considered the matter in proper perspective. The use of the words in the memorandum explaining the amendment i.e., "with a view to securing the benefit" was emphasized by the learned Departmental Representative to contend that the amendment was prospective in nature, more so, when the certificate of the auditor could not be treated to be retrospective since one of the conditions for allowing deduction under Section 80HHD was the certificate of the auditor. The learned Departmental Representative referred to the observations of the learned JM in this respect. The learned Departmental Representative further contended that in case the Explanation was considered to be retrospective, then a situation would arise that hundreds and thousans of assessees would get the benefit of the same amount for which the benefit had already been availed of by the tour operator or the travel agent. According to the learned Departmental Representative the provision itself categorically stated that it was to be w.e.f. 1st April, 1992, and this had also been explained in the explanatory note, which had been extracted by the learned JM.
26. The further plea of the learned Departmental Representative was that strict interpretation should be given to fiscal laws and where the words were clear and unambiguous, there could be no room for importing anything further and nothing was required to be added or subtracted.
27. In support of the order of the learned JM as also in support of the arguments advanced in the present reference, the learned Departmental Representative relied on the following :
(i) CIT v. National Ta; Traders (1980) 121ITR 535 (SC);
(ii) R. Rajagopal Reddy and Ors. v. Padmini Chandrasekharan (1995) 213 ITR 340 (SC);
(iii) CIT v. J.H. Gotla (supra);
(iv) Sea Pearl Industries and Ors. v. CIT (2001) 247 ITR 578 (SC);
(v) (1995)1 SCC 451;
(vi) 1994 AIR SC 87;
(vii) CED v. MA. Merchant (1989) 177 ITR 490 (SC);
(viii) Saurastra Agencies (P) Ltd. v. Union of India and Anr. (1990) 186 ITR 634 (Cal); and
(ix) AIR 1993 MP 95.
28. In reply the learned counsel for the assessee once again relied on the judgment of the Hon'ble Supreme Court in the case of Podar Cement (P) Ltd. and Ors. (supra) contending the rules of interpretation were as important for considering the point at issue as was the stress of the Department on the earning of foreign exchange.
29. I have considered the rival submissions and have also taken into account the decisions cited at the Bar by the parties. Both my learned colleagnes constituting the Division Bench have referred to the judgment of the Hon'ble Supreme Court in the case of Podar Cement (P) Ltd. (supra), more so, the extract from the book of Justice G.P. Singh for deciding whether the Explanation to Sub-Section (2) to Section 80HHD and Sub-Section (2A). are retrospective or prospective.
30. In considering the exposition of the learned author, I proceed to examine whether there was an ambiguity in the pre-amended provision, was there any doubt as to its meaning or was there a judicial error and whether by amending the law w.e.f. 1st April, 1992, there was an attempt to set right or cure the ambiguity or the doubt or the judicial error and whether such amendment could be considered as clarificatory and, therefore, retrospective. In my opinion there existed in the pre-amended provision neither of these and the intention of the legislature was quite clear.
31. At the inception of the section itself by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989, the stress was on the earnings in convertible foreign exchange and relief was to be given to the first recipient whether it was the approved hotel or the approved tour operator or the travel agent. It must be appreciated that there are situations when each of these can be the first recipient i.e., when a foreign tourist approaches them without being part of a tour planned through a tour operator.
32. It must also be kept in mind that tours have largely been planned by the tour operators. who are in direct touch with the foreign grounds and a composite package normally involves the cost of air tickets to and form, transportation from the airport to the city and vice veisa, hotel stay, local sight seeing and travel in India to spots of tourist interest, etc. In other words, the hotel is only one segment of the entire package. To emphasise the role of the tour operator in earning foreign exchange was substantial and continues to be so.
33. By the amendment carried out w.e.f. 1st April, 1992, i.e., by introduction of Expln. 2 and Sub-Section (2A) the provision was made activity based as well visa-vis the services provided by the three categories including a hotel to the foreign tourist for which it received payment in Indian currency out of the funds obtained by conversion of foreign exchange brought into India. This was to be treated as a deemed receipt in convertible foreign exchange. It was not a case that with the change in law the first recipient was put in a disadvantageous position as its relief was not reduced but the other two categories started getting relief as well. For instance, if the first recipient earlier got relief on Rs. 100 it continued to obtain the same and in case Rs. 30 out of Rs. 10 was paid to the hotel or any other category in Indian currency obtained out of convertible foreign exchange, then the latter got relief on this figure i.e., a situation came about that two categories got relief on the same amount of Rs. 30.
34. This anomaly/ambiguity was set right subsequently by the Finance Act, 1994, by amending the law to provide a proportionate deduction to the various categories. This is best explained in CBDT Circular No. 684 dt. 10th June, 1994 (published at as under [extracted from p. 3566 of Chaturvedi & Pithisaria 5th Edition] "39.2. Earlier, the tax concession was available only to the first recipient of convertible foreign exchange. It was then pointed out in representations that foreign groups often make payments in foreign exchange, in one lump sum, to the first recipient for subsequent payment to other hotels, tour operators or travel agents, as the case may be. Accordingly, though the Finance (No. 2) Act, 1991, a provision was made in Section 80HHD with a view to securing that the hotel/tour operator/travel agent receiving payments for services to the foreign tourists from the first recipient would also be eligible for deduction under Section 80HHD, subject to the condition that the payment in Indian currency was made out of conversion of foreign exchange brought into India by the foreign tourists.
39.3. The first recipient (hotel/tour operator/travel agent), thus, got the deduction in relation to the entire amount of foreign exchange received by him while the second recipient (another hotel/tour operator/travel agent) got the deduction in relation to that portion of it which the first recipient passed on to him for providing service to foreign tourists.
39.4. Logically, the deduction, in such cases, should be allowed only on sharing basis, proportionate to the value of service rendered by each segment.
39.5. With a view to removing the duplication of the incentive for the same amount of foreign exchange remittance, Section 80HHD has been amended to as to provide that the first recipient of foreign exchange would be entitled to deduction under Section 80HHD in respect of the amount retained by him and not in respect of amount which represents payments passed on to the other assessee.
[Emphasis, italicised in print, supplied by me] 39.6. Accordingly, in a case where a group of foreign tourists pays $ 10,000 to a tour operator A and the tour operator pays in converted rupees, the value of S 2,500 to hotel B, $ 1,500 to hotel C and $ 700 to travel agent D, the concession to each will be computed on the basis of the following receipts :
(a) to the tour operator A, in respect of $ 5,300, i.e., [10,000 - (2,500 + 1,500 + 700)];
(b) to hotel B, in respect of $ 2,500;
(c) to hotel C, in respect of $ 1,500;
(d) to travel agent D, in respect of $ 700.
39.7. The same method will be applied where the first recipient is a hotel or a travel agent.
39.8. This amendment takes effect from 1st April, 1995, and will accordingly, amply in relation to the asst. yr 1995-96 and subsequent years."
35. It must be highlighted that the legislature has been categorical in saying that the Explanation to Sub-Section (2) and the newly inserted Sub-Section (2A) are effective 1st April, 1992, i.e., from asst. yr. 1992-93 and CBDT Circular No. 621 dt. 19th Dec., 1991, echoes the same position (reproduced at pp. 17 & 18 of the order of the Tribunal).
36. In case the same were held to be retrospective in nature, then it would lead to a situation that we would be perpetuating an ambiguity backwards to the very inception of the provision i.e., from 1st April, 1989, considering the fact that the Explanation itself underwent a change w.e.f. 1st April, 1995, i.e., asst. yr. 1995-96 onwards on the ground of duplication of the incentive on the same amount. I must, however, categorically state that I am not deciding on the retrospectivity or otherwise of the amendment carried out from 1st April, 1995, as that is not the subject-matter of the present reference. I am only referring to it to decide the status of the amendment carried out w.e.f. 1st April, 1992.
37. Coming back to the judgment of the Hon'ble Supreme Court in the case of Podar Cement (P) Ltd. (supra) more so, the observations in the book of Justice G.P. Singh, the legislative intent as is apparent from the memorandum explaining the provision the same was enacted to "secure the benefit of Section 80HHD" to categories other than the first recipient and the words "declared" or "enacted" have not been used.
38.1 must categorically mention at this stage that the catena of decisions relied upon by both the parties have been duly taken into account and each of these judgments have been minutely perused by me. The following legal propositions have emerged from the said reading and which are to be kept in mind to decide whether the amendment is retrospective or prospective :
(i) One has to detect an anomaly, a doubt in the existing provision;
(ii) The intention of Parliament is relevant;
(iii) Whether an interpretation leads to absurdity;
(iv) Liberal construction is to be accorded only for purposes of fulfilling legislative intent;
(v) Where a provision is clarificatory or otherwise has to be considered on the facts of each case;
(vi) Equitable construction to be accorded where a strict construction leads to injustice or absurd result;
(vii) In case of ambiguity the construction which is beneficial to the assessee has to be taken into account; and
(viii) To examine whether a proviso/provision is intended to remedy unintended consequences and to make the existing provision workable, a proviso which supplies an obvious omission and which is required to be read into the section to give it a reasonable interpretation and under both the aforesaid situations a retrospective effect is to be given.
39. In applying the aforesaid legal propositions to the facts of the present case, I have to observe that whatever is required to treat an amendment as retrospective is missing and whatever is to be taken into account in treating a change as prospective is present.
40. In the final analysis, I hold that the Explanation to Section (2) and Section (2A) added by Finance (No. 2) Act, 1961, w.e.f. 1st April, 1992, were prospective and, therefore, not applicable to asst. yr. 1989-90.
41. Before I part with this reference, I would like to mention that much stress has been laid on a hotel being deprived of the benefit of Section 80HHD since the appellant before the Tribunal is a hotel but it must be emphasized that the amendment carried out w.e.f. 1st April, 1992, speaks of all the three categories i.e. a tour operator, a travel agent and a hotel and envisages a situation where any of them may be the first recipient of the foreign exchange and payment has to be made to any of the other or both categories in Indian rupees by conversion from foreign exchange. In other words, the amendment deals with all the three categories and not one.
42. The unreported decision of the Tribunal relied upon on behalf of the assessee does not advance its case since the subsequent amendment effective 1st April, 1995, was not brought to its notice as also the crucial fact that the amendment effective 1st April, 1992, did not take away the existing benefit to the first recipient vis-a-vis that proportion which was to be passed on to one or both of the other categories.
43. The matter may now be placed before the Division Bench for passing an order in conformity with the majority opinion.