Income Tax Appellate Tribunal - Ahmedabad
Ambuja Intermediates Ltd.,, Ahmedabad vs Department Of Income Tax
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IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "A"AHMEDABAD
Before S/Shri T.K. Sharma, JM and D.C.Agrawal, A.M.
ITA No.3042/Ahd/2004
Asst. Year: 2001-02
Asstt. CIT, Cir.1, V/s. Ambuja Intermediates
Ahmedabad. Ltd., 901/A,
Narnara yan Complex,
Swastik Cross Road,
Off C.G. Road,
Navrangpura,
Ahmedabad.
PAN No.AACCA 1236B
(Appellant) .. (Respondent)
Appellant by :- Shri Govind
Singhal, Sr.DR
Respondent Shri A. C. Amin,
by:- AR
ORDER
PER T.K. Sharma, Judicial Member.
This appeal has been filed by the Revenue against the order of CIT(A) dated 29/07/2004 for Assessment year 2001-02, wherein following grounds have been raised :-
1. The CIT(A) has erred in law and on facts in directing to exclude excise duty and sales tax for computation of deduction u/s 80 HHC.
2. The CIT(A) has erred in law and on facts in directing to include the amount off DEPB license for working of deduction u/s 80 HHC,
2. Ground No. 1 is against direction of CIT(A) to exclude excise duty and sales tax for computation of deduction u/s 80 HHC.
3. At the time of hearing, both the sides conceded that now this issue is covered by the judgement of Hon'ble Supreme Court in the case of CIT vs. Laxmi Machine Works Ltd. 290 ITR 667 (Supreme Court) wherein it was held that excise duty and sales-tax are not part of turnover for the purpose of computing deduction under section 80 HHC. The view taken by the ld. CIT(A) is in conformity with the view taken by the Hon'ble Supreme Court in the case of CIT vs. Laxmi Machine Works Ltd.(supra). We, therefore, decline to interfere. This ground of appeal is rejected.
4. So far as ground No.2 is concerned, it relates to direction to include the amount off DEPB license for working of deduction u/s 80 HHC,
5. We have heard the learned AR and learned DR. Issue is now fully covered by the decision of ITAT, Special Bench in Topman Exports Vs. ITO (2009) 125 TTJ, Mumbai, Special Bench, Ahmedabad in ITA No. 17/A/2007 and ITA No. 619/Ahmedabad/2007 for the assessment years 2004-2005 and 2003-2004 and matter was restored to the file of the Assessing Officer for computing deduction under Section 80HHC in accordance with the judgment in the Topman Exports Case. For the sake of convenience, we reproduce operative part of the judgment as under:
2"11. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In our considered view, the issue is squarely covered by the decision of ITAT Mumbai Special Bench in the case of M/s.Topman Exports (supra). For the sake of convenience, we reproduce the operative part of the judgement as under:-
"43. The major controversy before us is to interpret section 28 (iiid) in which the expression "any profit on the transfer Duty Entitlement Pass Book Scheme" has been used. From the facts of the cases under consideration it is noted that the AO treated the entire sale proceeds as covered under section 28(iiid), as against the case of the assessee that only the premium or the profit element on the transfer of DEPB be considered. To put the controversy in simple words, if, for example, the assessee received DEPB worth the face value of Rs.100/- and then sold it for Rs.110/-, the assessee is contending that only a sum of Rs.10/- is to be included under clause (iiid), whereas, the Revenue's contention is that the entire amount of Rs.110/- be considered.
44. Thus we have to interpret the word 'profit' as fielded in section 28(iiid). As noted supra section 28 has clauses (i) to (vi). On a careful circumspection of the language of clause (iiib) and (iiie), it is noted that the reference is to the gross sum of cash assistance and duty drawback etc. On the contrary clauses (iiia), (iiid) and (iiie) use the word "profit" on sale/transfer of licence/DEPB/DFRC. From here, it can be easily inferred that the employment of the words "any profit of transfer" in clauses (iiid) and (iiie) of section 28 in contradistinction to the omission of such word profit in clauses (iiib and iiie) is not without any object.
45. The principle rule of interpretation is that meaning is to be given to each and every word in the language of section. No word can be claimed as superfluous. Each comma, full stop or every sign of punctuation has significance. In our considered opinion the need for interpretation with the aid of some external aids of construction of a section arises only when there is some ambiguity in the language of section and the intention of the legislature is not properly conveyed with the words so used. It has been held by the Hon'ble Supreme Court in numerous judgments including the case of Federation of Andhra Pradesh Chambers of Commerce & Industry & Ors Etc. Vs State of Andhra Pradesh & Ors. Etc. Etc. (2001) 165 CTR (SC) 672 (2001) 247 ITR 36 (SC) that the taxing statute has to be strictly construed and nothing can be read in it. Identical view has been taken in the case of Padmasundara Rao (Decd.) & Ors. Vs. State of Tamil Nadu & Ors (2002) 176 CTR (SC) 104 : (2002) 255 ITR 147 (SC) 3 holding that "while interpreting a statute legislative intention must be found in the words used by the legislature". In the like manner it has been reiterated in the case of Commr. Of Agrl, IT vs. Plantation Corporation of Kerala Ltd. (2000) 164 CTR (SC) 502 : (2001) 247 ITR 155 (SC) that : "So long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible".
46. Coming back to the issue under consideration we note that the language of clause (iiid) and (iiie) of section 28 is crystal clear which talks of "any profit on the transfer of DEPB/DFRC. The reference is not to the sale proceeds but to the profit on the transfer of DEPB/DFRC. A line of demarcation needs to be drawn between the provisions in which gross amount is considered and the provisions in which only the profit demerit has been the subject matter of consideration. We need not wander here and there in search of such distinction, which is highlighted from section 28 itself . Apart from clauses (iiib) and (iiic) to section 28, clauses (iv) and (vi) also refer to the inclusion of the gross amount, and not the profit element thereon, further the legislature is not oblivious to such distinction between the gross amount and the profit element inasmuch as it has used the appropriate words wherever it intended so. It is amply demonstrated from the language of section 54 which grants deduction from the capital gains by providing that it the amount of capital gain' is greater than the cost of the residential house so purchased or constructed, the differential amount shall be charged under section 45; as against section 54E which provides deduction in respect of long term capital assets by providing that if the cost of the new asset, is not less than the net consideration' in respect of the original asset, the whole of such capital gain shall not be charged under section 45. If we carefully peruse the language of section 54 in juxtaposition to section 54E it can be seen that whereas the former section provides deduction with reference to the investment of the amount of capital gain, the later section grants deduction with reference to the extent of investment of the net consideration and not the capital gain. Thus, it can be visualized that the legislature is not unmindful of the distinction between "sale consideration and 'profit' and has used the appropriate expression to exhibit its intendment. Reverting to the language of (iiid) of section 28 we observe that it refers to any profit on the transfer of DEPB. The words used in the provision indicate that only the profit element on the transfer of DEPB is to be considered under this clause and not the sale proceeds itself. Thus in order to fee covered with the scope of this clause, two things are essential. First, there should be transfer of the DEPB and second, such transfer should result into any profit. Unless both the conditions are cumulatively satisfied, the transaction cannot form part of section 28 (iiid).
447. This leaves us with the determination of the meaning of the word 'profit'. In common dialect the word profit' refers to excess of sale proceeds over the cost of goods. The word profit' has another shade also, which involves a comparison between the state of business at two specific dates and the excess of the value of asset on one date over the other, constitutes profit. Their Lordships of the Hon'ble Supreme Court in E.D. Sassoon & Company (supra) has laid down to this effect.
"The word 'profits' has in my opinion a well defined legal meaning, and this meaning considers with the fundamental conception of profits in general parlance although in mercantile phraseology the word may at lime bear meanings indicated by the special context which deviate in some respects from this fundamental signification. 'Profits' implies a comparison between the state of a business at two specific dates usually separated by an interval year. The fundamental meaning is the amount of gain made by the business during the year. This can only be ascertained by a comparison of the assets of the business at the two dates".
48. Going by the concept of comparison of the assets of business on two dates, it can be seen that at the stage of receipt of DEPB on its accrual the face value of Rs.100/- constituted an asset in the hands of the exporter which could be utilized by him in any of the ways open to him. If the exporter chooses to sell the DEPB for Rs. 110 at a subsequent date, then the prevailing market rate at the time of sale, that is Rs. 110 shall represent the value of asset on such date of sale. Accordingly, the difference of Rs 10 between the value of two dates, viz, on the date of its sale (Rs.110/-) and the date when it was acquired on accrual (Rs.100/-), will constitute profit. Even going by the meaning of "profit' as commonly understood representing excess of sale proceeds over cost, we find that similar result will follow. No doubt the exporter does not directly purchase the DEPB from the market by incurring any cost, but when we see the scheme of section 28 in which the face value of DEPB, at the time of making application, results into the accrual of income as includible u/s 28(iiib) and the corresponding amount represents the value of DEPB, such value, which is in the nature of an asset, shall constitute its cost when DEPB is made the subject matter of sale at a later date. The following accounting entry shall be passed in this situation.
Cash/Bank Dr Rs. 110
To DEPB Rs. 100
To Profit on sale of DEPB Rs. 10
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[At the time of sale, the income of Rs. 10 shall arise to the assessee u/s 28(iiid) as income of Rs. 100 had already accrued u/s 28(iiib) at time of application]
49. The absurdity in the result can be seen from the consequences following the reasoning of the Department, that the entire sale proceeds shall be taxable u/s 28(iiid) at the time of sale. In such a situation there will be double taxation of the face value of DEPB, firstly, when application for DEPB is made resulting in to accrual of income u/s 28(iiib) if the extent of us face value at Rs. 100 and subsequently when DEPB is sold for Rs. 110, the entire sale consideration of Rs. 110 shall stand included u/s 28(iiid) resulting into total income of Rs. 210 on account of the transaction of DEPB, as against, the real income only to the tune of Rs.110.
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53. From the above it can be noted that DEPB credit sale is different from the premium on the DEPB and such profit or the premium, is not export profit Since it does not arise out of export activity or import activity and arises because of trading in a "License" which has a premium in the marker such premium or profit cannot to be counted as exempted export profit and should be added back as taxable profit. The speech of the Finance Minister, as extracted above, divulges the intention of the scope of section 28(iiid) as covering only the premium on sale of DEPB and not the face value.
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72. Reverting to the main question posted before this special bench for consideration as to whether the entire amount received on sale of DEPB entitlements represents profit chargeable u/s 28 (iiid) or some artificial cost is to be interpolated, we find that the relevance of this question is only in the context of the computation of deduction u/s 80HHC. We have held above that sub-section (3) dealing with the computation of the profits derived from export of goods or merchandize is a complete code in itself, thus the computation of eligible profits is to be made firmly as per this sub- section with the aid of Explanation as interpreted by the Hon'ble Supreme Court in the case of Hero Exports (supra) and K. Ravindranathan (supra). The AO has denied the deduction u/s 80HHC by holding that the entire sale proceeds of DEPB fall under section 28(iiid) and since in that view of the matter, there is no positive income, the deduction is impermissible. On the contrary the view point of the assessee is that the face value of DEPB should be reduced from the cost of purchases as it is given by the Government of India only to neutralize the incidence of custom duty. On the import content of the exports. We have 6 examined the format of DEPB Scheme and come to the conclusion that the face value of DEPB is nothing but partial reimbursement of the purchase price of goods. Our this view is based on the understanding of the scheme of DEPB in commercial sense and in the tight of the Foreign Trade Policy of the Government of India. But when we come to the computation of deduction and the placement of the face value of DEPB in the scheme of section 80HHC, the general view based on the foreign Trade Policy about the reduction of such amount from the purchase cost, fails. We have seen above the sub-section (3) of section 80HHC is complete code in itself in so far as the computation of the eligible profits derived from export are concerned. The mandate of sub-section (3) has to be religiously followed for determining the amount of eligible profits for deduction and as such the general view about the understanding of the nature of DEPB will be subdued and the one based on the prescription of this provision will come to fore. In that view of the matter we hold that the face value of DEPB cannot be reduced from the cost of purchases and has to be considered as a separate species of" Business 'income'. Thus all the contentions put forward on behalf of the assesses and the interveners about the reduction of the face value of DEPB have become academic in the context of section 80HHC. Similarly the comparison of DEPB with MODVAT, which is an off-shoot of the basic contention of reduction of the DEPB value from the purchases and also the arguments by the ld. AR towards the reduction of the face value of DEPB from the purchase cost on the strength of certain decisions rendered in the framework of section 80IB, lose their relevance in the present context of section 80HHC and hence need not be examined.
73. If the intention of the legislature had been to allow the reduction of the face value of DEPB from the cost of purchases, as has been, contended before us, then there was no need to have clauses (iiia) to (iiie) of section 28 and also the first to fifth provisos to section 80HHC(3) along with the necessary ingredients of Explanation below section 80HHC(4C). We have held that the face value of DEPB under the scheme of the Income- tax Act, 1961 falls under section 28(iiib) and the profit element t on the sale of DEPB, that is the excess of sale proceeds over the face value of DEPB falls u/s 28(iiid). 'Profits of business' as per Explanation (baa) provides for the Exclusion of ninety per cent of any sum referred to in section 28(iiia to iiie). Then first proviso to sub-section (3) states that the profits computed under clauses (a) or (b) or (c) shall be further increased by the amount which bears to the ninety per cent of any sum referred to in section 28(iiia, iiib and iiie).
It means that the ninety cent of the face value of DEPB which was reduced while computing the 'profits of the business' shall 7 stand included when effect is given to first proviso. If we go with this argument that the fact value of DEPB is to be reduced from the cost of purchase then in the case of merchant exporter with turnover of less than Rs.10 crores, an anomalous situation will crop up inasmuch as the amount of eligible profit will far exceed the actual profit as demonstrated below.
Export turnover Rs.
1,000
Cost of goods sold - Direct costs (without DEPB) Rs. 800
- No indirect costs Face value of DEPB Rs 100
74. Going by sub-section (3)(b) the profits derived from such export shall be export turnover minus the direct and indirect costs attributable to such export. Going by the contention of the ld. AR, the direct cost will come al Rs.700 (800 - 100) as against the export turnover at Rs.1,000 resulting into profits derived from export as per clause (b) of sub-section (3) coming, to Rs.300 i.e. Rs.1,000 minus Rs.700. When we further give effect to the first proviso to sub-section (3), the profit of Rs.300 as computed above would require to be further increased by the ninety per cent of the face value of DEPB. The amount of Rs.90 (i.e. 90% of Rs.100 i.e face value of DEPB could, therefore, be added and the profit as determined in clause (b) of 80HHC(3) will come at Rs.390. As against that we find the real profit from export after giving effect to the DEPB benefit is only Rs.300 [1000 700 (800 - 100)]. Thus it can be easily ascertained that whereas the total business from export is Rs.300 but if we accept the contention that the face value of DEPB be reduced from the cost of purchases then the amount of profits derived from export as per section 80HHC(3)(b) will come at Rs.390. Obviously this calculation defies all logics and is incapable of acceptance due to awkward situation created by determining the profits derived from export at a figure higher than the actual business profit, the former amount, in no case can be higher than the later. We find that the logic behind introducing clauses (iiia) to (iiie) to section 28 is to de link the export incentives from the business profits while continuing them to be governed by Chapter IV-D at the same time. The natural outcome following the prescription of clauses (iiia) to (iiic) of section 28 along with section 80HHC(3) is that all the export incentives including the DEPB and DFRC etc. be considered as separate business income and not to reduce them from the cost of purchases.
75. We will now endeavor to evaluate the stand point of the AO from another angle that the entire amount of sale proceeds is covered under clause (iiid) and; not only the profit element. Continuing with the above example, where we supposed that the 8 exporter made export turnover of Rs. 1000/- and he earned Rs.200/- from the export transaction in addition to Rs.100/- towards the face value of DEPB. The amount of profits derived from exports shall come at Rs.300 as per clause (baa) of Explanation below 80HHC(4C) read with sub-section (3) including the first proviso. Further suppose that the said DEPB is held as such at the close of the year and is then sold in the succeeding year for Rs. 110. If we agree with the view point of the Department that at the time of sale of DEPB, the entire amount of Rs . 110/- is includible in section 28 (iiid) then it would mean that in order to give effect to sub-section (3), firstly the sum of Rs.100/- will require inclusion in the profits and gains of business or profession" in the year of sale, because the question of 90% exclusion shall arise only if 100% is included in the profits of the business as computed under the head Profits and gains of business or profession'. That obviously cannot be the done because the sum of Rs.100/- had already been included in the Profits and gains of business or profession' for the last year when such income accrued to the assessee u/s 28(iiib). The further inclusion of Rs.110/- in succeeding year at the time of sale in the "Profits and gains of business or profession" would lead to obvious incongruity and an impossible situation because the inclusion of face value of Rs.100/- in the profits of the second year also will amount to double taxation of Rs.100/- firstly in the year one when the income on account of the face value of DEPB accrued u/s 28(iiib) and there in the year two at the time of sale u/s 28(iiid).
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79. The second proviso to section 80HHC provides that in the case of an assessee having export turnover not exceeding Rs. 10 crores during the previous year, the profits computed under clause (a) or clause (b) or clause (e) of this sub-section or after giving effect to the First proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) or clause (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. In other words, in the case of an assessee with export turnover not exceeding Rs. 10 crores, even the profit element of Rs.10/- in the above example on the sale of DEPB for Rs.110/- will also be considered as eligible for deduction despite the fact that it is out of the trading of DEPB entitlement in India only. But for this proviso no profit on sale of DEPB or DFRC could have been considered for deduction under this section. In contrast to it the third and fourth provisos are applicable to the case of the assessee having export turnover exceeding rupees ten crores in which case the profit computed under clause (a) or clause (b) or 9 clause (c) of sub section (3) or after giving effect to the first proviso, shall be further increased by the amount which bears 90% of any sum referred to in section 28(iiid) or (iiie) in proportion to the export turnover to the total turnover only if the further two conditions stipulated therein are fulfilled and also the assessee has suffered evidence to prove the fulfillment of such conditions. It is this category of exporters which has been statutorily discriminated vis a vis the small exporters having turnover not exceeding Rs. 10 crores. They shall not be entitled to increase in the quantum of deduction by profit at transfer of DEPB/DFRS which is otherwise available to small exporters, unless the two conditions as set out in these provisos are fulfilled. In the cases under consideration it is an admitted position that the two conditions as so specified in third and, fourth provisos are not capable of compliance and hence the further increase as suggested in these two provisos cannot be made to the computation of deduction u/s.80HHC. Thus, it is apparent that the statutory discrimination is between the exporters having export turnover not exceeding Rs. 10 crores and those having exceeding Rs. 10 crores. Whereas the benefit of deduction in respect of the profit of sale of DEPB realized from the Indian market is also available to small exporters having export turnover, it is not so in the case of the large exporters having export turnover exceeding Rs. 10 crores. This appears to be the only reason for inserting clauses (iiid) and (iiie) to section 28 by the Taxation, Laws (Amendment Act, 2005), simultaneous with the insertion of section 3rd and 4th provisos.
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89. The question raised before the special bench has two parts. In so far as the first part: 'Whether the entire amount received on sale of DEPB entitlements represents profit chargeable under section 28(iiid) of the Income Tax act, is concerned, we answer it in negative and the second part of the question or the profit referred to therein requires any artificial cost to be interpolated is replied in affirmative to the extent that the face value of DEPB shall be deducted from the sale proceeds. As regards the grounds based in these appeals against the denial of deduction u/s 80HHC, in full or part, we find that the computation of profits derived from exports and the resultant amount of deduction under this section can be made only when the decision is taken on the amount and the timing of taxability of the face value of DEPB and the profit on its sale. On this issue we hold that the face value of DEPB is chargeable to tax u/s 28(iiib) at the time of accrual of income, that is, when the application for DEPB is filed with the competent authority pursuant to exports and profit on sale of DEPB representing the excess of sale proceeds of DEPB over its face value is liable to be considered u/s 28(iiid) at the time of its sale. Whatever is said about DEPB shall also hold good 10 for DFRC, on both its components, viz the face value of DFRC and profit on its transfer, except for the fact that the profit on sale of DFRC shall be charged to tax u/s 28(iiie). There is no dispute about the duty drawback, which shall be chargeable to tax at time of accrual of income u/s 28(iiic) when application is filed with the competent authority after making exports. Since the necessary facts for the determination of the quantum of deduction u/s 80HHC, as discussed above, are not available on record, we, therefore, set aside the impugned orders and direct the AO to compute the amount of relief in accordance with the view expressed by us here in above."
12. Respectfully following the above judgment of the Tribunal, we hold that profit element on DEPB licence will be covered by section 28(iiid) and, accordingly, by third proviso to section 80HHC(3) of the I.T. Act, 1961 as the turnover of the assessee exceeds Rs.10 crores This amount shall be excluded for the purpose of computing deduction u/s.80HHC of the I.T. Act, 1961, if condition laid down in that proviso are not satisfied . The face value of the DEPB licence will be covered u/s.28(iiib) of the I.T. Act, 1961 and, therefore, 90% thereof would be added to the export profits as per first proviso to section 80HHC(3) of the I.T. Act, 1961.
13. In order to compute deduction u/s.80HHC of the I.T. Act, 1961 in accordance with the decision of ITAT Special Bench in the case of M/s.Topman Exports(supra), we restore the matter to the file of Assessing Officer.
6. Respectfully following above decision, we restore the issue of claim of deduction under Section 80HHC in respect of DEPB Entitlements to the file of the Assessing Officer for calculating deduction under that section in accordance with the judgment in Topman Export's case (supra). This ground is according allowed, but for statistical purposes.
117. In the result, appeal of Revenue is partly allowed for statistical purposes.
Order pronounced in Open Court on 18 12 /2009
Sd/- Sd/-
(D.C.Agrawal) (T.K.Sharma)
Accountant Member Judicial Member
Ahmedabad,
Dated : 18/12/2009
Mahata/-
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
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