Kerala High Court
Commissioner Of Income-Tax vs G. Krishnan Nair on 4 December, 2002
Equivalent citations: [2003]259ITR727(KER)
Author: K. Balakrishnan Nair
Bench: G. Sivarajan, K. Balakrishnan Nair
JUDGMENT K. Balakrishnan Nair, J.
1. The Revenue is the appellant. It feels aggrieved by the decision of the Income-tax Appellate Tribunal affirming the decision of the first appellate authority that the requirement to file the certificate as provided under Sub-section (4A) of Section 80HHC along with the return is only directory. The questions of law framed for the decision of this court are the following :
"(1) Whether, on the facts and in the circumstances of the case and in the absence of a certificate from the Export House being filed along with the return, the assessee is entitled to the deduction under Section 80HHC with regard to the foreign sales made ?
(2) Whether, on the facts and in the circumstances of the case and on an interpretation of Sub-section (4A) of Section 80HHC read with State Level Committee v. Morgardshammar India Ltd. [1996] 101 STC 1 (SC) and Dr. Mrs. Renuka Datla v. CIT [1999] 240 ITR 463 (AP), is not the provision mandatory and does not non-compliance of the provision result in disallowance of the deduction ?
(3) Whether, on the facts and in the circumstances of the case and in the light of the Supreme Court decision in Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1 and also in the absence of a statutory requirement like the one in Subsection (4A) of Section 80HHC, the Tribunal is justified in relying on CIT v. Malayalam Plantations Ltd. [1976] 103 ITR 835 (Ker) and does the same have application in the case on hand ?"
2. The brief facts of the case are the following :
The respondent-assessee is a cashew exporter. He filed the return of income for the assessment year 1992-93 on October 24, 1992, declaring an income of Rs. 60,53,360. He claimed deduction under Section 80HHC The assessing authority disallowed a portion of the deduction claimed on the ground that the certificate as contemplated under Sub-section (4A) of Section 80HHC did not accompany the return. The copy of the order of the Assessing Officer is annexure A. But the said order was reversed by the Commissioner of Income-tax (Appeals) by annexure B order dated July 26, 1995. The first appellate authority took the view that the certificate contemplated under Sub-section (4A) of Section 80HHC can be furnished before the final assessment order is passed. Feeling aggrieved, the Revenue moved the Income-tax Appellate Tribunal by filing an appeal. But the same was dismissed by annexure C order dated September 10, 1999. Hence, this appeal to this court under Section 260A of the Income-tax Act.
3. We heard both sides. Learned senior counsel, Shri P. K. R. Menon, appearing for the Revenue, relied on the decision reported in CIT v. Dhanalakshmy Weaving Works [2000] 245 ITR 13 (Ker). Learned counsel appearing for the respondents, Shri P. Balachandran, relied on the decision of this court in CIT v. Malayalam Plantations Ltd. [1976] 103 ITR 835 ; CIT v. Shivanand Electronics [1994] 209 ITR 63 (Bom); Peerless General Finance and Investment Co, Ltd. v. Dy. CIT [1999] 236 ITR 671 (Cal) and CIT v. Hemsons Industries [2001] 251 ITR 693 (AP). Before going into the rival contentions, it will be beneficial to refer to the relevant statutory provisions, first. The relevant portion of Section 80HHC reads as follows :
"(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, 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 the profits derived by the assessee from the export of such goods or merchandise :
Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be), issues a certificate referred to in Clause (b) of Sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods.
(1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to Sub-section (1), 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 the profits derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House.....
(4A) The deduction under Sub-section (1A) shall not be admissible unless the supporting manufacturer furnishes in the prescribed form along with his return of income,-
(a) the report of an accountant, as defined in the Explanation below Sub-section (2) of Section 288, certifying that the deduction has been correctly claimed on the basis of the profits of the supporting manufacturer in respect of his sale of goods or merchandise to the Export House or Trading House ; and
(b) a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section : Provided that the certificate specified in Clause (b) shall be duly certified by the auditor auditing the accounts of the Export House or Trading House under the provisions of this Act or under any other law."
4. A reading of the above statutory provisions would show that to get the deduction contemplated under Sub-section (1A), the assessee has to file, inter alia, a certificate from the export house/trading house containing such particulars as may be prescribed and verified in the prescribed manner that in respect of export turnover mentioned in the certificate, the export house or trading house has not claimed the deduction under this section. In the case at hand, it is common case that the assessee has furnished the abovesaid certificate, but it was not furnished along with the return of income, but was submitted before the matter was taken up for assessment. So, the Revenue would submit that the provision contained in Sub-section (4A) that the certificate should accompany the return, is mandatory and therefore the assessee is not entitled to get the deduction as admittedly he has filed the requisite certificate only after he filed the return of income. The respondent, on the contrary, would submit that the requirement to file the certificate, though mandatory, the time limit for filing it is only directory in nature.
5. Learned senior standing counsel for the Revenue, relying on the decision in CIT v. Dhanalakshmy Weaving Works [2000] 245 ITR 13 (Ker), submitted that the requirement under Sub-section (4A) of Section 80HHC should be read as mandatory. That was a case involving interpretation of Section 201(1A) of the Income-tax Act, which provides that if there is a failure to deduct the tax as contemplated under Section 201(1A) read with Section 194, the said person shall be liable to pay interest for the amount deductible at the rate mentioned therein to the Revenue. The said provision casts an obligation on the person who pays the interest to another to deduct the tax on such amount. It does not deal with any time limit. So, the said decision will not apply to the facts of this case. A Division Bench of this court in CIT v. Malayalam Plantations Ltd, [1976] 103 ITR 835, has interpreted a similar provision and held that the same is only directory. It was held therein that the requirement under Rule 8A under the Income-tax Rules, 1962, of filing a certificate for claiming the development allowance is mandatory. But, the said certificate need not necessarily be filed along with the return though such a requirement is there in the rules. In other words, the requirement to file the certificate along with the return was held to be directory. The provisions of the rule interpreted therein are identical to the provisions contained in Sub-section (4A) of Section 80HHC But, learned senior counsel for the Revenue would submit that the Division Bench of this court was interpreting a statutory rule, whereas the point involved in the present case is the interpretation of a provision under the Act. So, according to learned senior counsel, the said decision interpreting a rule, though identical in nature, cannot be pressed into service to interpret a provision of the Act. Learned counsel for the assessee rightly pointed out that the said point raised by the Revenue cannot be accepted in view of the decision of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India [1992] 75 Comp Cas 12. The apex court, in para. 53 of the said decision has held as follows (page 110) :
"In State of U. P. v. Babu Ram Upadhya, AIR 1961 SC 751, this court held that rules made under a statute must be treated, for all purposes of construction or obligations, exactly as if they were in that Act and are to the same effect as if they are contained in the Act and are to be judicially noticed for all purposes of construction or obligations."
6. The stand of the assessee that the relevant provision is directory is supported by the decision of the Andhra Pradesh High Court in CIT v. Hemsons Industries [2001] 251 ITR 693, It was held in that decision that the requirement of filing an audit report under Section 80HHC along with the return of income is not mandatory. It was held that if the assessee files an audit report before the assessment is completed, it will be entitled to deduction. Similarly, the Bombay High Court in CIT v. Shivanand Electronics [1994] 209 ITR 63, has held that the filing of the audit report along with the return of income mentioned in Section 80J(6A) is not mandatory. It was held that the filing of the audit report is mandatory, but it need not necessarily be filed along with the return of income. It can be produced any time before the completion of the assessment, it was held.
7. It is no doubt, true, that the taxing statutes have to be interpreted strictly. It is also equally well settled that the use of the word "shall" in a provision need not necessarily make the direction contained therein mandatory. It has also been held by the courts that even though the word "may" is used in a statutory provision, still, it may be a mandatory provision. As rightly pointed by learned senior counsel for the Revenue, if a provision is couched in negative words, it is normally taken as mandatory. But, having regard to the context in which the negative words are used, it will be always open to the courts to construe a particular provision as directory. The form is not conclusive, the substance has to be ascertained. It is trite law that the statute should be read as a whole and the intention of the Legislature has to be ascertained, if a dispute arises whether a direction under a provision is mandatory or directory in nature. The intention of the provisions contained in Sub-section (4A) is to encourage export and to give incentive to develop export business. Though, normally a strict construction is advocated with reference to taxing provisions, the apex court has held that when exemptions are made with a beneficent object such as to give incentive to co-operative movement or for encouraging investment in new machinery or plant, such provisions have to be liberally construed (see the decisions of the apex court in CIT v. U. P. Co-operative Federation Ltd. [1989] 176 ITR 435 ; Gujarat Industrial Development Corporation v. CIT [1997] 227 ITR 414 and CJT v. Shaan Finance (P.) ltd, [1998] 231 ITR 308). In view of the above legal position, we are inclined to hold that the requirement of filing the declaration along with the return of income contemplated under Sub-section (4A) of Section 80HHC is only directory. The filing of the declaration to claim the benefit is no doubt, mandatory. But, the time of filing the declaration is directory in nature and it can be filed at any time before the completion of the assessment. Therefore, the questions of law framed for the decision of this court are answered against the Revenue and in favour of the assessee. In other words, questions Nos. 1 and 3 are answered in the affirmative and question No. 2 in the negative. Accordingly, the appeal fails and it is dismissed.