Income Tax Appellate Tribunal - Chandigarh
Assistant Commissioner Of Income Tax vs Avon Cycles Ltd. on 26 November, 2002
Equivalent citations: [2003]86ITD156(CHD), (2004)82TTJ(CHD)127
ORDER
P.K. Bansal, A.M.
1. The Revenue has come up in appeal by taking the following two affective grounds of appeal:
"1. On the facts and in the circumstances of. the case, the CIT(A) has erred in deleting the disallowance of interest of Rs. 3,25,080 made by the AO on account of interest-free advances made to Shri Hans Raj Pahwa and Shri S. Banerjee for non-business purposes.
2. The CIT(A) has further erred in directing the AO to ignore the loss computed in, respect of trading export or manufacturing export for the purposes of deduction under Section 80HHC."
2. The brief facts relating to the ground No. 1 are that the AO disallowed Rs. 2,70,000 out of the interest payment on account of interest free loan advances to Shri Hans Raj Pahwa, managing director of the company. Further Rs. 55,080 was disallowed out of the interest payment on account of interest free advance given to Shri S. Banerjee, The CIT(A) deleted both the disallowances following the appellate order dt. 26th Sept., 1996, for the asst. yr 1993-94 in the P^136 case of the assessee. Learned Departmental Representative, relied on the order of the AO. The learned authorised representative submitted that no loan was advanced during the year. The loans have been advanced, in the earlier years and no such disallowance was made in the earlier years. The Revenue has not proved the nexus between the borrowing and lending of the money. Therefore, no disallowance is called for. Reliance was placed to the order of the Tribunal in ITA No. 939/Chd/90, asst. yr : 1987-88 in the case of the assessee in which this Tribunal under paras 4 and 5 of its order has deleted the disallowance made out of the interest on account of interest free advance to the director and Shri S. Banerjee. :
2.2 We have considered the rival submissions, perused the order of the tax authorities. We have also gone through the order of this Tribunal in the case of the assessee in ITA No. 939/Chd/90 dt. 22nd Dec., 1995. We find that this issue is duly covered in favour of the assessee under paras. 4 and 5 of the order. Respectfully following the order of the Tribunal, we dismiss this ground of appeal of Revenue and confirm the order, of the CIT(A) to maintain consistency when there is no change on the facts of the case as compared to the order as relied on by the learned authorised representative.
3. The brief facts relating to the ground No. 2 are that the AO noted that the profits from the export of manufacturing goods as well as trading goods is shown at nil in view of the fact that the assessee has derived loss from export of goods both in trading and manufactured by it but the assessee claimed deduction under Section 80HHC in respect of 90 per cent, of the export incentive in view of proviso to Section 80HHC(3) of the IT Act, 1961. The assessee submitted that the losses are not to be considered while determining the profits from export of the goods as per proviso to Section 80HHC(3). The assessee went in appeal before the CIT(A). The CIT(A) following the order of the Tribunal for the asst. yr. 1992-93 allowed the appeal of the assessee by observing as under:
"It is claimed that the AO has ignored to consider that for the purpose of computation of deduction under Section 80HHC only the profit on traded and manufactured goods are to be taken into account and if there was any loss, the same had to be ignored.
This issue is fully covered by the appellate order for the earlier assessment year in the case of the assessee as noted therein even when the Tribunal in the case of the assessee for the asst. yr. 1992-93 has not examined the computation of profit under Sub-section (3) of Section 80HHC as r/w Sub-section (1) of Section 80HHC as appears to be the intention of the legislature, following the decision of the Tribunal in the case of the assessee for the asst. yr. 1992-93, it is directed that if any loss is computed in respect of trading export or manufacturing export, the same should be ignored while working out deduction allowable to the assessee."
3.1 Being aggrieved, the Revenue has come in appeal before us. The learned Departmental Representative vehemently contended that this issue is covered in favour of the Revenue by the judgment of Hon'ble Bombay High Court in the case of IPCA Laboratories Ltd. v. Dy. CIT (2001) 251 ITR 401 (Bom). This judgment is binding on the Tribunal because this is the only High Court judgment on this issue. Thus, it was submitted that the order of the CIT(A) is contrary to the law pronounced by the Bombay High Court and therefore, the appeal of the Revenue must be allowed. On merits, he did not advance any other argument except reliance on the order of the Bombay High Court (supra).
3.2 Learned authorised representative very strongly submitted that the judgment of the Bombay High Court as relied by the learned Departmental Representative is not binding on this Tribunal because the jurisdiction of the Bombay High Court is limited to the State of Maharashtra. There is no judgment pronounced by the Punjab & Haryana High Court on this issue. It is only the apex Court whose judgments are binding on all the Tribunals. Reliance was placed on the judgment of the Bombay High Court in the case of CIT v. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom). On merits, the learned authorised representative contended that the judgment of the Bombay High Court in the case of IPCA Laboratories (supra) is not applicable and filed the following submissions in writing :
"In IPCA Laboratories Ltd.'s case (supra), the assessee had mixed business activity, viz., export of trading goods and export of self-manufactured goods. The assessee disclaimed the trading export turnover in favour of the supporting manufacturers and contended that since the entire trading export turnover stood disclaimed in favour of the supporting manufacturers there was no export turnover of trading goods so far as the assessee was concerned and, therefore, what was required to be considered was only the profits of the assessee in respect of the export of goods manufactured or produced by it and not the profits in respect of traded goods.
In that case there was a gross mistake committed in the computation of admissible deduction under Section 80HHC, inasmuch as the profit from export incentives was included in the profit from export of self-manufactured goods while the proviso to Sub-section (3) has effect only after the aggregation of profits from the trading and manufacturing activity. The use of the word 'profit' under Sub-section (3) has application only till the first stage. In other words, the principle of aggregation applied in the IPCA Laboratories Ltd.'s case (supra) has relevance only till the first stage.
And the Court was only required to give answer to such aggregation method possible under Clause (c) of Section 80HHC(3).
The net result of aggregation arrived at is further required to be increased by proportionate incentives. The issue whether in further so increasing the deduction, such loss needs to be adjusted or ignored was not before the Bombay High Court in IPCA Laboratories Ltd.'s case (supra) and, thus this has no application in the loss scenario where the deduction claim is made with reference to proportionate incentive income.
With due respect to the Bombay High Court, it is submitted that the provisions, of Clause (b) of Sub-section (4A) of the Section 80HHC. provide for disclaimer of the export turnover in favour of the supporting manufacturer and not disclaimed of the profits computed under Sub-section (3). Sub-clause (4A) reads as under;
'(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 account, as defined in the Explanation below Sub-section (2) of Section 288, certifying that the deduction was 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 :' Even the certificate of disclaimer in Form No. 10CCAB to be issued by the exporter for this purpose also points to the amount of export turnover disclaimed. Further, from a reading of Sub-section (3A) of Section 80HHC, a separate manner of computation is laid down parallel to the provisions of Sub-section (3) of the said section. Sub-section (3A) reads as under:
'(3A) For the purpose of Sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be,
(a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more export house or trading houses, the profits of the business;
(b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more export houses or trading houses, the amount which bears to the profits of the business the same proportion as the turnover in respect of sale to the respective export house or trading house bears to the total turnover of the business carried on by the assessee.' From a reading of Sub-section (3A), it is very clear that the deduction to the supporting manufacturer is available with reference to profits of the business house as a percentage of the total turnover of the business carried on by him. There is nothing in the law that prevents any disclaimer in a loss situation. Further, the stream of profits in trading and manufacturing activity will never be the same and, therefore, the regulation of deduction in the hands of a supporting manufacturer on the basis of profits made by the exporter is not understandable.
.............(reproduction of Section 80HHC(3)) From the reading of proviso to Sub-section 3 of Section 80HHC, it is clear that the two words in the proviso that are worth noting are 'further increased'. The second word 'increased' is quite self-explanatory and needs no elaboration. The word 'further' as prefixed to the word 'increased' implies 'over and above', i.e., supplementing the profit as computed under Sub-clauses, (a), (b) and (c) under Sub-section (3). In the Black's Law Dictionary the word 'further' reads as :
'.... "additional", and is equivalent to "moreover, or furthermore, something beyond what has been said or likewise, or also...."' From a perusal of the literal meaning of this word, it is evident that the proviso is meant to supplement the benefit envisaged under Section 80HHC and not meant for the purpose of aggregation or set off. The proviso to Sub-section (3) using the words 'further increased' is meant to provide more or extra benefit and, therefore, must be read independently of Clauses (a), (b) and (c) in Sub-section (3) of Section 80HHC, This is the plain and undoubted effect of the proviso to Sub-section (3) of Section 80HHC.
Any attempt to set off the loss arrived at under the main Sub-section (3) against the additional relief admissible under the proviso thereto would defeat the purpose and legislative intent of the proviso. The proviso to Sub-section (3) here operates as a substantive provision and says in unmistakable and unequivocal terms that the event of any losses computed at the first stage must be ignored.
The Supreme Court in the case of CIT v. P. Krishna Warriar (1964) 53 ITR 176 (SC) held that it is not an inflexible rule of construction that a proviso in a statute should always be read as a limitation upon the effect of the main enactment. Generally the natural presumption is that but for the proviso the enacting part, of the section would have included the subject matter of the proviso; but the clear language of the substantive provision as well as the proviso may establish that the proviso is not a qualifying clause of the main provision, but is it itself a substantive provision. In this connection the apex Court quoted the words of Maxwell : "the true principle is that the sound view of the enacting clause, the saving clause and the proviso taken and constructed together is to prevail."
In the case of P. Krishna Warriar (supra), a question arose whether, the direction, of a testator in a will vesting the business of the testator of making and selling ayurvedic medicines in trustees with the obligation to apply 60 per cent of the income thereof to charitable purposes and the remaining 40 per cent for the benefit of his family would entitle the trustees to claim exemption for the 60 percent of the income under proviso (b) to Section 4(3)(i) of the Indian IT Act, 1922. Two contentions were urged on behalf of the Revenue, (i) that the business would not be property, and (ii) that since a part of the income was to be applied for non-charitable purposes, the claim for exemption was not justified. In that context, Subba Rao J., speaking for the Supreme Court, brought out clearly this, distinction between when a property is said to be wholly set apart for charitable and religious purposes and when it can be said to be set apart in part only. The Court held in that context as under:
'In our view, the expression 'in part' does not refer to an aliquot part; if half a house is held in trust wholly for religious or charitable purposes, it would be covered by the first part of the substantive Clause (i), for in that event the subject-
matter of the trust is only the said half of the house and that half is held wholly for religious or charitable purposes. The expression 'in part', therefore, must apply to a case other than a property a part of which is wholly held for religious or charitable purposes. In India there are a variety of trusts wherein there is no complete dedication of the property but only a partial dedication. A property may be dedicated entirely to a religious, or charitable institution or to a deity.
This is an instance of complete dedication. A property may be dedicated to a deity, subject to a charge that a part of the income shall be given to the grantor's heirs. A property may be given to an individual subject to, or burdened with, a charge in favour of an idol or a religious institution or for charitable purposes. An owner of property may retain the property for himself but carve out a beneficial interest therefrom in favour of the public by way of easement or otherwise. There may be many other instances where though there is a trust, it involves only a partial dedication of the property held under trust in the sense that only a part of the income of the property is utilized for religious or charitable purposes. The dichotomy between the two expressions 'wholly' and 'in part' is not based on the dedication of the whole or a fractional part of the property, but between the dedication of the said property wholly for religious or charitable purposes or in part for such purposes......(p. 183)' The Supreme Court found no difficulty in holding that Clause (b) of the proviso deals with a case of business which is not vested in trust for religious or charitable purpose within the meaning of the substantive clause of section.
In throwing light on the interpretation of an enactment followed by a proviso, the Supreme Court in the case of State of Rajasthan v. Leela Jain 1 SCR 276 held that so far as a general principle of construction of a proviso is concerned, it has been broadly stated that the function of a proviso is to limit the main part of the section and carve out something which but for the proviso would have been within the operative part. But it was further observed that the proviso in that particular case was really not a proviso in the accepted sense but an independent legislative provision, by which to a remedy, which was prohibited by the main part of the section, an alternative was provided.
Again, in CIT v. Nandlal Bhandari & Sons (P.) Ltd. (1963) 47 ITR 803 (MP) it was observed that "though ordinarily a proviso restricts rather than enlarges the meaning of the provision to which it is appended, at times the legislature embodies a substantive provision in a proviso. The question whether a proviso is by way of an exception or a condition to the substantive provision, or whether is in itself a substantive provision, must be determined on the substance of the proviso and not its form."
The House of Lords in the case of Rhondda Urban District Council v. Taff vale Railway Co. L.R. (1909) A.C. 253 held that generally speaking it is true that in exceptional cases a proviso may be a substantive provision itself. The Lord Chancellor, in this case pointed out that "though Section 51 was framed as a proviso upon preceding sections, but it is true that the later half of it though in form of a proviso, is in substance a fresh enactment, adding to and not merely qualifying that which goes before."
(a) the ratio of the judgment in the case of IPCA Laboratories Ltd. (supra) has no application to a case of loss scenario;
(b) the Bombay High Court had no occasion to discuss the real import of the proviso to Sub-section (3); rather it was required to deal solely with the adjustment required under Sub-section (c) of such section; and
(c) further, in the light of well-settled law of interpretation, any attempt to limit the scope of the proviso in Sub-section (3) would render the same meaningless.
2. The order of the Hon'ble Tribunal, Chandigarh Bench, Chandigarh, which is.
on identical facts, is binding on the subordinate authorities. The Tribunal, Hyderabad "B" Bench in the decision reported in (1993) 45 TTJ (Hyd) 282 in the case of Prasad & Co. v. Dy. CIT, relying on the Supreme Court judgment in the case of Union of India v. Kamalakshi Finance Corporation Limited (1991) 53 ELT 433 held as under:
'Judicial propriety demands that the order of the Tribunal should not only be respected but it should be followed by a lower authority. If the authority subordinate to the Tribunal is allowed to pick up holes gaps or some infirmities or is of the view that different line of thinking is possible, then there will be judicial chaos and there will not be any finality to litigation. This process, if permitted, will lead to unnecessary harassment to the taxpayer, which is not envisaged by the statute nor permitted by law. The CIT(A) is duty bound to follow the decision of the Tribunal. It is well settled that the decision of the higher authorities is binding on a lower authority in the judicial hierarchy.
Therefore, the decision of the Tribunal is binding on the Revenue authority which they should scrupulously follow.' It has been incorrectly observed that the principle that profits, represent "plus income" and loss represent "minus income" and minus income should be adjusted against plus income in order to arrive at chargeable, income is applicable in constructing provisions of Sub-clauses (i) and (ii) of Clause (c) of Section 80HHC. The provisions of Sub-clauses (i) and (ii) of Clause (c) of Section 80HHC do not deal with computation of taxable or chargeable income. They deal with computation of amount liable to be deducted when the assessee happens to be exporter. What is to be deducted is "profit derived from export". The expression "profit derived from export" has no nexus with actual profit earned in export transactions. That expression has been used to represent an amount arrived at on applying an artificial formula. For example under Sub-clause (a), the "profit derived from export" would be profits derived from business X Export turnover/Total turnover.
The resultant figure may not, in reality, represent export profits. Even if there is really loss export business, the figure as per this formula may be positive because of profits from non-export activities. In these circumstances there is no scope for applying to the calculation of deduction under Section 80HHC(3) the principle that loss represents negative profits and hence loss should be adjusted against positive profits to arrive at resultant chargeable profits. If the legislature wanted to apply the said principle it would have expressly stated that negative amount under one of the above two sub-clauses of Clause (c) of Section 80HHC(3) should be, adjusted against positive amount of the other of the two sub-clauses. The legislature could not have presumed that principle applicable for arriving at resultant taxable income would automatically apply to ascertain of figure of deduction. It is erroneously emphasized that use of word "and" at the end of Sub-clause (i) supports its conclusion. In simple language what is conveyed by word "and" used between two sub-clauses is that where the export is of goods manufactured or processed by the assessee and of trading goods, there would be two figures of "profit derived from export". One figure would be arrived at by employing formula laid down in Sub-clause (i) and the other figure would be arrived at by employing formula laid down in Sub-clause (ii). The word "and" is not used to convey the idea of adjustment of losses calculated under one sub-clause against profits calculated under the other sub-clause. In fact, it is not even stated that the amount arrived at under Sub-clause (i) shall be added to the amount arrived at under Sub-clause (ii) and the aggregate would be the profits derived from export. What is expressly conveyed is that there would be two independent figures of "profit derived from export" in a clause where the export is of two kinds of goods namely (i) goods manufactured and processed by the assessee and (ii) trading goods, and each positive figure would qualify for deduction and negative figure would be liable to be ignored. If these two figures were intended to be aggregated by algebraic method it would have been clearly stated. Similarly if negative figure was to be adjusted against positive figure that would also have been clearly stated. In the absence of any such mention, the negative figure is to be ignored or to be taken as nil and positive figure is to be treated as"profit derived from export" for the purpose of deduction.
Section 80HHC contains an important provision by way of incentive for boosting export. It is not unoften that legislative intent in enacting certain provision in overall national perspective gets frustrated by narrow interpretation put by the departments. Controversy on interpretation of such an important provision would cause immense harm to the crusade for earning foreign exchange.
It may incidentally be mentioned that where the income includes loss, the word "income" has specifically been used, but where the word "profit" is used it only means "profit". The word "profit" has been used in various sections as per the list attached to mean the plus income.
3. Thus in view of the above submission the applicant honorably prays that the deduction under Section 80HHC is allowable without taking into consideration the loss suffered in the export of trading and manufacturing goods."
4. We have carefully considered the rival submissions including the written submission filed by the learned authorised representative, perused the materials on record. We have gone through the orders of the tax authorities as well as the case laws relied on by both the parties. The issue involved in this case is whether the assessee is entitled to deduction under Section 80HHC in accordance with proviso to Section 80HHC(3) when there is a loss computed in accordance with Section 80HHC(3) without applying the proviso to Section 80HHC(3). The AO computed the deduction under Section 80HHC admissible to the assessee at nil in the following manner:
"Computation of deduction under Section 80HHC:
Rs.
A. under s. 80HHC(3)(b) -trading profits (-) 39,89,128 B. under s. 80HHC(3)(c) -for manufacturing profits:
Adjusted profit X Adjusted exDort turnover Adjusted total turnover (-) 4.58.56.048 X 20.64.87.881 = Rs. 79.89.581 1,18,37,99,698 C. Proviso to s. 80HHC(3) Export Incentives :
(i) Sale of import entitlement 27,40,610
(ii) Duty draw back 2,76,90,824
(iii) Rubber Subsidy 44,402
(iv)IPRS 2,71,83,296 Less :IPRS treated as income from other sources.
21,56,1357 2,50,27,161 90 per cent thereof = 4,99,52,697 5,55,02,997 90 per cent of Export Incentives X Export Turnover Total turnover = 4,99,52,697X26,76,37,064 = 1,07,38,753 1,24,49,48,881 Deduction under s. 80HHC A + B + C A. Rs.
(-) 39,89,128 B. Rs.
(-) 79,98,581 C. Rs.
1,07,38,753 (-) 12,48,956 Thus, the AO took the view that since there was loss from the export business as computed under Section 80HHC(3)(c) therefore, 90 per cent of the export incentives as per proviso to Section 80HHC(3) is to be set off against the loss so computed for; the purposes of deduction available under Section 80HHC and accordingly the assessee is not entitled for any deduction. The CIT(A) as per p. 10 of his order relying on the order of the assessee for the asst. yr. 1992-93 held that the loss computed shall be ignored and shall not be set off against the amount computed in accordance with proviso to Section 80HHC(3) of the IT Act, 1961. Before us, neither side has filed the copy of the order of the Tribunal for the asst. yr. 1992-93. Before going to the issue whether the assessee is entitled for the deduction in respect of the amount computed in accordance with proviso to Section 80HHC(3) in respect of 90 per cent of the export incentives even though there is a loss computed in accordance with Section 80HHC(3)(a) to (c). We would like to deal with the contention of the learned Departmental Representative whether the judgment of the Bombay High Court is binding on us on this issue or not. We find that the Bombay High Court in the case of CIT v. Thana Electricity Supply Ltd. (supra) has laid down categorically with regard to the precedent that the decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its territorial jurisdiction. In the said judgment, Hon'ble High Court after discussing the various judgments of Hon'ble Supreme Court held the following proposition at p. 738 of the judgment:
"(a) The law declared by the Supreme Court being binding on all "Courts in India, the decisions of the Supreme Court are binding on all Courts, except, however, the Supreme Court itself which is free to review the same and depart from its earlier opinion if the situation so warrants. What is binding is, of course, the ratio of the decision and not every expression found therein.
(b) The decisions of the High Court are binding on the subordinate Courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction. It does not extend beyond its territorial jurisdiction.
(c) The position in regard to the binding nature of the decisions of a High Court on different Benches of the same Court may be summed up as follows :
(i) A single Judge of a High Court is bound by the decision of another single Judge or a Division Bench of the same High Court. It would be judicial impropriety to ignore that decision. Judicial comity demands that a binding decision to which his attention had been drawn should neither be ignored nor overlooked. If he does not find himself, in agreement with the same, the proper procedure is to refer the binding decision and direct the papers to be placed before the Chief Justice to enable him to constitute a larger Bench to examine the question [see Food Corporation of India v. Yadav Engineer & Contractor AIR 1982 SC 1302).
(ii) A Division Bench of a High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High Court. If one Division Bench differs from another Division Bench of the same High Court, it should refer the case to a larger Bench.
(iii) Where there are conflicting decisions of Courts of co-ordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decisions.
(d) The decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its own territorial jurisdiction. It is well-settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the Court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect.
By no amount of stretching of the doctrine of stare decisis, can judgments of one High Court be given the status of a binding precedent so far as other High Courts or Courts or Tribunals within their territorial jurisdiction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Supreme Court which have interpreted the scope and ambit thereof. The fact that there is only one decision of any one High Court on a particular point or that a number of different High. Courts have taken identical views in that regard is not at all relevant for that purpose. Whatever may be the conclusion, the decisions cannot, have the force of binding precedent on other High Courts or on any subordinate Courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all Courts in the country by virtue of 141 of the Constitution."
Thus in view of the clear cut proposition of law laid down by the Hon'ble Bombay High Court (supra), we do not agree with the learned Departmental Representative that the decision of the Bombay High Court is binding on the Tribunal which is not under the superintendence or the jurisdiction of the Bombay High Court. The case before us relate to the State of Punjab & Haryana, and, therefore, any decision pronounced by the Hon'ble Punjab & Haryana High Court or Supreme Court is binding on us. Even on merits also, we have gone through the decision of the Bombay High Court as relied on by learned Departmental Representative in the case of IPCA Laboratories Ltd. (supra) and find that the issue involved in that case is not similar to the issue before us. The brief facts of that case are that the assessee was an export house exporting goods manufactured by itself as well as goods manufactured by supporting manufacturers. For the asst. yr. 1996-97, the assessee filed a return and declared nil income and the return of income indicated net loss from the export of goods. The break up of the loss was shown as under:
Rs.
Loss from goods manufactured by supporting manufacturers 6.86 cr. Profit from export of self-manufactured goods 3.78 cr.
The assessee contended that since it had disclaimed the entire trading exports in favour of supporting manufacturers, therefore it claimed deduction under Section 80HHC for Rs. 3.78 cr. The loss incurred could not be set off against the profit from the export of self-manufacturing goods. The AO held that the assessee could disclaim the export benefits in favour of the supporting manufacturer under the proviso to Section 80HHC(1) only when the assessee had profits from the export activities because the proviso talks of profits and not income which may include, loss. Therefore, the AO held that the proviso to Section 80HHG(1) was not applicable to the present case and did not grant the benefit under Section 80HHC to the assessee. The CIT(A) held, that if Sub-section (.1) of Section 80HHC was not applicable for want of profits, then the proviso also would not apply. Accordingly, the CIT(A) dismissed the appeal of the assessee. On. appeal, the Tribunal held that the net result should be profits for the purpose of claiming deduction under Section 80HHC, if the net result was a loss, then the assessee was not entitled to claim the benefit of deduction under Section 80HHC. Under these facts of the case, the short question came before the High Court "Whether the loss in respect of export of trading goods was to be ignored while determining the appellant's entitlement to deduction under Section 80HHC(3)(c) of the Act." Hon'ble High Court on these facts held:
"that the disclaimer could operate only if there was profit under Section 80HHC(1), which refers only to positive figure of profit and excludes loss. In the present case without disclaimer and on the basis of the aggregation of the profits which includes loss the resultant figure was a loss, in the hands of the export house and therefore the assessee could not claim deduction of loss under Section 80HHC. The word "profit" in Section 80HHC(1) could not include losses whereas the word "profit" in Section 80HHC(3)(c) includes losses/minus' profit. The two sub-sections operate in completely different spheres. Section 80HHC(1) provides for deduction from gross total income to arrive at the total taxable income of the assessee. Section 80HHC(1) deals with the manner of effecting the deduction arrived at under Section 80HHC(3)(c). Since the section is clear and not ambiguous, the question of liberal interpretation does not arise. Therefore, the loss in respect of export of trading goods could not be ignored while computing deduction under Section 80HHC(3)(c)."
Thus, from the facts of the case, we are of the opinion that the Bombay High Court did not have the question whether where the net result of the computation under Section 80HHC (3)(a) to (c) is a loss, the loss so arrived at has to be set off against the 90 per cent of the export incentives as per proviso to Section 80HHC(3) for computing deduction available to the assessee under Section 80HHC.
The issue decided by the Bombay High Court relates to the applicability of the proviso to Section 80HHC(1) and also whether the loss incurred from the export of trading goods can be set off against the profits derived from the export of the self-manufacturing goods while computing profits from the export business under Section 80HHC(3)(c), The observations made in a judgment not relating to the issue before the. Court do not have any binding effect and it can take the character of obiter dictum J. Bhagwati in Addl. Dist. Magistrate v. Shivakant Shukla AIR 1976 SC 1207, 1378, said obiter observations would undoubtedly be entitled to great weight, but "an obiter cannot take the place of the ratio. Judges are not oracles."
Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC) at p. 320 has laid down the proposition how to interpret a judgment in the following manner:
"It is neither desirable nor permissible to pick out a word or a sentence from the judgment' of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes the colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasoning."
It is only the ratio decidendi of a case which can be binding not the obiter dictum. Obiter, at best, may have some persuasive efficacy. Hon'ble apex Court in the case of Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India AIR 1971 SC 530 at p. 578 as reproduced at p. 320 of 198 ITR observed:
"It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment."
Now, we shall deal with the question whether the assessee is entitled to the deduction under Section 80HHC in accordance with the proviso to Section 80HHC(3) even though there is loss in accordance with Section 80HHC(3)(a), (b) and (c). The relevant provision of Section 80HHC, as applicable to the assessment year, are laid down as under :
"80HHC. (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.
(2)(a) This section applies to all goods or merchandise, other than those specified in Clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee (other than the supporting manufacturer) is convertible foreign exchange within a period of six months from the end of the previous year or where the Chief Commissioner or Commissioner 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 Commissioner or Commissioner may allow in this behalf.
(b) This section does not apply to the following goods or merchandise, namely :
(i) mineral oil; and
(ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule).
Explanation 1 : The sale proceeds referred to in Clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.
Explanation 2 : For the removal of doubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch, office, warehouse or any. other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch, office, warehouse or establishment, then, such transfer shall be deemed, to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in Sub-section (1) of Section 50 of the Customs Act; 1962 (52 of 1962), shall, for the purposes of this section, be deemed to be the sale proceeds thereof.
(3) For the purposes of Sub-section (1),-
(a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee;
(b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export;
(c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall,--
(i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and
(ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods :
Provided that the profits computed under Clause (a) or Clause (b) or Clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in Clause (iiia) (not being profits on sale of a licence acquired from any other person), and Clauses (iiib) and (iiic) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.
Explanation : For the purposes of this sub-section,--
(a) "adjusted export turnover" means the export turnover as reduced by the export turnover in respect of trading goods;
(b) "adjusted profits of the business" means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in Clause (b) of Sub-section (3);
(c) "adjusted total turnover" means the total turnover of the business as reduced by the export turnover in respect of trading goods;
(d) "direct costs" means costs directly attributable to the trading goods exported out of India including the purchase price of such goods;
(e) "indirect costs" means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover;
(f) "trading goods" means goods which are not manufactured or processed by the assessee............
(4B) For the purposes of computing the total income under, Sub-section (1) or (1A), any income not charged to tax under this Act shall be excluded.
Explanation : For the purposes of this section,--
(a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder;
(aa) "export out of India" shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962) ;
(b) "export turnover" means the sale proceeds, received in, or brought into India by the assessee in convertible foreign exchange in accordance with Clause (a) of Sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) ;
(ba) "total turnover" shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962):
Provided that in relation to any assessment year commencing on or after the 1st April, 1991, the expression "total turnover" shall have effect as if it also excluded any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28;
(baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by-
(1) ninety per cent of any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28 or any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India;
(c) "Export House Certificate" or "Trading House Certificate" means a valid Export House Certificate or Trading House Certificate, as the case may be, issued by the Chief Controller of Imports and Exports, Government of India;
(d) "supporting manufacturer" means a person being an Indian company or a person (other than a company) resident in India, manufacturing (including processing) goods or merchandise and selling such goods or merchandise to an export house or a trading house for the purposes of export.
From the plain reading of the aforesaid provisions of Section 80HHC, it is clear that Section 80HHC for computing deduction, this section lays down three stages for computation of profits derived from exports :
(1) Firstly 'profits of the business" are to be computed as per Explanation (baa) appended below Section 80HHC(4B), i.e., profits and gains of business as computed under the head "business income" minus 90 per cent of any sum under Clauses (iiia), (iiib) and (iiic) of Section 28 or any receipt by way of brokerage, commission, interest, etc. (2) Secondly, proportion of the aforesaid "profits of business" as export turnover bears to the total turnover of the business carried by the assessee is calculated.
(3) Thirdly, the figure arrived at as per No. (2) above would be further increased by an amount which bears to 90 per cent of any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28, same proportion as export turnover bears to the total turnover of business as per proviso to Section 80HHC(3).
In mathematical terms, it can be laid down as under if we presume profits and gains of business to be 'Y' :
= ( Y - 90 per cent of export incentive and brokerage, commission, interest etc.) x Export turnover/total turnover profit as per proviso to Section 80HHC(3) = profit from the business x export turn -over/total turnover + 90 per cent of export incentive x export turnover/total turnover.
Thus, if profit from the business is substituted by the profit including profit as per proviso to Section 80HHC(3), the resultant profit eligible for deduction would be as under :
= ( y - 90 per cent of export incentive and brokerage, commission, interest, etc.) x export turnover/total turnover + 90 per cent of export incentive x export turnover/total turnover.) = Y x Export turnover/total turnover - 90 per cent of export incentive and brokerage, commission, interest, etc. x export turnover/total turnover + 90 per cent of export incentive x export turnover/total turnover.
From the aforesaid mathematical equation, it is clear that the legislature did not allow deduction to the assessee in respect of 90 per cent of the income by way of brokerage, commission, interest, rent charges or other similar receipts. If these receipts are excluded, the resultant computation will be that the 90 per cent of the export incentive will be first excluded from the profits and gains of the business and it will be added subsequently while computing the deduction. The result will be that the assessee will be entitled for deduction only on the profit which relate to export turnover. The provision of Expln. (baa) and proviso to Section 80HHC(3) will become redundant. The proviso to Section 80HHC(3) cannot be read in that manner. The objective of the legislation appears to be that the profit computed under Clauses (a) to (c) of Section 80HHC shall be increased by 90 per cent of the export incentive in case there is a profit. But in case, there is a loss the deduction shall be limited to the 90 per cent of the export incentive x export turnover/total turnover, and with that objective a theoretical method of computation of deduction under Section 80HHC has been laid down, so that the assessee should be entitled for deduction in respect of 90 per cent of the export incentive in case the assessee does not derive income from the export business. We find that Section 8QHHC(1) allows a deduction to the assessee of the profits derived from the export business. The profit from the export business have to be ascertained as per Section 80HHC(3) which gives a formula. Section 80HHC(3) laid down following proposition :
(i) In Sub-clause (a) the export profits are to be computed when the assessee is engaged in the business of export of goods, merchandise, manufacture or processed by him.
(ii) In Sub-clause (b), export profits are to be computed when the assessee is engaged in the business of export of trading goods only.
(iii) In Sub-clause (c), the export profits are to be computed when the assessee is engaged in the business of export of goods, manufacture or processed by him and of trading goods.
Therefore, firstly the profits under Clauses (a), (b) and (c) are to be computed under Section 80HHC(3) of the IT Act, 1961, if there is a loss computed from the business of the nature referred under Clauses (a), (b) or (c) and there is profit computed from the business of the nature referred to under Clauses (a), (b) or (c), the loss so computed will be adjusted against the profit so computed. The Bombay High Court held so in the case of IPCA Laboratories Ltd. v. Dy. CIT (supra). The proviso to Section 80HHC(3) shall apply subsequently: The words "profits" and "further increased by" are very important in the proviso. The word "profit" is understood and known in the common parlance as well as in the commercial world as excess of incoming over outgoing. Had the legislature used the word "income", the word may have negative connotation also in the light of the inclusive definition of income under Section 2(24) of the Act. The fact that the word "profit" is intended by the legislature to have positive connotation, as commonly understood in the commercial world, is further manifested by the other provisions enacted in the IT Act, 1961, like Section 2(22)(a) to (e), Clauses (iiia) and (iiib) of Section 2(24), Section 10(22A), Expln. 3(ii) below Sub-section (5) of Section 13, Section 17(1)(iv) and Sub-sections 3, 22, 28(iiia), 32AB(1)(b)(ii), 33AB(1)(b), 33AC(2)(b) and 33AC(3)(c). Sections 34(3)(a)(i) and (ii) and 41(1). Expln 4 to Sections 43, 44AC(1)(a), 44AC(1)(b), 47A, Expln. 2(ii) of Sections 64, 67(1)(a)(b)(c)(ii) and 67A(1)(b) and (c), 73(2)(i), 80HHB(4)(ii), 92, 104(2)(i) (omitted with effect from 1st April, 1988), Sections 107A(7) and 155(4A)(c)(i). The aforesaid provisions fully support the view taken by us as above that profit component as per main Section 80HHC(3) is envisaged as a positive figure which is to be further increased by the amount arrived as per proviso thereto. The expression "further increased by" used in the proviso by the legislature puts the matter, in our opinion, beyond any controversy. We agree with learned authorised representative that the word 'further' as prefixed to the word 'increased' implies 'over and above', i.e., supplementing the profit as computed under Sub-clauses (a), (b) and (c) under Sub-section (3). From the perusal of- the literal meaning of 'the word "further increased by", it is evident that the proviso is meant to supplement the benefit envisaged under Section 80HHC and not meant for the purpose of aggregation or set off. The proviso to Sub-section (3) using the words 'further increased' is meant to provide more or extra benefit and, therefore, has to be read independently of Clauses (a), (b) and (c) in Sub-section (3) of Section 80HHC. This is the plain and undoubted effect of the proviso to Sub-section (3) of Section 80HHC.
Explanation (baa) below Section 80HHC(4B) which defines the expression "profits of the business" used in Section 80HHC(3) also strengthens our view. This Explanation stipulates that profits of business as computed under the head "profits and gains of business or profession" as reduced by ninety per cent of export incentives, and receipts like brokerage, commission, interest, etc. The words "as reduced by" clearly implies that quantum of reduction is to be limited to the figure of profits which is to be reduced. While considering the meaning of the word "reduced" in Section 225(3) of the IT Act, it has been held by the Hon'ble apex Court in Mohan Wahi v. CIT (2001) 248 ITR 799 (SC) that the term "reduced" in Section 225(3) would include a case where the demand consequent upon any appeal or any proceedings under the IT Act has been reduced to NIL also. We may further refer to the decision of the Hon'ble Supreme Court in the case of Motor Transport Controller v. Provincial Rashtriya Motor Kamgar Union AIR 1964 SC 1690 wherein their Lordships while construing the word "reduction" held that reduction can only be used when something is left after reduction. Thus, the phraseology used by the legislature while enacting Section 80HHC(3) clearly indicates that the figure arrived at as per Expln. (baa) would be a positive figure (which includes a NIL figure also) provided the assessee has positive income under the business head. Thus, it is only the profit derived as per Clauses (a) to (c) of Section 80HHC(3) which can be increased. The loss cannot be increased as per proviso to Section 80HHC(3), therefore, in our opinion the word "profit" used in the proviso to Section 80HHC(3) will mean only the profit not the loss. Even the mathematical equation given in the preceding paragraph also supports the same view.
The Section 80HHC is an incentive provision enacted by the legislation with the objective of increasing foreign exchange earning of the Government and, therefore, such provision has to be interpreted in a liberal manner. In the case before us, there is no dispute that the assessee has exported the goods. Therefore, the basic condition implicit in the incentive provision is fulfilled by the assessee that the assessee has exported the goods and earned the foreign exchange. Once the basic conditions are satisfied, the assessee is entitled for deduction in respect of the profits computed as per Section 80HHC(3) r/w Section 80HHC(1). The computation provision for such deduction as laid down under Section 80HHC(3) have to be applied in a liberal manner which is beneficial to the assessee and which is in consonance with the object and purpose of the legislature.
The proviso appended to a provision could not enlarge the scope and ambit of the main provision. Generally a proviso cuts down the scope and ambit of the main provision to which it is appended. However, in the instant case the proviso appended to Section 80HHC(3) provides in unambiguous and unequivocal manner that the profits computed in this main provision would be further increased by the amount to be calculated as per the proviso. Thus, the legislature has clearly made a departure from the normal restrictive function of a proviso and intended the proviso to further enlarge the scope of the main provision. The express legislative intention which is manifestly clear from the unambiguous language used while drafting the proviso cannot be ignored merely on the basis of certain rules of interpretation regarding normal function of proviso.
From a plain reading of the above section, it is clear that under Section 80HHC(1), it has been expressly provided that where an assessee is engaged in the business of exports to which the section applies then, in computing the total income of the assessee, a deduction of the profits derived from export activity as computed under Section 80HHC(3) is given. In other words, from the gross total income of the assessee, deduction under Section 80HHC is given in order to arrive at the total income/taxable income of the assessee. Section 80HHC is a section which comes under Chap. VI-A of the IT Act. The said chapter provides for special deductions from gross total income. One such deduction is export profits. Sec. 80A deals with deductions to be made under Chap. VI-A in computing the total income. It lays down that in computing the total income, there shall be allowed deduction from the gross total income of an assessee as specified in Sections 80C to 80U. Section 80A(2) lays down that the aggregate amount of the deductions under Chap. VI-A shall not exceed the gross total income of the assessee. In other words, what is contemplated is a deduction from the gross total income. This aspect is important because computation of deduction is contemplated by Section 80HHC(3), whereas the effect to be given to such computed deduction is contemplated in Section 80HHC(1). In other words, the machinery to compute, the income from export activity is provided in Section 80HHC(3) and after computing such income, such amount is required to be deducted from the gross total income of the assessee in order to arrive at the taxable income/total income of the assessee as contemplated by Section 80HHC(1). In other words, the deduction under Section 80HHC(1) has to be a positive figure. If, after computing the amount under Section 80HHC(3), there is a resultant loss, it cannot be deducted from the gross total income in order to arrive at the total income. Only the resultant profits from the export activities representing net profits or 90 per cent of the export incentive as per proviso to Section 80HHC(3) could be deducted from the gross total income to arrive at the total income/taxable income. Thus there has to be positive income under Section 80HHC(3) and if there is loss as per Clauses (a) to (c) of Section 80HHC(3), the same has to be ignored, only then 90 per cent of the export incentive will represent the positive income.
Our aforesaid view is duly supported by the following decisions of the Tribunal:
(1) A.M. Moosa v. Asstt. CIT (1996) 54 TTJ (Coch) 193;
(2) Avon Cycles Ltd. v. Asstt. CIT (1997) 59 TTJ (Chd..) 75;
(3) Hindustan Fashions Ltd. v. Asstt. CIT (1998) 61 TTJ (Ahd.) 734; and (4) Pratibha Syntex Ltd. v. Jt. CIT (2002) 75 TTJ (Ahd.) 124 : (2002) 81 ITD 118 (AM).
The learned Departmental representative did not distinguish the facts before us from the decision of this Tribunal in the case of the assessee relating to the asst. yr. 1992-93, in which also this Tribunal has taken the same view in respect of applicability of proviso to Section 80HHC(3). On the identical facts of the case, this Tribunal cannot take a conclusion contrary to the conclusion reached by this Tribunal in the case of the assessee relating to the asst. yr. 1992-93. In this regard, following quotes from the decision of CIT v. L.G. Ramamunhi (1977) 110 ITR 453 (Mad) read as under :
"No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities.
If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a division Bench. Similarly if a division Bench differs from the view taken by another division Bench it does not express' disagreement and pronounce its different views, but has the matter posted before a fuller Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal , so that he could have the case referred to a full Bench of Tribunal consisting of three or more members for which there is provision in the IT Act itself."
We, therefore, in view of the aforesaid discussion, do not find any merit in the ground of appeal of the Revenue and we confirm the order of the CIT(A) and direct the AO not to set off loss computed as per Clauses (a) to (c) of Section 80HHC(3), against the 90 per cent of the export incentive while computing deduction under proviso to Section 80HHC(3). Accordingly, we dismiss this ground of the Revenue.
5. In the result, the appeal of the Revenue stand dismissed.