Income Tax Appellate Tribunal - Hyderabad
Evershine Granites (P.) Ltd. vs Income-Tax Officer on 27 June, 1990
Equivalent citations: [1991]39ITD421(HYD)
ORDER
G. Santhanam, Accountant Member
1. These appeals are by the assessee against the order under Section 263 of the Income-tax Act, 1961.
2. The assessee is a private limited company and its business consisted of obtaining granite stone from granite quarries and after doing certain operations of cutting, polishing, engraving etc. selling the same. The assessments were completed on 12-2-1985 and 26-2-1986 after allowing deduction under Section 80HHC of the Income-tax Act in a sum of Rs. 48,542 and Rs. 32,882 respectively for the assessment years 1984-85 and 1985-86. The learned Commissioner of Income-tax, Andhra Pradesh-I, Hyderabad felt that Clause (b) of Section 80HHC(2) included minerals and ores and the assessee dealt in essence with minerals and, therefore, the deduction specified under Section 80HHC would not be available. The assessee filed its objection based on the definition of 'mineral' in Oxford Dictionary. The learned Commissioner referred to the definition of the word 'granite' as given in the Oxford dictionary and came to the conclusion that granite is essentially a mineral and since the assessee dealt with granite stones held that the deduction under Section 80HHC was erroneously allowed to the assessee.
3. Shri M.J. Swamy and Smt. Prabha Jain submitted that the assessee does not quarry the granite. It gets granite from quarries, cuts them into different shapes and after polishing and engraving, they are sold as monumental stones, cut and polished granite, granite memorials or ornamental granite. In the Import & Export Manual, Vol. I, Appendix 16, items 7 & 8 at pages 229 and 230 are as follows: Item No. 7 deals with handicrafts. Item 7.2 deals with cut and polished granite under the heading handicrafts whereas minor minerals and ores - processed are classified as item No. 8. 5 under the heading Miscellaneous. Annexure I to Appendix 23 at page 344 gives illustrative list of products eligible for special facilities on ground of 100% exports. Under that minerals fall under 'handicrafts'. Thus Shri M.J. Swamy and Smt. Prabha Jain submitted that the memorials or ornamental granites or cut and polished granites are very different from the minerals and are recognised as distinct product in the mercantile world and could be classified only as handicrafts but not as minerals. The Commissioner of Income-tax erred in holding that the item fell under the heading minerals. In the Seventh Schedule to the Income-tax Act Part A deals with minerals. Part B deals with group of associated minerals and in neither Part A nor Part B granite is found. Assessee's product is different from the crude or roughly chipped granite as would be evident in item 25. 16 in Chapter 25 at pages 339-342 in the book on Custom Levy, Valuation and Classification by Taraporewals. Thus granite in which the assessee dealt with cannot be termed as a mineral but has to be considered as it is considered in the mercantile world as forming part of a different and distinct commodity as they have been cut to different sizes, polished and are sold - exported mostly as memorials. Shri Kailasnath, the learned departmental representative took us through the orders of the learned Commissioner of Income-tax and relied on the same.
4. Having regard to the rival submissions and the materials on record, we set aside the order of the learned Commissioner of Income-tax on this issue. Certain deductions in respect of export turnover are allowed from the profits of the assessee under Section 80HHC. Sub-section (2) is as follows:
(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 receivable by the assessee in convertible foreign exchange.
(b) The goods or merchandise referred to in Clause (a) are the following, namely: -
(i) agricultural primary commodities, not being produce of plantations;
(ii) mineral oil;
(iii) minerals and ores; and
(iv) such other goods or merchandise as the Central Government may, by notification in the Official Gazette, specify in this behalf.
The interesting aspect in this case is that both the assessee and the learned Commissioner of Income-tax relied on the Oxford Dictionary meaning of certain words. The assessee would draw support from the dictionary meaning of the word 'mineral' to the effect that mineral is a thing obtained by mining. The word mining is defined as burrowing in (earth) or making (hole) underground. Mineral is further defined as belonging to any of the species into which inorganic substance are classified. The learned Commissioner also takes in his aid the dictionary meaning of granite as given in the Oxford Dictionary as granuler crystalline rocks of quartz, orthoclase feldspar and mica used for building. Further referring to the meaning of the expressions quartz, orthoclase feldspar and mica, the learned Commissioner found that they are only minerals. Thus he came to the conclusion that granite stone in essence is mineral and in terms of Section 80HHC(2)(b), the assessee is not entitled to any deduction in respect of its. export turnover.
5. In our considered opinion, words in a section are not to be interpreted by having those words in one hand and the dictionary in the other hand. In spelling out the meaning of the words in a section, one must take into consideration the setting in which those terms are used and the purposes they are intended to serve as has been laid down in CGT v. N.S. Getti Chettiar [1971 ] 82 ITR 599 at 005-6 (SC). It has been repeatedly held in cases relating to tax on sales that undefined words and expressions must be construed in the sense in which they are understood in the trade, by the dealer and the consumer, since it is they who are concerned. The meaning which they had been assigning to those words constitutes the index of the legislative intention when the statute was enacted [Porrits & Spencer (Asia) Ltd. v. State of Hyderabad [1978] 42 STC 433 (SC) - Courtesy Chaturvedi & Pithisaria's Income-tax Law]. What is relevant is whether the product dealt in and manufactured by the assessee is in its mineral form or whether it has acquired a different form and is differently understood in the mercantile world. The assessee is not exporting granite in its crude form or in its primary sense. We have gone through the samples of the invoices produced before us covering the export made by it. Invoice No. 9 dated 6-3-1985 deals with the export of granite memorials in 30 sets. Invoice No. 2 deals with cut and polished granite memorials in 9 sets. Invoice No. 4 deals with 9 crates of cut and polished granite memorials. Invoice No. 5 deals with 23 sets of granite memorials. Invoice No. 6 deals with cut and polished granite memorials. Invoice No. 7 deals with the same in 43 numbers. Invoice No. 40 deals with 96 sets of cut and polished granite memorials. Thus the product that is exported by the assessee is one different from its crude form in that when the same is cut and polished and are sold as memorials, engravings, embossment, ornamental work etc. in large measure are expended on the same. Therefore, it cannot be held that the assessee was exporting mineral. The application for cash compensatory support on exports made by registered exporters in Form III speaks of the product of the assessee as cut and polished granite memorials. Appendix 16 of Import and Export Policy (April 1985 - March 1988) Vol. 1, published by the Government of India, Ministry of Commerce, deals with select list of Export Products. Sub-heading 7 deals with handicrafts and 7.2 deals with cut and polished granite whereas "minor minerals and ores - processed" come under a different classification under sub-heading 8 under the caption Miscellaneous. Again Annexure I to Appendix 23 which deals with illustrative list of products which would be eligible for special facilities on grounds of 100% exports deals with handicrafts which has to be read with the sub-heading No. 7 handicrafts in Appendix 16. Therefore, there is merit in the contention of the learned counsel for the assessee that cut and polished granite memorial cannot be equated with minerals and ores. It is not from what a certain item is made of but it is rather what is the item that is exported which is relevant for purposes of Section 80HHC and so long as the assessee is not exporting mineral, it would not be hit by Clause (b) of Sub-section (2) of Section 80HHC. It is not the mineral in its original form or in its crude form or in the primary sense of the term that is being exported. It is rather a different product as memorials with artistic work or ornamental work on the same which is considered as a handicraft under the Export and Import Policy of the Government of India which was exported by the assessee entitling it to special facilities.
6. From a different angle also, the assessee is to succeed. Part A of the Seventh Schedule to the Income-tax Act for purposes of Section 35E of the Act enumerates the list of minerals. There are about 27 items and granite is not found one among them. Part B deals with groups of associated minerals and contains about 16 items and granite stone memorial is not one among them. Therefore, it cannot be said that granite - cut and polished granite memorials - is a mineral in the sense of the term as understood in the Income-tax Act or as understood by the Government of India's Import and Export policy or by the Trade. There is dispute about the eligibility of the assessee for 80HHC deduction but for the issue discussed above. In the light of our discussion, we hold that the assessee is entitled to deduction under Section 80HHC and the order of the Income-tax Officer did not suffer from any error resulting in any prejudice to the revenue. For these reasons we set aside the order of the learned Commissioner on this issue.
7. The second point at dispute for assessment year 1984-85 is about the direction of the Commissioner of Income-tax at para 8 of his order. Certain details for expenditure incurred on foreign customers were filed for the first time before the Commissioner of Income-tax in the course of 263 proceedings. The learned Commissioner while setting aside the order on the other ground directed the Income-tax Officer to examine the expenses and ascertained whether any entertainment expenses were included therein which would call for disallowance in terms of Section 37(2A) of the IT Act and whether any of the other expenses claimed were admissible under Section 37 of the IT Act.
8. The assessee has not agitated against this direction for the assessment year 1985-86 in its grounds of appeal, though the directions are common to both the years and same plea was taken. After hearing both the sides we do not find any need to interfere with the directions of the Commissioner of Income-tax.
9. In the result appeals for both the years are partly allowed.