Income Tax Appellate Tribunal - Mumbai
Agro Exports Ltd. vs Income-Tax Officer on 28 September, 1987
Equivalent citations: [1988]25ITD46(MUM)
ORDER
K.R. Dixit, Judicial Member
1. We are concerned in this appeal with the interpretation and application of Section 263, particularly Explanation to Sub-section (1) thereof and Section 80HHC of the IT Act, 1961.
2. The assessee had claimed deduction under Section 80HHC for the export of rice, which the ITO had allowed under the directions of the Inspecting Asstt. Commissioner. However, the Commissioner took action under Section 263 and directed the ITO to recompute the total income of the assessee without granting any deduction under the said Section with reference to the export of rice by the assessee. The first objection taken by the assessee's counsel before the Tribunal was regarding this exercise of power by the Commissioner on the ground that the Commissioner could not exercise this power because the order was passed by the ITO under the direction of the IAC relying on the Special Bench decision of the Tribunal in the case of East Coast Marine Products (P.) Ltd. v. ITO [1983] 4 ITD 73 (Hyd.). Further submission was also made that since the order was passed under the direction of the IAC it was not erroneous. According to the assessee's counsel, the order passed under compulsion could not be said to be erroneous. Since the ITO had no option but to follow the direction of the IAC it could not be said that he had committed any error. For this proposition also, reliance was placed on the aforesaid Special Bench decision in the case of East Coast Marine Products (P.) Ltd. (supra). Counsel then made a further submission considering the Explanation to Sub-section (1) of Section 263. The material part of this Explanation is as follows :
Explanation : For the removal of doubts, it is hereby declared that, for the purposes of this Sub-section, an order passed by the Income-tax Officer shall include-
(a) an order of assessment made on the basis of directions issued by the IAC under Section 144A or Section 144B ; and
(b)....
According to him, although under this Explanation, an ITO's order passed under the directions of the IAC was included in the order mentioned in Section 263(1), an erroneous order under those directions was not so included. In other words, the Explanation was not comprehensive enough to cover the second part of the aforesaid Special Bench decision. The Explanation, according to him, did not state that an order passed under compulsion would be considered to be erroneous. The second submission was that the Explanation came into effect from 1st October, 1984 and since the assessment year was 1983-84, it was not applicable. Relying on the Supreme Court decision in Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 and the observations in Kanga & Palkivala's book on Income-tax Law, Vol. 1, p. 83, Note.14. the contention was that it was the law in force on the first day of the assessment year which was applicable and not a new provision which came into force in the middle of that assessment year. Further, it was submitted that the Explanation did not have any retrospective effect. Although it began with the words "for the removal of doubts" it was not clarificatary in nature relying upon the Tribunal's decision Bombay Bench 'A' in International Computers Indian Mfg. Ltd. [IT Appeal No. 6466 (Bom.) of 1983, dated 19-3-1987] it was argued that if the Explanation was inserted to remove doubts why was the doubt to be removed only from 1-10-1984 ?
3. Regarding the merits of the assessee's claim, the assessee's counsel pointed out that the rice which was exported was hulled, parboiled and polished. He submitted that the rice was not an agricultural commodity and in any case, it was not a primary agricultural commodity and that, therefore, the assessee was entitled to deduction under Section 80HHC in respect of the export of rice of the above description. Dealing with the expression 'agricultural primary commodities', it was submitted that the words put together meant primary commodities which are agricultural in nature, i.e., commodities which are obtained at the conclusion of the agricultural process/operations. The Supreme Court's observations regarding the meaning of the term 'agricultural' in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466, were relied upon and it was submitted that those commodities would be considered as agricultural commodities which are obtained immediately after performing of the entire set of agricultural operations ; the cut off stage would be that wherein the last of the agricultural operation is performed which was to render the produce fit for the market. The assessee, in a note, has described the process of separating the rice from the chaff and submitted that paddy and rice are different products and that therefore rice was not an agricultural produce. For this purpose, reliance was placed on the following decisions :
(i) South Arcot District Co-operative Supply & Marketing Society Ltd. v. CIT [1974] 97 ITR 500 (Mad.),
(ii) CIT v. Mahasamund Kissan Co-operative Rice Mills & Marketing Society Ltd. [1976] 103 ITR 499 (MP), and
(iii) V.B. Raghurama Shetty 47 STC 369 (SC).
It was submitted that rice milling was an industry because Central Govt. Act was applicable to it and that therefore, rice was an entirely new and distinct commodity from paddy. The Supreme Court decision in V.B. Raghurama Shetty's case (supra) was also relied upon for this purpose. Thus, the entire argument was that rice was produced at the end of all agricultural operations on paddy. It was not an agricultural commodity ; since paddy was an agricultural commodity and since rice was not an agricultural commodity and in any case it was not a primary agricultural commodity.
4. The learned Departmental Representative mainly relied upon Explanation to Section 263. He submitted that the words 'for the removal of doubts' meant that the Explanation was retrospective in operation. He further submitted that Section 263 spoke of the order of the ITO and that covered all the situations whether it is passed under compulsion of the IAC's order or otherwise. Regarding the merits of the assessee's claim under Section 80HHC, the learned Departmental Representative relied on the order of the CIT (A).
Regarding Shri Dastur's submission on the question of Commissioner's power under Section 263, the material question is whether the legal position as laid down by the Special Bench decision in the case of East Coast Marine Products (P.) Ltd. (supra) has been altered by the Explanation inserted with effect from 1-10-1984. In our view, the language of the Explanation is sufficiently wide and clear to cover all the aspects of the said decision. That part of the decision which lays down that because the ITO's decision is under compulsion, it cannot be said to be erroneous is also covered by the Explanation. Sub-clause (a) of Explanation refers to ITO's order under the directions of an IAC. It is plain, simple and wide. Directions given by the IAC under both the Sections 144A & 144B are binding on the ITO and so the ITO's orders passed under those Sections are under compulsion. This argument on behalf of the assessee would make the said Clause (a) of the Explanation useless.
Regarding the argument that the Explanation is not retrospective, the first few words of the Explanation are abundantly clear. They are, "for the removal of doubts". In view of these words, it cannot be said that the Explanation is not clarificatory. If it is for the removal of doubts, then, it cannot be anything, but clarificatory. This is the first reason why it must be said that the Explanation is retrospective in operation. It is true that it has been inserted with effect from 1-10-1984, but that does not mean that it is not retrospective. The fact that it is clarificatory remains very much and the logical conclusion has to be drawn that it is retrospective. What the amendment has done is to insert the Explanation with effect from 1-10-1984. That does not mean that the doubt as sought to be removed only from 1-10-1984 as argued by Mr. Dastur. When passing the amendment, it was necessary to state from which date the Explanation was to be inserted. Therefore, there is no contradiction in the intention to remove the doubt and the mentioning of date for the insertion of the Explanation.
5. We shall now deal with the argument of Mr. Dastur on the basis of the decision of the Supreme Court in the case of Karimtharuvi Tea Estate (supra). It is true that the Supreme Court in that case has stated that the provisions of the Income-tax Act as on the first day of April of any financial year applied to the assessment of that year and any amendment in that Act which comes into force after that date would not apply to the assessment of that year, even if the assessment is made after the amendment comes into force. However, the Supreme Court in that case was dealing with an Act ; namely, the Kerala Surcharge on Taxes Act, which imposed surcharge on agricultural income-tax thus increasing the tax liability of an assessee. The decision of the Supreme Court has to be understood in that context. That is not the situation in the case before us. We are here concerned with the revisional powers of the Commissioner where no tax liability of an assessee is increased. All that is done is that where an order is erroneous and prejudicial to the interests of the revenue, the Commissioner is given power to revise it. It is a part of the process of correctly assessing. Surely, it is not the assessee's case that it cannot be assessed correctly or that he has a vested right in a lower assessment though it may be an erroneous assessment. Therefore, we hold that the Explanation is applicable and the order passed by the Commissioner under Section 263 was within his jurisdiction.
6. That brings us to the merits of the assessee's claim. On a consideration of the authorities cited before us, we are of the view that although rice is an agricultural commodity, it cannot be said to be an agricultural primary commodity. In the present case, the assessee has hulled, parboiled and polished the rice. Therefore, not only has the rice been separated from the chaff, but it has also been processed by parboiling and polishing. Therefore, it cannot be said to be in a primary condition. The primary condition is the paddy. Rice is a different commodity from paddy. In view of the further processing of paddy, rice which is produced cannot be said to be an agricultural primary commodity. The language of the Section being what it is, we have to hold that the assessee would be entitled to the deduction under Section 80HHC.
The CIT(A) has referred to the dictionary meaning of the term 'primary' as follows : "A substance obtained directly, by extraction and purification, from natural or crude technical, raw material". This according to him showed that a commodity would not cease to be 'primary' merely because certain operations for purification are performed in respect of the raw material. Further, he has also relied upon the meaning of the term 'primary' in dictionary as 'principal' or 'of first rank'. We are unable to accept this conclusion. The decision of the Madras High Court cited above shows that paddy and rice are different commodities. Now, if paddy is a primary agricultural commodity, rice which is produced after considerable processing cannot be said to be a primary commodity. The judicial decision must prevail over the dictionary meaning. Further, he has also reasoned that it could not be intended by the Legislature that export of rice should be encouraged when the country has not reached a stage for making substantial export of rice. While this would be valid consideration, in our view, if that was the situation, then the Government would have prevented the export of rice and would not issue any licences for its export. In view of the above considerations, we hold that the assessee is entitled to the deduction under Section 80HHC of the Act and that the ITO's order was not erroneous. Therefore, the Commissioner's order is set aside.
7. The appeal is allowed.