Madras High Court
The Commissioner Of Income Tax – I vs Thiagarajar Mills Limited on 27 March, 2019
Author: V.K
Bench: Vineet Kothari, T.Krishnavalli
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BEFORE THE MADURAI BENCH OF THE MADRAS HIGH COURT
DATED : 27.03.2019
CORAM:
THE HONOURABLE Dr. JUSTICE VINEET KOTHARI
AND
THE HONOURABLE Mrs.JUSTICE T.KRISHNAVALLI
W.A.(MD)Nos.377 to 402 of 2019
and
C.M.P.(MD)Nos. 3332 to 3401 of 2019
W.A.(MD)No.377 of 2019:
1.The Commissioner of Income Tax – I,
Madurai.
2.The Joint Commissioner of Income Tax,
Company Circle – I,
Madurai.
.. Appellants
Vs.
1.Thiagarajar Mills Limited,
Kappalur,
Madurai 625 008.
2.Union of India,
Rep.by the Secretary to the Ministry of Finance,
Government of India,
New Delhi.
.. Respondents
PRAYER: Appeal filed under Clause 15 of Letters Patent, against the order of the
Learned Single Judge made in W.P.(MD)No.7801 of 2006 dated 26.02.2014.
For Appellants :: Mr.R.Krishnamoorthy
For Respondents :: Mr.R.Srinivasan for R1
Mr.R.Murugappan for R2
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COMMON JUDGEMENT
(Judgement of the Court was delivered by Dr.VINEET KOTHARI,J.)
Heard the learned counsels on either side.
2.The controversy involved in the present Writ Appeals revolve around the
benefit of deduction in respect of export business under Section 80 HHC of the Income
Tax Act, particularly against the proviso inserted in Section 80HHC by the Taxation Law
(Amendment Act, 2005) with retrospective effect on 01.04.1998. The said proviso
reads as under –
"Deduction in respect of profits retained for export business.
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 to the
extent of profits, referred to in sub-section (1B)] derived by the assessee from
the export of such goods or merhandise:
...
Provided further that in the case of an assessee having export turnover not
exceeding rupees ten crores during the previous year, the profits computed
under clause (d) or clause (b) or clause (c) of this sub-section or after giving
effect to the first proviso, as the case may be, shall be further increased by
the amount which bears to ninety per cent of any sum referred to in clause
(iiid) or clause (iiie) as the case may be, of section 28, the same proportion as
the export turnover bears to the total turnover of the business carried on by
the assessee."
3.Since the large number of petitions were filed in various High Courts upon a
transfer petition, the Hon’ble Apex Court transferred all the matters to the Hon'ble
Gujarat High Court to be decided there. Accordingly, the Gujarat High Court decided
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the said matters on 02.07.2012 and following the same, the Learned Single Judge of
this Court disposed of the Writ petitions with the following observations:
"In all these Writ petitions, the Taxation Laws Amendment Act, 2005 in
respect of insertion of Clause (iiid) and (iiie) proviso to Section 28 and the
insertion of the third and fourth proviso to Section 80HHC of the Income Tax
Act, 1961, is challenged as ultra vires and unconstitutional.
2.Similar matters, challenging the retrospective effect of the
Amendment, came to be filed before various High Courts. As a result,
Transfer Petition (C) No.703 of 2011 came to be filed before the Hon'ble Apex
Court for transferring all the matters before one and the same Court. To avoid
conflicting judgments by various High Courts and multiplicity of the
proceedings, the Hon'ble Supreme Court, by an order dated 03.04.2012,
allowed the transfer petition by transferring all the matters to the High Court of
Gujarat. A Division Bench of the Gujarat High Court has, by order dated
02.07.2012, disposed of all the Writ petitions in the following terms:
“25.On consideration of the entire materials on record, we,
therefore, find substance in the contention of the learned counsel
for the petitioners that the impugned amendment is violative for
its retrospective operation in order to overcome the decision of
the Tribunal, and at the same time, for depriving the benefit
earlier granted to a class of the assessees whose assessments
were still pending although such benefit will be available to the
assesses whose assessments have already been concluded. In
other words, in this type of substantive amendment,
retrospective operation can be given only if it is for the benefit of
the assessee but not in a case where it affects even a fewer
section of the assessee.
27.We, accordingly, quash the impugned amendment only
to this extent that the operation of the said section could be given
effect from the date of the amendment and not in respect of
earlier assessment years of the assessees whose export
turnover is above Rs.10 Crore. In other words, the retrospective
amendment should not be detrimental to any of the assessee.”
3.It is admitted that the issue involved in the present Writ petitions are
identical to the writ petitions which were disposed of by the Gujarat High
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Court. Keeping in mind that the Supreme Court has transferred all the
matters to the Gujarat High Court to avoid conflicting judgments, I am of the
view that it would be appropriate to follow the decision of Division Bench of
Gujarat High Court in these writ petitions.
4.For the above reasons, all the writ petitions stand disposed of in
terms of the Division Bench judgment of the Gujarat High Court by quashing
the retrospective effect of the amendment as follows:
In the result, the impugned amendments are quashed only to the extent
that the operation of the said section could be given effect from the date of
the amendment and not in respect of earlier assessment years of the
assessees, whose export turn over is above Rs.10 Crores. In other words,
the retrospective amendment should not be deterimental to any of the
assessee. Consequently, the impugned assessment orders stand quashed
and the respondents are directed to issue fresh assessment orders, if
warranted, without reference to the proviso to Section 4 of the Amendment
Act.
Consequently, connected miscellaneous petitions are closed. No
costs.”
4.Against the said decision of the Division Bench of the Gujarat High Court, the
Union of India approached the Apex Court by way of a Special Leave to Appeal (C)
No.9273 of 2013 and the same was disposed of by the Apex Court on 30th March,
2015, upholding the order passed by the Division Bench of the Gujarat High Court with
the following modification, which is quoted in extenso, as under:
"1.Amendment to Section 80HHC(3) of the Income Tax Act, 1961 (in
short “the Act”) was made by the Taxation Laws (Second Amendment) Act,
2005 with retrospective effect ie., with effect from 1st April 1992. By this
amendment certain benefits were in fact extended to the exporters who are
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entitled to claim according to Section 80HHC of the Act. However, at the
same time, the amendment also carved out two categories of exporters,
namely, those whose export is less than Rs.10 Crores per year and those
exporters whose exports turn over is more than Rs.10 Crores per annum.
Insofar as entitlement of these benefits to the exporter having turn over of
more than Rs.10 Crores p.a.is concerned, two conditions contained in third
and fourth proviso to the said amendment were to be satisfied for claiming the
benefits. Those were:
(a)he has an option to choose either the duty drawback or the Duty
Entitlement Pass Book Scheme, being the Duty Remission Scheme; and
(b)the rate of drawback credit attributable to the customs duty was higher
than the rate of credit allowable under the Duty Entitlement Pass Book
Scheme, being Duty Remission Scheme.
2.All the Respondents in these SLPs, who are the exporters, belong to
the second category. They filed the Writ petitions challenging conditions
mentioned in third and fourth proviso to Section 80HHC(3). In fact it was their
precise contention that these conditions are severable and therefore, these
two conditions should be declared ultra vires and severed. The rationale
behind seeking such a prayer was obvious inasmuch as the Writ petitioners
did not went entire Notification to be declared ultra vires which was to their
advantage. What they wanted was that the benefit of amended provision be
accorded, without insisting on the aforesaid conditions.
3.The High Court vide impugned judgment has decided the issue in
favour of the writ petitioners by concluding as under:
26.On consideration of the entire materials on record, we,
therefore, find substance in the contention of the learned counsel
for the petitioners that the impugned amendment is violative for its
retrospective operation in order to overcome the decision of the
Tribunal, and at the same time, for depriving the benefit earlier
granted to a class of the Assesses whose assessments were still
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pending although such benefit will be available to the Assessees
whose assessments have already been concluded. In other words,
in this type of substantive amendment, retrospective operation can
be given only if it is for the benefit of the Assessee but not in a case
where it affects even a fewer section of the Assessees.
27.We, accordingly, quash the impugned amendment only to
this extent that the operation of the said section could be given
effect from the date of amendment and not in respect of earlier
assessment years of the Assesses whose export turnover is above
Rs.10 crores. In other words, the retrospective amendment should
not be detrimental to any of the Assessees.
4.Against the High Court judgment these SLPs are filed by the Union of
India. Mr.Mukul Rohtagi, learned Attorney General for India submits that once
the prayer made was to severe the aforesaid two conditions as onerous and
ultra vires, the High Court should have couched the relies in terms of that
prayer only, instead of stating that the operation of the Section would be given
effect to prospectively only and these conditions would not operate
retrospectively. At the same time, he accepts that the legal position would be
that those exporters with turnover of rupees less than Rs.10 crores and other
like the respondents with turn over of more than Rs.10 crores would be at par
and both would be entitled to the benefits.
5.We find that in essence the High Court has quashed the severable
part of third and fourth proviso to Section 80HHC(3) and it becomes clear
therefrom that challenge which was laid to the conditions contained in the
said provisos by the respondent has succeeded. However, to make the
position crystal clear, we substitute the direction of the High Court with the
following direction:
Having seen the twin conditions and since 80HHC benefit is not
available after 1.4.05, we are satisfied that cases of exporters
having a turnover below and those above 10 crores should be
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treated similarly. This order is in substitution of the judgment in
appeal.
6.With the aforesaid clarification all these SLPs including that of
assessees filed against the judgment of M.P.High Court are disposed of.”
6.In view of the aforesaid decision of the Supreme Court, the present
controversy is no longer res intergra and therefore, the present Writ Appeals filed by
the Union of India – Income Tax Department, also deserves to be disposed of on same
terms. Accordingly, we dispose of the present Writ Appeals in same terms. No order
as to costs. Consequently, connected Miscellaneous Petitions are closed.
(V.K.,J.) (T.K.,J.)
27.03.2019
Index : Yes / No
Internet : Yes / No
nbj
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Dr. VINEET KOTHARI, J.
AND T. KRISHNAVALLI, J.
nbj W.A.(MD)Nos.377 to 402 of 2019 27.03.2019 http://www.judis.nic.in