Income Tax Appellate Tribunal - Kolkata
Chloride India Ltd. vs Deputy Commissioner Of Income-Tax on 19 December, 1994
Equivalent citations: [1995]53ITD180(KOL)
ORDER
R.V. Easwar, Judicial Member
1. This appeal by the assessee is directed against the order oftheCIT(A) dated 30-7-1990 for the assessment year 1986-87.
2. The assessee is a public limited company engaged in the manufacture of automobile batteries. It also exports batteries and in respect of the export it is entitled to deduction under Section 80HHC of the Act. The entitlement of the assessee to the deduction is not disputed in the present appeal. The dispute centres around the manner of computing the deduction in accordance with Section 80HHC(3)(b) as it stood at the relevant time. Under the said provision, the profit derived from the export of goods or merchandise out of India shall be equal to the amount which bears to the profit of the business as computed under the head 'Profits and gains of the business' the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. The Explanation (b) below this Sub-section contains the definition of the 'Export turnover'. As per the definition insofar as it is relevant for the purpose of the present appeal, export turnover excluded freight or insurance attributable to the transport of the goods beyond the customs station. This is how the statutory provision stood as on 1-4-1986. There was no definition of the 'total turnover' for the assessment year 1986-87. However, for the first time a definition of the words 'total turnover' was inserted in the section by introduction of Explanation (bb) at the end of the section w.e.f. 1 -4-1991 by the Finance Act, 1990. As per the definition, the total turnover shall not include the cash compensatory support, duty draw back and profit on sale of import entitlement. This was consequential to the amendment made to Section 28 of the Income-tax Act treating the above three items as business income. We are not concerned with this definition in the present appeal. By Finance (No. 2) Act, 1991, the aforesaid Explanation (bb) was omitted. A new Explanation (ba) was introduced below Section 80HHC with retrospective effect from 1-4-1987. As per this Explanation, total turnover shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station. There is a proviso to this Explanation with which we are not concerned.
3. The dispute in the present appeal, however, does not centre around the point whether the freight and insurance should be included as part of the turnover or not. The dispute is regarding the question whether octroi, sales-tax and excise duty shall be excluded from the total turnover while computing the deduction. Whereas according to the assessee these three items are to be excluded from the total turnover since admittedly they are excludible from the export turnover, according to the revenue these three items have to be included in the total turnover. The bone of contention is that if the view point of the department is accepted, the assessee would get a smaller proportion of the profit as export profit and consequently a smaller deduction under Section 80HHC whereas if the view point of the assessee is accepted, it will get a higher proportion of the total profit as export profit and consequently, a higher deduction under Section 80HHC.
4. The contention of Dr. Pal, the learned counsel who forcefully presented the assessee's case before us, is that having regard to the object of Section 80HHC, the assessee's claim must be upheld. His argument runs like this. The section was introduced to boost the exports and therefore must receive a liberal interpretation. The definition of export turnover and total turnover did not specifically include or exclude octroi, sales-tax and excise duty. However, if regard is had to the fact that the Legislature by amendment excluded freight and insurance from the total turnover, thereby bringing the total turnover at par with the export turnover, it would be clear that the intention of the Legislature is to harmonise both the expressions. In other words, the intention of the Legislature is that whatever goes to make the export turnover must also go to make up the total turnover so that while working the proportionate profit, there is a comparison between likes. The numerator and the denominator should be the same and they should not include different items or ingredients which will result in a distorted or absurd picture. Since the export turnover which is the numerator does not admittedly include sales-tax, octroi and excise duty, the denominator viz., the total turnover should not also include the same. Only if the section is interpreted in this manner, uniformity and harmony can be achieved and the intention of the Legislature can be given effect to.
5. The view point of the department, according to Sri A.K. Das, the learned departmental representative, was the same as that of the Assessing Officer and the CIT(A). He particularly laid emphasis on the fact that there was no express provision in the section excluding sales-tax, octroi and excise duty from the total turnover. He pointed out that the expression "total turnover" as understood in the commercial world and as defined in the Bengal Finance (Sales-tax) Act included these elements and there is no reason why the same interpretation cannoc be given to the expression under the Income-tax Act. He drew our attention to the judgment of the Supreme Court in McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 in support of his contention that the word "Turnover" should be understood in the manner in which the commercial world understands.
6. On a careful consideration of the rival contentions we are of the view that the interpretation suggested on behalf of the assessee is to be upheld. As pointed out by Dr. Pal, the object of introducing Section 80HHC is to encourage the larger export of certain goods. For this purpose, Section 89A was first introduced into the Income-tax Act by the Finance Act, 1982. Thereafter, the section was omitted and it was replaced by Section 80HHC introduced by the Finance Act. 1983. Since its introduction, the section has received various modifications and amendments but the substance of the section is the same viz. that deduction is to be given in respect of export profit. It appears elementary to us that the numerator and the denominator in a particular formula should be of the same category or should comprise of the same ingredients. Otherwise, there will be no uniformity or harmony. If the numerator is apples the denominator should also be apples. If the numerator is apples and the denominator consists of apples and oranges then there can be no uniformity or harmony. The interpretation suggested on behalf of the department with regard to the expression 'total turnover' as including even octroi, sales-tax and excise duty would result in disharmony because the export turnover does not admittedly include these three ingredients. This would pull down the proportion of export profit to the total profit. If these three items are included in the total turnover which is the denominator in the formula, the proportion will automatically get reduced. This method of interpretation will not reflect the policy of the Legislature. It has been held in Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC) that a provision intended for promoting growth has to be interpreted liberally so as to advance the objectives of the section and not to frustrate it. Likewise it has been held in CIT v. Strawboard Manufacturing Co. Ltd. [1989] 177 ITR 431 (SC) that while dealing with a provision made in the context of law providing for concessional rates of tax for the purpose of encouraging industrial activity, a liberal construction should be put upon the statute. Having regard to the objectives of the anactment, we have no hesitation in holding that the expression "total turnover" cannot include the octroi, sales-tax and excise duty since the expression 'export turnover' does not admittedly include these ingredients.
7. We also find force in the contention of the learned counsel for the assessee that the Legislature itself has intended to bring about uniformity or/harmony between the two expressions. This is manifest in the manner in which the expression "total turnover" has been defined to exclude freight or insurance attributable to the transport of the goods. Originally, there was no definition of the expression 'total turnover'. Only 'export turnover' was defined to exclude freight and insurance. The Legislature by an amendment made by the Finance (No. 2) Act, 1991 with retrospective effect from 1-4-1987 defined total turnover to exclude freight and insurance thereby bringing uniformity in the two. Obviously, the approach is to bring about uniformity in both the numerator as well as the denominator in the formula suggested by Section 80HHC for arriving at the export profit. If one draws inspiration from the above, he should seek to bring about the same amount of uniformity while dealing with octroi, sales-tax and excise duty. This is what Dr. Pal has asked us to do and there is so much sense in the same that it is impossible to reject it.
8. It was stated on behalf of the department that there is no provision in the section to exclude sales-tax, octroi and excise duty from the total turnover. That is true; but we have to give the expression a meaning which accords with the context in which the expression appears. The context in the present case requires or compels us to adopt the argument made on behalf of the assessee simply because it seeks to make both the numerator as well as the denominator uniform or comparable. It is also to be remembered that there is no definition, in the true sense, of the words 'export turnover' and "total turnover" in the Section The so called definitions are at best only exclusive. It is no doubt true that what has not been specifically excluded shall be included in the total turnover. But this strict rule of interpretation must yield to the rules of purposive interpretation or the rules of contextual interpretation. Adopting these rules of interpretation, it is impossible to visualise a situation where the export turnover does not include the three items but the total turnover includes the same. That would be placing a construction or interpretation upon the two expressions which would lead to an absurd result. A literal adoption of the contentions raised on behalf of the department would produce an unjust or absurd result which has to be avoided as held by the Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597. There is also another difficulty in adopting the definition of the words 'total turnover' as appearing in the Bengal Finance (Sales-tax) Act, 1941 to the provision of Section 80HHC. It is a primary rule of interpretation that words defined in one statute have to be understood with reference to the objective of the Act and in the context in which they occur and the definition of the same words in another statute cannot be automatically imported (see S. Mohan Lal v. R. Kondiah AIR 1979 SC 1132). In the same decision it has been held that it is a sound and well-known principle of construction that meanings of words and expressions used in an Act must take the colour from the context in which they appear. It is, therefore, not possible to adopt the view that the words "total turnover" must include excide duty, octroi and sales-tax merely because the definition of the words 'total turnover' in the Bengal Finance (Sales-tax) Act so includes. At this juncture we may remind ourselves of the principle laid down by the Supreme Court in Workmen of Dtmakuchi Tea Estate v. Management of Dtmakuchi Tea Estate AIR 1958 SC 353 and New India Sugar Mills Ltd. v. CST AIR 1963 SC 1207 that the meaning of the words in a section are to be understood only in the sense in which they best harmonise with the object of the statute which the Parliament has in view and their meaning should be found not so much in a strictly grammatical or even popular use as in the subject or in the occasion in which they are used and the object to be attained.
9. In this connection we may refer to the decision of the Gujarat High Court in CIT v. Natu Hansraj [1976] 105 ITR 43 wherein the aforesaid principles were applied. The question before the Court was regarding the interpretation of Section 54 of the Income-tax Act which confers exemption from capital gains tax subject to certain conditions. The section provided that if the assessee who owns a house which is "mainly" used by him or his parent for the purpose of residence sells it and purchases another house for the purpose of his residence, then the capital gains on the sale of the house would be exempt from tax. The section did not say that the new house purchased by the assessee has to be "mainly" used by him or by his parent for residential purpose. The assessee occupied 75% area of the new house and let out the rest. The department refused to give exemption under Section 54 on the ground that the assessee did not exclusively used the new house for his residence. The assessee's contention before the High Court was that the section having prescribed the condition that the old house should have been only "mainly" used for residence, it could not have been the intention of the Legislature to prescribe the condition that the new house purchased by him should be wholly and exclusively used by him for residence. It was sufficient if the new house was also "mainly" used by the assessee for his residence which was satisfied by the assessee occupying 75% of the area of the new house. This contention was accepted by the Gujarat High Court. His Lordship Justice P.D. Desai speaking for himself and His Lordship, the learned Chief Justice, B.J. Divan upheld the assessee's contention by applying the rules of interpretation prescribed by the Supreme Court in the judgments cited in the earlier paragraph. The court noticed that while prescribing the first condition, the section did not provide that the house should be exclusively or wholly used by the assessee or his parent for residence and that it was sufficient if it was "mainly" used for such purpose. Since this was the requirement of the first condition, the Court found it difficult to ascribe to the Legislature, while laying down the second condition for exemption, the intention to provide that the new house should be solely and entirely used by the assessee for the purpose of his residence. This decision establishes the proposition that it is necessary to infer the intention of the Legislature while interpreting the provisions of a Section It also establishes the proposition that even though in respect of the fulfilment of the second condition viz. the purchase of the new house, the word "mainly" did not find a place, the section should be so interpreted as to project into the second condition the same terms as in the first condition for exemption, viz., that the house should have been "mainly" used for the assessee's residence. The ingredients of the word "mainly" were adopted into the second limb of the section by the Court even though the said word did not appear therein. This shows that there has to be a harmonious and liberal interpretation of the provisions of a section conferring exemption and if such harmony is to be achieved in the appeal before us, it would be achieved only by interpreting the expression 'total turnover' as excluding sales-tax, octroi and excise duty since the expression "export turnover" excluded the same. The Gujarat High Court decision fortifies the proposition canvassed on behalf of the assessee before us.
10. For the above reasons, we are of the view that the assessee's contention should succeed. The deduction under Section 80HHC would be reworked by the Assessing Officer accordingly.
11. The only other ground in the appeal is against the disallowance of the surtax liability. This ground is decided against the assessee respectfully following the judgment of the Calcutta High Court in Molins of India Ltd. v. CIT [1983] 144 ITR 317.
12. In the result, the appeal is partly allowed.