Income Tax Appellate Tribunal - Mumbai
Patel Cotton Co. Ltd. vs Assistant Commissioner Of Income-Tax on 28 May, 1997
Equivalent citations: [1998]64ITD273(MUM)
ORDER
M. A. Bakshi, JM
1. The dispute in these two appeals of the assessee for assessment years 1987-88 and 1988-89 is relating to the validity of the order passed under section 263 of the Income-tax Act, 1961, by the CIT, Mumbai City-III, Mumbai. The related dispute is on account of deduction under section 80HHC.
2. Rival contentions have been heard and records perused.
3. Relevant facts in this case are that assessee had claimed deduction under section 80HHC at Rs. 15,353 and Rs. 72,054 for assessment years 1987-88 and 1988-89 respectively. The Assessing Officer allowed the deduction as claimed by the assessee. The CIT on examination of the records was of the view that the assessee has been given excessive deduction as the same was to be computed proportionately with reference to the total turn-over vis-a-vis the export turn-over. According to the calculation made by the CIT, deduction allowable to the assessee was Rs. 9,088 and Rs. 24,437 for assessment years 1987-88 and 1988-89 respectively. He, accordingly, issued a notice to the assessee inviting objections as to why the order of the Assessing Officer may not be modified on the ground that the same was erroneous and prejudicial to the interest of the revenue. Assessee objected to the proposed action. The CIT, however, rejected the objection and directed the Assessing Officer to enhance the income by limiting the deduction under section 80HHC for the respective assessment years.
4. Assessee is in appeal before us. The learned counsel for the assessee contended that the income of the assessee for the respective assessment years comprised of profit derived on export turn-over, income from ginning and pressing for factories and miscellaneous income. According to the learned counsel, deduction under section 80HHC has been calculated by the assessee on the basis of export turn-over and the income from ginning and pressing has not been taken into account in calculating the total turn-over. The CIT has considered all the receipts as the total turn-over, which, according to the learned counsel, is contrary to law. In this connection, our attention has been invited to the decision of the Pune Bench of the Tribunal in the case of Salgaokar Mining Industries Ltd. v. Dy. CIT [1997] 61 ITD 105, in the case of Jeyar Consultant & Investment (P.) Ltd. v. Assistant Commissioner [1993] 46 ITD 71 (Mad.) and the decision of the Special Bench in the case of International Research Park Laboratories Ltd. v. Asstt. CIT [1994] 50 ITD 37 (Delhi) in support of the contention that whereas all business receipts are to be included in the total profits of a business the total turn-over is the turn-over on account of sale of goods and the other receipts are not to be included in the total turn-over. It was, accordingly, contended that the order of the CIT may be cancelled or modified, as the case may be.
5. The learned Departmental Representative, on the other hand, relied upon the orders of the revenue authorities.
6. We have given our careful consideration to the rival contentions. In this case, the controversy relates to the deduction under section 80HHC which is the deduction provided out of export profits. There is no difficulty in calculating the deduction under section 80HHC in case assessee's income is exclusively from exports. However, there have been occasions for dispute in regard to calculation of deduction under section 80HHC; in such cases where assessee derived income from exports and also had some income from other than export business. In this case, assessee has exported goods out of India. Besides, income has been derived from ginning and pressing of goods on account of various parties in India. There is some miscellaneous income also which is not substantial. In such a case like that of the assessee section 80HHC provides a formula for calculation of deduction. As per the formula the deduction has got to be calculated as under :
Profits of the business X Export turn-over
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Total turn-over It is not disputed that in counting the profits of business the entire receipts have been taken into account by the assessee including the receipts on account of ginning and pressing. Assessee has exported goods out of India and there is no sale of goods in India except sale of empty drums, scrap for nominal amounts. There is neither any difficulty nor any dispute relating to the export turn-over. The area of dispute is relating to the calculation of total turn-over. The case of the revenue is that the entire receipts form the total turn-over of the assessee. On the other hand, assessee's plea is that in view of the fact that assessee has not sold any goods in India, the total turn-over of the assessee is equivalent to the export turn-over. It has been contended that the word 'turn-over' is related to the sale of goods and that the other receipts do not fit-in-within the definition of the turn-over. If the plea of the assessee is accepted then the export turn-over and total turn-over are same and assessee gets full deduction in respect of the entire profits of the business. On interpretation of section 80HHC as it existed before the amendment by the Finance (No. 2) Act of 1991, w.e.f. 1-4-1992, several Benches of the Tribunal have accepted the plea as canvassed in this case on behalf of the assessee. In the case of International Research Park Laboratories Ltd. (supra), the Special Bench of the Tribunal accepted the claim of the assessee. In that case, the commission was held to be included in the profits of the business but not in calculating the total turn-over of the assessee. Similar view has been taken by the Pune Bench in the case of Salgaokar Mining Industries Ltd. (supra) and the Madras Bench of the Tribunal in the case of Jeyar Consultant & Investment (P.) Ltd. (supra).
7. When we apply the principle laid down by the Tribunal in the aforementioned decisions, the result is as under :
In assessee's case profits of export business could be calculated as under :
Profit of business X Export turn-over
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Total turn-over In the profits of business, the income derived from ginning and pressing will also be included. The export turn-over would be the same as disclosed by the assessee. The total turn-over will be equivalent to the export turn-over. The result would be that the entire profits of business would be the profits derived from exports. Obviously, the interpretation of section 80HHC as above produces absurd and unjust results which could never have been intended by the Legislature. The intention of the Legislature undoubtedly is to encourage exports and for that deduction has been provided in relation to the profits derived from exports. It would never have been the intention of the Legislature to grant deduction to the exporters in respect of the other income also not related to exports. Though admittedly, the interpretation in the above-mentioned cases is purely on the basis of the plain literal interpretation of the statutory provisions of section 80HHC, yet in our view, the following rule of interpretation laid down by their Lordships of the Supreme Court in the case of K. P. Varghese v. ITO [1981] 131 ITR 1 597/7 Taxman 13 could have been of great assistance interpreting the provision. Their Lordships of the Supreme Court held -
"A statutory provision must be construed, if possible, in such a manner that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even do some violence to it, so as to achieve the obvious intention of the Legislature and produce a rational constructions."
There is no difficulty in appreciating that the entire income derived by the assessee from business would be the total income of the assessee for purposes of working out the profits derived from exports. There is no dispute or difference of opinion in regard to the meaning of export turn-over in this case. The dispute is relating to the meaning of total turn-over. It has been accepted in the aforementioned cases that the other income of the assessee would not be included in the definition of the total turn-over. The contention on behalf of the assessee is that the turn-over is related to sales and the term cannot be used with reference to other receipts. This interpretation canvassed on behalf of the assessee, in our view, is doubtful. The contention on behalf of the assessee is based on various decisions of High Court and Tribunals under the Sales Tax Laws of respective States. Under the said laws turn-over is defined and since the tax is in regard to sales or purchases, the definition is always related to the sales or purchases. Therefore, to restrict the same meaning to the turnover as used in section 80HHC, in our view may not be well founded. It would be relevant to refer to the dictionary meaning of the word 'turn-over'. As per Webster's Comprehensive Dictionary page-1355, the meaning of the word 'turn-over' as is relevant for the present purpose is as under :
"turn-over - the amount of business accomplished or of work achieved; turn out. A completed commercial transaction or course of business; also the money receipts of a business for a giving period."
It is clear that as per the dictionary meaning of the word 'turn-over', the entire receipts in business would fall within the meaning of the turn over. When we see the context with which section 80HHC has used the word 'total turn-over' coupled with the intention of the Legislature to grant deduction with regard to the export profits only there is no doubt in our minds that the total turn-over would mean the entire receipts of business not necessarily in regard to sale of goods. This is a possible view which has been taken by the CIT, Administration in this case in exercise of his powers under section 263 though the basis for adopting the principle has not been explained by him.
8. However, in this case, the issue before us is as to whether the CIT was justified in exercising his powers under section 263 on the basis that the decision of the Assessing Officer in granting deduction to the assessee in respect of the entire profits was erroneous and prejudicial to the interest of the revenue. We have mentioned elsewhere in this order that the view taken by the Assessing Officer is in accordance with the Special Bench in the case of International Research Park Laboratories Ltd. (supra). We have also expressed the possibility of another view in this case which the have also expressed the possibility of another view in this case which the CIT has taken. Admittedly, when there are two views possible in a case then mere fact that the Assessing Officer has taken one view would not render his order as erroneous though it may be prejudicial to the interests of revenue. For exercising powers under section 263, two conditions must be satisfied. Firstly, the order sought to be revised must be erroneous and secondly, by reason of the said order there must be prejudice caused to the revenue. In this case it may be that a prejudice is caused to the revenue by adopting a view favourable to the assessee, yet, the order cannot be said to erroneous as a possible view in accordance with the decisions of the Tribunal (supra) was adopted by the Assessing Officer. Considering the facts and circumstances of this case, we are of the view that the action of the CIT under section 236 was not warranted as the view taken by the Assessing Officer cannot be said to be erroneous in view of the decisions of the Tribunal quoted elsewhere in this order. We, accordingly, cancel the orders of the CIT under section 263 and restore the orders of the Assessing Officer.
9. We may point out that the controversy with regard to the meaning of export profits, profits and gains of business and total turn-over has been put at rest by various amendments in section 80HHC by the Finance Act (No. 2) of 1991 w.e.f. 1-4-1992.
10. In the result, appeals of the assessee are allowed.