Income Tax Appellate Tribunal - Delhi
State Trading Corpn. Of India Ltd. vs Inspecting Assistant Commissioner on 30 November, 1989
Equivalent citations: [1991]36ITD497(DELHI)
ORDER
D.N. Sharma, Judicial Member
1. This appeal filed by the assessee is directed against the order dated(iii)-3-1988 passed by the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961.
2. The assessee company is a wholly owned Government of India undertaking. The assessment for the asst. year 1983-84 was framed by the IAC (Asstt.) on 27-1-1986. On an examination of the assessment records of the assessee for the asst. year 1983-84 it was found by the CIT that the asst. order was erroneous insofar as it was prejudicial to the interests of the Revenue. A show-cause notice Under Section 263 was accordingly issued to the assessee wherein it was, inter alia, pointed out that deduction Under Section 80HHC has been wrongly allowed to the assessee on two counts namely : (i) deduction has been allowed on primary agricultural commodities namely, rice, coriander, garlic and chillies; (ii) deduction has been allowed on items which were not exported during the previous year relevant to the asst. year 1982-83 and so these items could not be taken for working out incremental turnover.
3. It was further pointed out in the show-cause notice that the trade expenses amounting to Rs. 29,65,975 included payment of Rs. 10,58,114 on account of sponsorship fee to Sheikh Ghalib Mansu Rifac of Jeddah. It was noted that this payment was made for securing the right to carry on business in South Arabia and that it secured benefit of enduring nature and, therefore, the expenditure was capital expenditure and not a revenue expenditure. The assessing officer, according to the Commissioner, wrongly allowed this expenditure as a revenue expenditure.
4. The assessee filed a written reply. Submissions were also made on behalf of the assessee before the Commissioner. The Commissioner held that rice, coriander, garlic and chillies are primary agricultural commodities and do not involve any processing or any specific scheme of plantation in this regard, and, therefore, the benefit of Section 80HHC cannot be extended to these commodities.
5. Regarding deduction in respect of items which were not subject matter of export in the earlier asst. years, the Commissioner held that benefit of deduction at 5% cannot be allowed. For these reasons the Commissioner held that the deduction given by the assessing officer Under Section 80HHC was incorrect.
6. Regarding the expenditure incurred on payments made to Sheikh Ghalib Mansu Rifac, the Commissioner set aside the matter to the assessing officer only on the ground that on the other two issues the proceedings are over being restored to him. The Commissioner accordingly set aside the assessment directing the assessing officer to reframe the assessment. Aggrieved, the assessee has come up in appeal before the Tribunal.
7. Shri K.C. Srivastava, learned authorised representative for the assessee raised a legal issue before us. It was pointed out that against the assessment order the assessee appealed to the CIT(A). The appeal was decided by the CIT(A) on 16-9-1987. Show cause notice Under Section 263 was issued by the Commissioner on 19-2-1988 and the impugned order was passed by the Commissioner on(iii)-3-1988. On these facts it was submitted by Shri Srivastava that the assessment got merged with the appellate order of the Commissioner dated 16-9-1987 and, therefore, the Commissioner had no jurisdiction Under Section 263 to revise the assessment order on the point referred to in the show-cause notice. On the date of the impugned order the assessment order no longer existed as it got merged with the appellate order of the CIT (A). In support of the theory of total merger, reliance was placed on the decisions in General Beopar Co. (P.) Ltd. v. CIT [1987] 167 ITR 86 (Cal.),CIT v. P. Muncherji & Co. [1987] 167 ITR 671 (Bom.), CIT. Hindustan Aeronautics Ltd. [1986] 157 ITR 315 (Kar.) (FB), respectively. Reliance has also been placed on the decisions of the Special Bench of the Tribunal in Dwarkadas & Co. (P.)Ltd. v. ITO [1982] 1 ITD 303 (Bom.) (SB) and Shree Arbuda Mills Ltd v. ITO [1983] 3 SOT 311 (Ahd.). It was next contended by Shri Srivastava that the Explanation to Section 263(1) substituted by the Finance Act, 1988 with effect from 1-6-1988 would not make any difference for the reason that the explanation was substituted with effect from 1-6-1988 and, therefore, it would not apply to the impugned order of the Commissioner which was passed on(iii)-3-1988. It was further contended that the said Explanation was not retrospective in operation and, was not available at the time when the Commissioner passed the impugned order. Shri Srivastava then referred to the amendment introduced in the said Explanation by the Finance Act, 1989 with effect from 1-6-1988. Regarding this amendment also the contention advanced on behalf of the assessee was that it would operate only with effect from 1-6-1988 and, therefore, it would not apply to a case where an order was passed by the Commissioner before the insertion of the amendment and in support of the contention that the Explanation was not retrospective in operation. Reliance was placed on the decision of the Delhi Bench of the Tribunal in the case of Aeroplane Shoe Factory v. ITO [1989] 28 ITD 478.
8. The learned Departmental Representative contended before us that decisions of various High Courts and the Special Bench of the Tribunal cited on behalf of the assessee would be of no help to the assessee in view of the Explanation added to Section 263(1) with effect from 1-6-1988. It was further contended that the amendment introduced with effect from 1-6-1988 was merely clarificatory or declaratory in nature and would have, therefore, retrospective effect. In support of this contention reliance has been placed on the decision of the Madhya Pradesh High Court in CIT v. Vithal Textiles [1989] 175 ITR 629.
9. We have considered the rival submissions and have gone through various authorities cited on behalf of the parties. The decisions relied upon by the assessee, no doubt, do support the argument that if an assessment order is appealed against it mergers with the order of the appellate authority in its entirety even on the point which has not been considered and decided by the appellate authority. However, Section 263(1) has been materially amended with effect from 1-6-1988. The original Explanation to Section 263(1), was inserted by the Taxation Laws (Amendment) Act, 1984 with effect from 1-10-1984. It was amended by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1988. The Explanation, Clause (a) was 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 Inspecting Assistant Commissioner under Section 144A or Section 144B; and...
10. The above Explanation was substituted by the new Explanation by the Finance Act, 1988 with effect from 1-6-1988 and the Explanation, Clause (c) as substituted with effect from 1-6-1988 was as follows :-
Explanation - For the removal of doubts, it is hereby declared, for the purposes of this Sub-section,-
(c) where any order referred to in this Sub-section and passed by the assessing officer had been the subject matter of any appeal, the power of the Commissioner under this Sub-section shall extend to such matters as had not been considered and decided in such appeal.
11. Clause(c) of the Explanation was amended by the Finance Act, 1989 with effect from 1-6-1988. The amended Clause (c) is as follows:-
Where any order referred to in this Sub-section and passed by the assessing officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the power of the Commissioner under this Sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (Emphasis supplied)
12. The existing Explanation was, no doubt, substituted with effect from 1-6-1988 and it was also amended with effect from that date by the Finance Act, 1989, yet a plain reading of this Clause clearly indicates that the legislature intended to give it a retrospective operation. The use of the words "and shall be deemed always to have been extended" inserted with effect from 1-6-1988 by the Finance Act, 1989 makes the legislature intention quite clear. This amendment shows that the power of the Commissioner under Sub-section (1)of Section 263 was extended to such matters as had not been considered and decided in the appeal filed against the assessment order. By introducing the deeming provision the legislature made it clear that such power was exercisable by the Commissioner at all times, i.e., even prior to 1 -6-1988. While considering the question whether the Commissioner in the instant case had the jurisdiction to revise assessment under Section 263(1) on matters which have not been considered and decided by the CIT(A), we must take into consideration the effect of the amendment introduced in Section 263(1) by way of Explanation with effect from 1-6-1988.
13. The decision of the Delhi Bench of the Tribunal in the case of Aeroplane Shoe Factory (supra) is of no help to the assessee for the simple reason that in that case the Tribunal was concerned with the Explanation to Section 263(1) introduced with effect from 1-6-1988. The Tribunal gave its decision on 3-8-1988 which clearly shows that the Tribunal in that case had no occasion to consider the amendment introduced in the Explanation by the Finance Act, 1989. Further the Madhya Pradesh High Court in the case of Vithal Textiles (supra) cited on behalf of the revenue had the occasion to consider the Explanation, Clause (a) of Section 263(1) which came into force from 1-10-1984. It was held by the Madhya Pradesh High Court that the Explanation seeks to clarify the previous law with a view to remove further controversy and litigation on the point and that the operation of the Explanation was retrospective. This authority supports the view that the amendment introduced in the Explanation by the Finance Act, 1989 with affect from 1-6-1988 is retrospective in operation with the result that it would apply retrospectively even to the period prior to 1-6-1988. In this view of the matter we are clearly of the opinion that the decisions cited on behalf of the assessee in support of the theory of total merger no longer hold good in view of the Explanation, Clause (c) to Section 263(1) which has been retrospectively amended by the Finance Act, 1989. The Commissioner, therefore, in this case had the jurisdiction to revise the assessment on the issues which were not considered and decided in appeal by the CIT(A). So the legal plea raised on behalf of the assessee is repelled.
14. Shri Srivastava also made submissions regarding the merits of the case. It was first contended that rice was not agricultural primary commodity and, therefore, the assessee was entitled to deduction under Section 80HHC(1) in respect of export turnover relating to this commodity. Reliance has been placed on the decision of the Madras High Court in South Arcot District Co-operative Supply & Marketing Society Ltd. v. CIT [1974] 97 ITR 500. Reliance has also placed on the decisions of the Madhya Pradesh High Court in CIT v. Kisan Co-operative Rice Mills Ltd. [1976] 103 ITR 264 and CIT v. Mahasamund Kissan Co-operative Rice Mill & Marketing Society Ltd. [1976] 103 ITR 499. Reliance has further been placed on the decision of the Tribunal, Bombay Bench 'C in Agro Exports v. ITO [1988] 25 ITD 46.
15. It was next contended by Shri Srivastava that coriander, garlic and chillies are produce of plantations and, therefore, export turnover in respect in these commodities was eligible for deduction under Section 80HHC(1). In this connection our attention was invited to the definition of the word 'plantation' as given in Webster's Third International Dictionary, Words and Phrases - Legally Defined, Strouds Judicial Dictionary and Bouviers Law Dictionary in support of the contention that the aforesaid three commodities are produce of plantation. In the alternative, it was contended that these three commodities were not agricultural primary commodities and, therefore, deduction under Section 80HHC(1) was also available in respect of these commodities.
16. The learned Departmental Representative, on the other hand, fully supported the impugned order of the Commissioner on the point under consideration. It was contended that rice was agricultural primary commodity and, therefore, fell within the mischief of Clause (b) of Sub-section (2) of Section 80HHC with the result that in respect of this item deduction under Section 80HHC(1) was not allowable. Regarding the other three commodities also the contention advanced on behalf of the Department was that all of them were agricultural primary commodities and were not produce of plantations.
17. We have considered the rival submissions made on behalf of the parties. In the case of South Arcot District Co-operative Supply & Marketing Society Ltd. (supra) it was held by the Madras High Court that rice is not an agricultural produce as it does not continue to have the same original character as paddy after hulling. In the case of Agro Exports (supra) it has been held by the Tribunal that rice cannot be said to be in a primary condition. The primary condition is the paddy. Rice is different commodity from paddy. In view of processing of paddy rice which is produced, cannot be said to be an agricultural primary commodity and, therefore the assessee would be entitled to deduction under Section 80HHC. In N.B. Abdul Gafoor's case (supra) Tribunal had the occasion to consider the expression "agricultural primary commodity" as used in Clause (b)(i) of Sub-section (2) of Section 80HHC. The Tribunal held that this expression clearly refers to two aspects of the commodity namely, that it should be agricultural and that it should be primary in the sense that it should not be processed. In the instant case, one of the commodities exported by the assessee was rice. It is paddy which is agricultural primary commodity which is a commodity different from rice which is produced by subjecting paddy to hulling operation. Paddy loses its primary character when it is subjected to hulling operation and is converted into rice: So rice cannot be considered to be agricultural primary commodity. We are, therefore, in full agreement with the decision of the Tribunal in the case of Agro Exports (supra) wherein it has been held that rice is not agricultural primary commodity.
18. Under Section 80HHC(1) deduction is allowable in respect of goods or merchandise to which this section applies in accordance with the provisions of this section in computing the total income of the assessee. Clause (a) of Sub-section (2) says that 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. So, if the goods or merchandise exported by the assessee fall under Clause (b) of Sub-section (2), the assessee will not be entitled to deduction under the said section in respect of export turnover relating to such goods or merchandise. In the instant case, we are concerned with Sub-clause (i) of Clause (b) which covers agricultural primary commodities, not being produce of plantations. Rice not being agricultural primary commodity does not fall under Sub-clause (i) of Clause (b) and, therefore, deduction under Section 80HHC(1) would be allowable in respect of this commodity. It must, therefore, be held that the order of the ITO allowing deduction under Section 8OHHC(1) in respect of rice exported by the assessee was neither erroneous nor prejudicial to the interests of the revenue. The CIT(A) was clearly in error in holding that the assessee was not entitled to deduction under Section 80HHC(1) in respect of this item.
19. The assessee's contention that coriander, garlic and chillies are not agricultural primary commodities, is devoid of force. It was contended before us that when these commodities are dried and sorted, they cease to be primary commodities and, therefore, these items would not fall under Sub-clause (i) of Clause (b) of Sub-section (2) of Section 80HHC. Drying and sorting of these commodities, does not change their character or form. The commodities remain the same. We are, therefore, clearly of the opinion that these commodities are agricultural primary commodities. It is also to be examined whether coriander, garlic and chillies are produce of plantations as contended before us on behalf of the assessee. The expression "produce of plantations" used in Sub-clause (i) of Sub-clause (b) of Sub-section (2) of Section 80HHC has not been defined under the Act. So we have to turn to the dictionary meaning of the word "plantation" to find out the meaning of this word in the context of Section 80HHC. The meaning of "plantation" as given in various dictionaries consulted by us is as follows:-
The Living Webster Encyclopedic Dictionary; A large estate, especially in warm climates, planted in various crops and cultivated chiefly by resident workers; the act of planting for growth; the area planted, a grove; a colony or company of early settlers. Webster's Third New International Dictionary: Act of planting; something that is planted; large groups of plant under cultivation; grove; the settlement of people in a particular region, large estate in a tropical or sub-tropical region. The Random House Dictionary : A farm or estate, especially in a tropical os semi-tropical country, on which cotton, tobacco, coffee or the like is cultivated usually by resident labourers; a group of planted trees or plants; historically, a colony or new settlement. The Shorter Oxford English Dictionary: The act of planting, the placing of plants in the soil so that they may grow; the settlement of persons in some locality; assemblage of growing plant of any kind which have been planted; that which has been planted founded or settled; a settlement in a new and conquered country; in a colony; an estate or farm especially, in a tropical country on which cotton, tobacco, sugarcane, coffee or other crops are cultivated.
20. While considering the meaning of "plantations", we have to bear in mind the context in which this word has been used in Sub-clause (i) of Clause (b) of Sub-section (2) of Section 80HHC. Considering the context in which this word has been used in Sub-clause (i) of Clause (b) and keeping in mind the dictionary meaning of this word as given in various dictionaries, we are of the opinion that the expression "produce of plantations" means produce from the operation of placing plants in the soil for example tea seedlings are planted and they grow into bushes from which green tea leaves are plucked. Green tea leaves are, therefore, produce of plantations. Similarly, rubber saplings when planted grow into trees and produce rubber. Rubber would be produce of plantation. In the instant case none of the commodities is produce of plantations. Seeds of coriander and chillies are sown and from the crops so produced coriander and chillies are obtained. Similarly, garlic is not produced by planting saplings. We are, therefore, of the view that these commodities cannot be said to be produce of plantations. All of them are agricultural primary commodities as they are produced by agricultural operations and they retain their primary character even when exported. In this view of the matter, we hold that coriander, garlic and chillies fall under Sub-clause (i) of Clause (b) of Sub-section (2) of Section 80HHC and, therefore, in respect of these commodities deduction is not allowable under Section 80HHC(1). The order of the ITO allowing deduction in respect of these items under Section 80HHC was, therefore, clearly erroneous and prejudicial to the interests of the revenue.
21. According to the Commissioner, the assessing officer was in error in allowing deduction at 5% of the amount by which the export turnover during the previous year exceeded the export turnover during the immediately preceding year. The Commissioner denied the benefit of deduction @ 5% of the amount by which the export turnover exceeded the turnover for the immediately preceding assessment year on the ground that none of the commodities which were exported during the accounting year relevant to the assessment year under consideration was exported in the immediately preceding assessment year. Before us it was submitted on behalf of the assessee that under Clause (b) of Section 80HHC(1), deduction of the amount equal to 5% of the amount by which export turnover during the previous year exceeded the export turnover during the immediately preceding year was allowable even if the commodities exported during the assessment year were different from the commodities exported in the earlier assessment year. It was submitted that if Section 80HHC applies to the goods or merchandise exported during the year and during the earlier year, Sub-clause (b) of Section 80HHC would apply even if goods exported during the year were not the same goods as were exported in the earlier year. In support of this contention reliance has been placed on the decision of the Tribunal in the case of ALB. Abdul Gafoor (supra).
22. We have also heard the learned Departmental Representative who has fully supported the impugned order of the CIT(A) on the point. In the case of N.B. Abdul Gafoor (supra) the Tribunal while considering the claim for deduction on increased turnover, took into consideration the speech of the Finance Minister as well as the memorandum explaining Section 80HHC. The Tribunal held that it was always intended that additional deduction should be given as incentive on the increased turnover without reference to the commodity exported. It was further held that the expression 'such goods' used in Sub-clause (b) of Section 80HHC(1) refers to the main Clause of Section 80HHC namely, the goods to which the Section applies, i.e., qualifying goods and not the particular goods exported in the particular assessment year. This authority, in our opinion, fully support the assessee's case. So respectfully following the decision of the Tribunal in this case, we hold that the order of the assessing officer on the point allowing additional deduction on increased turnover under Section 80HHC(1) was neither erroneous nor prejudicial to the interest of the revenue. The CIT(A) was in error in holding that benefit of additional deduction cannot be allowed to the assessee.
23. As has already been pointed out above, the ITO allowed deduction of Rs. 10,58,114 being payment of sponsorship fee to Sheikh Galib Mansu Rifac. According to the assessee this expenditure was incurred for carrying on business in South Arabia and, therefore, it was in the revenue field. The Commissioner sought to revise the assessment order stating that this expenditure was capital in nature and, therefore, the assessing officer was in error in allowing it as a revenue expenditure. However, this point was not at all considered by the Commissioner in his impugned order but he chose to set aside the order of the AAC on the point simply on the ground that he was setting aside the assessment order on the other two issues relating to deduction under Section 80HHC. It is well settled that the Commissioner can assume jurisdiction under Section 263 in the matter of revising an assessment order on a point on which the order is found to be erroneous and prejudicial to the interests of the revenue. Section 263 does not empower the Commissioner to set aside an assessment on a point simply because on other issues he has decided to set aside the matter to the assessing officer. The Commissioner has not recorded a finding that the order of the assessing officer allowing deduction in respect of the expenditure incurred on payment of sponsorship fee is erroneous and prejudicial to the interest of revenue. Therefore, so far as this point is concerned, the order of the Commissioner cannot be sustained and has to be quashed.
24. For the foregoing reasons we partly confirm the impugned order of the Commissioner passed under Section 263 holding that coriander, garlic and chillies are agricultural primary commodities, not being produce of plantations and, therefore, deduction under Section 80HHC cannot be allowed in respect of these three commodities. The rest of the impugned order of the Commissioner on all other points as discussed above, is cancelled.
25. In the result, the appeal stands allowed partly to the extent indicated above.