Madras High Court
The Deputy Commissioner Of Income Tax vs M/S.Prem Textiles International on 28 March, 2019
Author: Vineet Kothari
Bench: Vineet Kothari, T.Krishnavalli
1
BEFORE THE MADURAI BENCH OF THE MADRAS HIGH COURT
DATED : 28.03.2019
CORAM:
THE HONOURABLE Dr. JUSTICE VINEET KOTHARI
AND
THE HONOURABLE Mrs.JUSTICE T.KRISHNAVALLI
W.A.(MD)Nos.422 to 436 of 2019
and
C.M.P.(MD)Nos. 3551 to 3579 of 2019
W.A.(MD)No.422 of 2019:
1.The Deputy Commissioner of Income Tax
Circle-II,
No.44, William Road,
Tiruchirappalli.
2.The Commissioner of Income Tax (Appeals),
No.4, Williams Road,
Cantonment,
Tiruchirappalli. .. Appellants
Vs.
1.M/s.Prem Textiles International,
No.9-K, Ramakrishnapuram,
Karur,
rep. by its Managing Director,
V.Veerappan.
2.Union of India,
Rep.by the Secretary,
Ministry of Finance,
North Block,
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.2881 of 2007 dated 07.02.2014.
For Appellants :: Mrs.S.Srimathy
For Respondents :: Mr.V.Kathirvelu,
Addl. Solicitor General of India for R-2
http://www.judis.nic.in
assisted by Mr.R.Ganeshkumar
Mr.V.S.Jeyakumar for R-1
2
COMMON JUDGMENT
(Judgment of the Court was delivered by Dr.VINEET KOTHARI,J.) Heard the learned counsel 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 from 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 merchandise:
...
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 http://www.judis.nic.in carried on by the assessee."3
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 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.
http://www.judis.nic.in
27.We, accordingly, quash the impugned amendment only to 4 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 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 batch [C.I.T. and others Vs. Avani Exports] and the same was disposed of by the Apex Court on 30 th March, 2015, upholding the order passed by the http://www.judis.nic.in Division Bench of the Gujarat High Court with the following modification, which 5 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 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 http://www.judis.nic.in retrospective operation in order to overcome the decision of the Tribunal, and at the same time, for depriving the benefit earlier 6 granted to a class of the Assesses whose assessments were still 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 treated similarly. This order is in substitution of the judgment in appeal.
http://www.judis.nic.in
6.With the aforesaid clarification all these SLPs including that of assessees filed against the judgment of M.P.High Court are disposed of.” 7 http://www.judis.nic.in 8 Dr. VINEET KOTHARI, J.
AND T. KRISHNAVALLI, J.
vs
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 the same terms. Accordingly, we dispose of the present Writ Appeals on the same terms.
No order as to costs. Consequently, connected Miscellaneous Petitions are closed.
(V.K.,J.) (T.K.,J.)
28.03.2019
Index : Yes / No
Internet : Yes / No
vs / kpl
W.A.(MD)Nos.422 to 436 of 2019.
http://www.judis.nic.in
9
http://www.judis.nic.in