Income Tax Appellate Tribunal - Bangalore
H.M.T. Ltd. vs Commissioner Of Income-Tax on 21 September, 1995
Equivalent citations: [1996]57ITD1(BANG)
ORDER
S. Bandyopadhyay, Accountant Member
1. This appeal has been filed by the assessee against the revisionary order passed by the CIT Under Section 263.
2. The first issue raised by the assessee in this connection is against the jurisdiction of the CIT to invoke the powers Under Section 263. This is based on the merger theory. It is the claim of the assessee that the assessment order which was revised by the CIT in his impugned order Under Section 263 on 6-3-1989, had already got merged in the order of the CIT(A) passed prior to the amendment of Section 263 w.e.f. 1 -6-1988. Reliance has been placed by the learned Counsel for the assessee on the 2 decisions of the Bombay High Court in the cases of Ritz Ltd v. Union of India[1990] 184 ITR 599 and CIT v. In ternational Computers Indian Mfg. Ltd. [1991] 187 ITR 580 to contend that on account of the fact that the CIT(A)'s order had been passed prior to the effective date of the amendment, the amended provisions would not lie thereto. Further reliance has also been placed on the order of the Karnataka High Court dt. 5-3-1992 in W.A. No. 712 of 1991 in the case of M.S.P. Spices (P.) Ltd., in which case the Karnataka High Court stated as below :
The appeal in this case was filed on 1-10-1986, so that the amendment to Clause (c) could have no application to the present case. Consequently, there has been a merger of the assessment order with the appellate order, which is covered by a Full Bench Judgment aforementioned and not saved by the said Clause (c).
The Full Bench judgment as referred to above is in the case of International Computers Indian Mfg. Ltd. (supra). It is the contention of the learned Counsel for the assessee that the above-mentioned comment of the Karnataka High Court should be considered as a guiding factor for deciding the present issue. It has furthermore been pointed out that on a similar issue in the case of Met Chem Canada Inc. for asst. year 1984-85, the Bangalore Bench of ITAT had, by following the above-mentioned judgment of the Karnataka High Court in the case of M. S.P. Spices (P.) Ltd. (supra) decided the issue in favour of that assessee in its order dt. 16-8-1994 in ITA No. 832/Bang./1989.
The learned DR on the other hand, has pointed out that the above judgment of the ITAT, Bangalore Bench, was only a stray one and that thereafter in a number of judgments on similar issue, the appeals have been decided by the ITAT, Bangalore Bench in favour of revenue. In support of his claim, he has cited the judgment of the ITAT, Bangalore Bench dt. 5-10-1994 in ITA No. 916/Bang./1989 in the case of Kissan Products (P.) Ltd. for asst. year 1984-85.
3. There is no doubt about the fact that in the present case the main revisionary order was passed by the CIT after the amendment made to Section 263. We also find that the above-mentioned decision of the ITAT, Bangalore Bench in the case of Met Chem Canada Inc. (supra) is of the nature of a stray judgment and the observations in favour of the assessee can also be considered to be percuriam inasmuch as the issue was actually decided in that case on merits. On the other hand, it is a fact that the recent trend in the different judgements of ITA, Bangalore Bench has been taking into consideration actually the date of the revisionary order and to hold that whenever the revisionary order itself is passed after amendment, it cannot be considered to be invalid on the ground of merger of the assessment in the appellate order passed earlier than the amendment date.
We find in this connection that in all the cases decided by different High Courts on which reliance has been placed by the assessee's counsel, even the revisionary orders themselves were passed prior to the date of amendment. In the case of Ritz Ltd. (supra), the Hon'ble Judge even went to the extent of saying as follow :
Thus, only in cases where action Under Section 263 is taken after June 1, 1988, the merger of the assessment order with the appellate order will be treated as confined to the issue actually considered and decided in appeal in terms of Explanation (c) to Section 263(1). (p. 603 of 184 ITR) It has to be admitted that the tone of the language used by the Karnataka High Court in the case of M.S.P. Spices (P.) Ltd. (supra) can give rise to the belief that the Karnataka High Court meant that the date when the original assessment passed by the AO had been the subject-matter of any appeal, would be the relevant date for deciding the issue. However, it is required to be noticed in this connection that in that case also, even the date of the revisionary order passed by the CIT himself on 24-3-1988, i.e., before the amendment. The Bombay High Court has held in the case of CIT v. Sudhir Jayantilal Mulji by following the earlier observations of the Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297, as follows :
A case is only an authority for what it actually decides and not what may come to follow from some observation's which find place therein.
In all the cases relied upon by the learned Counsel for the assessee, there was no scope for the High Courts concerned to examine the matter from the stand point of what should have been the case had the revisionary order itself had been passed after the amendment. Therefore, we are of the opinion that the 2 decisions of the Bombay High Court and the one of the Karnataka High Court as referred to above might have pronounced good laws in cases only where the revisionary order itself had been passed before the amendment. So far as the facts of the present case are concerned, they are completely distinguishable from those case-laws on the above ground. As regards the reliance placed by the learned Counsel for the assessee on the observations of this Bench of the Tribunal in the case of Met Chem Canada Inc. (supra), it has already been discussed that thereafter the Tribunal has been following a different course of decision in a number of subsequent cases.
The learned DR has tried to place reliance in this connection on the decision of the ITAT, Delhi Bench 'C' in the case of State Trading Corpn. of India Ltd. v. IAC [1991] 36 ITD 497. However, it is required to be mentioned that Delhi High Court had never decided in the line in favour of complete merger of assessment orders in the appellate orders, as adopted by the Bombay and the Karnataka High Courts even in their earlier judgments. On the whole, we are of the opinion that the preliminary ground relating to jurisdiction of the CIT to invoke his powers Under Section 263 based on the merger ground does not hold good.
4. Now coming to the question of the merits of the impugned order of the CIT Under Section 263, we find that the said order has got 2 limbs. Firstly, the CIT has ordered that so far as the conversion of earnings of the assessee in foreign currency in respect of its export income is concerned, the AO ought to have applied the provisions of Rule 115 of the IT Rules and brought to tax the excess over the amount declared by the assessee-company and accepted in the assessment, by considering the conversion rates on the actual dates of the conversion. The thrust of the order of the CIT in this regard seems to be that as per Rule 115, the entire foreign exchange earning of the assessee during the year should have been converted at the rate prevailing on the last day of the respective accounting year.
We are in complete agreem ent with the contention of the learned Counsel for the assessee in this regard that in view of the judgment of the Karnataka High Court dt. 8-9-1992 in W.P. Ncs. 1913 and 1914/1990 in the case of Namas the Leather Garments (P.) Ltd., the provisions of Rule 115 will not be applicable to the present case. We, therefore, strike down the order of the CIT in this regard.
5. The other appellate ground relates to the direction given by the CIT with regard to computation of deduction available to the assessee Under Section 80HHC on its export income. The matter relates to Clause (b) of Sub-section 1 of Section 80HHC, in accordance with which, over and above the deduction of an amount equal to 196 of the export turnover in respect of goods or merchandise exported by the assessee during the relevant previous year as per Sub-Clause (a), a further deduction of an amount equal to 5% of the amount by which the export turnover of such goods or merchandise during the previous year exceeds the export turnover of such goods or merchandise during the immediately preceding year, will also have to be allowed. The assessee exported 4 different types of goods or merchandise during the relevant year, the details of which are being given as below :
Category of Tolal export Total export Incremental
goods/ turnover dur- turnover dur- export
merchandise ing preceding ing the P. Y. turnover
P. Y. 1981-82 1982-83
A. Y. .1982-83 A. Y. 1983-84
Rs. R.s. Rs.
Machine tools 7,42,52,858 13,30,54,299 5,88,01,441
Watches 2,38,87,429 1,16,21,543 Nil
Tractors 57,057 91,338 34,281
Lamps Nil 60,972 60,972
Total 9,81,97,344 14,48,28,152 5,88,96,694
There happened to be incremental export turnover in respect of three of the above items, viz., machine tools, tractors and lamps, whereas in respect of the other item, viz., watches, there was a decrease in the export turnover as compared to the immediately preceding year. In its computation of income, the assessee took into consideration only those 3 items which had shown incremental turnover for computing the deduction under the above-mentioned Sub-Clause (b) and the same was also accepted in the assessment. The CIT, in his impugned order Under Section 263, has however, directed that the increment in export turnover is required to be determined as a whole by taking into consideration the total export during this year and comparing the same with the total export for the immediately preceding year. This means that the amount of decrease in the export turnover in respect of watches will have to be deducted from the aggregate of the gross increment for the other 3 items. The learned Counsel for the assessee has firstly relied on the judgment of the Supreme Court in the case of Mangalore Chemicals & Fertilizers Ltd. v. Dy. Commissioner of Commercial Taxes [1991] 83 STC 234 to argue that the Supreme Court has held therein that a liberal and strict construction of an exemption provision is required to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause, then, it being in the nature of exception is to be construed strictly and against the subject. But once ambiguity or doubt about the applicability is lifted and the subject falls in the notification, then full play should be given to it and it calls for a wider and liberal construction. It is thus argued by the learned Counsel for the assessee that once it is found that the assessee had actually exported goods or merchandise during the relevant year, a liberal construction or interpretation is required to be made of the provisions relating to allowing benefit to the assessee on account of such export. Further reliance has also been sought to be placed on another judgment of the Supreme Court in the case of CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320. It has been argued that although the issue in that case was application of the deduction provision of the then Section 80E of the Act, however, it was decided by the Supreme Court that whereas the assessee was carrying on 2 priority industries, loss in one industry could not be set off against profits from the other industry. On this particular analogy, the learned Counsel for the assessee claimed that in this case also, deduction at the rate of 5% of the incremental export turnover should be allowed only in respect of such items which actually showed such increment.
We are however, of the opinion that the arguments of the learned Counsel for the assessee do not hold good. In the preliminary portion of Sub-section (1) of Section 80HHC (as it existed at the relevant time), a mention is made of export out of India during the previous year relevant to an assessment year, of any goods or merchandise. Both in Sub-clauses (a) and (b) of the same sub-section, put later on, the expressions "export turnover of such goods or merchandise" has been used. It is thus required to be inferred that the reference to the expression such "goods" or "merchandise" is the same not only in both the sub-clauses but also in the above-mentioned general portion of the relevant sub-section. In other words, what is required to be considered herein is the aggregate of goods or merchandise exported by the assessee during the relevant previous year. The assessee itself has claimed deduction of 1% in accordance with Sub-Clause (a) as above, in respect of all the 4 items of goods or merchandise as mentioned by us above. It, therefore, does not at all stand to reason that while applying the provisions of Sub-Clause (b), only 3 of such items will have to be taken into consideration. In this connection we may also take into consideration the 2 citations relied upon by the learned DR and as discussed below.
In the case of CIT v. Indian Products Ltd [1994] 207 ITR 647, the Calcutta High Court held that export turnover for the purpose of computation of deduction Under Section 80HHC must be computed as a single over all quantum and individual classification of goods is not necessary. The ITAT, Madras also held in the case of N.B. Abdul Gafoor v. ITO [1989] 29 ITD 227 that while the assessee had exported mosaic tiles in the preceding assessment year and tendu leaves during the current assessment year, registering an overall increase in the total export turnover over last year's total export turnover, the assessee-firm was entitled to additional deduction of 5% on increased export turnover even though the same goods had not been exported in the current year as in the preceding year. The thrust of this decision is that the total export turnover during the current year and the same in the preceding year without examining the different components comprising the same, are the only factors to be looked into.
The learned Counsel for the assessee has sought to raise another point in this connection. It is contended by him that the assessee is at liberty to claim rebate Under Section 80HHC in respect of even a part of the exported items. It is argued that if the 3 items, viz., machine tools, tractors and lamps only be considered for allowing deduction Under Section 80HHC as a whole, i.e., both under Sub-Clause (a) as well as (b), meaning thereby that the assessee is prepared to forego the deduction under Sub-Clause (a) in respect of watches, it would be more beneficial to the assessee. The representative of the assessee thus contended before us that an order to that effect might be passed by the Tribunal, in the worst case if the assessee's main contention be not agreed to by the Tribunal. It is not possible for us to agree with this particular plea of the assessee also. The assessee itself asked for rebate Under Section 80HHC on all the 4 items and the same was allowed to it also in the assessment. The CIT, in his impugned revisionary order, has merely directed for allowance of the rebate under Clause (b) alone in respect of the 3 items only. It means that allowance of rebate under Clause (a) in respect of all the 4 items shall remain undisturbed. We have no powers "to disturb that portion of the assessment order, which is not an appellate ground before us. The assessee itself should have made up its mind earlier and claimed rebate Under Section 80HHC in respect of the 3 items as prayed for by it, in the beginning. Alternatively, the assessee could have raised this particular ground before the CIT also during the course of his proceeding Under Section 263. Since this particular issue is not exactly before us, we are unable to pass an order on the new claim of the assessee.
Ultimately, therefore, so far as the issue relating to the direction given by the CIT for revising the allowance of deduction Under Section 80HHC is concerned, we uphold his direction.
6. In the result, the appeal filed by the assessee is partially allowed to the above-mentioned extent.