1. These two appeals by the Revenue relating to asst. yrs. 1992-93 and 1993-94 involve common points and are, therefore, disposed of by a common order for the sake of convenience. In ITA No. 246/Ahd/1996, which relates to asst. yr. 1992-93, the grounds taken by the Revenue are as under : "1. The learned CIT(A) has erred in law and on facts in directing the AO to allow the claim of the appellant under s. 80HHC in full as per proviso and the loss at the first stage of computation should be taken as 'Nil'.
2. The learned CIT(A) has erred in not disposing of the contention of the AO that the notional savings on duty-free import of yarn cannot be treated as profit of the business".
Similarly, in ITA No. 4695/Ahd/1996, which relates to asst. yr.
1993-94, the grounds taken by the Revenue are as under : "1. The learned CIT(A) has erred in law and on facts in directing the AO to allow the claim of the appellant under s. 80HHC in full i.e. Rs. 4,01,63,080 restricted to gross total income i.e. Rs. 2,30,16,767 instead of Rs. 1,28,92,669.
2. The learned CIT(A) has erred in law and on facts in holding that the duty benefit derived by the assessee on the duty free imports falls within the ambit of s. 28(iiib) under the head 'Cash Assistance'." A perusal of the grounds taken clearly indicates that the main, rather only dispute in these two appeals pertains to the issue of deduction permissible to the assessee under the provisions of s. 80HHC. The assessee is a private limited company engaged in the business of manufacture and sale of art-silk sarees mainly for exports. In order to understand the controversy in its proper perspective, we will be taking the financial data taken into consideration by the AO for determining the claim of deduction under s. 80HHC and the claim made by the assessee for the asst. yr. 1992-93.
2. The assessee filed its return for the asst. yr. 1992-93 on 31st December, 1992 showing nil income. While examining the books of account, the AO found that the assessee has disclosed a net profit of Rs. 1,34,16,243 as per the P&L a/c. The assessee has, however, claimed a deduction under s. 80HHC amounting to Rs. 3,63,84,124, which was restricted to the gross total income and has thus arrived at a nil total income, which was declared in the return filed on 31st December, 1992. During the course of assessment proceedings, the assessee filed a revised computation of deduction under s. 80HHC on 31st January, 1995, according to which the deduction under s. 80HHC came to Rs. 2,72,83,997, which was also more than the gross total income, and, accordingly, the return remained at Rs. nil. The revised working of deduction under s. 80HHC as given by the assessee and reproduced in paras 15 to 18 of the assessment order by the AO and his reasons for not accepting the quantification of deduction under s. 80HHC claimed by the assessee at Rs. 2,72,83,997 and restricting the same to Rs. 58,37,786 are as under :Statement 'A' Total turnover AmountLocal Sales -- 4,85,74,847Exports Sales -- 7,03,35,471Processing charges -- 3,60,21,554Other Income -- 16,37,818 ---------------Profit of the business 1,33,11,787Less : (a) 90% of Export incentive 32,15,918(i) Cash compensatory support 6,16,82,683 ---------------Export incentive 6,48,97,601 ---------------90% of Rs. 6,48,97,601 5,84,07,841(b) 90% of interest commission & rent90% of Rs. 9,05,143 8,12,629 5,92,22,470 ---------------A. Profit of the business x Export Turnover ---------------- Rs. 4,59,10,683 7,03,35,471 ---------------B. 90% of Export incentive x Export Turnover ----------------Rs. 5,84,07,841 x 7,03,35,471 ----------------A. Nil = 2,72,83,997+ B. 2,72,83,997 As can be seen from reference to 'Statement C', Part-A, the assessee has ignored the negative result of the equation, and taken it at 'Nil'.
In reality, the result would have been as under : - 4,59,10,683 x 7,03,35,471/15,05,69,690 = - 2,14,46,211 This clearly has a major impact on the claim of deduction, as 'A + B' would amount to (-) 2,14,46,211 + 2,72,83,997 = 58,37,786. In other words, as against deduction of Rs. 2,72,83,997 claimed by the assessee, the deduction would be only Rs. 58,37,786. Accordingly, the AO required the assessee to explain as to why the deduction claimed by it under s.
80HHC to the extent of Rs. 2,72,83,997 should not be restricted to Rs. 58,37,786 and after considering the written submissions of the assessee furnished on various dates as mentioned in para 20 of the assessment order including the opinion of tax experts namely, Shri D. A. Desai, formerly Chairman of Law Commission and Judge of Supreme Court of India, Shri Y. P. Trivedi, Sr. Advocate, Bombay, Shri Dinesh Vyas, Sr.
Advocate, Delhi and Shri R. N. Vepari, C.A. Surat, he came to the conclusion that the assessee's contention cannot be accepted as the plain reading of the provisions of s. 80HHC clearly indicates that the deduction permissible to the assessee under s. 80HHC was only Rs. 58,37,785 and not Rs. 2,72,83,997 as claimed by the assessee.
3. The main reasons given by the AO in the two assessment orders in scaling down the claim of deduction under s. 80HHC is that while working out the eligible deduction as per the provisions of s.
80HHC(3)(a), the assessee gets a figure of loss at first stage of computation, but ignores the above loss and adopts the figure at Rs. nil. According to the AO, the figure of loss arrived at the first stage of computation has to be adjusted against the deduction to be computed as per the proviso to s. 80HHC(3). For the asst. yr. 1993-94, the AO further held that the duty benefit derived by the assessee on the duty-free imports cannot be treated as cash assistance as envisaged under s. 28(iiib). Aggrieved with the order of the AO, the assessee filed appeals and the learned CIT(A) for the reasons given in detail in the impugned orders accepted the appeals of the assessee and directed the AO to allow the claim under s. 80HHC in full as per proviso to s.
80HHC with the direction that the loss at the first stage of computation should be taken at Rs. nil. As regards ground of appeal No.(ii) in asst. yr. 1992-93 is concerned, the CIT(A) observed that its disposal will have no bearing on the question of deduction claimed by the assessee under s. 80HHC. However, for the asst. yr. 1993-94, the CIT(A) held that the duty benefit derived by the assessee on the duty-free imports satisfies the three inbuilt conditions of s. 28(iiib) and thus clearly falls under the head 'Cash assistance' within the ambit of the said section.
4. The reasoning given by the CIT(A) in allowing ground No. (i) of the appeal of the assessee can be summarised as under : (a) From the plain reading of s. 80HHC it is apparent that the benefit under the proviso is over and above the deduction available under s. 80HHC(3)(a).
(b) From the language of s. 80HHC, it is very clear that the computation at different stages is not inter-linked in a strict sense and the section does not contemplate any reduction in the benefit on account of loss.
(c) In Expln. to s. 80HHC, the word 'adjusted' has been extensively used with reference to 'adjusted export turnover', 'adjusted profit of the business' and 'adjusted total turnover' but the proviso used the words 'to be further increased'.
Had there been any intention to adjust the benefit to be allowed under the proviso, against the negative figure as computed at the first stage under s. 80HHC(3)(a), the word 'to be further increased' might not had been used.
(d) Circular No. 621, dt. 19th December, 1991, issued by the CBDT and relied upon by the AO recognises the disadvantage faced by the exporter wherein it has been stated that the tax concession under s.
80HHC is intended to compensate an exporter for the comparative disadvantage faced by him in the international market. Thus, s.
80HHC is an incentive provision and it has to be interpreted liberally in a manner which furthers the object of enactment rather than frustrate it. Therefore, the stand of the AO that if there is no profit at the first stage of computation as per provisions of s.
80HHC(3)(a), the assessee is not entitled to any deduction under the proviso is not sustainable.
4.1. As regards ground No. (ii) of the appeal for the asst. yr.
1993-94, the CIT(A) has held that the benefit availed of by the assessee on duty-free imports satisfies all the three inbuilt conditions of s. 28 (iiib) namely, cash assistance by whatever name called, received or receivable by any person against exports and under any scheme of Government of India. Moreover, there are two ways of getting benefit in respect of customs duty. Firstly, an exporter who is holding an advance licence may export manufactured goods and import duty free inputs i.e. without payment of customs duty. Secondly, an exporter not having advance licence may export manufactured goods and import inputs and claim duty drawback. In both the situations, customs duty is not payable or paid is claimed back. The expression 'cash assistance' is amplified by the words 'by whatever name called'. This qualification is added to avoid any narrow construction and thus, the duty benefit derived by the assessee falls within the ambit of s.
28(iiib). Accordingly, he directed the AO to allow the claim of the assessee. Aggrieved with the order of the CIT(A), the Revenue has come up in appeals before us by taking the grounds of appeal as reproduced in para 1 above.
5. Shri Dilip Shivpuri, the learned Departmental Representative submitted that the decision of the Tribunal in the case of A. M. Moosa vs. Asstt. CIT (1996) 54 TTJ (Coch) 193 is not the correct exposition of law and the interpretation by the Cochin Bench of the Tribunal, which has been followed by the Hon'ble Chandigarh Bench in the case of Avon Cycles Ltd. vs. Asstt. CIT (1997) 59 TTJ (Chd) 75 and that of the Ahmedabad Bench 'C' of the Tribunal in the case of Hindustan Fashions Ltd. vs. Asstt. CIT (ITA Nos. 5305 and 5306/Ahd/1996, dt. 6th October, 1997, asst. yrs. 1992-93 and 1993-94 [reported at (1998) 61 TTJ (Ahd) 734] with respect to deduction given, do not correctly interpret the provisions of s. 80HHC. It was submitted that the above appeals filed by the Revenue were fixed on an out of turn basis on a request by the assessee that the issues involved are covered by the decision of Ahmedabad Bench of the Tribunal in the case of Hindustan Fashions Ltd. (supra). Shri Dilip Shivpuri, the learned Departmental Representative further strongly submitted that the decision of Ahmedabad Bench of the Tribunal in the case of Hindustan Fashions Ltd., Surat (supra) requires reconsideration as in the said decision, the submissions made by the learned Departmental Representative were not fully considered and in any case, that decision has not been accepted by the Revenue and a reference application under s. 256(1) has been filed in the case of Hindustan Fashions Ltd., Surat (supra). It was further submitted that in any case, the Tribunal has not considered the effect of the provisions of ss. 80A and 80AB of the IT Act as well as the decision of the Hon'ble Kerala High Court in the case of CIT vs. V. T. Joseph (1997) 225 ITR 731 (Ker) as well as the decision of the Hon'ble Supreme Court in the case of CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. (1997) 224 ITR 604 (SC). Accordingly, it was submitted that although as per the submission made by the assessee in its application for early fixation that the issue in dispute is covered by the decision of the Tribunal in the cases of Hindustan Fashion Ltd., Surat (supra), A. M. Moosa (supra) and Avon Cycle (supra), the Revenue still would like to putforward its submission relying on the decision of the Hon'ble Kerala High Court in the case of CIT vs. V. T. Joseph (supra), the decision of the Hon'ble Supreme Court in the case of CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. (supra) as well as the decision of the Hon'ble Indore Bench of the Tribunal in the case of Prestige Foods Ltd. vs. Dy. CIT (1997) 58 TTJ (Ind) 300.
Accordingly, he requested that besides the arguments advanced by him, he may be allowed to file written submissions, which are duly filed on 26th May, 1998, and the following submissions were put forward by him : "(a) Sec. 80AB of the IT Act, states that the income against which deduction is being claimed by the assessee should be such income as has been computed as per the provisions of this Act, before the deduction under s. 80HHC is made. In other words, all losses, deductions and reliefs have to be given effect to against income earned before deduction under s. 80HHC sub-s. 3(a), (b) or (c) is given. This is also clear from the reading of the relevant portion of s. 80HHC which reads as under : '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 of the profit derived by the assessee from the export of such goods or merchandise." Thus, the words given above show that the assessee should derive profit from export of goods or merchandise and if there are no profits from the export business, no deduction can be claimed by the assessee.
(b) For claiming deduction under Chapter VI-A, of which s. 80HHC is a part, the assessee must satisfy the following two conditions mandatorily : (i) That the assessee must have positive profits from the export business and; (ii) That the total income of the assessee inclusive of the profits from export activity, must be a positive income.
If either of the above conditions is absent, the deduction under s.
80HHC or for that matter deduction under Chapter VI-A cannot be allowed. The Hon'ble Kerala High Court has held in CIT vs. V. T. Joseph (1997) 225 ITR 731 (Ker) that the net claim under s. 80HHC is restricted by the provisions of s. 80AB. The attention of the Hon'ble Tribunal is also drawn to s. 80A of the Act, which states in sub-s. (2) that "the aggregate amount of deduction under this Chapter shall not exceed, in any case, the gross total income of the assessee". The gross total income is defined in 80B(5) as the total income computed in accordance with the provisions of this Act, before making any deduction under this chapter.
Here also before allowing deductions as per s. 80HHC(3)(a), (b) or (c), the gross total income of the assessee being profits from business, has to be arrived at and this will be arrived at after taking into consideration Explanation (baa) of the section. Thus, if the profits from business are a negative figure, there is no question of allowing any deduction under s. 80HHC in view of s. 80A. The interpretation of s. 80A and 80AB finds resonance in the findings of the Hon'ble Supreme Court in the case of CIT vs.
Kotagiri Industrial Co-operative Tea Factory Ltd. (supra), expressed as under : Having regard to the law as laid down by this Court in Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 155 ITR 120 (SC) and H. H. Sir Rama Verma vs. CIT (1994) 205 ITR 433 (SC) it must be held that before considering the matter of deduction under s. 80P(2), the ITO had rightly set off the carried forward losses of the earlier years in accordance with s. 72 of the Act and on finding that the said losses exceeded the income he rightly did not allow any deduction under s. 80P(2) and the AAC as well as the Tribunal and the High Court were in error in taking a contrary view." In view of the above categorical decision of the apex Court there should not remain any doubt that the deduction under s. 80HHC has to be allowed only if there is a profit from the business. Since the figure so arrived at is a negative figure, no deduction is admissible to the assessee in consonance with the decision (1997) 224 ITR 604 (SC) (supra)." Shri Dilip Shivpuri, the learned Departmental Representative further submitted that the learned CIT(A) has engaged himself into the needless hairsplitting by accepting the arguments of the assessee's learned representative with regard to the use of the words 'reduced by' in Explanation (b) of sub-s. (3) of s. 80HHC vis-a-vis the word 'deducted from'. It was submitted that a comprehensive analysis of the provisions of s. 80HHC and other sections of Chapter VI-A clearly indicates that the words, 'reduced by' and 'deducted from' are interchangeable and have the same meaning in the context of s. 80HHC and Chapter VI-A, because Chapter VI-A deals with 'deduction to be made in computing total income'. Similarly Part C of this Chapter has the heading 'deduction in respect of certain income'. Sec. 80HHC has the following title/heading 'Deduction in respect of provision retained for export business'. Accordingly, it was submitted that the scheme of Chapter VI-A and the sections included in this Chapter deals with deduction and if there was any intention of restricting the computation therein to a positive figure by use of the words 'reduced by' then the headings of the Chapter, part and section would have used the words 'reduction' and not 'deduction'. Accordingly, it was submitted that the words 'reduced by' and 'deducted from' are interchangeable and have the same meaning in the context of s. 80HHC and, accordingly, the words 'increased by' being the opposite of 'reduced by' should be read in the same context and even if there is profit, it can be added to loss. It was submitted that the contention of the assessee, which has been accepted by the CIT(A) that the word 'profits' means a positive figure is against the settled law propounded by the Hon'ble Supreme Court in the case of CIT vs. Karamchand Premchand Ltd. (1960) 40 ITR 106 (SC) as well as in the case of CIT vs. Harprasad & Co. (1975) 99 ITR 118 (SC), wherein it is held that profit and gains represents plus income; whereas loss represents minus income. Loss figure is negative profit. Accordingly, it was submitted that the working of deduction given by the AO in the assessment order under s. 80HHC is the correct working on a plain reading of the provisions of s. 80HHC and the learned CIT(A) has arbitrarily enlarged the scope of deduction by referring to the so-called liberal interpretation of s. 80HHC(3) relying in the decision of the Cochin Bench of the Tribunal in the case of A. M. Moosa (supra), which, according to the learned Departmental Representative with respect does not give the correct interpretation of s. 80HHC. It was submitted that the decision of the Chandigarh Bench in the case of Avon Cycle (supra) has simply followed the decision of Cochin Bench of the Tribunal in the case of A. M. Moosa (supra) and the decision of Indore Bench of the Tribunal in the case of Prestige Foods Ltd. (supra) was not brought to the notice of the Members of the Chandigarh Bench of the Tribunal. It was further submitted that the learned CIT(A) as well as the Tribunal in the case of A. M. Moosa (supra) as well as Avon Cycle (supra) has wrongly held that the proviso to sub-s. 3(a), (b) & (c) of s. 80HHC is an independent section and is not interlinked with the sub-sections that precede it which on the face of it is incorrect, because the proviso cannot exist by itself, because it carves out an exception to the general rule and it cannot exist in a limbo.
Accordingly, it was submitted that the words used in s. 80HHC are plain and unambiguous and that they should be given effect to whatever the result since the result is not absurd, not irrelevant and not against the intention of the legislature. It was submitted that the issues raised by the assessee and his learned counsel before the CIT(A), which find favour with the learned CIT(A), are an attempt to import a foreign meaning to the clear language of s. 80HHC and they do violence to it.
6. As regards the second ground regarding the taxability of the import duty-free goods, it was submitted that the contention of the assessee is that in lieu of exports, the assessee gets license to import duty-free goods, which leads to saving of customs duty on those goods which amounts to cash assistance given by the Government the assessee and, therefore, it is taxable under s. 28(iiib) of the IT Act. It was submitted that according to the assessee, whose submissions were found acceptable by the CIT(A), s. 28(iiib) states that the cash assistance, by whatever name called, received or receivable by any person against exports in any scheme of the Govt. of India is to be taxed as profits and gains of business. The duty saved by the assessee is in fact a form of cash assistance given to the assessee and hence, the amount of duty saved is to be taxed under s. 28 and deduction against such income should be allowed under s. 80HHC. It was submitted that the reasoning given by the assessee, which has been accepted by the CIT(A), is not sound in law; because the cash assistance, which is taxable under s.
28(iiib) is actual cash received by the assessee in any of the schemes of the Government of India. The meaning of the words 'Cash assistance' cannot be extended beyond the meaning given to it by the Government of India. It was argued that the AO has discussed this issue in detail in his assessment order for the asst. yr. 1993-94 and after referring to the circulars of the CBDT, has come to the conclusion that the duty saved by the assessee in terms of the duty-free imports cannot be termed as cash assistance. Accordingly, it was submitted that the order of the CIT(A) is required to be reversed in this regard.
6.1. Shri Dilip Shivpuri, the learned Departmental Representative concluded his argument by submitting that the order of the learned CIT(A) for both the assessment years under consideration is required to be reversed and that of the AO is to be restored and we may prefer the view of Indore Bench of the Tribunal in the case of Prestige Foods Ltd. (supra) in preference to the views of Cochin Bench of the Tribunal in the case of A. S. Moosa (supra), Chandigarh Bench of the Tribunal in the case of Avon Cycle (supra) as well as Ahmedabad Bench of the Tribunal in the case of Hindustan Fashion Ltd., Surat (supra), because in those decisions the effect of ss. 80AB, 80A as well as the decisions of the Hon'ble Kerala High Court in the case of V. T. Joseph (supra) and the Hon'ble Supreme Court in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. (supra) have not been considered. The learned Departmental Representative has also placed reliance on the following case law : (i) Forbes, Forbes Campbell & Co. Ltd. vs. CIT (1994) 206 ITR 495 (Bom); (v) CIT vs. T. V. Sundaram Iyengar & Sons (P) Ltd. (1976) 101 ITR 764 (SC); (viii) CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. (supra); and (ix) Distributors (Baroda) (P) Ltd. vs. Union of India & Ors. (1985) 155 ITR 130 (SC).
7. Shri Sanjay Kapadia, the learned representative of the assessee strongly relied on the order of the CIT(A) for both the assessment years under appeal and further submitted that as far as the issue raised in ground No. 1 by the Revenue is concerned, the same is squarely covered in favour of the assessee and against the Revenue by the three decisions of the Tribunal namely, Hindustan Fashion Ltd., Surat (supra), Cochin Bench of the Tribunal in the case of A. M. Moosa vs. Asstt. CIT (supra) and Chandigarh Bench of the Tribunal in the case of Avon Cycle (supra). It was submitted that even if for the sake of argument it is accepted that the decision of Indore Bench of the Tribunal in the case of Prestige Foods Ltd. (supra) favours the interpretation of the Revenue, although in that decision, the decision of Cochin Bench of the Tribunal in the case of A. S. Moosa (supra) has not been specifically dissented by the Hon'ble Members of Indore Bench of the Tribunal; even then in view of the Hon'ble Supreme Court's decision in the case of Vegetable Products Ltd. (1973) 88 ITR 192 (SC) a view, which is favourable to the assessee, should be adopted. Shri Sanjay Kapadia, the learned representative of the assessee extensively read from the order of the CIT(A) for the asst. yr. 1992-93 - specially para 2.6 and submitted that deduction under the proviso to s. 80HHC(3) clearly indicates that the benefit under the proviso is over and above, the deduction available under s. 80HHC(3)(a). It was further submitted that in the Expln. to s. 80HHC the word 'adjusted' has been extensively used with reference to (i) adjusted export turnover, (ii) adjusted profit of the business, and (iii) adjusted total turnover, but the proviso uses the words 'to be further increased'. According to the learned authorised representative of the assessee, had there been any intention to adjust the benefit to be allowed under the proviso, against the negative figure as computed at the first stage under s.
80HHC(3)(a), the word 'to be further increased' might not have been used. It was further submitted that the reliance of the learned Departmental Representative on the various decisions (1994) 206 ITR 495 (Bom), (1993) 202 ITR 731 (Bom), (1995) 216 ITR 199 (Bom), (1995) 214 ITR 175 (Bom), (1976) 101 ITR 764 (SC), (1965) 55 ITR 741 (SC), (1957) 32 ITR 615 (SC), (1997) 224 ITR 604 (SC) and (1985) 155 ITR 120 (SC) cited supra is misplaced as the decisions relied upon are distinguishable on facts and in fact, they do not relate to the interpretation of s. 80HHC at all. The learned representative of the assessee also brought to our notice the Oxford English Dictionary meaning for the words 'reduce' inter alia as under : (ii) Reduce the compound quantity to its lowest denomination, and the whole integer to the same denomination Accordingly, it was submitted that a perusal of the various definitions contained in the Oxford English Dictionary, one can deduce that one can reduce something to zero but from a positive figure one cannot reduce something to arrive at a negative figure.
7.1. Shri Sanjay Kapadia, the learned Representative of the assessee, submitted that s. 80HHC was introduced in the year 1983 when in the speech of the Hon'ble Finance Minister the purpose of the section was stated to be to promote exports by judicious use of fiscal instruments.
Accordingly, it was submitted that the following Hon'ble Supreme Court judgments are directly applicable to the facts of the present case : (i) CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149 (SC); So far as to justify the liberal interpretation of the provisions of s.
80HHC by the CIT(A) as well as the three Benches of the Tribunal namely, Ahmedabad, Cochin and Chandigarh referred to supra, the learned representative of the assessee specifically relied on the following decisions : It was further submitted that the learned Departmental Representative while arguing the appeal has taken the objection to the remark of the learned CIT(A) in the concluding para that the computation under s.
80HHC(3)(a) and the proviso are not inter-linked, has failed to appreciate the speaking observation of the learned CIT(A) in para 2.6 p. No. 7 wherein the learned CIT(A) has observed as under : "..... From the language of s. 80HHC, it is very clear that the computation at different stages is not interlinked in a strict sense and the section does not contemplate any reduction in the benefit on account of loss. ..." Coming to the learned Departmental Representatives reference to the provisions of ss. 80A and 80AB, it was submitted by Shri Sanjay Kapadia, the learned authorised representative of the assessee that they rather support the case of the assessee; because as per s. 80AB, the deductions under heading 'C' of Chapter VI-A would be restricted not only to the gross total income, but also against the specific heads of income for which it is determined. It was further submitted that this section becomes operative only after having determined the deduction under s. 80HHC and not in the process of determining the said deduction.
8. Coming to the ground No. 2, it was submitted by Shri Sanjay Kapadia, the learned representative of the assessee that the assessee is an exporter of synthetic fabrics operating under the Duty Exemption Entitlement Certificate (DEEC) Scheme. The assessee imported duty-free goods against export obligation or for the replacement of those materials which had gone into the production of the resultant product already exported, keeping the payment of duty in abeyance. The assessee recovered the duty so saved by encashing the same from the open market.
In case, the assessee could not fulfil export obligation, the duty kept in abeyance becomes payable. Hence, it was submitted that the duty benefit on imports is directly related to export, and such encashment of duty is nothing but one form of export incentive. It was submitted that the learned AO has referred to Circular No. 621 dt. 19th December, 1991, to deny the benefit to the assessee; because in the said Circular, only following export incentives were included : It was submitted that the three export incentives considered by the AO as per Circular No. 621 are mere illustrations given in parenthesis in the said circular and not an exhaustive list of incentives. It was submitted that in another CBDT Circular No. 572 dt. 3rd August, 1990 the initial words while introducing the scheme of incentives are 'At present. ...' which means that the incentives are changing in nature as per the scheme of the Government of India from time to time and, therefore, should not be interpreted in the sense of restrictive manner/connotation. It was further submitted that in s. 28(iiib) the legislature clearly expressed itself when it said 'Cash assistance (by whatever name called)'. It was submitted that the use of the above expression clearly indicates that the name of assistance by the Government would not restrict the nature of incentives/assistance to the exporter and, therefore, the name of the assistance is irrelevant.
It was further submitted that the whole purpose of the scheme is to provide incentives in one form or the other, to promote exports, and bring valuable foreign exchange in the country. As such, it was submitted that the learned CIT(A) was perfectly justified in directing the AO to consider the duty benefit derived by the assessee on the duty-free imports falling within the ambit of s. 28(iiib) under the head 'Cash assistance'.
9. As far as the asst. yr. 1992-93 is concerned, it was submitted by Shri Sanjay Kapadia, the learned representative of the assessee that the second ground does not hold good in any case, because after comprehensive discussion on the issue, the learned AO has accepted the recognition of the export incentives in computing deduction under s.
80HHC, which is evidenced from paras 48 and 49 at pp. 25 and 26 of the assessment order. It was submitted that this is also apparent from the order of the learned CIT(A) for asst. yr. 1992-93 wherein he has discussed the second ground of appeal raised by the assessee vide para 2.9 refraining to give any opinion in this regard as the same has already been accepted by the learned AO in actual finalisation of the assessment order. However, it was conceded by the authorised representative of the assessee that the position accepted by the AO for asst. yr. 1992-93 was not followed by him in the asst. yr. 1993-94 and that is why he has to address the Bench on the second ground, which is relevant only to the asst. yr. 1993-94.
10. In the rejoinder, the learned Departmental Representative submitted that when there are two views possible on the interpretation of a statute, one favourable to the assessee should be adopted is not of universal application. For that, reliance was placed on the decision of the Hon'ble Bombay High Court in the case of M. H. Daryani vs. CIT (supra). It was submitted that when the words of a statute are plain, precise and unambiguous, the principle of beneficial interpretation in favour of the assessee has no application. Accordingly, the learned Departmental Representative submitted that since in the appeal before the Tribunal the interpretation was required to be made of s. 80HHC whose plain wordings clearly support the view of the AO, the reliance of the learned authorised representative of the assessee on the decision of the Hon'ble Supreme Court in Vegetable Products Co.'s case (supra) is misplaced.
11. We have considered the rival submissions and have gone through the order passed by the AO as well as the CIT(A) along with the written submissions filed by the learned Departmental Representative as well as the three paper-books comprising of the various judgments relied upon by the assessee, the decision of the Tribunal relied by him along with the written submissions filed by the assessee before the CIT(A). The relevant provisions of the Act, which are considered necessary for adjudicating the issue in dispute, are reproduced hereunder to keep them in close focus : "80A(1) : In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in s. 80C to (80U); (2) The aggregate amount of the deductions under this chapter shall not, in any case, exceed the gross total income of the assessee.
80AB : Where any deduction is required to be made or allowed under any section (except s. 80M) included in this Chapter under the heading 'C'-Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.
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 of the (profits) derived by the assessee from the export of such goods or merchandise." In the case of the assessee, who is engaged in the export of goods manufactured by itself, the 'profits' of its business are to be calculated, for purposes of the deduction, as per cl. (a) of sub-s.
(3) of s. 80 HHC which reads as under : (a) Where the export out of India of goods or merchandise manufactured or processed by the assessee, the profits derived from such export, shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee." "Provided that the profits computed under cl. (a) or cl. (b) or cl.
(c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in cl. (iiia) (not being profits on sale of a licence acquired from any other person), and cls. (iiib) and (iiic), of s. 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee." "(baa) 'Profits of the business' means the profits of the business as computed under the head 'Profits and gains' of business or profession as reduced by - (a) ninety per cent of any sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipts of a similar nature included in such profits." It will not be out of place also to reproduce cls. (iiia), (iiib) and (iiic) of s. 28 - "(iiia) Profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947); (iiib) Cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India; (iiic) any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971." As far as the provisions of s. 80A(2) are concerned, the total amount of deductions under Chapter VI-A must not exceed the gross total income. In other words, the total income derived from the gross total income as a consequence of allowing the permissible deductions may become 'Nil' but it cannot turn into a negative figure. The deductions may be permitted only to the extent necessary to wipe out the income but not so as to turn it into a loss. Thus, the assessee for both the assessment years under consideration has filed returns declaring nil income and has not claimed any loss to be carried forward and thus complied with the provisions of s.
80A(2) that consequent to deduction under Chapter VI-A the income can be reduced to Rs. nil but not to a negative figure and it rather helps the case of the assessee instead of the AO.11.1. As far as s. 80AB is concerned, this section deals with the deductions to be made with reference to the income included in the gross total income. Chapter VI-A specifies certain deductions which an assessee is entitled to while computing his total income. Part 'C' in Chapter VI-A enumerates the income based deductions which are required to be granted while computing the total income. Sec. 80HHC is included in Part 'C' and these are to be computed with reference to the net income under the respective sections, which form part of the gross total income. Prior to asst. yr. 1992-93 the relief under s. 80HHC was not geared to export profits, or to state it differently, 'profit from export business' alone in a case where the business did not consist exclusively of export business. For and from asst. yr. 1992-93 the profits derived from export of goods have been given a fictional meaning for purpose of deduction. That fictional meaning has to be carried to its logical end in order to give effect to the letter and spirit of the deduction envisaged in s. 80HHC. The non obstante clause found in s. 80AB is only to restrict the deduction to the extent of the income of the nature included in the taxed income. The income of the nature is the profit derived from the export of goods. It cannot be equalled with the profits from export. Thus, even when the assessee made losses in export of an item but the overall result is a positive income, the assessee is entitled to this deduction. The non obstante clause found in s. 80AB is only to restrict the deduction to the extent of the income of the nature included in the total income.
11.2. It is further to be seen that s. 80HHC is not a charging section, but an incentive provision and the computation under the above provision is not to ascertain the real income, but deduction available to the exporters. Sub-s. (3) of s. 80HHC begins with the words "for the purpose of sub-s. (1)", Expln. (baa) distinguishes 'profits of the business' from the 'profits and gains of business', showing that they are separate concepts for the purpose of s. 80HHC and the proviso to s.
80HHC(3) further increases the profit by export incentives.
Accordingly, it has to be held that the reference in Expln. (baa) to the word 'profits of business' will denote a surplus only and not a deficit and, therefore, when the computation is to be made under s.
80HHC, loss at any stage is required to be ignored as held by the Ahmedabad Bench of the Tribunal, Cochin Bench of the Tribunal as well as Chandigarh Bench of the Tribunal in the cases referred to supra.
11.3. The reliance of the learned Departmental Representative on the decisions of the Hon'ble Supreme Court in the case of Karamchand Premchand Ltd. (supra) and Harprasad & Co. (supra) for the proposition that the profit is plus income; whereas the loss is minus income is given in a different context and cannot be held applicable for working out the deduction under s. 80HHC, which is an incentive provision and is to be interpreted liberally as held by the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd., Gwalior Rayon Silk Mfg. Co. Ltd., C.W.S.(India) Ltd. and K. P. Verghese referred to supra on which the reliance has been placed by the authorised representative of the assessee. In the case of Harprasad & Co. (supra) the question was whether carried forward of capital loss is to be allowed to be carried forward when capital gains was not taxable. Thus, in Harprasad & Co.'s case, it was a case of real loss unlike this case. The so-called loss here is not to be deducted from any gain, or carried forward for a future purpose.
11.4. A critical reading of the provisions of s. 80HHC as extracted in para 11 above in the light of the decisions of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd., Gwalior Rayon Silk Mfg. Co.
Ltd., C.W.S. (India) Ltd. and K. P. Varghese referred to supra relied upon by the learned authorised representative of the assessee indicate that the negative profit worked out under cls. (a), (b) and (c) of sub-s. (3) of s. 80HHC cannot be 'increased' by a positive figure. A negative figure cannot be increased by a positive figure; it can be adjusted not increased. The plain reading of the proviso to sub-s. (3) of s. 80HHC provides clue that the negative figure or loss worked out under cls. (a), (b) and (c) has to be ignored. If there is a positive figure under cls. (a), (b) and (c), there is no difficulty in increasing the same by 90 per cent of export incentive as stipulated in proviso to sub-s. (3) of s. 80HHC; but if the figures under cls. (a), (b) and (c) are negative, then harmonious construction suggests that those losses cannot be increased by a positive figure under sub-s. (3) to s. 80HHC and as such, are required to be ignored. Even if there is an ambiguity in the interpretation of s. 80HHC as is evident from the view of Indore Bench of the Tribunal in the case of Prestige Foods Ltd. and the decisions of Cochin Bench, Chandigarh Bench and Ahmedabad Bench in the cases referred to supra, the interpretation favourable to the assessee is required to be adopted in view of the decision of the Hon'ble Supreme Court in the case of Vegetable Products Ltd. referred to supra. The observation of the Hon'ble Bombay High Court in the case of M. H. Daryani (supra) relied upon by the learned Departmental Representative can apply only to a case where the language is unambiguous and there is no scope of having two views and the view canvassed by the AO and the learned Departmental Representative is the only possible view is not tenable; because the three Benches of the Tribunal namely, Cochin Bench, Chandigarh Bench and Ahmedabad Bench have interpreted the provisions of s. 80HHC favouring the assessee, and the Indore Bench in the case of Prestige Foods Ltd. (supra) has also not differed from the basis decision of the Cochin Bench. Thus, taking in view the totality of the facts and circumstances of the case, we are of the considered opinion that since the profit from export of manufactured goods and profit from export of trading goods was negative, those figures had to be completely ignored and 90 per cent of export incentive had still to be taken into consideration for working out the claim of deduction under s. 80HHC.12. In the result, ground No. 1 raised by the Revenue is dismissed and the order of the CIT(A) in this regard is upheld.13. Coming to ground of appeal No. 2 as far as asst. yr. 1992-93 is concerned, the same is misplaced and has to be dismissed as infructuous, because the AO himself has included the incentive in the form of import duty benefit in computing the deduction under s. 80HHC, which is apparent from paras 47 and 48 on pp. 25 and 26 of the assessment order and recognising this fact, the CIT(A) in the asst. yr.
1992-93 has refrained from giving any opinion in this regard as the AO himself has accepted the stand of the assessee in computing the tax while finalising the assessment order. However, for the asst. yr.
1993-94, the learned AO has departed from his own working in the asst.
yr. 1992-93 and came to the finding that cash assistance to be taxed under s. 28 is actual cash received by the assessee in any scheme of the Government of India and the words 'cash assistance' cannot be extended further to include the notional customs duty benefit derived by the assessee on the import of goods needed as raw material for the manufacture of goods exported by the assessee. In this connection, it will be useful to remember that the various schemes of incentives given by the Government to the exporters were meant to keep the exporters motivated to earn valuable foreign exchange for the country. Some of the schemes including the one which is the subject-matter of dispute before us are as under : (8) Special Import Licence (SIL) for import of goods which are generally not permitted.
The abovementioned reliefs, schemes and incentives are specifically available only to an assessee who is an exporter and the assessee is also granted relief of not paying any tax under the IT Act as per the provisions of s. 80HHC. The deductions of profit computed under cls.
(a), (b) and (c) of s. 80HHC are required to be further increased by 90 per cent of any sum (meaning any export incentives by whatever name called under any scheme) referred to in cls. (iiia), (iiib) and (iiic) of s. 28 in proportion of export turnover and total turnover. Clause (iiib) refers to cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India. Thus, cl. (iiib) does not mean only receipt of cash assistance direct from the Government The words by "whatever name" called expand the meaning of the term 'cash assistance'. The addition of these words are not meaningless or an idle formality since such words are not found added elsewhere in the Act. Thus, it has to be held that cl. (iiib) was inserted to ensure that all other reliefs given in any form to the exporters not specifically covered under cl. (iiia) and (iiic) should not be left out. In this particular case, the duty payable to the Government of India, but not paid under the scheme of the Government, is nothing but cash assistance in the hands of the assessee and the method of accounting adopted by the assessee for identifying and accounting the same in the books of account to claim the necessary deduction under s. 80HHC cannot be faulted. Accordingly, we are of the considered opinion that the duty benefit available to the exporter under any of the schemes of the Government of India like the one referred to in para 13(3) falls under the provisions of s. 28(iiib) and s. 80HHC of the IT Act, 1961 making the exporter eligible to claim the necessary deduction. Accordingly, ground No. 2 relating to asst.
yr. 1993-94 is held to be without any merit and is, accordingly, dismissed.