1. These two appeals are filed by the Revenue and they involve certain common issues. We, therefore, dispose of these two appeals by a common order for the sake of convenience.
2. We are concerned with the asst. yrs. 1991-92 and 1992-93. Ground No.1 in asst. yr. 1991-92 pertains to the questions of application of s.
37(4) of the Act with regard to the rent, repairs and depreciation on the guest house. The AO observed that all expenditure incurred on the maintenance of the guest house and depreciation has to be disallowed by virtue of specific provisions of s. 37(4) of the Act and he further observed that cl. (ii) of Explanation to the section specifically mentioned that rent paid in respect of such guest house falls under the expression 'expenditure incurred on the maintenance of a guest house'.
CIT(A) however, set aside the disallowance by following his predecessor's order for the asst. yr. 1990-91. Thus, the Revenue is in appeal before us.
3. After hearing the rival submissions we are of the opinion that the issue is squarely covered against the assessee and in favour of the Revenue by the decision of the Hon'ble Calcutta High Court in the case of CIT vs. Upper Ganges Sugar Mills Ltd. (1994) 206 ITR 215 (Cal). We, therefore, set aside the order of the CIT(A). The disallowance made by the AO is thus restored.
4. Ground No. 2 in asst. yr. 1991-92 and Ground No. 1 for the asst. yr.
1992-93 pertain to the disallowance made by the AO under s. 40A(9) of the Act. Facts in short are that the assessee made contributions to Stone India Recreation Corner and J. Stone Employees Credit Co-operative Society Ltd. Since the payments were made to unapproved institutions, the AO disallowed the same under s. 40A(9) of the Act.
CIT(A) set aside the disallowance by following the decision of the Tribunal in the case of M/s. A.P.E. Bellis India Ltd. in ITA Nos. 527 to 531 (Cal) of 1989, dt. 13th February, 1992.
5. Aggrieved, Revenue is in appeal before us. Learned counsel appearing on behalf of the assessee-company, relied upon the decision of the Tribunal (cited supra). On the other hand, learned Departmental Representative submitted that the payments were made by the assessee-company to unapproved society and such payment is not required by any law for the time being in force and, therefore, hit by s. 40A(9) of the Act.
6. We have carefully considered the rival submissions. Sec. 40A(9) reads as under : "No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to any fund, trust, company, AOP, BOI, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under cl.
(iv) or cl. (v) of sub-s. (1) of s. 36, or as required by or under any other law for the time being in force." 7. A reading of the above provision indicates that only such contributions which are paid to any trust, company, AOP, etc. towards recognised provident fund or approved superannuation fund or approved gratuity fund or any payment which is required by or under any law for the time being in force, is allowable as deduction. The impugned payments are not contributions towards PF, gratuity fund, etc. It is also not shown as to whether such payments are required to meet the obligation under any law for the time being in force. Under these circumstances, it is not possible for us to accept the claim of the assessee. The case law relied upon by the assessee's counsel, in our opinion, has no application herein. With respect, we may observe that the order of the Tribunal is cryptic and without answering the requirement of the section, merely because an expenditure was incurred wholly and exclusively for the purpose of business, it cannot be taken out of sweep of s. 40A(9) of the Act. The conditions stated in s.
40A(9) are to be fulfilled. As we find that in the instant case the assessee has not shown that the payments were made by virtue of any agreement with the workers under the Industrial Disputes Act or any other analogous Act, the disallowance made by the AO under s. 40A(9) of the Act is in order and we, therefore, set aside the orders of the CIT(A) on this issue.
"3. That, on the facts and circumstances of the case, the learned CIT(A) in allowing certain expenses under s. 43A has relied on the decision of the Supreme Court in the case of Arbind Mills Ltd. vs.
CIT (1992) 193 ITR 255 (SC).
4. That, on facts and circumstances of the case, the learned CIT(A)'s reliance on the case of Arvind Mills Ltd. is not acceptable since the CBDT has not accepted this decision and vide its circular sought the opinion of the Union Ministry of Law in this regard.
5. On facts and circumstances of the case, the order of the learned CIT(A) be set aside and the order of the AO be restored." 9. Due to exchange rate fluctuation, there has been increase in the liability towards amount payable to the foreign sellers on the plant and machinery purchased by the assessee-company, to the tune of Rs. 8,81,531. Assessee-company included the additional liability and on the additional cost also depreciation was claimed under s. 32 of the Act.
According to the AO, such increase in the cost is only a notional increase in the value and is not backed by actual remittance since the extra liability was not remitted during the year. He, therefore, disallowed the claim of depreciation proportionately.
10. Aggrieved, assessee contended before the CIT(A) that the additional liability arising from the exchange rate fluctuation should be added to the cost of the machinery in order to arrive at the 'actual cost' and in this regard relied upon several decisions. CIT(A) observed that the issue is squarely covered by the decision of the Hon'ble Calcutta High Court in the case of CIT vs. Kanoria Chemicals and Industries Ltd. (1994) 207 ITR 718 (Cal). He, therefore, directed the AO to recompute the depreciation after taking into account the additional liability arising from exchange rate fluctuation.
11. Aggrieved by the order of the CIT(A), Revenue is in appeal before us. Learned Departmental Representative relied upon the order of the AO whereas, learned counsel, appearing on behalf of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT vs. Arvind Mills Ltd. (supra) and the decision of the Hon'ble Calcutta High Court in the case of Kanoria Chemicals and Industries Ltd. (supra). Learned counsel was also fair enough to bring to our notice the later decision of the Hon'ble Calcutta High Court in the case of CIT vs. Century Enka Ltd. (1992) 196 ITR 447 (Cal) wherein a different view was taken.
However, he stressed that the mere question of time should not be considered, when there are two judgments of co-equal Benches of the superior Court, the one which appeals to the Tribunal should be followed. He has taken us through the decisions of the Hon'ble Supreme Court and Calcutta High Court in the case of Kanoria Chemicals and Industries Ltd. to highlight that the decision of the Calcutta High Court dt. 20th March, 1991 is a more logical decision based on the correct interpretation of the provisions of ss. 43A/32 of the Act. He also submitted that the view taken by the Calcutta High Court in the case of Kanoria Chemicals and Industries Ltd. (supra) is consistent with the view taken by other High Courts and in this regard he relied upon the following two decisions : (a) Padamjee Pulp and Paper Mills Ltd. vs. CIT (1994) 210 ITR 97 (Bom) and (b) CIT vs. Motor Industries Co. Ltd. (No. 2) (1998) 229 ITR 137 (Kar) at 144 and 145 12. Learned counsel further submits that in the case of an assessee who is following mercantile system of accounting, actual remittance is not the criterion. He also adverted our attention to the judgment of the Hon'ble Patna High Court in the case of Amar Singh Yadav vs. Shanti Devi AIR 1987 (Pat) (FB) 191 at p. 198 wherein their Lordships observed as under : "When judgment of the superior Courts are of co-equal Benches, and, therefore, a matching authority, then their weight inevitably must be considered by the rational and the logic thereof and not by the mere fortuitous circumstance of the time and date on which they were rendered. Equally, the fact that the subsequent judgment failed to take notice of the earlier one or any presumption that a deviation therefrom could not be intended, cannot possibly be conclusive.
Vital issues, pertaining to the vital questions of the certainty and uniformity of the law, cannot be scuttled by such legal sophistry.
It is manifest that when two directly conflicting judgments of the superior Court and of equal authority exist, then both of them cannot be binding on the Courts below. A choice, however difficult it may be, has to be made in such a situation and the date cannot be the guide. However, on principle, it appears to me, that the High Court must in this context follow the judgment, which would appear to lay down the law more elaborately and accurately. The mere incidence of time, whether the judgments of co-equal Benches of the superior Court are earlier or later, and whether the later one missed consideration of the earlier, are matters which appear to me as hardly relevant, and in any case, not conclusive." 13. Similar view taken by the Third Member of the Tribunal in the case of Mahindra and Mahindra Ltd. vs. Dy. CIT (1997) 58 TTJ (Mumbai) 567 : (1999) 235 ITR (AT) 12 at pp 31 and 32 was also placed before us.
Adverting our attention to the provisions of ss. 32 and 43A of the Act, learned counsel submits that the intention of the legislature was only to allow depreciation on the additional cost 'incurred' due to exchange rate fluctuation. In other words, it is not dependent on the actual remittance. The clarification issued by the Ministry of Finance by its letter dt. 4th January, 1967 was emphasised. Para 2 of the said clarification, as extracted by the Hon'ble Supreme Court in pp 266 reads as under : "The Government agrees that for the purpose of calculation of depreciation allowance, the cost of capital assets imported before the date of devaluation should be written off to the extent of the full amount of additional rupee liability incurred on account of devaluation and not what is actually paid from year to year. The proposed legal provision in the matter is intended to be framed on this basis." 14. We have carefully considered the rival submissions and perused the record. A careful reading of the provisions of ss. 32/43A of the Act and the clarification issued from time to time by the Department of Revenue indicates that in order to allow depreciation on the additional liability arising out of exchange fluctuation, the actual payment in that year is not compulsory. This view of ours is consistent with the majority view. In other words, the Bombay High Court, Karnataka High Court and the Calcutta High Court have taken an identical view whereas in the later decision of the Hon'ble Calcutta High Court in the case of Century Enka Ltd. (supra), a different view was taken. In the case of Century Enka Ltd. the issue before their Lordships was the allowability of investment allowance on the additional cost with which we are not concerned herein. On the contrary, in the case of Kanoria Chemicals and Industries Ltd. (supra) the issue is with regard to the allowability of depreciation on the additional cost. The Hon'ble Bombay High Court has, in fact, relied upon the decision of the Hon'ble Supreme Court in the case of Arvind Mills Ltd. (supra) in order to arrive at the conclusion that the amount of loan outstanding on the last date of the accounting year at the then prevailing exchange rate had to be added to the actual cost of the machinery for the purpose of computation of depreciation for that year. In our opinion, the interpretation placed upon the relevant provision by the Hon'ble Bombay High Court, Karnataka High Court and the Calcutta High Court in the case of Kanoria Chemicals and Industries Ltd. is the correct interpretation on the issue and deserves to be followed, particularly in the light of the decision of the Hon'ble Patna High Court (FB) (cited supra). For this reason the order of the CIT(A) on this issue does not call for interference.
15. Ground Nos. 2 and 3 in the appeal filed for the asst. yr. 1982-83 are as under : "2. That on facts and circumstances of the case, the learned CIT(A) has erred in law in allowing the assessee's claim for excluding excise duty from the total turnover for computing deduction under s.
80HHC. 3. That on facts and circumstances of the case, the learned CIT(A) in excluding excise duty from the total turnover for deduction under s. 80HHC has incorrectly accepted assessee's logic that the figure of total turnover should not include excise duty since exported goods do not attract excise duty as only then there can be a meaningful ratio of export turnover to total turnover." 16. The facts in brief are that for the purpose of computing the eligible deduction under s. 80HHC of the Act, the assessee-company excluded excise duty of Rs. 4.14 crores from the total turnover. In the opinion of the AO, total turnover is inclusive of excise duty.
17. Aggrieved by the action of the AO, assessee-company appealed to the CIT(A) wherein it relied upon the decision of the Calcutta Bench of the Tribunal in the case of Chloride India Ltd. vs. Dy. CIT (1995) 53 ITD 180 (Cal). Following the said decision of the Tribunal, the AO was directed to revise the assessment order.
18. Aggrieved, Revenue is in appeal before us. Learned Departmental Representative submitted that the term 'turnover' has come up for interpretation before Courts time and again and it was consistently held that turnover includes sales-tax, excise duty, etc. he thus supports the order of the AO. On the other hand, learned counsel, appearing on behalf of the assessee, made detailed submissions on this aspect and also filed a written submission. He submits that (a) the interpretation placed upon the term 'total turnover' under another Act should not be resorted to when the two Acts in which same words are used are not cognate Acts; (b) the definition of the term 'total turnover' in s. 80HHC is merely an exclusive definition and not exhaustive. Therefore, mere exclusion of certain items from the figure of total turnover by Expln. (ba) appended below s. 80HHC(4A) by the Finance (No. 2) Act, 1991, with retrospective effect from 1st April, 1987, does not ipso facto lead to the conclusion that whatever is not expressly stated to be excluded from the figure of 'total turnover' should automatically be included in the figure of 'total turnover'; (c) the decision of the Mumbai Bench of the Tribunal in the case of Ponds (India) Ltd. vs. Dy. CIT (1997) 59 TTJ (Mumbai) 560 : (1997) 64 ITD 33 (Mumbai) wherein it was held that the decision of the Calcutta Bench of the Tribunal (cited supra) has no application to the asst. yr. 1987-88 and onwards [due to amendment by the Finance (No. 2) Act, 1991] is contrary to the decision of the Pune Bench of the Tribunal Sudarshan Chemical Industries Ltd. vs. Dy. CIT (1997) 57 TTJ (Pune) 718 : (1997) 60 ITD 629 (Pune) wherein the decision of the Calcutta Tribunal was followed while dealing with identical issue for the asst. yr. 1989-90 and, therefore, the view beneficial to the assessee should be adopted; (d) interpretation must depend on the text and the context-if the text is a texture, context is what gives the colour and, therefore, neither can be ignored. It is the duty of the Court to iron out the creases by taking the text and context into consideration in interpreting a legislation and by considering the provision in the backdrop of the purpose for which the section is introduced. The following case laws were relied upon on this issue :Gramophone Co. of India Ltd. vs. Birendra Bahadur Pandey AIR 1984 SC 667; 678Reserve Bank of India vs. Peerless General Finance & Investment Co. Ltd. AIRChairman, Board of Mining Examination and Chief Inspector of Mines vs. Ramjee AIR 19. We have carefully considered the rival submissions and perused the record. The short issue before us is with regard to the interpretation of the term 'total turnover'. The formula for computing deduction provided under s. 80HHC(3A) of the Act is export turnover/total turnover x profits of the business. The intention of the legislature in introducing s. 80HHC was to encourage exports so as to earn foreign exchange. Ascertaining the exact export profit gives rise to certain difficulty and, therefore, the aforementioned formula has to be adopted which only indicates that proportionate profit from export should be worked out to allow the benefit to the assessee under s. 80HHC of the Act. On the export assessee need not pay excise duty whereas, on the domestic sales, excise duty is payable. For example, if the assessee sells goods, the cost price of which is Rs. 100, in the international market and an identical worth of goods in the domestic market, it can be said that 50 percent of the profit is earned from the export trade and the benefit under s. 80HHC should be calculated accordingly.
However, if the excise duty component, which is applicable only to the domestic sales is taken into consideration, the total turnover would be the cost price plus the excise duty element. The export profit, in terms of percentage, would be less than 50 percent and the assessee would be eligible for the lesser relief under s. 80HHC which, in our opinion, is not intended by the legislature. The issue was very elaborately considered by the Calcutta Bench of the Tribunal in the case of Chloride India Ltd. (supra) and also by the Bench of the Tribunal in the case of Sudarshan Chemical Industries Ltd. vs. Dy. CIT, (supra). We are in respectful agreement with the aforementioned two decisions. It is well settled that when there are two views possible, the one which is favourable to the assessee should be adopted See the case reported in CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). Thus, we uphold the order of the CIT(A).
20. Vide Ground No. 4 the Revenue contends that the CIT(A) erred in allowing the assessee-company's claim for deduction of excise duty of Rs. 6.59 lakhs on actual payment basis under s. 43B of the Act. The claim of the assessee-company was based on the following reasons : (a) Liability for excise duty arose at the time of production and not at the time of despatch of finished goods from the factory; (b) Liability is thus statutorily deferred till the time the goods are despatched though it accrued; (d) The amount of Rs. 6.59 lakh now being claimed was not provided in the accounts. Despite this, it is allowable as deduction in view of the decision of the Hon'ble Supreme Court in the case of Kedarnath Jute Mills Ltd. vs. CIT (1971) 82 ITR 363 (SC).
21. The claim of the assessee was rejected by the AO on the following grounds: (1) assessee consistently followed the policy of claiming the excise duty liability only on payment basis and on that count, the impugned amount has not been provided in the accounts; (2) during the year, assessee has debited Rs. 4.14 crore as excise duty in its P&L a/c on payment basis. Thus, it is apparently contradicting its own method of accounting.
(3) excise duty in the present case has not become enforceable as per Excise Act. Thus, it cannot be treated as ascertained liability but remained a mere provision.
(4) ratio of the decision of the Kedarnath Jute Mills Ltd. (supra) is not applicable as in that judgment, it was a case of ascertained liability though not provided in the accounts, whereas, in the instant case, there is no accrual of liability till the goods are taken out of the factory premises.
22. Before the CIT(A) it was contended by the assessee that as a matter of consistent accounting practice it did not make a provision for excise duty immediately upon completion of manufacture but accounted for in the year in which the stock was cleared from the factory.
However, the liability towards excise duty having arisen with the completion of such manufacture, benefit was claimed under Expln. 2 to s. 43B of the Act on actual payment made out of such liability. The following decisions were relied upon to contend that the liability towards excise duty arises upon manufacture or production of the goods even though collection of the excise duty is deferred to the date of clearance of the goods from the factory :Ujagar Prints vs. Union of India (c) ITO vs. Food Specialities Ltd. (1994) 48 TTJ (Del) 621 (SB) : (1994) 49 ITD 21 (Del) (SB).
23. CIT(A) having found force in the submissions of the assessee, accepted the claim. He observed that out of the total claim of Rs. 6.59 lakh being excise duty liability on uncleared finished goods in the factory, Rs. 4.46 lakh was said to have been paid in the previous year.
The balance Rs. 2.13 lakh was paid on 11th April, 1992 i.e., within the due date for furnishing of return of income under s. 139(1) of the Act.
He, therefore, directed the AO to check the veracity of the claim of actual payment and thereupon deal with the issue in terms of s. 43B.24. Aggrieved, Revenue is in appeal before us. Learned Departmental Representative submitted that the excise duty liability accrues in the year of actual clearance of the goods and thus supported the order of the AO. He, however, made an alternative claim, that in the event of the Bench upholding the order of the CIT(A), to give a direction to the AO not to allow the same amount in the subsequent year when the goods are actually cleared. On the other hand, learned counsel, appearing on behalf of the assessee submitted that under the Excise Act, the liability to pay excise duty arose soon after manufacture of the goods but the requirement of paying the excise duty is deferred till the date of clearance of finished goods from the factory. Explanation 2 to s.
43B says that the term 'any sum payable' means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. It could be seen that the Explanation speaks of the amount payable in the previous year as well as the amount which are not payable within that year. In other words, liability such as excise duty liability which accrues soon after the completion of the production but the liability to pay is postponed, is also covered by the term "any sum payable" and, therefore, s. 43B is attracted. Such being the case, assessee is entitled to claim deduction of any sum on the basis of actual payment, during the previous year or at any time before the expiry of the time for furnishing the return. We, therefore, do not find any infirmity in the order of the CIT(A). Needless to observe that the assessee is not entitled to claim the same amount in any subsequent year.