ORDER
R.M. Mehta, V.P.
The Special Bench has been constituted in this case to consider the following propositions :
'(a) Whether profits from exports are not an essential precondition for relief under the provisions of section 80HHC(3)(b) and such relief would be available even if there are losses in the business of exports ?'
(b) 'Whether the provisions of section 80HHC(3)(b) are to be applied to profits like cash compensatory support received or receivable by the assessed against exports and duty of customs or excise repaid or repayable as drawback to the assessed against exports under the Customs and Central Excise Duty Draw Back Rules, 1971 for the purposes of apportionment and computing profits derived from the export of goods of merchandise out of India ?'
(c) 'Whether the provisions of section 80HHC(3)(b) would be applicable for apportionment of the export profits even in cases where the local business of the assessed is not in the same goods as are exported by it, having regard to the decision of the Honble Gujarat High Court Ahmedabad Mfg. & Calico Printing Co. Ltd. v. CIT : [1982]137ITR616(Guj) ?'
2. Before we deal with each of the above we would like to give certain brief facts and these are that the assessed an incorporated entity during the previous year relevant to assessment year 1986-87 derived income from export of readymade garments and it also carried on the manufacture and sale of PVC compounds. The turnover in respect of the former was Rs. 79.50 lakhs, the corresponding figure for the latter being Rs. 1,116.46 lakhs. The undisputed facts between the parties are :
'(1) Separate books of accounts are maintained for both the businesses;
(2) There are no local sales of garments.'
3. As per the assessment order the assesses original claim under section 80HHC was Rs. 27,680, but which was thereafter revised to Rs. 1,74,453 calculated as follows :
'Deduction under section 80HHC :
In the event of CCB being treated as Capital receipt not liable to income-tax
Rs.
Gross total income as per revised return of income
5,41,463
Less : Duty drawback being profit derived from export not apportionable
3,19,410
Profit to be apportioned as per section 80HHC(3) in tax ratio of export turnover to total turnover
2,22,053
Deduction under section 80HHC
50 per cent of duty drawback received being profit derived from exports balance profit to be apportioned on turnover basis as per section 80HHC(3)
1,59,705
Rs. 2,22,053 x 79.50/1,196.96
14,748
1,74,453'
4. The assessing officer rejected the revised claim on the following grounds :
'(1) Provisions of section 80HHC clearly laid down that in a case where the business carried on by the assessed did not consist exclusively of exports, the amount which was relatable to the profit or business as computed under the head 'Profits and gains of business' the same proportion as export turnover bears to the total turnover of the business carried on by the business would qualify for deduction; and
(2) Cash incentives were not part of export turnover and were to be excluded while computing the deduction under section 80HHC.'
5. The assessing officer ultimately allowed a deduction of Rs. 27,198 against which the assessed moved the Commissioner (Appeals), but who upheld the view of the assessing officer by detailed reasoning which more or less expended the view taken by the assessing officer.
6. Being aggrieved the assessed came up in appeal before the Tribunal and vis-a-vis the grounds raised it claimed the following deduction under section 80HHC :
Rs.
'Gross total income
9,50,976
Less : Investment allowance
4,09,513
5,41,463
Add :
Cash compensatory receipts not included originally in the above on the ground that it was a capital receipt
1,24,635
6,66,098
Less : Pure export profits not liable to apportionment under section 80HHC(3)(b).
(a) CCS
1,24,635
(b) DDB
3,19,410
4,44,045
Profit to be apportioned under section 80HHC(3)(b)
2,22,053
Apportionment :
2.22.053
x
79.50 lakhs
(Export T.O.)
1,196.96 lakhs
(Total T.O.)
14,478
Add :
50 per cent of CCS and DDB being pure export profits (for this assessment year deduction allowable under section 80HHC(1) was 50 per cent of the profits derived from exports
2,22,022
Total relief claimed
2,36,770.'
7. Subsequently, however, an additional ground was raised before the Tribunal, reading as under :
'That the learned Commissioner (Appeals) ought to have allowed 50 per cent of the entire export profits of the year without any apportionment in view of clear facts on record that the only export activity for the assessed during previous year was export of readymade garments and the local business was manufacture and sale of PVC compounds.'
8. This additional ground was admitted by the Division Bench vide order sheet entry dated 1-6-1994, and during the course of the present reference the learned counsel for the assessed stated that the claim for deduction would work out to a sum of Rs. 4,59,655, whereas the revenues case was that the same would come to Rs. 30,529 as per following calculations (reduced subsequently in writing) :
'Profits from export of readymade garments as per para 6 of the paper book.
9,03,700
Pure export profits not liable to apportionment under section 80HHC(3) as proviso to section 80HHC(3) and Explanationn (baa) added from assessment year 1992-93 in line with question (b).
(a) CCS
1,24,635
(b) DDB
3.19.410
Rs. 4,44,045
4,44,045(A)
Balance export profit eligible for exemption under section 80HHC(3)(a)
4,59,655(B)
Total eligible profit (A)+(B)
9,03,700
(For calculating 'B' above)
As per Question (c), the two issues are :
(i) As per department
4,59,655 x 79.50
(79.50+1116.46)
1,196.96
30,529
(ii) As per assessed
4,59,655 x 79.50
=4,59,655
79.50
9. Before we proceed to the submissions of the learned counsel with reference to Question 'C', we would extract the provisions of section 80HHC which were in force during the assessment year 1986-87 :
'80HHC(1) Where an assessed 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 assessed, a deduction of an amount, not exceeding fifty per cent of the profits derived by the assessed from the export of such goods or merchandise, provided that an amount equal to the amount of the deduction claimed under this sub-section is debited to the profit & loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilized for the purposes of the business of the assessed.
(2)(a). This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessed in convertible foreign exchange.
(b) This section does not apply to the following goods or merchandise, namely :
(i) mineral oil; and
(ii) minerals and ores.
(3) For the purposes of sub-section (1), profits derived from the export of goods or merchandise out of India shall be,
(b) in a case where the business carried on by the assessed consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head profits and gains of business or profession.
(b) in a case where the business carried on by the assessed does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business (as computed under the head profits and gains of business or profession) the same proportion as the export turnover bears to the total turnover of the business carried on by the assessed ....................
Explanation : For the purposes of this section.
(a) 'convertible foreign exchange 'means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made there under;
(b) 'export turnover' means the sale proceeds receivable by the assessed in convertible foreign exchange of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962).'
10. In the light of the aforesaid facts and the provisions of law as applicable for the assessment year under appeal, the learned counsel for the assessed advanced his arguments, at the outset, in respect of question (c) stating that the assessed carried on two businesses which had nothing in common, one being the business of export of readymade garments in which there was no local business and the second the manufacture and sale of PVC components (plastic goods) in which it had no exports and admittedly separate books of accounts were maintained for both businesses.
11. It was contended that in such a situation sub-clause (a) of sub-section (3) was applicable and not sub-clause (b). According to the learned counsel, this proposition was not considered by the Special Bench in the case of International Park Laboratories Ltd. v. Asstt. CIT (1995) 212 ITR 80 as it was not argued by the parties. It was the submission that the Special Bench proceeded with the case on the basis of one business having different aspects, but it was never pleaded before the Special Bench as to what would be the legal position where an assessed carried on separate businesses completely independent of each other and that sub-clause (a) would apply and not sub-clause (b).
12. According to the learned counsel the use of the article 'the' before 'business' in sub-clause (1) of section 80HHC and of the word 'such' at the end of the said paragraph clearly showed that the legislature contemplated a deduction mainly with reference to the business of export and had very little to do with the 'other business' which was not the 'same business'. Reliance was placed on the judgment of the Honble Supreme Court in the case of Ishar Alloy Steels Ltd. v. Jayaswals NECO Ltd. JT 2001 (3) SC 144 for the following observations :
'The is the word used before nouns, with a specifying of particularizing effect opposed to the indefinite or generalizing force of a or an. It determines what particular thing is meant, that is, what particular thing we are to assume to be meant. The is always mentioned to denote particular thing or a person. The would, thereforee, refer implicitly to a specified bank and not any bank. The bank referred to in clause (a) to the proviso to section 138 of the Act would mean the draw-bank on which the cheque is drawn and not all banks where the cheque is drawn and not all banks where the cheque is presented for collection including the bank of the payee, in whose favor the cheque is issued.'
13. The further submission of the learned counsel was to the effect that the concept of some business and separate business was well-known under the Income Tax Act and numerous matters had travelled to the courts and adjudicated upon for considering the allowability of expenses in the case of multiple businesses. Our attention was invited to the following judgments :
(i) CIT v. Prithvi Insurance Co. Ltd. : [1967]63ITR632(SC) ;
(ii) Produce Exchange Corporation Ltd. v. CIT : [1970]77ITR739(SC) ;
(iii) Prem Spinning & Wvg. Mills Co. Ltd. v. CIT : [1975]98ITR20(All) ;
(iv) CIT v. Shah Theatres (P) Ltd. ;
(v) CIT v. Hindustan Machine Tools Ltd. : [1989]175ITR212(KAR) ;
(vi) Kanhiram Ramgopal v. CIT : [1988]170ITR41(MP) , and
(vii) Kesoram Industries & Cotton Mills Ltd. v. CIT : [1992]196ITR845(Cal) .
14. At this stage the learned counsel referred to the provisions of the Companies Act contending that in case of multiple businesses a company could not draw up a number of balance sheets as law provided preparation of only one balance sheet which would give a consolidated picture of each of its business and similarly a single profit & loss account had to be prepared. A reference was made to section 210 of the Companies Act which provided for laying before the Annual General Meeting 'a' balance sheet and 'a' profit & loss account.
15. A similar reference was made to section 211 of the Companies Act which gave the form and content of the balance sheet and profit & loss account which were required to disclose the state of affairs of the company in the form set out in Parts I and II of Schedule VI of the Companies Act. A reference was also made to Part II clause (3), sub-clause (i)(a) which read as under :
'(i)(a) The turnover, that is, the aggregate amount for which sales are effected by the company, giving the amount of sales in respect of each class of goods dealt with by the company, and indicating the quantities of such sales for each class separately.'
16. The submission, in the ultimate analysis, was that the Companies Act provided for the preparation of one balance sheet and a single profit & loss account which would give details of various businesses run by the company, but because of such a statutory requirement it could not be said that there was only one business especially since the present assessed admittedly maintained separate books of accounts for its separate businesses and which had been examined both by the assessing officer as also by the Commissioner (Appeals).
17. The learned counsel also drew a parallel with the provisions of the Income Tax Act, which provided a single return of income, which would include the income or losses from various heads of income and from various businesses if there were more than one.
18. Reverting back to the decision of the Special Bench of the Tribunal in the case of International Park Laboratories Ltd. v. CIT (supra) the learned counsel stated that this was on different facts as the assessed in this case had an export turnover to the tune of Rs. 2.19 crores and also received export fees amounting to Rs. 2.04 crores. The profits and gains of business were to the tune of Rs. 1.95 crores. According to the learned counsel the assessed in that case was admittedly carrying on one business and not multiple businesses as in the case of the present assessed and in the said same business that assessed had export turnover and had also received export fees and in these circumstances the Special Bench held that sub-clause (a) would be applicable and not sub-clause (b) since the assessed had no local turnover in the business and, thereforee, was eligible for exemption on the total profits calculated under the head 'profits and gains of business'. According to the learned counsel, in the present case, there were two separate and distinct businesses unconnected with each other and where separate books of accounts had been maintained. It was the submission thereafter by the learned counsel that he was not seeking a decision from the present Special Bench for overruling the view expressed in (1995) 212 ITR 80 (supra) since the issues in both the appeals were different. Going back to the earlier Special Bench decision, the learned counsel contended that there were a number of interveners in that case and a number of counsel argued, but none of them raised an argument as to what would be the legal position when there were separate businesses with separate books of accounts. According to the learned counsel it was not the case of the present assessed that in the same business, different undertakings should be dealt with separately and it was also not the case that where different products were being manufactured in the same business establishment these should be dealt with separately. It was the submission of the learned counsel that it was the assesses case that where there were separate businesses and separate books of accounts were being maintained, then the profits were required to be separately computed and the turnover of the separate local business should not be added to the denominator for calculating the deduction under section 80HHC.
19. It was submitted that the aforesaid section as it existed in 1986 did not have the said proviso and this was inserted subsequently by Finance (No. 2) Act of 1991 with effect from 1-4-1992, and read as under :
'Provided that the profits computed under clause (a) or clause (b) or clause (c) of this subsection shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a license acquired from any other person), and clauses (iiib) and (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessed.'
20. The further submission of the learned counsel was that the said proviso had to be read with Explanationn (baa) which was also introduced by the same Finance (No. 2) Act, 1991 with effect from 1-4-1992, and this was as follows :
'Explanation : (baa) 'profits of business' means the profits of the business as computed under the head 'profits and gains of business or profession', as reduced by :
(1) ninety per cent of any sum referred to in clause (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits., and
(2) the profits of any branch, office, warehouse or any other establishment of the assessed situate outside India.'
21. According to the learned counsel the aforesaid two amendments to the Act recommended that when profits and gains of business were to be calculated then 90 per cent of the three incentives were to be reduced from the profits and gains of business and the second stage was to apply the proviso to sub-clause (iii) by which 90 per cent of the three incentives was added back but 'in the same proportion as export turnover bears to the total turnover of the business carried on by the assessed'. The submission, in other words, was that the deduction under section 80HHC got drastically reduced since what was being taken out was the absolute sum received by the assessed and what was added back was a proportionate amount and on the assumption that question (c) was decided against the assessed then the proportion became very small and pure export profits got substantially reduced and which was not the intention of the legislature. It was submitted that the aforesaid arguments were without prejudice to the submissions made in respect of question (c) and that in case the assessed succeeded in respect of question (c) then both the numerator and denominator would become the same and the aforesaid submissions would be only academic in nature.
22. The further submission of the learned counsel was to the effect that export incentives should not be subject to the proportionate calculation mentioned and in any case this issue was not before the earlier Special Bench and further the two amendments to the law (supra) were not retrospective in operation as had even been held by the Special Bench in the case of International Park Laboratories Ltd. v. CIT (supra).
23. The further submissions of the learned counsel was to the effect that CCS, duty drawback, etc. was received by the assessed against exports and there was no doubt at all that these were derived from the business of exports and the immediate and direct sources of these two incentives was export of goods and such profit in any case were not liable for apportionment under sub-clause (3) of section 80HHC and were eligible for deduction under sub-section (1) of section 80HHC itself. A reference was made to two circulars of the Central Board of Direct Taxes i.e. No 564 dated 5-7-1990 (published at (1990) 85 CTR 41 and No. 571 dated 1-8-1990 (published at (1990) 86 CTR (St) 41 appended at per para 2 to 7 of the paper book the submission being to the effect that these had clarified the issue by stating that for purposes of section 80HHC the profits derived from exports would include these incentives. The further plea was to the effect that prior to the addition of the proviso to section 80HHC the incentives would not be liable for any reduction either based on the formula or based on 90 per cent profit referred to in the proviso. According to the learned counsel the earlier Special Bench of the Tribunal (supra) had not decided this issue against the assessed. In summing up his arguments in respect of question No. (b) the learned counsel contended that a sum of Rs. 1,24,635 received as CCS and Rs. 3,19,410 received as duty drawback the total coming to Rs. 4,44,045 being the pure profits were qualified for deduction under section 80HHC(1) without applying the proportionate method of clause (3) of section 80HHC .
24. Coming to the last question in the reference that is (a) the submission was that this was taken care of by the earlier Special Bench decision and further reliance was placed by the learned counsel on the judgment of the Honble Bombay High Court in the case of CIT v. Shirke Construction Equipment Ltd. : [2000]246ITR429(Bom) . The subsequent plea, however, was to the effect that the aforesaid issue was not a matter of dispute between the department and the assessed since the finding of the tax authorities was that the assessed had profits from export business also and the matter was in fact of academic interest insofar as the assessed was concerned.
25. The last submission of the learned counsel was that if there were two views possible one in favor of the department and the other in favor of the assessed, then the view favoring the assessed should be adopted. According to the learned counsel the decision of the Honble Supreme Court in the case of Novopan India Ltd. : 1994(73)ELT769(SC) which was always relied upon by the department was not applicable as that was a case of classification/interpretation under the Customs and Excise Act and not under the Income Tax Act. It was the submission that under the Income Tax Act it was a well-settled proposition that 'if there is an ambiguity in language employed then the provision must be construed in a manner that benefits the assessed'. Reliance was placed for the aforesaid submissions on the judgment of the Honble Supreme Court in Asstt. CIT v. Thanti Trust : [2001]247ITR785(SC) , Vegetable Products v. CIT : [1973]88ITR192(SC) , and CIT v. J.K. Hosiery Factory : [1986]159ITR85(SC) .
26. On behalf of the department the learned Departmental Representative supported the orders passed by the tax authorities contending that the use of any particular word whether 'The' or 'A' would not make any difference in the interpretation of the provision and insofar as section 70 of the Income Tax Act was concerned, this referred to a single business encompassing various activities and this also did not help the assessed. The further plea of the learned Departmental Representative was to the effect that the various issues raised in the present reference were squarely covered/answered by the earlier Special Bench decision in the case of International Park Laboratories (supra) on which he heavily relied. The further submissions were to the effect that the various decisions relied upon by the learned counsel on the question of interpretation would not apply and the other decisions of the Tribunal relied upon were also not applicable as these were contrary to the view taken by the earlier Special Bench (supra).
27. The aforesaid submissions of the learned Departmental Representative were in respect of question No. (c) and insofar as question No. (b) was concerned, he relied upon Central Board of Direct Taxes Circular No. 564, dated 5-7-1990, moreso, the extract at para 24 of the paper book. As regards question No. (a) the learned Departmental Representative agreed with the learned counsel for the assessed that the matter was academic.
28. In reply the learned counsel for the assessed once again sought to distinguish the earlier Special Bench decision contending that in that case the assessed had export turnover and commission and the plea of 'separate businesses' was not canvassed. According to him 'separate businesses' were accepted by law and a reference was made to provisions of section 2(13) of the Income Tax Act, 1961. As regards the Central Board of Direct Taxes Circular (supra) relied upon by the learned Departmental Representative the learned counsel contended that this was effective from 1-4-1992, and not applicable to the year under consideration i.e., assessment year 1986-87. In support of the assesses case as also the reply the learned counsel placed reliance on the decisions reported in the case of CIT v. Prithvi Insurance Co. Ltd. (supra), Prem Spinning & Wvg. Mills Co. Ltd. v. CIT (supra) and Kesoram Industries & Cotton Mills Ltd. v. CIT (supra).
29. We have considered the rival submissions and have also perused the orders passed by the tax authorities. The various decisions cited at the bar have also been taken into account. Coming to question (c) which was the one argued at length by both the parties, we would like to mention that the main submissions of the learned counsel for the assessed were :
(i) clause (a) of sub-section (3) of section 80HHC was applicable and not clause (b).
(ii) The aforesaid view was being canvassed since the assessed was having export business in garments and local business in the manufacture and sale of PVC components and separate books of accounts were being maintained; and
(iii) The concept of different business completely independent of each other was required to be considered rather than one business having different aspects.
It was the strong plea of the learned counsel that none of the aforesaid had been argued by any of the counsels before the Special Bench in the case of International Research Pack Laboratories Ltd. v. Asstt. CIT . The learned counsel also wanted the present Special Bench to undertake the exercise of interpreting the relevant provisions of the Act as also to consider the intention behind the introduction of section 80HHC. As against the aforesaid the submission of the learned Departmental Representative as already set out earlier was that the issue was squarely covered by the earlier Special Bench decision. The aforesaid being the main rival contentions, we would straight away come to the Special Bench decision in the case of International Research Park Laboratories Ltd. v. Asstt. CIT (supra) where the provisions of section 80HHC were considered at length and adjudicated upon. It may not be out of place to mention that whereas the appellant in that case was one the interveners were many and incidentally the present appellant before the Tribunal was an intervener and it would not be out of place to mention that whatever has been contended in the present appeal was raised, before the earlier Special Bench as well. Whatever was left out formed part and parcel of the submissions made by other counsels, who appeared in that case. We, thereforee, in the subsequent paras propose to refer to the earlier Special Bench decision at length.
30. At para 49 of the report the Special Bench in the earlier case set out the submissions of various learned counsel dividing them into two sections since their arguments did not match with each other and this is what the observations of the Special Bench were :
'According to one section among the learned counsels appeared before us, the present section presented lot more problems than it solved. While it granted 100 per cent exemption to exclusive exporters on their profits, it diluted the benefit of such exports, if he has to have domestic trade also. The provision directing the aggregation of both export and domestic turnovers for the purpose of apportioning export profits is, thereforee, unintended and went directly against the intent and purpose of the legislation. Since the draftsman has failed to carry out the objects of the Parliament, such interpretation must be placed on the crucial words used in section 80HHC as to promote the object of exempting in toto the profits on export turnover irrespective of the fact that such an exporter has domestic business also. To illustrate, if a person has business of exporting leather goods exclusively, the entire profits on such exports would be eligible for exemption, but if he has domestic silver business, the turnover of leather goods should have to be aggregated with the turnover of silverware even though they are two different commodities. This aggregation has the result of diluting the export profit. thereforee, the use of the expression 'exclusively' in section 80HHC(3)(a) should be given its plain meaning so that it pertains only to the export turnover and the aggregation of turnover contemplated by clause (b) of that sub-section must operate only when there is domestic turnover in the same leather goods. If this is the meaning of the word 'exclusively' used in section 80HHC(3)(a), then the question of aggregating the turnover of leather goods with the turnover of silver will not arise and intended profit of 100 per cent on export of leather goods will be available to the exporter without dilution, This is supposed to be the object of enactment of section 80HHC and its various amendments from time to time. The other section of the legal luminaries has been emphatic in pressing hard their viewpoint that the expression 'total turnover' used in clause (b) of sub-section (3) negatived the meaning to be given to the word 'exclusively' and further it meant that turnover anywhere, whether on exports or domestic, irrespective of commodities dealt in, must have to be aggregated. If in the process of aggregation export profits got diluted, it is the consequence of the legislative policy just as if the local business turns out to be more than export business, by the same process of turnover based apportionment, a slice of domestic profits would get exempted too. These distortions should be taken as intended by the Parliament, while enacting the sub-section but these distortions which were described assiduously before us as absurdities should not be taken as a guide for the interpretation of section 80HHC. If the attention is riveted on the object of section 80HHC, it would be seen that it is to promote exports more than over local business. The circulars issued by the Central Board of Direct Taxes explaining the provisions of section 80HHC and providing guidelines as to how it should be implemented was relied upon by this section to show that there need not be profits on exports provided there is export turnover. In such a case, local profits will get exemption on the basis of apportionment.
While the other section refuting this point of view submitted that if the circulars of Central Board of Direct Taxes were not in consonance with the legislative intention, they should not be and need not be followed. Several authorities for this view were cited.'
31. It is apparent from a reading of the aforesaid that one group of counsel were contending that in case the turnover of goods exported was aggregated with the local turnover in a different commodity then such accretion had the result of diluting the relief. As against this the other section of counsel contended that the expression 'total turnover' meant turnover anywhere whether on exports or domestic irrespective of the commodity dealt in. It was also the submission of this group that if in the process of such aggregation the export profit got diluted, then this was the consequence of legislative policy and in case the local business was more than the export business, then by the said process of turnover based apportionment a slice of domestic profits also got exempted. It was the stand of this group of counsel that distortions were intended by the Parliament. This group also placed heavy reliance on the Central Board of Direct Taxes circulars explaining the provisions of section 80HHC whereas in respect of the same circulars the plea of the other group of counsel was that in case these were not in consonance with the legislative intent, then these need not be followed.
32. We now go to para 55 of the report and para 5 is relevant wherein the arguments which have been reproduced are quite akin to the ones raised in the present appeals and these are as under :
'One argument is that when sub-section (1) of section 80HHC provided for total exemption of the profits derived by the assessed from the export of goods out of India and when clause (a) of sub-section (3) provided that in the case of an assessed dealing exclusively in the export of goods, such exemption was total, could it be reduced or allowed to be diluted by the process of apportionment of such profits on the basis of the total profit with reference to the turnovers.'
33. The counsel for the appellant in the earlier Special Bench decision canvassed the view that quantum of deduction in the case of an assessed who had exported the goods or merchandise out of India and had also local turnover was to be determined by sub-section (3) and there was no basis for the proposition that the base for the deduction was the profits in exports computed as per the books of accounts of the assessed treating the export business as a separate business or undertaking. The plea, in other words, was that the profits of the business would, thereforee, include the profits of the export business as also those of any other business carried on by the assessed. He heavily relied on the Central Board of Direct Taxes circulars explaining the provisions.
34. A learned counsel appearing on behalf of one of the interveners argued to the contrary contending that the section i.e. 80HHC required interpretation since the meaning of the words used in the section were not plain and were capable of more than one meaning and, thereforee, the principle of interpretation applicable to such a situation should be kept in mind. His pointed reference was to the proposition that where the profits on export business carried on exclusively by an assessed were capital of being precisely ascertained and segregated from the other profits on the basis of duly audited accounts, full deduction under section 80HHC should be allowed without being affected by the profits or losses in other non-export business. Before us in the present appeal an identical argument has been advanced probably with some improvement as it is stated that separate books of accounts in respect of the export business are being maintained.
35. The same learned counsel in the earlier case also advanced an argument to the effect that in case an assessed was engaged in export business as well as non-export business the profits on export business must be entitled to total exemption and the question of aggregating the turnover would arise only if there is local turnover in similar goods. The plea, in other words, was that it was only in case where the assessed was engaged in the export of qualifying goods and also dealt with them locally, the situation contemplated in clause (b) of sub-section (3) would come into operation. The learned counsel went on to argue that if an assessed maintained separate set of accounts in respect of export business from which profits/losses earned in the business were clearly ascertainable it was immaterial what other goods he was selling in India. According to him the application of provisions of sub-section (3)(b) in such a case would negate the very object behind the enactment of section 80HHC because this would reduce the quantum of profits. It was also the submission that it was not the legislative will that in order to earn full exemption on the export profits he should stop local business to avoid dilution or curtailment. Such interpretation, according to him, could not be brought to bear upon the section and such interpretation, thereforee, was to be avoided. The said counsel summing up his arguments before the earlier Special Bench contended that provisions of clause (b) would arise only where there was complete identity in the goods exported and those sold in India. The said learned counsel in fact urged before the earlier Special Bench that clause (b) of sub-section (3) be read in the following manner :
'The same proportion as the export turnover of the qualified goods bears to the total turnover of the same qualified goods in the business carried on by the assessed'
36. Another learned counsel for one of the interveners supported the stand taken by the earlier counsel opposing that of the learned counsel, who was arguing on behalf of the appellant i.e., International Research Park Laboratories Ltd. (supra). At per para 57 and 58 of the report the facts of the case of the second intervener were set out and these were that separate books of accounts were being maintained for the activities of exports and the business in India and the plea was that the activities of exports must be regarded as separate and distinct from the activities in India, more so, because for the export business the assessed had even prepared a separate balance sheet. As can be gathered from para 58 the assessed was manufacturing paint in its factory and exporting the same to USSR and it was also manufacturing paint on the basis of technology from USA and its collaborator obliged the assessed to market the paint manufactured in India. The argument of the learned counsel for the second intervener was that since separate accounts were being maintained for export activities, these be exempt in toto whereas the tax authorities had exempted only a portion thereof by reducing it by applying the formula provided for in section 80HHC(3)(b). The further submission was to the effect that when the legislature by enacting clauses (a) and (b) of sub-section (3) had created a distinction between export activities and domestic activities, the export activities could not be merged with the domestic activities to form an integrated or whole. In summing up his arguments, this is what the learned counsel for the second intervener contended at para 59 of the report.
'When section 80HHC contained two activities, one of exclusive export and the other of mixed export, both of them cannot be seen as one single activity. Seen as two activities, the effort must be to arrive at the export profit. If export profits are otherwise available by means of maintenance of separate accounts, that profit alone must be taken as the basis subject to such allowances or deductions as are admissible in computing the income of that activity as income under the head 'Profits and gains of the business.'
37. It is apparent that even in the present appeal the arguments of the learned counsel for the appellant have proceeded in the same direction as he has also laid great stress on maintenance of separate books of accounts for the export business and the domestic business and his submission is also to the effect that clause (a) is applicable and not clause (b) since the application of the latter clause results in the dilution of the relief and which, according to him, could not be the legislative intent.
38. As already mentioned by us, the present appellant was an intervener before the earlier Special Bench and we propose to set out the arguments advanced by its learned counsel and for which purpose, we extract para 10 of the order spanning per para 59 to 61, as follows :
'Dr. S. Narayanan, the learned advocate intervening at this point for and on behalf of Pearl Polymers Ltd. which was also engaged in the export of readymade garments to various countries besides having the Indian business of manufacture and sale of plastic bottles and containers and trading in plastic. Chemicals, submitted pursuing the same line of thought as that of his predecessors, Shri G. C. Sharma, the learned advocate and Shri R. Ganesan, the, learned chartered accountant, that whenever there is ambiguity in the language used by the legislature, various modes of interpretations are available and when the language is plain, simple and unambiguous, literal construction otherwise known as golden rule should be preferred to ascertain the legislative intention. Sometimes even contextual interpretation is preferable as ruled by the Supreme Court in several cases, the central idea being to find out the intention of the Parliament. Beneficial legislation, which is intended to confer benefits with a view to gain an advantage for the nation becomes a legislation in national interest. Such legislation should not narrowly be interpreted as to result in denial or curtailment of benefits, which are otherwise available on the plain reading of the section. In the Tribunal two Benches have differently interpreted the meaning of section 80HHC. This shows that there was some complexity and ambiguity about interpretation of section 80HHC. In such a situation literal interpretation must give way to contextual interpretation, Commenting upon the examples given by Shri G.C. Sharma, the learned advocate, Dr. S. Narayanan submitted that they are only distortions and not absurdities and yet the interpretation upon this section must be to avoid even these distortions. The result to be achieved by contextual interpretation, i.e., purposive approach is to be adopted as mentioned by the Rajasthan High Court in the case of CIT v. Shrishakti Trading Co. (1994) 74 Taxman 590 (Jp) and earlier in Ajit Investment Co. Ltd. v. K.G. Malvandkar : [1974]95ITR546(Bom) if it does not lead to unreasonable and ridiculous results. Relying upon the Supreme Court decision in the case of CIT v. B.M. Bhattachargee : [1979]118ITR461(SC) and the Commentary made by Sampath Iyengar, Edn. VIII, Vol. 3 at para 3220 and pressing into service the ruling of the Calcutta High Court in the case of CIT v. Indian Products Ltd. : [1994]207ITR647(Cal) , the learned advocate, Dr. Narayanan submitted that in certain circumstances even the heading of the section assumes importance and becomes relevant as an aid to interpretation. The expression used in section 80HHC is profits derived. According to Dr. Narayanan, the word derived is very important and held the key for the resolution of the controversy. The expression, derived came up for interpretation before the Madhya Pradesh High Court in the case of Gwalior Rayon Silk Mfg. (Wvg) Co. Ltd. v. CIT : [1983]143ITR590(MP) where the Honble High Court held that there should be an enquiry to find out the genealogical tree from which the profits are immediately derived as contrasted from attributable. He relied upon AIR 1970 SC 1880 and the decision of the Calcutta High Court in the case of CIT v. Sutna Stone & Lime Co. Ltd. : [1982]138ITR37(Cal) to explain the meaning of the word 'derived'. He then submitted that if enquiry is made into the genealogical tree of the business, it would at once become clear that the profits of business contemplated in sub-section (3) of section 80HHC are the profits dealt in the goods of the same nature and there was no possibility even remotely of considering the export turnover in Chemicals and non-Chemicals to be aggregated with the export of readymade garments. Anything done contrary to this, according to him, would lead to distortion, which must be totally forsaken. He also commended the approach of Shri R. Ganesan, the learned chartered accountant, based upon the theory of applying the provisions of section 80AB as decided by a Single Member Bench of the Tribunal in Asstt. CIT v. Doshi Exports (1993) 45 ITD 417 (Bom). To put it short, the contention of Dr. S. Narayanan is that a person carrying on exclusively export business without having any domestic sales, the entire profits of the business to be computed under the head Profits and gains of the business should relate exports and is entitled to total exemption but if he does not so exclusively deal in exports and if he has got local turnover, that local turnover must be of the same identity as that of exports and only then it could be said that he was not exclusively dealing in exports and, thereforee, only in such cases both the export and domestic turnovers could be aggregated as provided for in clause (b) of sub-section (3) but if the domestic turnover is of a different variety or of a different specie or derived in a different manner not from the same genealogical tree, then the aggregation of turnovers as was sought to be done by the revenue was not to be resorted to as if permitted by clause (b) of sub-section (3) of section 80HHC of the Income Tax Act.'
39. It can be clearly observed that the stand of the learned counsel in the present appeal is more or less on the same lines as had been canvassed in the status of an intervener before the earlier Special Bench and he in fact has tried to improve the case by a significant departure when he now contends that there should be no aggregation although before the earlier Special Bench it was contended that there could be aggregation when the local turnover was in the same commodity as the one exported.
40. Another learned counsel for one of the interveners supported the stand taken by the learned counsel appearing on behalf of International Research Park Laboratories Ltd. (supra) choosing to differ with the views expressed by the learned counsel for three other interveners. His argument was that section 80HHC did not relate to profits on export trade only, but contemplated aggregate profits. According to him when the object was to provide fiscal incentive to promote exports it could only be a concession in the payment of income-tax and this being the case it deliberately adopted a formula of aggregating turnover of exports with the local turnover so that in case of need such local profits would also become part of the export profits to be exempted. This, according to him, was the object of the legislature and which could not be seen as an absurdity. The said learned counsel also advanced an argument in respect of 'separate business' contending that even if an assessed was carrying on business in different articles the same constituted a comprehensive business as all the activities were to be treated as a single component and not numerous businesses. This was also one of the arguments advanced by the learned counsel in the present appeal when he contended that the concept of separate businesses had not been raised before the earlier Special Bench and this was being done for-the first time in the present appeal. The said learned counsel also vehemently supported the Central Board of Direct Taxes circulars explaining the provisions of section 80HHC (before the earlier Special Bench.
41. Coming now to the arguments on behalf of the revenue in the case of International Research Park Laboratories Ltd. (supra) these are at per para 64 to 69 of the report and to summarise these, the learned senior counsel appearing on behalf of the revenue contended :
(i) The meaning of section 80HHC was plain and unambiguous and there was no need to call for any rule of interpretation or external aid to interpret it;
(ii) The policy of the government was to promote export and import and thereby to earn foreign exchange and incentive was provided to exempt a portion of the profits relatable to export turnover and if this principle was borne in mind and if sub-section (3) was read it would become apparent that the legislature wanted to grant exemption on exports if that was the exclusive business, but if the business was so combined with the domestic turnover, then the profits attributable to the export turnover was to be arrived at by applying the formula which meant taking the total turnover of both exports and domestic business,
(iii) Sub-sections (1) and (3) of section 80HHC were machinery sections and which should be read as a whole, word by word, clause by clause including punctuations and no sub-section should be avoided or read in isolation and in a manner so as to avoid absurdities.,
(iv) That the entire turnover of both export and domestic business was to be aggregated irrespective of the fact that the domestic turnover was in a different commodity vis-a-vis the export turnover; and
(v) When sub-section (3) of section BOHHC required the profits of the business to be computed under the head 'profits and gains of business or profession' it was not possible to hold that each variety of goods dealt in for the purposes of exports was a separate and distinct business from the other. Business meant the entire business taken as a whole including all the goods dealt in or all the manufacturing process. They could not be seen one diverse from the other and this was further fortified by the use of the words 'total turnover of the business'.
42. It is quite clear from the aforesaid that whatever is being argued by the parties before us, in the present appeal is no different from whatever had been contended before the earlier Special Bench on behalf of the appellant, on behalf of the interveners and lastly, on behalf of the revenue. In the subsequent paras we would refer to the operative portion of the order of the Special Bench in the case of International Research Park Laboratories Ltd. (supra) attempting thereby to show that each aspect of the matter raised in the present appeals stands considered.
43. In the present appeal, as already stated by us, the learned counsel for the appellant has laid stress on three aspects, namely, (a) interpretation of the provision and legislative intent; (b) applicability of clause (a) of sub-section (3) since separate books of accounts were being maintained for the export business., and (c) the consideration of the export activities as a separate and distinct business and not a part of the other business of domestic trade carried on by the assessed.
44. A reference is made to the views expressed by the Tribunal on the aforesaid three aspects as follows
Para 16 at P. 69 of the report :
'To our mind there was no such ambiguity in the language of section 80HHC(3) as to call in aid any particular rule of interpretation nor did we find any omission to be supplied by us by taking advantage of the judicial liberty permitted in extreme cases by the Supreme Court where causes omissus if found or any rough edges require to be ironed out as Lord Denning has put it and quoted with approval by the Supreme Court, we could embark upon such exercise.'
Para 20 at P. 70 :
'Section 80HHC(3) is a beneficial section. It was intended to provide incentives to promote exports to earn foreign exchange for the country. The incentive provided is to exempt the profits relatable to exports. Since it is not possible to conceive of an exclusive exporter without having domestic business and it is often found impracticable to ascertain profits of export exclusively and since there is a possibility of mixing up of either overheads or costs of export with domestic or vice versa and this differentiation is likely to lead to litigation as to which part of expenses should form part of the exports and which part not and since common expenditure like fixed overheads, depreciation, interest, rent etc., is difficult to apportion without giving rise to dispute the legislature thought that the most convenient method freed from litigation to ascertain export profits is by the method of apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover is an accepted method of arriving at the profit.'
Para 20 at P.P. 71 & 72 :
'The Supreme Court thus approved that if there were more than one method available for the purpose of achieving the object of the legislature, it can follow any one method if it is a recognized method though less popular. In this case ascertainment of profit on the basis of turnover is a well recognized method. If in the working of that method some discrepancies arise or in the extreme some distortion takes place, which can be multiplied depending upon the ingenuity of the contemplating person, the method cannot be faulted or said to be a method which is ambiguous and not plain as to give room to abandon it by the process of interpretation. As we have mentioned earlier since in the opinion of the legislature it is possible for an assessed to carry on both export and local business, not only in the same commodity or goods but in a diverse variety of goods not only in trading but also in the manufacture and with a view is avoid litigation the legislature deliberately provided that the profit of the entire business including exports must be ascertained irrespective of the fact whether separate accounts were maintained for export or not computing them by applying those rules as are applicable for the computation of income under the head 'Profits and gains of business or profession' and then apportioning those profits on the basis of turnover of export bearing to the total turnover. The expression 'total turnover' used in section 80HHC(3) is thereforee, unambiguously refers to the total turnover of the entire business and not to the total turnover of the export business. There is nothing in the language to suggest that it is limited to total export turnover. The 'business' includes not only the turnover of exports but also the domestic turnover. The expression 'total turnover' cannot thereforee mean the turnover of one variety of goods namely exports to the exclusion of the other. While clause (a) of such section (3) referred to a situation where an exporter has exclusive business of export and not having any local business of export and not having any local business, clause (b) referred to the situation, where an assessed has both exports and local turnover. If an assessed has thereforee, local turnover and export turnover there is no escape from the application of the formula provided in clause (b) of sub-section (3). Those profits are computed under the head 'profits and gains of business' and only such profits as are attributable to exports turnover by apportionment thereof are entitled to the exemption-Thus, when a person has exports as well as local business, the entire profits are to be computed in the manner laid down in that sub-section, namely, under the head 'profits and gains of business or profession' and only a part of that amalgamated profits or the result of the computation has to be apportioned on the basis of the turnover. We see no words in sub-section (3) as to limit this apportionment of profit on the basis of turnover in exports and the apportionment has to be resorted to only when the same kind of goods exported are also dealt with locally. We find no support for this view in the language used by the legislature. To our mind the legislature has contemplated the ascertainment of total profits in the entire business and then apportion it on the basis of turnover. This is how the Central Board of Direct Taxes also understood the provision and explained it in its circulars for the benefit and also for the uniform application of this provision throughout the country by all the AOs. To bring the intention of the Board more clearly to the AOs, they have given examples and those examples do not suggest that if there is export turnover and local turnover, either the local turnover must be excluded or the aggregation is to be made only when the goods exported outside India happened to be the same as were dealt in India.'
(Emphasis, here italicised in print, supplied)
Para 21 at P.P. 73 & 74 :
'When sub-section (3) of section 80HHC referred to sub-section (1) and then said that for that purpose the profits derived from the export of goods or merchandise outside India shall have to be ascertained in the manner provided thereafter, on has to see what that sub-section (1) contained. It says if an assessed is engaged in the business of export out of India any goods or merchandise, there shall be in accordance with and subject to the provisions of that section, allowed in computing the total income a deduction of profits derived by the assessed from the export of such goods or merchandise. The object of sub-section (3) is, thereforee, to arrive at the profits derived by the assessed from the export of goods or merchandise for the purposes of deduction. Since it is possible for an assessed to carry on the business exclusively in export, then clause (a) of sub-section (3) provided that the profits of the business as a whole as computed under the head 'Profits and gains of business or profession' will be deemed to be the profits derived from the export of goods or merchandise and should be allowed as a deduction. Clause (a) of sub-section (3) did not contemplate a situation where an assessed dealing in export is in a position to ascertain or identify the profits relatable to such exports. The condition is that the person must deal exclusively in the business of exporting goods outside India. Nowhere it said that if such a person had dealings both in export and local but if export profits are easily identifiable then only clause (a) would apply. This is reading something into the section which it did not provide. The object of clause (a) of sub-section (3) is clearly not to identify the export profits. The object of clause (a) of sub-section (3) is to find out whether the business carried on by the assessed consisted exclusively of export of goods outside India. Carrying on an exclusive business out of India without domestic, turnover will disclose only the profits in such exclusive export business That does not mean that the purpose of clause (a) is to find out whether the profits in export are easily identifiable even in a case where the business carried on does not consist exclusively of exports outside India of the goods or merchandise. If in addition to the export, there are dealings in India then clause (b) will automatically taken over the position. With a view not to deny the benefit of exemption to persons having domestic turnover and with a view to avoid litigation, the legislature has provided a formula to arrive at the profits in such situations where the business carried on by the assessed does not consist exclusively of the export of goods outside India. So the test for the purpose of sub-section (3) of section 80HHC is whether the assessed is carrying on business of exclusive export or exports and domestic business also, if it is the former clause (a) would apply and if it is latter clause (b) would apply. If clause (a) applies, the entire profit computed in the manner in which the profits under the head Profits and gains of business or profession are to be computed and the whole of it is entitled to deduction. But if clause (b) of sub-section (3) of section 80HHC applies the profits of the entire business has first to be ascertained and then apportioned in proportion the export turnover bears to the total turnover to arrive at the profits derived from the export of goods or merchandise. thereforee, it provided that the profits of the business meaning the entire profit as computed under the head Profits and gains of business or profession has to be ascertained and that profit should be apportioned on the basis of the total turnover of the business carried on by the assessed. Here the reference to the business which consists both of the export out of India of the goods or merchandise or domestic sales. Since this is according to us the meaning of section 80HHC, we are unable to subscribe to the view canvassed by Shri G.C. Sharma, Shri R. Ganesan and Dr. S. Narayanan.
(Emphasis, here italicised in print, supplied)
Para 21 at P.P. 74 & 75 :
'Under the process of apportionment, two extremities are, thereforee, possible, but this must be considered as envisaged by the legislature and is thus the legislative policy and is deliberately adopted with a view to provide incentives for export and not to curtail it by denying it to persons having local turnover. This would amount to deprivation of domestic business and a restraint on trade, which will in its wake lead to further legal complications. thereforee, when encouragement is given both for export and local business, though it is very desirable to hold in clear terms that if export profits are otherwise clearly identifiable, the whole of it should be exempted, the legislature thought that since this method of granting exemption is fraught with litigation, it was sought to be avoided by providing this omnibus method of apportionment of profits on the basis of turnover, which is a recognized method.'
Para 22 at para 75 :
'Section 80HHC deals with a different nature of income as to whether the income is relatable to a business exclusively consisting of export or exports and other local business. Then two sets of formulae were given. One is for total exemption of the income in case it happens to be the former and in other case a proportionate income on the basis of apportionment of turnover. thereforee, it is a complete code by itself. Nowhere else in the Income Tax Act one has to look to and no other provision in that Act has to be followed except applying those rules contained in the provisions of section 80HHC which are applicable to compute the income from profits and gains of business.
Para 22 at per para 75 & 76 :
'Shri R. Ganeshan introduced section 80AB to buttress the proposition that business in each article must be taken as a separate undertaking. If that is so, exclusive export must be taken as a separate undertaking and non-exclusive export business must be taken as a business undertaking. This is not possible because the business is one. Section 80HHC uses the words business carried on by the assessed and not undertaking. An assessed may have the business of carrying more than one undertaking. All the undertakings put together constitute one single business coming under one single head, profits and gains of business or profession. This is now a settled law that whatever may be the kind of business carried on by an assessed and wherever carried on in whatever fashion it would all constitute one business and not different businesses. The concept of different businesses in the concept of each undertaking taken as a different business is alien to the Income Tax Act. What was mentioned in sub-section (3) is only a type of business that an assessed was carrying on to be able to earn exemption. It is, thereforee, difficult to see that the export business is a different business or an undertaking distinct from the local business or even a combined business. Mr. Ganesan says each activity must be taken as separate business. This is not possible to accept.'
(Emphasis, here italicised in print, supplied).
Para 24 at P. 76 :
'We are, however, agreeable with the view canvassed by Shri O.P. Vaish, Shri Ajay Vohra and as admitted to by Shri B.B. Ahuja appearing for the revenue that if the business does not consist exclusively of exports, irrespective of whether the profits on export business are ascertainable or not, if there is domestic turnover, it is clause (b) of sub-section (3) that would become operational and according to clause (b) the entire turnover of the entire business must be aggregated and then only apportioned. According to us any other interpretation would be unintended interpretation and would lead to absurdities.
Para 24 at P. 76 :
'For these reasons we hold that if the assessed has a business which does not consist exclusively of export of goods or merchandise outside India, then it is clause (b) that would apply and according to that clause the turnover of the entire business including export must be aggregated and the net profits of the business must be ascertained in the same manner in which the profits under the head Profits and gains of business or profession are to be computed, and that profit must be apportioned in proportion the export turnover bears to the total turnover and the resultant amount alone shall be deemed to be the profit derived from export turnover.
Para 25 at P. 77 :
'Another important departure of section 80HHC compared to other sections is that profits and gains of export business are not required to be computed as per the books of account of the assessed but as provided for in rule 18BBA to the prescribed Form No. 10CCAC. Rule 18BBA provided that the report of the Accountant, which is required to be furnished by an assessed under sub-section (4) or (4A) shall be in the form abovementioned, namely, 10CCAC. This Form No. 10CCAC provides in clause (2) as under :
'We certify that the deduction to be claimed by the assessed under sub-section (1) of section 80HHC of the Income Tax Act, 1961, in respect of the assessment year ................... is Rs. ............................ which has been determined on the basis of the sale proceeds received by the assessed in convertible foreign exchange. The said amount has been worked out on the basis of the details in Annexure A to this form.'
'This shows that the profits is to be ascertained on the basis of the sale proceeds received in convertible foreign exchange in the manner provided in Annexure 'A' which we shall refer to little later and not necessarily with reference to the profits ascertained as per books even though separately maintained exclusively for export business.'
(Emphasis, here italicised in print, supplied)
Para 25 at per P.P. 77 & 78 :
'It will be seen from the above that what is prescribed by the legislature to arrive at the profit derived from export business in the case of combined business of export and domestic business is total turnover of the business and total export turnover and total profit under the head Profits and gains of business. Then it requires in item 6 the profit derived by the assessed from export of goods computed under sub-section (3), which clearly shows with demonstrative proof that what is contemplated for the purpose of relief under section 80HHC was the total turnover of the business and export turnover and not as contended for on behalf of a section of the interveners the turnover in the particular type of goods both by export and domestically.'
Para 25 at P. 80 :
'The circular leaves no doubt both by the clarification and examples given in para 9 that what was contemplated and intended was not the profit relatable to the export of goods exclusively pertained to those goods but the profit of the entire business including export turnover and domestic turnover, irrespective of the source from which the domestic turnover was derived provided it is in respect of profits and gains of business. The legislative mandate is thereforee, to compute the profit of the entire business and not to segregate exports or compute the profits of export separately and if they are identifiable adopt them to the entire exclusion of the operation of the provisions of clause (b) of sub-section (3). We, thereforee, find ourselves unable to agree that the clause (b) of sub-section (3) applies only when the same nature of goods are dealt in both in exports and locally.'
45. It is quite clear from a reading of the aforesaid that the earlier Special Bench did not find any ambiguity in the language of section 80HHC so as to call in aid any rule of interpretation and it was categorical in stating that there was no omission to be supplied and there were no rough edges required to be ironed out. It was observed by the Special Bench that the manner in which the section had been framed and the manner in which it was required to be worked and applied was to relate it to the total profits of the business on the basis of turnover and by this litigation was sought to be avoided and which would come about in case the parties were to contend that apportionment of any common expenditure was improperly made. The reference to the applicability of clause (a) of sub-section (3) to the export business whether separate books of accounts were maintained or not was specifically ruled out by the Special Bench. The learned counsel before us laid great stress on this aspect of the matter as also on the question of considering exports as a separate business and not a part of the assesses overall business. As already noted, this argument has been rejected by the earlier Special Bench.
46. During the course of the hearing the learned counsel for the appellant specifically referred to the separate order of Shri T.V. Rajagopala Rao, the then Vice-President of the Tribunal and later on President at P.P. 86 to 90 contending that there were separate observations which supported the stand taken in the present appeal, but we categorically observe that we do not find any such observations. We in fact find that he has wholly agreed with the views expressed by the then President of the Tribunal, who delivered the judgment on behalf of the Special Bench, The following are relevant
Para 9 at P. 89 :
'So in a case where the assessed is an exporter as well as a person carrying on domestic business either in the same goods, merchandise or in different goods or only earns profits even by way of commission, he is entitled for deduction proportionately from out of the profits of the business. The deduction must be worked out from out of the total profits at the same proportion as the export turnover bears to the total turnover of the business carried on by the assessed.
Para 10 at P.P. 89 & 90 :
'A fair reading of sub-section (3)(a) and (3)(b) of section 80HHC would show that there is no difficulty in understanding the language of the section or its meaning. The words of the section and their meaning are clear and unambiguous and, they do not require any interpretation. If the assessed carries on exclusive export business and earns income, he is entitled for deduction under sub-section (3)(a) provided he exports goods or merchandise which do not come under prohibited category under sub-section (2)(b). In case he maintains books of account for the export business and the profits and gains derived from his export business is ascertainable, then his export turnover as well as the total turnover would be the same figure and he is entitled to deduction under sub-section (3)(a). But in case the assessed besides being an exporter of goods or merchandise to countries outside India also has got domestic business of either the same goods which are quite unconnected with his export trade of even in a case where he does not have any turnover in his domestic trade but merely gets profits and he maintains common books of account both for his export business as well as for his business in India, then his case is to be dealt with under sub-section (3)(b) and is entitled to proportionate deduction derived which is to be worked out on the following basis :
Profits of business x Export turnover/Total turnover.'
47. The learned counsel in the present appeal has argued at length on the concept of 'same business' and 'separate business' by relying on a number of decisions and all that we have to say is that this had also been raised before the earlier Special Bench and rejected and the decisions cited were the same as brought to the notice of the earlier Special Bench. It must be appreciated that a Special Bench is constituted to settle a question on which different Benches of the Tribunal have expressed a diverse opinion and one cannot ask for a reconsideration of the same decision by constituting of another Special Bench because if subsequently some decisions of the Honble High Courts or a decision of the Honble Apex Court have come, then nothing prevents the parties from citing these before a Division Bench as the said Division Bench would be at liberty to take an independent view on the basis of the judgment of the Honble Supreme Court or a judgment of the Honble High Court. In the present case in proposition (c) there is a reference to the judgment of the Honble Gujarat High Court in the case of Ahmedabad . v. CIT : [1982]137ITR616(Guj) . This had been duly considered by the earlier Special Bench at para P. of the report although with reference to the issue whether there should be profit from export of goods for claiming deduction and which has been raised in proposition (a) in the present appeal. We have gone through the entire judgment and we really do not understand as to how, it helps the assessed in the present appeal vis-a-vis proposition (c), moreso, when in the earlier part of this order, we have categorically held that the manner in which the relief under section 80HHC is to be worked out where the assessed has export business as also domestic business, the same being squarely covered by the Special Bench decision in the case of International Research Park Laboratories Ltd. (supra). We agree with the views already expressed by the Special Bench with reference to the aforesaid issue finding no good ground to express a view to the contrary because if we even had a little inclination to do so, we would have requested the Honble President of the Tribunal to refer the matter to a larger Bench consisting of at least 5 Members.
48. Coming to proposition (a) before the Special Bench, it was common ground between the parties that this stands settled by the earlier Special Bench decision and in any case the learned counsel for the assessed had submitted that the matter was academic as in the present case the assessed had profit in the business of exports. We, thereforee, say nothing more as this issue is concluded by the earlier Special Bench decision. Dealing with proposition (b), this would be clearly interlinked with what has been already held by us while dealing with proposition (c) since the total turnover has to be taken for purposes of allowing relief under section 80HHC and both the parties had raised some arguments before us about the change in law brought about by Explanationn (baa) added from assessment year 1992-93. Both the parties agreed and stated that the earlier Special Bench had held that the said Explanationn would be prospective and not retrospective in nature. The assessment year before us is 1986-87 and the aforesaid Explanationn would not be applicable.
49. Before we part with this matter, we would like to categorically observe that the numerous decisions cited at the bar by the parties have been duly considered, but these were many in number and in case inadvertently one or more of them does not find a mention in the order, it does not mean that the same has been overlooked, but it is categorically to be observed that it has been taken into account.
50. Having answered the various propositions raised before this Special Bench, we now direct the matter to be placed before the Division Bench for passing an order in conformity with the views expressed by this Special Bench as also to deal with any other ground/grounds raised in the appeal.