1. This appeal by the assessee arises out of the order passed by Commissioner (Appeals) on 12-9-2006 in relation to the assessment year 2002-03.
2. The main point raised here is against the reduction in the claim of deduction under Section 80HHC. The facts apropos of this issue are that the return of income was filed claiming deduction under Section 80HHC at Rs. 7,38,416. During the course of assessment proceedings the assessing officer noted that there was a net profit of Rs. 14,54,272 on total export turnover of Rs. 2,48,26,964. The net profit included duty drawback of Rs. 21,10,298 and DEPB of Rs. 6,63,942. The assessing officer on verification of report in Form No. 1 OCCAC observed that the assessee has Loss on export turnover at Rs. 10,19,985. He considered Taxation Laws (Amendment) Act, 2005, in which amendment has been carried out to Section 80HHC. Since the assessee's export turnover was below Rs. 10 crores and there was loss on the total export turnover, he noted that the assessee was entitled to set off of 90% of any one of the export incentives specified under Section 28(iiia) to (iiie) as per the 5th proviso to Sub-section (3) of Section 80HHC. Accordingly, the amount of deduction under Section 80HHC was scaled down to Rs. 4,39,641 as against the assessee's claim of Rs. 7,38,420 as under : 4. Before us the learned counsel for the assessee contended that the learned Commissioner (Appeals) was not justified in upholding the action of the assessing officer by which 90% of Duty drawback was considered while leaving out the DEPB amount. He submitted that the case of the assessee was covered under fifth proviso to Section 80HHC(3) and the both the amounts were liable to be considered. It was further argued that the word 'or' used in this proviso should be read as 'and' so as to give logical interpretation to the provision. He relied on the judgment of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT to contend that the provisions granting relief be construed liberally. He further relied on the judgment of the Hon'ble Supreme Court in Addl CIT v. Surat Art Silk Cloth Mfrs. Association (1980) 121 ITR 12 in support of similar contention. In order to elaborate this point further he referred to the language of Section 115JB in which Explanation defines "Book profit" to mean the net profit as shown in the profit and loss account as increased by the items specified at (a) to (g) in which the word 'or' is used. It was stated that the intention of the Legislature has to be considered while interpreting the language of section. In this background of facts it was urged that the word 'or' between clauses (a) and (b) of 5th proviso should be read as 'and'. On the contrary the learned departmental Representative strongly relied on the impugned order. His further submissions were the reiteration of the reasoning recorded by the authorities below in support of justification for rejection of the assessee's claim.
5. We have heard both the sides at length and perused the relevant material on record. The dispute in this appeal lies in the narrow compass inasmuch as we have to interpret 5th proviso to Section 80HHC(3) in the light of the receipt of the duty drawback as well as DEPB by the assessee. Page 2 of the Paper book is a copy of Trading and Profit and loss account which divulges that a sum of Rs. 21,10,298 has been credited under the head 'Custom drawback' which falls under Section 28(mc) of the Act. The other item is sum of Rs. 6,63,942 credited in the profit and loss account representing DEPB amount which is taxable under Section 28(iiid). Whereas the assessee has claimed as per its report in Form 1OCCAC that 90% of both the Custom drawback and DEPB be adjusted against the loss so as to compute the quantum of deduction under Section 80HHC, the revenue has made out a case that only one of the two items viz. Duty drawback or DEPB is to be considered. Since the amount of Duty draw-back at Rs. 21.10 lakhs is higher than the amount of DEPB, such higher amount was considered by the assessing officer.
6. Before proceeding further it would be apt to note down the amendments brought out by the Taxation Laws (Amendment) Act, 2005 in Section 80HHC(3). First proviso remains as it was earlier. Second to fourth provisos were inserted by the Amendment Act of 2005 with retrospective effect from 1-4-1998 whereas the fifth proviso, which is relevant for our purpose, was inserted with retrospective effect from 1-4-1992.
Provided that the profits computed under Clause (a) or Clause (b) or Clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in Clause (iiid) (not being profits on sale of a licence 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 assessee: Provided further that in the case of an assessee having export turnover not exceeding rupees ten crores during the previous year, the profits computed under Clause (a) or Clause (b) or Clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in Clause (iiid) or Clause (iiie), as the case may be, of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee : Provided also that in the case of an assessee having export turnoverexceeding rupees ten crores during the previous year, the profits computed under Clause (a) or Clause (b) or Clause (c) of this sub-section or after giving A effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in Clause (iiid) or Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, (a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme : Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under Clause (a) or Clause (b) or Clause (c) of this sub-section or after giving effect the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in Clause (iiie) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, (a) he had an option to choose either the duty drawback or the Duty Free Replenishment Certificate, being the Duty Remission Scheme; (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme.
Explanation.For the purposes of this clause, "rate of credit allowable" means the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme calculated in the manner as may be notified by the Central Government: Provided also that in case the computation under Clause (a) or Clause (b) or Clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent of (a) any sum referred to in Clause (iiia) or Clause (iiib) or Clause (iiic), as the case may be, or (b) any sum referred to in Clause (iiid) or Clause (iiie), as the case may be, of Section 28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the: total turnover of the business carried on by the assessee.
8. Before we dwell upon the controversy in hand it is imperative to have a glance at the background which led to the insertion of 4 provisos to Section 80HHC(3) simultaneous with insertion of Section 28(iiid) and (iiie) by the Taxation Laws (Amendment) Act, 2005. As per the pre-amended provisions of Section 80HHC the assessee was entitled to deduction as per Clause (a) or (b) or (c) of Section 80HHC(3) and the first proviso provided that the profits so computed shall be further increased by the amount which bears to 90% of the sum referred to in Section 28 (iiid) and (iiib) and (iiic). Some Benches of the Tribunal took a view that if there is a loss, then such amount should be ignored and the assessee would be entitled to deduction with reference to incentives as enumerated in the proviso to Sub-section (3). The net effect of such a view was that in a case where there were no "profits of business" for deduction under Section 80HHC(3), the assessee were still entitled to deduction in terms of proviso under Sub-section (3). However, this view did not find favour with the Hon'ble High Courts including the jurisdictional High Court in Rohan Dyes & Intermediates Ltd. v. CIT in which it was held if the ultimate figure computed under Section 80HHC(3) is a loss, the assessee would not be eligible for deduction under Section 80HHC with reference to incentives referred to in Section 28(ma), (iiib), (iiic).
There was a lot of hue and cry on such a view which was reiterated by the Special Bench of the Tribunal in B. Sorabji v. ITO (2005) 95 ITD 540 (Mum.). In order to tone down the rigour of such view representations were made to the Government and eventually second to fifth provisos to Section 80HHC(3) were inserted by the Taxation Laws (Amendment) Act, 2005 with retrospective effect. Other ongoing controversy regarding the taxability of Duty Entitlement Pass-Book (DEPB) and Duty Free Replenishment Certificate (DFRC) was also put to rest by the insertion of Clauses (iiid) and (iiie) to Section 28 by the same Amendment Act with retrospective effect.
9. In the instant appeal we are concerned with an assessee who has loss under Section 80HHC(3) with incentives and is claiming deduction under Section 80HHC in the light of the amendment carried out by way of 5thproviso to Section 80HHC(3). There is no dispute on any aspect other than the interpretation of the said 5th proviso.
10. Here it would be relevant to note the effect of five provisos to Section 80HHC(3). Whereas the first four provisos deal with a case in which the assessees have profit as computed under Section 80HHC(3), which is further bifurcated into two categories of assessees having export turnover not exceeding and exceeding Rs. 10 crores during the previous year. On the other hand, the 5th proviso deals with the cases in which the assessee has a loss under Clause (a) or (b) or (c) of Section 80HHC(3). First proviso provides that the profits computed under Clause (a) or (b) or (c) of Sub-section (3) shall be further increased by the amount which bears to 90% of any sum referred to in Clauses (iiid) and (iiib) and (iiic) of Section 28. It means that the amount of 'Profits of business' has to be increased by 90% of three export incentives taken together as enumerated in Section 28(iiia) to (iiic). So what is referred to here is the sum total of these three incentives. Second proviso to Sub-section (3) provides that in the case of an assessee having export turnover not exceeding Rs. 10 crores during the previous year, the profits computed under Sub-section (3) of Section 80HHC, or after giving effect to the first proviso shall be further increased A by the amount which bears to 90% of any receipts referred to in Clause (iiid) or (iiie) of Section 28 as the case may be, the same proportion as export turnover bears to the total turnover of the business carried on by the assessee. The third and fourth provisos deal with the assessees having export turnover exceeding Rs. 10 crores, which provide that the profit computed under Sub-section (3) or after giving effect to the first proviso shall be further increased by the amount which bears to 90% of any receipt referred to in Clause (iiid) or (iiie) of Section 28. The net effect of the first four provisos of Sub-section (3) of Section 80HHC dealing with the assessee's having profit computed under Sub-section (3) is that the profit computed as per Clause (a) or Clause (b) or Clause (c) of Sub-section (3) or after giving effect to first proviso which means such profit as 'further increased' by the amount which bears to 90% of sum referred to in Clauses (iiid), (iiib) and (iiie) of Section 28, shall be 'further increased by' the amount which bears to 90% sums referred to Clause (iiid) or Clause (iiie) if the assessee has evidence to prove that he had an option to choose either the duty drawback or DEPB scheme or DFRC being the Duty Remission Schemes and the rate of drawback credit attributable to the custom duty was higher than the rate of credit allowable under DEPB or DFRC scheme. On the contrary fifth proviso deals with the cases of assessees having computation under Clause (a) or (b) or (c) of Section 80HHC(3) as loss which provides that such loss shall be set off against the amount which bears to 90% of any sums referred to in any Clause (iiia) or (iiib) or (iiie) as the case may be or Clause (iiid) or Clause (iiie) as the case may be of Section 28. On a conjoint reading of the five provisos it becomes vivid that the first four provisos deal with the cases in which there is a Profit and the fifth proviso deals with a case in which there is a Loss as per subsection (3). First set of four provisos is independent of the fifth proviso and both the sets operate in different compartments. It is only the method of computation of the quantum of deduction governing the cases in which p there is a profit or loss which has been enshrined in 5 provisos attached to Sub-section (3) along with the 'profits of business' as explained in Explanation (baa) below Sub-section (4). In such a procedural portion of the provision, what is to be seen and followed is the method so stated as per the language of section. There is no question of looking into what ought to have been done while calculating the amount of deduction by disregarding the method specifically provided in Sub-section (3) along with these provisos. It is a settled legal position that equity is hardly F relevant for the interpretation of a taxing statute. It has been held so by the Hon'ble Supreme Court in a good number of judgments including Hemlatha Gargya v. CIT (2003 ) 259 ITR ' and Karamchari Union v. Union of India (2000) 243 ITR 1432 (SC). Coming back to the facts of our case it has been noted supra that in the case of an assessee having loss under subsection (3), the Hon'ble Courts initially denied the benefit of deduction under Section 80HHC straight away. It was only with a view to relax such a view and allow benefit to such assessees that the fifth proviso was inserted by the Amendment Act of 2005. In the absence of such proviso there is absolutely no question of granting any deduction under this section when there is a loss under Sub-section (3). Thus, when the Government has come out with insertion of the fifth proviso thereby allowing benefit to the assessee, one cannot expect to read more than what is actually contained in it.
11. We have observed that the first four provisos providing for granting of deduction under Section 80HHC(3) by which the profits computed under Clause (a) or (b) or (c) are further increased by 90 per cent of sums referred to in Clauses (iiid) and (iiib) and (iiie) of Section 28 in the prescribed proportion and such benefit is to be further increased by the amount which bears 90 per cent of sums referred to in Clause (iiid) or Clause (iiie) etc. The intention of the Legislature is clear that in granting deduction to the assessees having earned profit, benefit has to be given firstly for all three earlier Clauses of Section 28(iiia), (iiib) and (iiie). On the contrary if the assessee has suffered a Loss as per computation under Clause (a) or Clause (b) or Clause (c) of Sub-section (3) such loss is required to be set off against the amount which bears to 90 per cent of the amounts specifically categorized under Clause (a) or Clause (b) of the fifth proviso. Between these two clauses of 5th proviso the Legislature has fielded the word "or" which clearly expresses the intention that in making the computation, 90 per cent is to be computed either out the sums referred to in Clause (a) of the proviso or in Clause (b) of the proviso. We observe that the assessee has received customs drawback of Rs. 20.10 lakhs which is taxable under Section 28(iiic) and is included in Clause (a) of the fifth proviso. Whereas the other amount of DEPB at Rs. 6.63 lakhs is charge- able to tax under Clause (iiid) of Section 28 which falls in Clause (b) of the fifth proviso. Obviously going by the language of section read with the context in which a benefit is granted to the assessees which was hitherto not available, there remains nothing to agitate that between the Clauses (a) and (b) of the fifth proviso the word 'or' should be read as 'and' more specifically in the light of the fact that the provisos along with other part of section specify the method of computation of the benefit available under Section 80HHC.12. Here it is pertinent to take note of the meaning assigned to "profits of the business" in Explanation (baa) below Section 80HHC(4) which is relevant for the purpose of Sub-section (3) inasmuch as it is a starting point for calculating the quantum of deduction under this section. This Explanation states that the 'profits of business' means the profits of the business as computed under the head 'Profits and gains of business or profession" as reduced by 90 per cent of any sum referred to in Clause (iiid), (iiib), (iiid), (iiid) and (iiie) of Section 28 etc. Here also the intention of the Legislature becomes manifest that while working out the amount of "profits of the A business" 90 per cent of all items as referred to in Clauses (iiid) to (iiie) of Section 28 are to be considered cumulatively. Commas have been used after Clauses (iiid), (iiib), (iiie), (iiid) and thereafter the words 'and' is used before Clause (iiie). Therefore, it becomes crystal clear that the words 'or', 'and or 'commas' have been deployed in different parts of Section 80HHC to represent the intention of the Legislature for working out the quantum of deduction under this section. It is highly illogical to substitute the word "or" with "and" and vice versa in any part of the section. The things become more clear when we examine Circular No. 2 of 2006, dated 17-1-2006 providing as under : Profits on sale of Duty Entitlement Pass Book Scheme (DEPB) credits orDuty Free Replenishment Certificate (DFRC) will be treated at pair withduty drawback for the purposes of proportionate increase of profitsderived from exports computed under Clause {a) or Clause (b) or Clause (c)of Sub-section (3) of Section 80HHC in the case of, (ii) in the case of an exporter having export turnover exceeding Rs. 10 crores if (a) he had an option to choose either duty drawback or duty entitlement pass book scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under duty entitlement pass book scheme.
(c) he had an option to choose either duty drawback or duty free replenishment certificate; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under duty free replenishment certificate.
13. From the perusal of the extract of the above circular, it is clearly borne out that here the reference is made to the cases where the assessee has Profit under Section 80HHC(3) and the profit on sale of DEPB or DFRC has to be treated at par with the duty drawback. There is no reference to loss cases falling within the ambit of fifth proviso in this circular for treating profit on sale of DEPB or DFRC on par with the duty drawback.
14. The learned AR has unsuccessfully relied upon the Circular No. 5 of 2006, dated 5-5-2006 to bring home the point that a liberal view should be taken in interpreting the provision. The subject-matter of the Circular is that in Section 28(iiic) the reference has been made to "Customs and Central Excise Duties Drawback Rules, 1971", whereas the said rules were replaced with "Customs and Central Excise Duty Rules, 1995" without making a corresponding change in the Income Tax Act. By means of this Circular it has been clarified that reference to 1971 Rules in Section 28(iiic) be construed as Rules of 1995. Nothing more than this has been provided in this circular for interpreting any other part of Section 80HHC. Here also the words of caution have been entered in last line of Para 7 by providing "However the claim of deduction has to be allowed subject to fulfilment of all other conditions provided under Section 80HHC". In our considered opinion the above referred Circular does not advance the case of the assessee any further. We are further constrained to look into the language of any other section including Section 115JB for interpreting Section 80HHC, which is specific and clear. Reliance has also been placed by the learned AR on the Supreme Court judgment in the case of Bajaj Tempo Ltd. {supra) to contend that a liberal view should be taken in assessee's favour while interpreting a statute. In our considered opinion the need for interpretation of a section arises when there is an ambiguity in the language of section, which does not properly convey the intention behind it. It has been held by the Hon'ble Supreme Court in numerous judgment including the case oi Federation of AP Chambers of Commerce & Industry v. State of AP ' that taxing statute has to be strictly construed and nothing can be read in it. Similar view has been taken in the case otPadmasundaraRaov. State of TamilNadu in which it was held that "while interpreting a statute Legislative intention must be found in the words used by the Legislature". Similar view has been reiterated in the case of CAIT v.Plantation Corporation of Kerala Ltd. (2001) 247 ITR 1552 (SC) providing that "So long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible".
15. In view of the foregoing discussion, we note that the word "or" has been intentially used between Clauses (a) and (b) in the fifth proviso to Section 80HHC, which cannot be substituted with the word "and". In our considered opinion the learned Commissioner (Appeals) was justified in not accepting the assessee's contention on this count. This ground is therefore dismissed.
16. The only other effective ground about the charging the interest under Sections 234B and 234C and 234D was admitted by the learned AR to be consequential in nature. As the opinion of the first appellate authority has been upheld in the earlier para, this consequential ground also deserves to be dismissed. We order accordingly.