1. This appeal by the revenue is preferred against the order of the Commissioner (Appeals) on a solitary ground that the Commissioner (Appeals) has erred in holding that the profit earned from exports as computed in Clauses (a) to (c) of Section 80HHC(3) is eligible for reduction under Clause (iv) of Explanation to Section 115JB of the IT Act and thereby directing the assessing officer to allow reduction of Rs. 6,64,25,939 as profit from export while computing the book profit under Section 115JB of the Income Tax Act, 1961.
2. The facts in brief on the impugned issue are that the assessee company is engaged in manufacturing and sale of pharmaceutical products. During the assessment proceedings the assessing officer recomputed the book profit under Section 115JB of the Act at Rs. 1,33,66,209 as against Rs. 81,021 disclosed by the assessee. The assessing officer has observed in the assessment order that Section 80HHC(1) allows deduction to the extent of profits, referred to in Sub-section (1B). In view of this, only 80 per cent of export profit would be eligible for reduction.
3. Assessee preferred an appeal before the Commissioner (Appeals) with the submission that Section 115JB is a specific charging section wherein the company is required to pay Minimum Alternate Tax (MAT) on its book profits. Such book profit is calculated in accordance with the provisions of Parts II and III of Sch. VI under Companies Act. As book profit is computed based on net profit as per audited P&L a/c, thereafter the adjustment relating to profit from export as per P&L a/c is allowable as reduction. Provisions of Section 115JB refer about 'book profit' and adjustment of additions or reduction as disclosed by the P&L a/c. Accordingly such reduction cannot relate to quantum of deduction computed under Section 80HHC and the same is required to be considered as per the P&L a/c. He has also placed reliance upon the CBDT Circular No. 680 21-2-1994 reported at (1994) 206 ITR (St) 297 and the judgment of the apex court in the case of Apollo Tyres Ltd. v. CIT . The Commissioner (Appeals) re-examined the issue in the light of CBDT Circular No. 680, Circular No. 559 4-5-1990 (1990) 184 ITR (St) 91 and the clarificatory note published as annotated text of the Finance Bill, 2000 reported at ((2000) 159 CTR (St) 95 : (2000) 109 Taxman 81 (St) and has finally concluded that the entire profit earned from export as computed under Clauses (a) to (c) of Section 80HHC(3) is eligible for reduction under Clause (iv) of Explanation to Section 115JB of the Act. The relevant observation of the Commissioner (Appeals) is extracted hereunder: 6. I have carefully considered the facts of the case, findings of the assessing officer, arguments of the authorised representative and submissions of the appellant. After considering the entire facts, 1 am inclined to accept the contention of the appellant. The provisions of Clause (iv) Explanation to Section 115JB read that 'the amount of profits eligible for deduction under Section 80HHC, computed under Clause (a) or Clause (b) or Clause (c) of Sub-section (3) or Sub-section (3A), as. the case may be, of that section, and subject to the conditions specified in that section; or'., In this Clause (iv), the words 'amount of profit eligible for deduction under Section 80HHC signify that the extent of profits derived from exports is allowed to be reduced. The clause further specified that such profit is to be 'computed under Clause (a) or (b) or (c) of Sub-section 3' of Section 80HHC. Also in Sections 80HHC(3)(a) to (c), it is stated that'...the profits derived from such export shall be...'. Therefore on proper interpretation of Clause (iv), it leaves beyond doubt that the profits from exports eligible for deduction under Section 80HHC and as computed under Clauses (a) to (c) of Section 80HHC(3)/(3A) are required to be reduced for computing the book profit under Section 115JB of IT (Act, 1961. It does not put any restriction of reducing the amount deductible in phased out manner. Further the CBDT Circular No. 794 9-8-2000 (reported in (2000) 244 ITR (St) 21,52) at para No. 43.5 refers that The export profits under Sections 10A, 10B, 80HHC, 80HHE and 80HHF are kept out of the purview of this provision as these are being phased out.' 7. The provisions of Clause (iv) of Explanation to Section 115JB do not require the reduction in the manner specified under Section 80HHC(1B) but allows the reduction to the extent of profits computed under Sections 80HHC(3)(a) to (c) of the Act. It takes support in the decision of Mumbai Tribunal in the case of Dy. CIT v. Govind Rubber (P) Ltd. and 8. Further, the intention of the legislation can be drawn from the Speech given by Hon'ble Finance Minister while presenting Union Budget, 2000 which reads that 'I would add that exporters would continue to enjoy exemption from MAT till the full phase out.' Accordingly, I hold that the entire profits earned from exports as computed under Clauses (a) to (c) of Section 80HHC(3) are eligible for reduction under Clause (iv) of Explanation to Section 115JB'.
The learned assessing officer is directed to allow the reduction of Rs. 6,64,25,939 as profit from exports while computing the book profits under Section 115JB of IT. Act, 1961.
4. Now the revenue has preferred an appeal before the Tribunal and during the course of hearing the learned departmental Representative has placed heavy reliance upon the assessment order. He has also placed reliance upon the order of the Tribunal in the case of Brook Crompton Greaves Ltd. v. ITO with the submission that the impugned issue is squarely covered by the order of the Tribunal in favour of the revenue.
5. The learned Counsel for the assessee, on the other hand, has submitted that on perusal of provisions of Section 80HHC and Section 115JB, it is clear that net profit as shown in the P&L a/c is to be reduced by the amount of profit eligible for deduction under Section 80HHC and not by the amount of deduction allowed or allowable under Section 80HHC. The amount of deduction which is actually allowed is a different thing than the amount of profit eligible for deduction under Section 80HHC. This view is further supported by the fact that the amount of profit eligible for deduction under Section 80HHC is required to be computed under Clause (a) or (b) or (c) of Sub-section (3) of Section 80HHC. On the basis of these provisions, the profit derived from export business is computed. It does not quantify the amount of deduction allowable under Section 80HHC. The learned Counsel for the assessee further placed reliance upon the CBDT Circular No. 680 21-2-1994 with the submission that through a clarificatory note published as annotated text of the Finance Bill, 2000 it has been made clear that the book profit shall mean the net profit as shown in the P&L a/c prepared in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956, as reduced by certain adjustments, as specified. The profit received in convertible foreign exchange and eligible for deduction under Sections 80HHC and 80HHF or the income referred to in Section 10 or Section 10A or 10B or Section 11 or Section 12 shall be excluded while working out book profits. He has also placed reliance upon the Speech of the Finance Minister delivered on presentation of the Union Budget 2000, while phasing out the tax concessions. The relevant portion of the Speech is also quoted hereunder: To begin with, I am withdrawing these concessions by 20 per cent from the financial year 2000-01, and by 20 per cent each subsequent year till they reach a zero level. I would add that exporters would continue to enjoy exemption from MAT till the full phase out.
6. The learned Counsel for the assessee further placed reliance upon the order of the Tribunal in the cases of Starchik Specialities Ltd. v.Dy. CIT and Smruthi Organics Ltd. v. Dy. CITDy. CIT v.Govind Rubber (P) Ltd. in which it has been held that while determining the book profit for the purpose of Section 115J the profit eligible for deduction under Section 80HHC computed as per the provisions of Section 80HHC(3) was allowed as deduction under Explanation (iii) to Section 115J even though the assessee has not been allowed deduction under Section 80HHC as there was a loss.
7. The learned Counsel for the assessee further placed heavy reliance upon the order of the Special Bench of the Tribunal in the case of Dy.
CIT v. Syncome Formulations (I) Ltd. in which the Special Bench of the Tribunal in its para 59 has categorically observed that in the case of Section 115JB the Finance Act has made it very clear that deduction under Section 80HHC would be available in its entirety to an assessee even if the relief under Section 80HHC is being eliminated in a phased manner.
8. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the lower authorities, the relevant provisions of Section 80HHC and Section 115JB and also the judgments referred to by the parties we find that the book profit under Section 115JB is to be computed as per Explanation below Sub-section (ii) of Section 115JB and according to it the book profit means the net profit as shown in the P&L a/c for the relevant previous year prepared under Sub-section (2) las increased by various items specified in Clauses (a) to (g) if such amount is debited to the P&L a/c and as reduced by different items mentioned in Clauses (i) to (vii). As per Clause (iv) the amount of profit eligible for deduction under Section 80HHC computed under Clause (a) or (b) or (c) of Sub-section (3) or Sub-section (3A) as the case may be, of that section and subject to conditions specified in that section is to be reduced from the above net profit to compute book profit meaning thereby, for computing book profit for the purpose of Section 115JB net profit as shown in the P&L a/c prepared as per the provisions of Parts II and III of Sch. VI to Companies Act be reduced by the amount of profit eligible for deduction under Section 80HHC computed under Clause (a) or Clause (b) or Clause (c) of Sub-section (3) or Sub-section (3A). The dispute raised before us is with regard to the proper meaning of the word "profit eligible for deduction". Whether it means the entire amount of profit eligible for deduction or it is the amount of deduction. The assessing officer has observed that it is the amount of deduction which is to be reduced from the net profit shown in the P&L a/c but the Commissioner (Appeals) says that it is the amount of profit eligible for deduction. It is a different issue how much deduction is allowed as per Section 80HHC of the Act. In order to understand the real interpretation of this clause we extract it as under: Explanation-For the purposes of this section, 'book profit' means the net profit as shown in the P&L a/c for the relevant previous year prepared under Sub-section (2), as increased by- (if any amount referred to in Clauses (a) to (g) is debited to the P&L a/c, and as reduced by- (iv) the amount of profits eligible for deduction under Section 80HHC, computed under Clause (a) or Clause (b) or Clause (c) of Sub-section (3) or Sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or 9. On careful perusal of Section 80HHC we find that as per Clause (1) deduction to the extent of profits referred in Sub-section (1B) derived by the assessee from export of such goods is to be allowed in computing the total income of the assessee; Meaning thereby the profits derived by the assessee from the export of such goods is onething and the deduction to be allowed in computation of total income of the assessee under Section 80HHC is a different thing. After introduction of Sub-section (1B) to Section 80HHC by the Finance Act, 2000 with effect from 1-4-2001 the entire profit derived from the export of goods or merchandise is not available for deduction under Section 80HHC as it is being phased out in a piecemeal manner over a period of four years and no deduction would be allowed in respect of assessment year beginning on 1-4-2005 and in any subsequent assessment years. Section 115JB was also introduced by the Finance Act, 2000 with effect from 1-4-2001. In Sub-section (1) of Section 80HHC the legislature has used the words "for determining the quantum of deduction" to the extent of profit referred to in Sub-section (1B) but while coming to Clause (iv) of Explanation to Section 115JB the legislature has used the words "the amount of profit eligible for deduction under Section 80HHC"; Meaning thereby the words "the amount of profit eligible for deduction" used in Clause (iv) do not have the same meaning as the words "deduction to the extent of profit referred to in Sub-section (1B)" used in Sub-section (1) of Section 80HHC has. Both these words were used in different contexts and they do not have the similar meaning. In order to understand the proper meaning of these words we also reproduce the relevant portions of Section 80HHC as under: 80HHC. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in Sub-section (1B), derived by the assessee from the export of such goods or merchandise: Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in Clause (b) of Sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods.
(1B) For the purposes of Sub-sections (1) and (1A), the extent of deduction of the profits shall be an amount equal to? (i) eighty per cent thereof for an assessment year beginning on the 1-4-2001; (ii) seventy per cent thereof for an assessment year beginning on the 1-4-2002; (iii) fifty per cent thereof for an assessment year beginning on the 1-4-2003; (iv) thirty per cent thereof for an assessment year beginning on the 1-4-2004, and no deduction shall be allowed in respect of the assessment year beginning on the 1-4-2005 and any subsequent assessment year.
10. In Sub-section (1B) the legislature has again used the words the extent of deduction of profit shall be an amount equal to'; Meaning thereby for quantification of deduction the legislature has used the words 'deduction to the extent of profit or the extent of deduction of the profit', but for determining the profits eligible for deduction this type of terminology was not used by the legislature; Meaning thereby the amount of profit eligible for deduction is an amount of export profit which is eligible for deduction irrespective of the fact that the entire amount may or may not be allowed for deduction under Section 80HH.C of the Act after the introduction of Sub-section (1B) of Section 80HHC. Had it been the intention of the legislature that only deduction amount is allowed to be reduced from the net profit shown in the P&L a/c prepared as per provisions of Parts II and III of the Sch.
VI to Companies Act for computing book profit under Section 115JB, similar words as used in Sections 80HHC(1) and (1B) would have been used here. But in Clause (iv) of Explanation to Section 115JB the legislature has used the words "amount of profit eligible for deduction under Section 80HHC computed under the Clause (a) or Clause (b) or Clause (c) of Sub-section (3) or Sub-section (3A)". As such, while computing the profit eligible for deduction under Clause (a), (b) or (c) of Sub-section (3) or (3A) no restriction was imposed in computing the profit eligible for deduction. Whatever restrictions are imposed for allowability of deduction it is specified in Sub-section (1) of Section 80HHC and no reference of this sub-section is made in Sub-clause (iv) of the Explanation to Section 115JB which deals with the reduction of amount of profit eligible for deduction under Section 80HHC of the Act from the net profit shown in the P&L a/c to compute the book profit. We have also examined the order of the Tribunal in the case of Brook Crompton Greaves Ltd. v. ITO (supra) in this regard and the order of the Special Bench of the Tribunal in the case of Dy. CIT v. Syncome Formulations (I) Ltd. (supra). Though a contrary view was taken by the Pune Bench of the Tribunal in the case of Brook Crompton Greaves Ltd. (supra), but the Special Bench has given a specific finding in its para 59 that in the case of Section 115JB, the Finance Act made it very clear that deduction under Section 80HHC would be available in its entirety to an assessee even if the relief under Section 80HHC is eliminated in a phased manner. Relevant portion of the order of the Special Bench is extracted hereunder for the sake of reference: 59. The above proposition is further supported by the respective Speeches made by the Finance Minister while introducing Sections 115J, 115JA and 115JB. It has been made very clear while introducing Clause (iii) to Explanation under Section 115J that the MAT scheme should not take away the benefits, given under Section 80HHC. This position was made clear in the Notes on Clauses and in the relevant circulars issued explaining the features of the Finance Act. When Sections 115JA and 115JB were reintroduced and substituted later, the same object was declared by the Finance Minister in the Parliament which again reflected in similar terms of the relevant circulars and Notes on Clauses and the Memorandum explaining the objects of amending the provisions. In the case of Section 115JB, the Finance Act has made it clear that the deduction under Section 80HHC would be available in its entirety to an assessee even if the relief under Section 80HHC is being eliminated in a phased manner.
The relevance of Finance Minister's Speech appreciating the objective of a fiscal statute was considered by the Supreme Court in the case of Kerala State Industrial Development Corporation Ltd. v. CIT . The court held that Finance Minister's Speech before Parliament could be relied upon to throw light on the object and purpose of particular provisions. It was considered in the context of interpretation of Interest-tax Act, 1991. In fact, the Supreme Court was following its own earlier decision in the case of Dy.
CIT v. Govind Rubber (P) Ltd. (supra) in which the Tribunal has held that for the purpose of determining book profit under Section 115J the assessee was entitled for deduction of profit attributable to export under Section 80HHC even though the assessee was denied deduction under Section 80HHC because of the proviso to Section 80A as income computed for the assessment year under consideration was negatived though the book profit attributable to export under Section 80HHC was positive.
Similar analysis should be applied to the present situation.
12. Keeping in view the totality of the facts and circumstances of the case we are of the opinion that for computing the book profit for the purpose of Section 115JB the net profits shown in the P&L a/c prepared as per its Sub-section (2), are to be reduced by the amount of profits eligible for deduction under Section 80HHC irrespective of the fact how much percentage of it is eligible for deduction under Section 80HHC of the Act. The amount of profit eligible for deduction would not be governed by Sub-section (1B) of Section 80HHC in the absence of its reference in Clause (iv) of the Explanation to Section 115JB. We, therefore, find ourselves in agreement of the Commissioner (Appeals) who has rightly adjudicated the issue in the light of the given situation. Accordingly we confirm the same.