C.i.T. Vs. Pesticides India Ltd. - Court Judgment

SooperKanoon Citationsooperkanoon.com/769841
SubjectDirect Taxation
CourtRajasthan High Court
Decided OnSep-09-2005
Case NumberD.B. Income Tax Appeal No. 18 of 2000
Judge Rajesh Balia and; R.S. Chauhan, JJ.
Reported in(2006)204CTR(Raj)401; [2006]283ITR304(Raj); RLW2006(2)Raj1170; 2006(2)WLC111
ActsIncome Tax Act, 1961 - Sections 49, 80HHC, 80HHC(3), 80HHD, 115J, 115J(1), 115J(1A), 143(1), 143(3) and 154; Companies Act, 1956; Finance Act, 1996; Sale of Goods Act
AppellantC.i.T.
RespondentPesticides India Ltd.
Appellant Advocate K.K. Bissa, Adv.
Respondent Advocate Sanjeev Johari, Adv.
DispositionAppeal dismissed
Excerpt:
Notice (8): Undefined variable: kword [APP/View/Case/amp.ctp, line 120]
Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 120]
- - 51. the aforesaid quotation clearly explains that object of cbdt circular was to explain that since taxable profits are to be based on admitted net profit as adjusted under clauses (a) to (ha) and (i) to (ii)(g) of explanation to section 115j and where assessee is carrying on he business of export only.
Notice (8): Undefined variable: kword [APP/View/Case/amp.ctp, line 123]
Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 123]
rajesh balia, j.1. we have heard the learned counsel for the parties.2. the substantial questions of law which arise for consideration, as framed at the time of admission of the appeal, are as under:-1. whether the bonus, the liability of which is not provided in the accounts, and which has not been incurred as an expenditure, can be deducted for the purposes of arriving at the total income under section 115j of the i.t. act ?2. whether the guidance note of the institute of chartered accountants could override the provisions of the income tax act so as to compute deduction claimed under section 80hhc ?3. the respondent-assessee is an indian company and is engaged in the business of manufacturing pesticides. it also exports its product outside india amongst other business. in respect of.....
Judgment:

Rajesh Balia, J.

1. We have heard the learned Counsel for the parties.

2. The substantial questions of law which arise for consideration, as framed at the time of admission of the appeal, are as under:-

1. Whether the bonus, the liability of which is not provided in the accounts, and which has not been incurred as an expenditure, can be deducted for the purposes of arriving at the total income Under Section 115J of the I.T. Act ?

2. Whether the guidance note of the Institute of Chartered Accountants could override the provisions of the Income Tax Act so as to compute deduction claimed under Section 80HHC ?

3. The respondent-assessee is an Indian Company and is engaged in the business of manufacturing pesticides. It also exports its product outside India amongst other business. In respect of profits of such export business Section 80HHC applied.

4. Prior to making assessment Under Section 143(3) for assessment year 1990-91, the Assessing Officer had issued an intimation under Section 143(1)(a) reducing the amount of claim under Section 80HHC by the assessee from 14,38,5137- to Rs. 13,50,929/-.

5. The intimation under Section 143(1)(a) was set aside by the Tribunal on an application under Section 154 moved by the assessee which was then the remedy provided against the adjustments made by the Assessing Officer without calling upon the assessee to explain in respect of such claims to deduction or subject to concession or tax benefits under the Act.

6. In the order that came to be made finally on the application under Section 154 it was held that the process adopted by the ITO for making assessments under Section 143(1)(a) could not have been so adopted to make additions of amounts which needed a hearing and which cannot be assumed to be erroneous on face value and could be explained or debated during regular assessment.

7. Thereafter, the regular assessment was completed under Section 143(1)(a) by the Assessing Officer on 31.3.1990.

8. The assessee being a company is subject to provisions of Section 115J for the assessment year 1990-91 with which we are concerned. Section 115J inter alia provided for minimum level for taxation by taking taxable income at 30% of book profit shown by the assessee company itself in its books of accounts prepared in accordance with Part-11 and Part-Ill of Schedule VI of the. Companies Act, 1956. Such amount of taxable profit in terms of Section 115J according to certificate of assessee's auditors was stated to be Rs. 53,59,359/-.

9. According to Section 115J of the Act of 1961, in the case of a Company, whose total income as computed by the Assessing Officer in accordance with the provisions of the Act of 1961, is less than 30% of its book profits, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to 30% of such admitted book profit.

10. The import of expression 'book profit' was explained by the statute in the provisions of Sub-section (1A) and Explanation appended thereto of Section 115J. this provision inter alia provided that every assessee being a company shall for the purpose of Section 115J prepare its Profit and Loss A/c for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956. The net profit as shown in the P & L A/c prepared under Sub-section (1-A) is to be increased by certain amounts stated in Clause (a) to (ha) of Explanation. The total sum so arrived at after the addition made in net profit as aforesaid is to be reduced by the following sums:-

(i) The amount withdrawn from reserves (other than the reserves specified in Section 80HHD) or provisions, if any such amount is credited to the P & L Account.

(ii) The amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the P & L Account. In this connection, it may be noticed that Chapter III of the Income Tax Act, 1961 relates to the incomes which do not form the part of the total taxable income. Thus, income which is not otherwise taxable was not to be included in the book profit; and

(iii) Significantly, the adjusted amount of net profit so reduced by these two items noticed above is to be further reduced by these two items noticed above is to be further reduced by such amount of profit attributable to the business, the profits from which is eligible to deduction under Section 80HHC or Section 80HHD. The amount so attributable to the businesses referred to in Section 80HHC has to be computed in the same manner specified in Sub-section (3) of Section 80HHC or Sub-section () of Section 80HHD as the case may be.

11. We are concerned in this case about computation of deduction under Section 80HHC only.

12. The assessee has filed return showing his income at Rs. 53,33,080 being 30% of his book profits in terms of Section 115J. Even according to the assessee, computation of his income under various provisions of Income Tax Act would be less than 30% of its book profit as computed in terms of Section 115J of the Income Tax Act, 1961. The book profit disclosed by the assessee were as per the auditor's certificate furnished along with the return by the assessee.

13. The assessing officer made two additions in the book profits shown in P & L Account to augment 30% of its total and minimum tax level profits.

14. In other words, the Assessing Officer instead of taking net profits shown by the assessee company in its books, recomputed the net profit by disallowing the depreciation amount and added it to net profit to provide higher base for arriving at book profit in terms of Explanation for operating Section 115J. Secondly the Assessing Officer reduced the computation of eligible profit under Section HHC by recomputing the base figure of book profit by disallowing the amount of depreciation debited in books before arriving at the net profit. Thus, the assessing officer substituted his own amount of net profit as the base amount of book profit before operating explanation.

15. The assessee's computation has been made on the basis that it has worked out its total turnover of the business at Rs. 33,89,05,664/- by reducing from the gross turnover of Rs. 40,76,73,018/- a sum of Rs. 6,87,67,354/- debited to the P & L Account on account of discount and concession paid on sales of which amount was included in other expenses shown in P & L A7c. The net turnover of assessee's trading after excluding therefrom discounts and commissions was taken at Rs. 33,38,05,664/-. The turn over of export business shown by the assessee in his books of account was at Rs. 4,06,14,099/-. However, the assessing officer adjusted the export turnover at Rs. 3,90,25,999/-. Since the tax rebate is available on export turnover only and has direct nexus with existing ratio between total trading turnover an export turnover, the computation of eligible amount was effected when two base amounts were taken differently by the assessee and assessing officer respectively.

16. The Assessing Officer was of the opinion that since the assessee has disclosed gross turnover at Rs. 40 crores and which could not have been reduced by the amount of discount and commissions paid on sales by making entries in the P & L Account and Rs. 40,76,73,018/- ought to have been taken as the basis for working out the ratio of the Profits of the export business and the total business so as to work out a deductible amount eligible under Section 80HHC. This accounted for the reduced some of deductible amount at Rs. 13,50,919/-. The assessee has originally claimed the deductible sum at Rs. 14,38,512/-. The assessing officer in his intimation under Section 143(1)(a) had reduced it to Rs. 11,49,003/-. The reduction under Section 143(1)9a) was set aside in the order under Section 154 and the amount is to be recomputed. However, since the assessment did not rest at adjustments under Section 143(1)(a) but was subjected to regular assessment under Section 143(3) and making of adjustments under Section 143(1)(a) is otherwise subject to regular assessment, whether resorted to at the request of assessee by the assessing officer, the proceeding under Section 143(1)(a) loses its significance.

17. It may also be noticed in this connection that during assessment proceedings, assessee had laid claim to deduction of eligible amount at Rs. 18,25,468/-. However, such claim is not before us as the question suggests that contours of this question is between the assessee's claim in return and the claim allowed by assessing officer. For additional claim which has not been allowed by any of the authorities, no grievance appears to have been raised.

18. The second adjustment which the Assessing Officer made in the computation of 30% of the book profit submitted by the assessee was by making additions of Rs. 24,40,000/- as the bonus liability accounted for in arriving at net profit in the books of accounts inter alia on the ground that assessee has not made any provision for the payment of bonus liability and since the account books were prepared on cash basis, the P & L Account could not have been debited with liability of bonus on the accrual basis.

19. Thus, firstly by increasing the net profit shown by the assessee by adding Rs. 24,40,0007- on account of bonus liability shown in the books of accounts, then from such increased net profit, claim to deduction under Section 80HHC made by the assessee was reduced from Rs. 14,38,512/- to Rs. 13,50,919/-.

20. On appeal, the CIT (A) agreed with the finding recorded by the Assessing Officer and dismissed the appeal vide order dated 26.6.92.

21. On further appeal, the Tribunal found that no adjustments by additions, other than detailed under Explanation (a) to (ha) in the book profit disclosed by the assessee can be made and therefore, additions of Rs. 24,40,000/- made by the Assessing Officer in net profit shown by the assessee was held to be not sustainable and deleted.

22. So far as the re-computation of eligible profits for deduction under Section 80HHC was concerned, the Tribunal was of the opinion that computation arrived at by the Assessee was in consonance with the provisions of the Act itself and also in accordance with the circular issued by the Central Board of Direct Taxes vide circular No. 680 dated 21.2.1992 which has been published in Statute portion ITR Vol. 206 Pg. 297 (ST). Therefore, the reduction made in the amount claimed to be deductible under Clause (iii) of proviso appended to Sub-section (1) of Section 115J was also not sustained by the Tribunal and the assessee's computation of 30% of book profit subject to tax under Section 115J was upheld.

23. There was no controversy about the question that the net taxable income to which P & L Accounts of business was maintained in terms of Income Tax Act were less than 30% of the book profit and therefore, assessment could have been made under Section 115J.

24. In the aforesaid circumstances, the two questions referred to above arise for consideration in this appeal as substantial questions of law.

25. So far as the increase made in the net profits on the basis of book profits as disclosed by the assessee in the books of accounts in terms of Sub-section (1 A) of Section 115J is concerned, it must be noticed that the provisions of 115J has been founded on alternative basis for making company liable to tax at minimum level on the basis of the income admitted by the assessee and such liability is not founded on any computation to be made in accordance with the provisions relating to computation of taxable income under the Income Tax Act by alternative principles. Alternative to computation of taxable income of a company in accordance with provision is to fall back on profits disclosed by the assessee, with permissible adjustment detailed in Explanation. The base of such adjustment is admitted net profit which is not to be substituted by the assessing officer. The foundation of provision being minimum tax liability level on admitted basis cannot be substituted by the foundation provided by Assessing Officer which he thinks to be appropriate. The substitution of admitted profits to provide a recomputed net profit by Assessing Officer is not envisaged.

26. It is unequivocally clear that foundation of the scheme under Section 115J the foundation for its operation is the admitted net profits as shown by the assessee in his books of accounts, which furnishes an alternative basis for providing minimum tax level to be borne by the assessee. The question of making alternations/additions in such base value on general principles, which may be unaffected while computing income as per the provisions of Income Tax Act under the Head P & L Account from business or profession carried on by the assessee, cannot be invoked for making adjustments as may be considered appropriate by the Assessing Officer. It is inherently clear that when the statute provided exclusively what should be taken as foundation for finding out the taxable income on the basis of book profit and also provided what adjustments are available to be made by way of additions and deductions from net profit shown in the books of accounts, there is no room for deviating from the statutory base and finding substitute to have different premise for the purpose of working out taxable income by computing the book profits on its own by the Assessing Officer.

27. This Court has an occasion to consider this aspect of the matter of computation of book profits under Section 115J in D.B.I.T. Appeal No. 1/2003 (Rajasthan Spinning & Weaving Mills v. DCIT) decided on 21.7.2005. That was a case in which the Assessing Officer had made alterations in net profit shown by the assessee in his books of accounts by disallowing the claim of depreciation by entering into an exercise to find out what should be the correct and true basis to claim to depreciation for working out P & L Account showing fair and reasonable profit. The Revenue has extensively referred to on the terms of various other provisions of the company's Act to contend that it is the obligation of the Company to maintain its books of accounts to give a fair and true picture of its business for the given period.

28. In the aforesaid decision, the Tribunal was of the opinion that the Assessing Officer is required to probe into the P & L Account of the Company while considering the acceptability of book profits shown in P & L Account while invoking Section 115J. This Court repelled this premise of the Tribunal in the following terms:

It may be noticed that Section 115J is to be resorted to in alternative to a regular assessment by computing taxable income of a Company in accordance with the provisions of the Income Tax Act. It is only where the result arrived at by regular assessment of the Company by computing its income in accordance with the provisions of Income Tax Act, if the Assessee's total taxable income to be less than the 30% of the income admitted by the assessee through declaration of Book Profits in its Profit and Loss Account presented before A.G.M. for the purpose of distributing the dividends. This is with the object that the Company is at least held liable to pay tax on 30% of such admitted profits, which has been placed before A.G.M. for the purpose of distributing its dividends. The object of insertion of Section 115J initially w.e.f. 1.4.1988 by Income Tax Act, 1961 and later on by introducing Section 115JA w.e.f. 1.4.97 vide Finance Act, 1996 was to secure minimum tax on the basis of admitted profits earned by the Company for the purpose of distributing the dividends if the computation of income in accordance with the provisions of Income Tax Act yields lesser income. The provision was thus not introduced as an alternate regular procedure to be gone into for determinating the maximum tax to be collected from the Company, but it was the procedure provided in alternative to ensure that minimum tax is paid by the Company, on its book profits as admitted by it before distributing the dividends to its share holders.

29. With this clear objective in view, after examining the scheme of Sub-section (1) and (1A) of Section 115J, the Court further held as under:

Sub-section (1A) directed not in general way to prepare Profit and Loss Accounts for the previous year in accordance with general provisions of the Companies Act which are relevant for the various purposes, but it defined what book profit means for the purpose of Section 115J. The book profit for the purposes of Section 115J means the Profit and Loss Account, which has been prepared in accordance with the provisions of Part II and Part III of the Schedule VI to the Companies Act, 1956. It did not rest merely with that requirement, but further ordained that net profit shown in the Profit and Loss Account for the relevant previous year prepared as per Sub-section (1-A) is to be increased by such items specifically detailed under Clause (a) to Clause (ha) of Explanation and further ordained that after the book profit is augmented by additions made as per Clauses (a) to (ha), it be reduced by items shown in Clauses (i) to Clause (viv) relating to the amounts to be reduced from Book Profits so derived.

Therefore, for the purpose of Section 115J, a complete code was laid to take the net profit as shown in the Profit and Loss Account of the Company and not net profit as computed by Assessing Officer as per his opinion of true and correct result of working of Company as basis for making the adjustment, which have been specified in the Explanation.

30. The Court after further examining the effect of amendment brought in Section 115J stated:-

Therefore, for the purpose of finding the book profit in order to determine, the 30% of its profits in terms of Section 115J(1) as minimum income chargeable to tax in a particular assessment year, where the chargeable income assessed in accordance with the provisions of Income Tax Act, 1961, is less than 30% of the book profit so arrived at under Sub-section (1-A may be taken as the chargeable income to the tax by this deeming provision.

Apparently, there is no room for redetermining the net profit as shown in the Profit and Loss Account of the Company containing relevant declarations as incorporated in the light of Part III of Schedule VI. The Assessing Officer had to accept the result shown in the Profit and Loss Account as book profit subject to the adjustment by additions or reductions, as details in Explanation. The enquiry by the Assessing Officer into the conceptual 'true and fair result' of the working of the Company to be adverted to by the Tribunal is alien to enquiry under Section 115J. As such it is not a substitute procedure laid down for re-computing the income of the assessee in different manner by the Assessing Officer himself, as he thinks proper, then he has already computed under the provisions of the Income Tax Act. He is not required to embark upon the detail requirement into the different aspects of the matter and re-compute the net profit shown in the books of Accounts for applying basis to revive as Book Profit which he thinks ought to be fair and true result by resorting to conceptual theory of true and fair result, by foraying into various other provisions of the Companies Act, that may provide many other matters to be taken into account for various other purposes. For example, Section 49 requires determination of Profit for the purpose of determining permissible limit of remuneration that could be paid to Managing Agents. That part of the exercise is always open to be made to the extent it is permissible under law while computing the Profit and Loss Account of the Company in accordance with the provisions of the Income Tax Act. It is open to disallow any claim to specific deductions or exemptions or benefit of tax concessions by resorting to regular computation of income at that stage.

31. In view of the aforesaid ambit and scope of Section 115J, it is clear that the enquiry into questions of accrual or cash distribution of ones liability relevant for the assessment year in question was not domain of enquiry which the Assessing Officer could take for altering the net profit as basis of making additions and deductions from the net profit as disclosed in the books of accounts of the assessee which were according to Part-II of Schedule VI of the Companies Act inasmuch as neither the auditor's report say so nor the Revenue authorities find that the Company's Accounts were not prepared in terms of Part II and Part III of the Schedule VI of the Companies Act.

32. In view of the aforesaid principle explained by this Court in Rajasthan Spinning & Weaving Mill's (supra), it must be held that the Tribunal was right in not sustaining the additions made by the Assessing Officer in net profit of the Company. The assessee has disclosed in his books of account all relevant facts while arriving at net profit before presenting books of account to Annual General Meeting which has approved the accounts and on filing of the same certified by the Registrar of Company also. Additions in the net profit by disallowing the claim of deduction on account of Company's liability which otherwise is relevant to previous year relevant to the assessment year in question cannot be sustained.

33. Coming to the second question also, we are of the opinion that the Tribunal's finding is in accordance with the provisions of the Act and the CBDT Circular referred to above by the Tribunal and it also does not go to the contrary.

34. From the narration of facts, it is apparent that the Assessing Officer was of the opinion that since in the Books of Accounts, the total turnover of the trading business of the assessee was shown to be 40,76,73,018/- without taking into account the discount and commissions allowed to customers from sale bill or invoices amounting to Rs. 6,87,67,354/- and if this is accounted for, the turnover comes to 33,89,05,664/-. While the computation by the assessee of the eligible profit for deductions under Section 80HHC was on the premise of the total trading turnover for Rs. 33,89,05,664/-, the Assessing Officer has computed deductible amount eligible under Section 80HHC by taking the total gross turnover of 40,76,73,018/-.

35. In taking the increased trading turn over disallowance has been made of the direct expenditure incurred by the assessee in its trading business by allowing discount and commission to the customers its sales. It has referred to non-adjustment of depreciation under Section 32 and investment in computing the total gross income for the purpose of Section 80HHC. However, ignoring the discounts and commissions directly to customers which has direct bearing on turnover the aggregate of sale proceeds) for the reason stated by the assessing officer for not accepting the total turnover; one finds it difficult to accept on any reasoning. To take the accruing gross sale price as the basis of the total turnover by ignoring the discounts and commissions directly allowed on sale price in invoice is ignoring the provisions of Section 80HHC itself.

36. Expression 'turnover' has reference to sale proceeds of sale of goods/services traded by the assessee. The expression 'turnover' in relation to business convey multiple meanings. In one sense, it is considered to be a volume of business, which in the case of a manufacture may include total goods produced and disposed of in a given time or in another case any indicate turning over of capital involved in business or in yet another sense it may mean profits derived from a business in a given time. However, when turnover is used in relation to trading business, it refers to turnover of sales or volumes of sales of goods or services.

37. Trade in broad sense means the practice of some occupation, business or profession habitually carried on as a means of livelihood or gain. However, under Section 80HHC the expression 'turnover' has been used in different contexts depending on the facts whether the assessee is a manufacturer or a trader in goods. Sub-Clause (a) of Sub-section (3) deals with a case where the assessee is exporting goods manufactured or processed by him. In his case, profit derived from such export is to be quantified by apportioning the profits of business in the ratio as export turnover in respect of such goods bears to total turnover of business carried on by the assessee.

38. In contrast, Clause (b) of Sub-section (3) of Section 80HHC refers to turnover of trading goods. It reads as under:-

Section 80HHC(3)(b) Where the export out of India is of 'trading goods' the profits derived from such export shall be 'export turnover' in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export.

39. Similarly Sub-clause (c) of Section 80HHC deals with a case where the assessee company's business consists of export of goods or merchandise processed or manufactured by it as we as trading of goods simplicitor and same distinction has been maintained.

40. In the present case, issue is about turnover of sales of goods only. Turnover of sales for a period in the present case, previous year relevant to assessment year 1990-91, in its ordinary sense denotes aggregate of price received or receivable by the company in respect of sale of goods transacted by it. No other specific meaning has been assigned to it. If sale of goods is to be understood as defined in sale of Goods Act, the price received/receivable becomes integral part of sale transaction.

41. Where the sale is under invoice or bill and price itself has been discounted in invoice on such transaction price received or receivable can only be the amount actually charged from the buyer. The form of bill showing the price at which goods are ordinarily sold or salable and reduced by discount to the buyer, results in reduction of price receivable itself. Such a discount cannot be considered exclusive of turnover of such sales. The C.B.D.T. Circular referred by the Tribunal also refers to turnover in respect of sales of goods. There is clear finding that the total turnover of sales of the company shown in the book of account was Rs. 40,76,73,018/- and the assessee has claimed to its reduction by amount of discount and commission allowed to customers from sale bill/invoices which in the books of account was shown to be separate. The fact that the sum of Rs. 6,87,67,354/- was the aggregate of such discount related to total turnover of sale of goods of assessee's business, while assessee's turnover from export ale of goods was taken to be Rs. 3,90,25,999/-, the assessee claimed for total turnover of sales at Rs. 40,76,73,018/- minus Rs. 6,87,67,354/- discount7commission allowed to customers and every sale transaction on sale bills/invoices balance at Rs. 33,89,05,664/-. the fact that such discount was allowed on bill/invoice of every sale transaction was not disputed.

42. In such event, the turnover of sale of goods cannot include such discount allowance allowed at inception or it never became a part of sale proceeds.

43. The issue may be looked from yet another aspect. In this connection, Clause (b) of Sub-section (3) of Section. 80HHC needs notice which in terms referring to the concept of profits derived from export states in no uncertain terms that 'where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export.'

44. Thus, direct or indirect costs on sale of goods exported by the assessee had to be reduced from sale proceeds.

45. Clause (a) to explanation to Section 80HHC refers to costs directly attributable to trading goods exported out of India including purchase price of such goods and Clause (e)of said Explanation defines indirect taxes to means costs not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to total turnover.

46. These two definitions make it clear that while direct costs are one that is directly referable to trading of goods exported outside India, and has nothing to do with total costs of business, the indirect costs refers to such costs which is incurred for carrying out the total business of the assessee including export trading, as a whole and is to be apportioned in terms of ratio which the export turnover bears to total turnover.

47. Clause (c) of Explanation to Section 80HHC defines 'adjusted total turnover' to mean the total turnover of the business as reduced by the export turnover in respect of trading goods.

48. In this aspect of the matter, it cannot be doubted and argued that the sale commission and sale discounts are not part of direct costs of the turnover attributable to business or attributable to export as the case may be. In that view of the matter, for computing the eligible profit in the manner as provided in Section 80HHD accounted for the sale and discount while computing the total turnover of the business found essential ingredient and that is what has been certified to be shown while arriving at the 30% of profit of the business of the Companies Act book profit by computing the eligible profit for deduction under Section 80HHC in the manner laid down in Section 80HHC. The circular of the Board of Direct Taxes No. 680 dated 21.2.94 which is founded on explanatory note issued under provisions of Section 115J in earlier circular dated 4.5.90 and no other explanation which simply preface the provisions contained in Sub-section (3) of Section 80HHC or Section 3A of 80HHD in the light of Clause (iii) of Explanation under Section 115J for emphasising that what has been ameliorating in making computation of book profit, in he matter of eligible profit provided under Section 80HHC or 80HHD for the purpose of computation of claiming deductions thereunder and not the exact amount which has actually been qualified as eligible deductions under Section 80HHC or 80HHD as the case may be, while making regular assessment.

49. This issue also has to be looked from the aspect of the object with which this provisions has been made. The object is clear, which was further clarified vide CBDT Circular No. 559 dated 4.5.90, that this deduction has been maintained to ensure that whatever tax benefit is otherwise available to an assessee in respect of matters provided in Section 80HHC or 80HHD by way of economic policy incentives should not be reduced by taking 30% of the eligible amount also as part of the book profit arrived at under Section 115J. The Profit and Loss A/c reveals the profits of business as a whole which includes export business also. Thus, export profit becomes part of total book profit. When 30% of book profit shown in P & L A/c is taken to be taxable profit, unless the eligible profit on which tax benefit is available under Section 80HHC is reduced from such total book profit, the 30% of total book profit shall be inclusive of such export profit which carries with it tax exemption/concession under Section 80HHC. Clause (iii) of Explanation to Section 115J was devised to ensure that no part of the tax benefit extended under Section 80HHC or 80HHD is taken away while resorting to minimum level taxation on admitted book profits. Since at the relevant time, the entire profit of the export business and business from the tourism were under the two relevant provisions was to be deducted from gross profit, it carried with it 100% tax exemption. The circular makes it clear that since 30% of book profit as taxable income has to be arrived at by making adjustment provided under Explanation to Section 115(c)(lA) the starting point of computing eligible deductions under Section 80HHC or 80HHD also has to be net profit shown in the P & L A/c of the company and not the other figure. While adopting the manner of computation, depreciation of eligible amount in respect of export profit must also be the eligible export profits or tourism profit to be related to net profit disclosed in the P & L A/c for the purpose of finding ratio between business profit and profit from export or tourism as the case may be.

50. The relevant excerpts from aforesaid circular of CBDT is in consonance with what we have explained above.

It may be noted that while deductions under Sections 80HHC and 80HHD are related to the profits computed under the head 'profits and gains of business or profession' Section 115J is concerned only with book profits. While explaining the scope of Explanation (iii) under Section 115J, it was stated in para 9.2 of the Board's Circular No. 559 dated 4.5.1990 that the intention behind introduction of the said Explanation was to ensure that the provisions of Section 115J, which provided for a tax on the book profits, did not take away the 100 per cent exemption which wars to be allowed in respect of export of its and the profits from tourism related industry. It was also stated therein that the intention was that 100 per cent of such profits should be exempt in such cases.

51. The aforesaid quotation clearly explains that object of CBDT circular was to explain that since taxable profits are to be based on admitted net profit as adjusted under Clauses (a) to (ha) and (i) to (ii)(g) of Explanation to Section 115J and where assessee is carrying on he business of export only. Whole of such profit has to be deducted from sum so arrived at. In other case, ratio between total profit and export profit has to be determined by taking the net profit as adjusted above to be the total profit with reference to which turnover rates have to be arrived at. This Explanation does not militate against the concept of total turnover or turnover of trading export business. Turnover and profit are too distinct terms and not alternative or synonymous expression for same concept. There is no other mode due to which the computation made by the auditor for the purpose of working out the deduction under Section 80HHC from the book profits, before arriving at the 30% of book profits as taxable income, was rightly held to be in accordance with the provisions of Section 80HHC. Therefore, in respect of this aspect of the matter also, which is subject matter of second question, no interference is called for in the conclusions arrived at by the Tribunal.

52. The appeal, therefore, fails and is hereby dismissed. There shall be no order as to costs.