TaxTMI 
TaxTMI 
2002 (3) TMI 217
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.... be under section 143(3) of the Act was framed on23-3-1992in which income was assessed at Rs.47,74,667 under section 115J of the Act. The CIT, Delhi-III,New Delhiafter going through the assessment record for the year under consideration came to the conclusion that assessment order under section 143(3) of the Act is erroneous insofar as it was prejudicial to the interest of revenue. He proceeded to take action under section 263 of the Act and issued the following notice to the assessee on5-3-1993: "Assessment in your case for assessment year 1989-90 was completed under section 143(3) on 22-3-1992 on total income of Rs.47,72,667 i.e. 30% of the book profit of Rs.1,59,15,556. A perusal of records shows that the above said order under section 143(3) is erroneous insofar as it is prejudicial to the interests of revenue for the reasons mentioned below:-- You have claimed deduction of Rs.4,07,35,775 under section 80HHD of the Act from your book profit of Rs.5,66,51,332. This deduction under section 80HHD has been claimed on the basis of foreign exchange receipts shown at Rs.28,63,38,220 which also included the following amount:-- --------------------------------------....
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....ed by the Reserve Bank of India under Foreign Exchange Regulation Act (hereinafter referred to as FERA Act), 1973. The attention of the ld. CIT was also invited to the definition of convertible foreign exchange as given out in section 2(b) of FERA 1973 and contended that the receipt of convertible foreign exchange has to be in lieu of services provided to foreign tourists and that also includes amount received by the assessee from travel agents for services rendered to foreign tourists and further includes amount received consequent to foreign exchange being converted by the Hotel. It was the case of the assessee that every foreign tourist is expected to make payment to a hotel in foreign exchange as per Government's Notification No. F-1/64/EC/80 dated 20-8-1981 and in case any foreign national on visit to India had paid foreign exchange to an airline or to a travel agent holding licence granted by the RBI under section 32 of the Act and made payment in Indian currency accompanied with certificate by airline or travel agent confirming that payment made out of rupee funds obtained out of the conversion of foreign exchange by airline or travel agent than such payment are to be deemed....
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....73 was found of no avail as those provisions are exemption allowed to the foreign nationals to make payments in Indian rupees received out of convertible foreign exchange and do not grant any concession or exemption to the Indian recipients. He further observed that Assessing Officer was not justified in accepting the explanation of the assessee on that point in utter disregard to the Circular No. 621 dated19-12-1991issued by CBDT which clarifies the situation for the period prior to1-4-1992. The ld. CIT reproduced the relevant paras of that circular and observed that in the year under consideration, the benefit of Explanation added to sub-section (2) of section 80HHD cannot be given to assessee as intention of Legislature was to extend the benefit from assessment year 1992-93 onwards as clarified by CBDT in that Circular. He further noted that before the addition of Explanation to section 80HHD(2) the benefit was available to first recipient of foreign exchange. 4. So far as the amount of foreign exchange converted by the assessee as Restricted Money Changer, the ld. CIT noted that assessee had admitted not to have earned any profit out of this service allegedly rendered to for....
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....anger. This order is subject matter of appeal preferred by the assessee. 5. Shri R. Ganesan, the ld. representative of the assessee had assailed the order of the ld. CIT mostly on the grounds taken up by the assessee before the ld. CIT. The ld. counsel for the assessee took up the first plea in respect of amount of Rs.4,03,09,863 received by the assessee in Indian currency from agents of foreign tourists out of foreign exchange received by those agents. Our attention was drawn to the definition of 'convertible foreign exchange' given in the Explanation (b) to section 80HHD which provides that definition of above shall be the same as is given in Explanation (a) of section 80HHC. The section 80HHC Explanation (1) provides that '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 purpose of FERA, 1973 and any rules made thereunder. The ld. representative further pointed out that 'foreign exchange' had been defined in section 2(b) of FERA, as Under:-- "(i) all deposits, credits and balances payable in any foreign currency and any drafts, travellers cheques, letter of credit a....
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....remove the ambiguity, Legislature has added the Explanation to sub-section (2) of section 80HHD extending the benefit of section 80HHD to the correct person viz., the hotel owners who were rendering the services to the foreign tourists and the basic source of earning the foreign exchange. Accordingly, that Explanation is to be given effect with retrospective effect and to be treated that said Explanation was from the date when section 80HHD was brought to the statute. 7. In support of the above plea, the ld. counsel for the assessee has placed reliance on the decision of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625 in which Their Lordships of Honourable Supreme Court have laid down that presumption against retrospective operation is not applicable to declaratory statutes. A declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. An Explanatory Act is generally p....
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....rest of the revenue and appeal should be allowed. 9. As against the above, the ld. DR bad placed reliance on the order of CIT-III, New Delhi and contended that definition of other statute cannot be pressed into service for interpreting the provisions of any particular statute and reliance was placed on the decision of Bombay High Court in the case of CWT v. State Bank of India [1995] 213 ITR 1. On the basis of that it was contended that deeming provisions of FERA, 1973 and that of Expenditure Tax Act, 1987 r/w rule 4 of Expenditure Tax Rules 1987 cannot be used for interpretation of the provisions of section 80HHD as those provisions are meant for those Acts. It was also the contention of the ld. DR that CIT was justified in ignoring the provisions of Expenditure Tax Act r/w rule 4 of the Expenditure Tax Rules, 1987 on the ground that those provisions provides a benefit of claiming exemption to foreign national to pay in Indian currency to hotels etc. out of Indian currency received by them after foreign exchange converted by their agents/tour operators. This exemption cannot be pressed into service to extend to claim any benefit of section 80HHD to the assessee who has to win o....
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....ived foreign exchange at the first instance and he was not entitled to get deduction on the amount of Indian rupees which he received from tour operators/ agents out of foreign exchange they received. 11. About the other amount of Rs.5,27,22,837 received by assessee as foreign exchange for conversion, the same was the submission of the ld. DR as were taken by CIT. It was pleaded that no services were rendered by the assessee to earn foreign exchange but it was necessary for assessee to act as Restricted Money Changer to claim the status of Five Star Hotels. The facility of Money Changer being extended by the assessee to foreign tourists cannot be regarded as service. Apart from it, even if it is treated as service then the assessee had not received any profit out of it nor it has been included in the profit and loss account. It was also the contention of the ld. DR that provisions of section 80HHD(1)(b) had not complied with by the assessee as deduction under section 80HHD can be extended if remaining profits referred to in clause (a) are debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to the reserve acc....
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....essment year commencing on the 1st day of April, 1989 or the 1st day of April, 1990 or, as the case may be, the 1st day of April, 1991 if the assessee was engaged in the business of such hotel or as such tour operator during the previous year relevant to any of the said assessment years. (2) This section applies only to services provided foreign tourists the receipts in relation to which are received within a period of six months from the end of the previous year or, where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf. By Finance (No. 2) Act, 1991, the following Explanation and sub-section (2A) was added w.e.f.1-4-1992: Explanation.--For the purposes of this sub-section, any payment received by an assessee, engaged in the business of a hotel or of a tour operator or of a travel agent, in Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer (from another hotelier, tour operator or....
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....ns relating to earnings in foreign exchange by hotels, tour operators etc. "49. Under the existing provisions of section 80HHD of the Income-tax Act, a resident taxpayer engaged in the business of an approved hotel, or as an approved tour operator or a travel agent is allowed a deduction, in computing its total income, of an amount equal to-- (i) 50 per cent of the profits derived from services provided to foreign tourists, payment for which is received in convertible foreign exchange; and (ii) so much of the remaining profits referred to above as are credited to a reserve fund to be utilised for the purpose of the business of the taxpayer in the prescribed manner. The amount credited to the reserve account may be utilised for any of the specified purposes within a period of five years following the year in which the amount is credited to the reserve accounts. In many cases, the foreign tourists visitIndiaon a package tour and make a lump sum payment, in foreign exchange, to a tour operator inIndia. The Indian tour operator, thereafter, makes payments to the hotels where the tourist groups are lodged. Since the foreign exchange is received only by the tour operator, it is ....
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....uoted with approval the extract from the book "Principal of Statutory Interpretation" VI edition by Honourable Justice G.P. Singh and the same is as under:-- "The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Crains and approved by the Supreme Court: for modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If....
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....s. But it required further compliance from the assessee to whom this benefit was extended. There appears to be some ambiguity to even Explanation so added by Finance (No. 2) Act, 1991 and that ambiguity was again cured by the Legislature by subsequent Finance Act, 1994 which had provided the proportionate amount on which deduction can be claimed by tour operators, agents of foreign tourists and hotels. It shows that the intention of the Legislature was clear as it has provided benefits to hotels who used to receive Indian currency from tour operators or tour agents of foreign tourists out of foreign exchange received by those persons from foreign tourists and thus the explanation was applicable from the date it came into operation i.e. 1-4-1992 and was not having retrospective operation. 13. Even if for the sake of argument, we presume that that adding of Explanation and sub-section (2A) to the existing provisions of section 80HHD were having retrospective effect and be taken as existing on statute from the date when original provision of section 80HHD were brought in the Income-tax then there will be various difficulties. If assessee is allowed to claim benefit under section 80....
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.... fact that as per classification Governed by the Star System of Tourism Department, 5, 4 or 3 Star Hotels are having Money Changing Facility and this cannot be termed as service. As assessee is having Five Star Hotels status for its hotel, it was essential pre-requisite for the assessee to obtain Restricted Money Changing licence and to provide this facility to foreign tourists. Accordingly, this is not a sort of service but it is a facility which is embedded in the assessee on account of its 5 star status. 15. Apart from it, it is admitted fact that the assessee had not included that amount on this conversion of foreign exchange into Indian currency to their profit and loss account. Section 80AB of the Act provides that deduction under Chapter VI-A can only be allowed if the income of the nature specified in that section in which claim is made, is included in the gross total income of the assessee. In the case in hand, the assessee has not included this amount of Rs.5,27,22,837 to its gross total income and thus the CIT(A) was justified in treating this amount as not eligible for claiming deduction under section 80HHD. 16. As observed earlier, claim of the assessee can only ....
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....ove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The lang....
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....t of the foreign exchange who did not render services in terms of the section could get the benefit whereas the real persons who rendered the required services were left out without deriving the benefit intended by the Parliament. To plug the loophole the Parliament inserted Explanation and also section 2A by the Finance (No. 2) Act, 1991. The amended section is intended to ensure proper sharing of the benefit by the entitled persons. In the case of tour operator or a travel agent, he will be allowed to retain the amount to the extent it was earned by him for the services rendered. The remaining amount transferred to the Hotels for the services provided by them will also be entitled for benefit of the deduction under section 80HHD in the hands of the Hotel. Keeping in view the above intentions of the Parliament, it is seen that the original unamended section has not been correctly interpreted resulting in unintended benefit to one party at the cost of the other. There is also possibility of giving benefit much in excess of the intended benefit by the Legislature. That is, giving benefit to the first recipient and the person who actually rendered the entitled services. There is, the....
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....n in any case, there being two possible interpretations and views in the unamended section, it cannot be said that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. In that view of the matter, we hold that the Commissioner was not justified in denying the deduction under section 80HHD on the receipt from agents of foreign tourist in Indian currency amounting to Rs.4,03,09,863 for services rendered to the foreign tourists. With regard to the provisions of sub-section (2A) inserted by the said Finance Act, I am of the view that this is only a machinery provision for allowing the correct amount of deduction under the above section. In this particular case, there is no doubt about the genuineness of the services and the payments received by the assessee. The mere machinery provisions will not deprive the assessee of its right to have the deduction, if the said deduction is entitled under the amended provisions. The learned Commissioner also did not invoke this provision for setting aside the order of the Assessing Officer and the question is to be limited to the legal aspect of the entitlement. With regard to the claim of deduction un....
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....on, which is assessment year 1989-90. The assessment order was passed in this case on23-3-1992on an income of Rs.47,74,667 under section 115J of the Act. 4. The Commissioner of Income-tax on going through the record came to the conclusion that the said assessment order was erroneous insofar as it was prejudicial to the interest of Revenue and he, therefore, issued a notice under section 263 to the assessee on5-3-1993. The said notice is reproduced at page 2 of the order of the Tribunal and a perusal thereof shows that deduction under section 80HHD had been initially claimed on foreign exchange receipts amounting to Rs.28,63,38,220, which included the following two amounts:-- -------------------------------------------------------------- "(a) Receipt from agents of foreign tourists in Indian currency Rs. 4,03,09,863 (b) Foreign exchange converted by the assessee as an authorised Rs. 5,27,22,837" money changer -------------------------------------------------------------- ....
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....n applied to amounts received by the assessee in convertible foreign exchange and there was no provision for a "deeming receipt" and treating the rupee payments received by the assessee as such. The relevant provisions of the Expenditure Act, 1973 cited as also Notification dated28-8-1981issued under the FERA, 1973 were found to be inapplicable. The CIT in fact observed that the Assessing Officer was not justified in accepting the explanation of the assessee on the point at issue in utter disregard to Circular No. 621, dated19-12-1991issued by the CBDT which clarified the situation for the period prior to1-4-1992. According to the CIT the benefit of the Explanation added to sub-section (2) of section 80HHD could not be given to the assessee as the intention of the Legislature was to extend the benefit from assessment year 1992-93 onwards. It was noted by the CIT that prior to the addition of the Explanation aforesaid the benefit under section 80HHD was available only to the first recipient of the foreign exchange. In the final analysis, the CIT directed the Assessing Officer to withdraw the deduction under section 80HHD to the extent it related to the sum of Rs.4,03,09,863 represen....
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....was placed on the judgment of the Hon'ble Supreme Court in the case of Podar Cement (P.) Ltd. 10. On behalf of the Revenue the learned Departmental Representative vehemently supported the order of the Commissioner of Income-tax passed under section 263 contending that the definition of other statutes could not be pressed into service for interpreting the provisions of any particular statute and hence placed reliance on the decision of the Bombay High Court in the case of State Bank of India. 11. On the basis of the aforesaid it was contended that the deeming provisions of FERA, 1973 and those of the Expenditure Tax Act, 1987 read with relevant Rule of the Expenditure Tax Rules, 1987 could not be used for interpreting the provisions of section 80HHD. The further plea was that the aforesaid provisions were not at all applicable as these merely provided a benefit to foreign nationals to pay to hotels in Indian currency the same having been obtained by conversion of their foreign exchange. 12. The further submission on behalf of the Revenue was that Explanation (2) to sub-section (2) of section 80HHD was not clarificatory in nature inasmuch as it provided an additional benefit....
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....order that perusal thereof made it abundantly clear that the intention of the Legislature was to secure the benefit under section 80HHD for hotels and the said Explanation was not clarificatory or declaratory, otherwise, the Legislature would have made its intention quite clear. He at this stage referred to the judgment of the Hon'ble Supreme Court in the case of Podar Cement (P.) Ltd. where Their Lordships had quoted with approval an extract from the book "Principles of Statutory Interpretation" by Hon'ble Justice G.P. Singh [VIth Edition, 1996]. This is reproduced at page 19 by the learned Judicial Member and again at pages 25 and 26 by the then Senior Vice President, who ultimately deferred with the view expressed by the learned Judicial Member. 16. Coming back to the order of the learned Judicial Member in considering the application of the aforesaid views expressed on the question of interpretation, he observed that in the memorandum explaining the relevant provisions the intention which had been highlighted was to "secure the benefit of section 80HHD" to hotels and the Legislature had not used the word "declared" or "enacted". According to the learned Judicial Member the L....
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....perators/agents in respect of the foreign exchange received by them and if the assessee was also to claim benefit under the amended provisions retrospectively, then the same foreign exchange receipt would be the subject matter of deduction under section 80HHD twice i.e. one by the tour operators/agents and again by the hotel owners, who actually rendered the services. 18. According to the learned Judicial Member the Legislature in its wisdom had taken into account such a situation and had made the provision prospective i.e. effective assessment year 1992-93 onwards. In the final analysis, the learned Judicial Member held that the Commissioner of Income-tax was justified in rejecting the submissions of the assessee to the contrary and that he had rightly appreciated the impact of the Explanation as also sub-section (2A) both of which had been brought on the statute book with effect from 1-4-1992. 19. The then Hon'ble Senior Vice President who headed the Division Bench, however, did not agree with the view expressed by the learned Judicial Member and by means of a separate order opined that the Explanation was retrospective in nature since there was an ambiguity in the unamende....
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.... the amount which had been passed over to the hotels in Indian rupees, but after conversion from foreign exchange. It was also emphasized by the learned counsel that it was the hotel, which provided the actual services whereas the tour operator was only instrumental in getting the business and working out an itinerary for the foreign tourists. According to the learned counsel, three categories of persons should have received the benefit of section 80HHD i.e. a tour operator, a travel agent and a hotel, but prior to the insertion of the Explanation only two categories probably the tour operator and the travel agent were getting the benefit and the third category i.e. the hotel was deprived of the same and by the insertion of the explanation the benefit had also been provided to a hotel, which rendered most of the services to the foreign tourists. The plea, in other words, was that this had obviously been the intention of the Legislature, but there being some doubt/different interpretation being accorded the Legislature by insertion of Explanation with effect from 1-4-1992 sought to set right the anomaly, remove the ambiguous situation and allow the rightful relief/ exemption to whic....
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.... and not the hotels. The plea, in other words, was that it was never the intention till1-4-1992to give the benefit to a hotel, which earned income in Indian currency even with reference to the services provided to foreign tourists. 25. The learned Departmental Representative also referred at length to the order passed by the learned Judicial Member contending, at the outset, that the unreported decision of the Delhi Benches of the Tribunal in the case of Bhagwan Dass Khanna Enterprises had not considered the matter in proper perspective. The use of the words in the memorandum explaining the amendment i.e. "with a view to securing the benefit" was emphasized by the learned Departmental Representative to contend that the amendment was prospective in nature, more so, when the certificate of the auditor could not be treated to be retrospective since one of the conditions for allowing deduction under section 80HHD was the certificate of the auditor. The learned Departmental Representative referred to the observations of the learned Judicial Member in this respect. The learned Departmental Representative further contended that in case the explanation was considered to be retrospective....
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....d to examine whether there was an ambiguity in the pre-amended provision, was there any doubt as to its meaning or was there a judicial error and whether by amending the law w.e.f. 1-4-1992 there was an attempt to set right or cure the ambiguity or the doubt or the judicial error and whether such amendment could be considered as clarificatory and therefore retrospective. In my opinion there existed in the pre-amended provision neither of these and the intention of the Legislature was quite clear. 31. At the inception of the section itself by the Direct Tax Laws (Amendment) Act, 1989 with effect from1-4-1989the stress was on the earnings in convertible foreign exchange and relief was to be given to the first recipient whether it was the approved hotel or the approved tour operator or the travel agent. It must be appreciated that there are situations when each of these can be the first recipient i.e. when a foreign tourist approaches them without being part of a tour planned through a tour operator. 32. It must also be kept in mind that tours have largely been planned by the tour operators who are in direct touch with the foreign groups and a composite package normally involves....
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....currency was made out of conversion of foreign exchange brought into India by the foreign tourists. 39.3 The first recipient (hotel/tour operator/travel agent), thus, got the deduction in relation to the entire amount of foreign exchange received by him while the second recipient (another hotel/tour operator/travel agent) got the deduction in relation to that portion of it which the first recipient passed on to him for providing service to foreign tourists. 39.4 Logically, the deduction, in such cases, should be allowed only on sharing basis, proportionate to the value of service rendered by each segment. 39.5 With a view to removing the duplication of the incentive for the same amount of foreign exchange remittance, section 80HHD has been amended to as to provide that the first recipient of foreign exchange would be entitled to deduction under section 80HHD in respect of the amount retained by him and not in respect of amount which represents payments passed on to the other assessee. 39.6. Accordingly, in a case where a group of foreign tourists pays $ 10,000 to a tour operator A and the tour operator pays in converted rupees, the value of $ 2,500 to hotel B, $ 1,500 t....
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....ve:-- (i) One has to detect an anomaly, a doubt in the existing provision; (ii) The intention of Parliament is relevant; (iii) Whether an interpretation leads to absurdity; (iv) Liberal construction is to be accorded only for purposes of fulfilling legislative intent; (v) Where a provision is clarificatory or otherwise has to be considered on the facts of each case; (vi) Equitable construction to be accorded where a strict construction leads to injustice or absurd result; (vii) In case of ambiguity the construction which is beneficial to the assessee has to be taken into account; and (viii) To examine whether a proviso/provision is intended to remedy unintended consequences and to make the existing provision workable, a proviso which supplies an obvious omission and which is required to be read into the section to give it a reasonable interpretation and under both the aforesaid situations a retrospective effect is to be given. 39. In applying the aforesaid legal propositions to the facts of the present case, I have to observe that whatever is required to treat an amendment as retrospective is missing and whatever is to be taken into account in treating a ....