TaxTMI 
TaxTMI 
2009 (9) TMI 675
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....r- pose of extending the special benefit provided as an incentive in terms of section 80HHD of the Act, which reads as under : "80HHD. Deduction in respect of earnings in convertible foreign exchange.-(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of a hotel (or of a tour operator, approved by the prescribed authority in this behalf of a travel agent, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee,- (a) for an assessment year beginning on the 1st day of April, 2001, a deduction of a sum equal to the aggregate of- (i) forty per cent. of the profits derived by him from services provided to foreign tourists ; and (ii) so much of the amount not exceeding forty per cent. of the profits referred to in sub-clause (i) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee in the manner laid down in sub-section (4) ; ....
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.... 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 to foreign tourists the receipts in relation to which are received in, or brought into, India by the assessee in convertible foreign exchange within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1.-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 travel agent, as the case may be) on behalf of a foreign tourist or group of foreign tourists, shall be deemed to have been received by the assessee in convertible foreign exchange if the person making the payment furnishes to the assessee a certificate specified in sub-section (2A). Explanation 2.-For the purposes of this sub-secti....
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....ribed authority. (5) Where any amount credited to the reserve account under clause (b) of sub-section (1),- (a) has been utilised for any purpose other than those referred to in sub-section (4), the amount so utilised ; or (b) has not been utilised in the manner specified in sub-section (4), the amount not so utilised, shall be deemed to be the profits,- (i) in a case referred to in clause (a), in the year in which the amount was so utilised ; or (ii) in a case referred to in clause (b), in the year immediately following the period of five years specified in sub-section (4) ; and shall be charged to tax accordingly, (5A) Where any amount credited to the reserve account under clause (b) of sub-section (1) has been utilised for subscription to any equity shares referred to in clause (f) of sub-section (4) and either whole or any part of such equity shares are transferred or converted into money by the assessee at any time within a period of three years from the date of their acquisition, the aggregate amount so utilised in respect of such equity shares shall be deemed to be the profits of the previous year in which the equity share....
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....sp; (i) setting up and running of new hotels approved by the prescribed authority ; or (ii) providing such new facility for the growth of tourism in India, as the Central Government may, by notification in the Official Gazette, specify ;" 3. While the Assessing Officer as well as the first appellate authority were of the view that in ascertainment of such profits attributable to the receipts in the nature of foreign exchange receipts of the assessee, which had chain of hotels, some of which were eligible and enabled to claim the benefit of section 80HHD of the Act and some of which though had been receiving foreign exchange payments were nevertheless not getting the benefit for not having undergone the procedure in terms of sub-section (2) of section 80HHD of the Act and, therefore, there being a dispute in the manner of ascertainment of the profits attributable to the foreign exchange receipts of the assessee, the assessee's claim that such ascertainment of profits attributable to the foreign exchange receipts should be computed in terms of the formula provided under sub-section (3) can only be with reference to the over all profits earned from such of the h....
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....nbsp; 5. The Income-tax Act, 1961, though is a piece of legislation to raise revenue to the State and a law made by Parliament with reference to entry 81 of List I Schedule VII to the Constitution of India and being a piece of legislation for supporting Governmental activities and in turn being dependent on the policies and programs of Government, at a given point of time, may have and also being dependent on meeting the other requirements to support and meeting the other functions of the State which are essential and India being a welfare country, it is also used as a tool for giving the expression to the policies of the Government governing the people. 6. Under the Income-tax Act, 1961, Chapter VI-A was introduced by the Finance Act, 1965, with effect from April 1, 1965, and a mere glance at the various sections contained in Chapter VI-A will reveal to any person that it comprises various sections which are in the nature of incentives and to encourage particular type of activity by an assessee, which if followed would bring down the assessee's tax liability by the mechanism of excluding the amount identified under each section, significance being the tax liability wi....
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....d that during this period it had carried on business in running of hotels also and that while some of the hotels were owned and managed by the assessee itself, many others were owned by some one else, i.e., the building with its equipment which enabled it to use it as a hotel owned by some one else but the assessee carried on the hotel business in such premises and in turn paid the owner some payment known as royalty on the basis of an agreement entered into with the owner of the building and the assessee for convenience sake categorised such business activity as running under licence of the owners and a third category where the building with equipment was owned and was also supported by the staff of the owner, nevertheless the management of the same was that of the assessee and some of them also carried on the busi- ness under the brand name of the assessee and one common factor which has group running and that they are all described as a group of hotels belonging to the Welcome Group and it is generally made known to the customers/guests that they are receiving hospitality in a Welcome Group Hotel. 11. The list of such hotels as claimed by the assessee for the accounting perio....
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....bsp; 0 0 Total income 415,243,522 196,542,718 228,283,001 247,870,201 19,037,040 114,612,093 18,585,511 16,540,070 292,508 1,257,006,664 209,659,331 1,466,665,995 Settlement of bills 11,695,748 4,729,185 8,133,589 8,388,988 114,545 4,026,127 562,542 570,405 38,221,129 35,221,129 Inter Credit cards 166,260,564 21,677,220 67,968,673 46,597,178 1,594,757 25,914,326 1,743,690 2,100,430 333,856,838 33,856,838 Travel agents 4,807,232 61,904,823 2,215,158 77,971,784 5,375,815 67,647 10,022,195 1,006,701 163,371,355 163,371,355 Bilateral agreement 0 0 0 0 0 0 Foreign Airlines 0 0 0 0 0 0 Total forex earnings 182,763,544 88,311,228 78,317,420 132,957,950 7,085,117 30,008,100 12,328,427 3,677,536 0 535,449,322 0 535,449,32 13. The assessee had filed its return of income f....
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....ct of Bay Island Hotel after necessary verification of the appeal filed by the appellant as per the order dated June 19, 2000. 20. While the assessee was in the process of seeking further relief before the Appellate Commissioner in respect of the disallowed amount, the assessing authority, it appears, also got alerted by this time and thought it proper to rectify the assessment order as the Assessing Officer realised that there was an error apparent on the face of the record. In passing of the assessment order and in determining the actual tax liability of the assessee which in turn was depending on the proper quantification entitlement of the assessee in terms of section 80HHD of the Act as such amount played a role in reduction of total taxable income of the assessee by the very amount. 21. While the Assessing Officer was required to examine the matter in terms of the remand of the Appellate Commissioner and in the meanwhile was also of the view that the original assessment order was required to be rectified, caused notice to the assessee under section 154 of the Act as per the notice dated July 7, 2000. 22. The assessee filed its objections/explanation to ....
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.... v. Deputy CIT [1997] 60 ITD 682 (Delhi). Your honours kind attention is invited to the decision of the Delhi Bench of the Tribunal in the case of Eastern Leather Products (P.) Ltd. v. Deputy CIT [1999] 68 ITD 358 wherein the hon'ble Tribunal held that for computing deduction under section 80HHC of the Act loss incurred in one unit not connected with the export unit could not be adjusted against profits of the export unit Besides the aforesaid decisions, your honour's kind attention is invited to various provisions of section 80HHD. Under sub-section (1), the deduction is available to a resident assessee who is engaged in the 'business of a hotel'. . . Approved by the prescribed authority and the deduction is available to the extent of fifty per cent. of the profits derived by such assessee from services provided to foreign tourists and such part of the balance profits as may be utilized in the specified purpose and manner. Since a hotel would be rendering services to persons other foreign tourists, or such services to foreign tourists for which payment is not received in convertible foreign exchange, sub-section (3) lays down an artificial method for ....
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.... missions made hereinabove." The objection of the assessee is not correct. The provision contained in sections 80HH and 80-I is different from the provision contained in section 80HHD. The words used in section 80HH are "profit or gain of such industrial unit" whereas for section 80-IA there is a specific sub-section (7) which states that the deduction is to be calculated unit-wise. However, section 80HHD provides that it is the profit of the business and the total receipt of the business which is the figure to be adjusted and not of sub-business. As such the method adopted by the assessee from the calculation of deduction under section 80HHD is not correct and in accordance with law. The profit of the hotel business is to be taken as a whole taking the receipts of all the units into consideration and the unit from which there was no income or negative income cannot be ignored. The decisions relied upon the assessee are not applicable to the provisions contained under section 80HHD. The decisions are in respect of other sections such as sections 80HH, 80-I, etc. As such the deduction admissible under section 80HHD is worked out as under : Rs. (i) To....
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....ised as an order suffering from a mistake apparent on the face of the record within the scope of section 154 of the Act and, therefore, the jurisdiction under section 154 was not exercisable in respect of such debatable difference of opinion. 25. The Assessing Officer did not agree with the stand taken by the assessee and the contention urged on behalf of the assessee and passed an order said to be a combined order both for the purpose of section 154 rectification and also for the purpose of giving effect to the remand order as con- templated under section 251 of the Income-tax Act and in that order indicated that on the proper working of the formula as envisaged under section 80HHD which in fact had not been done so while passing the order on remand and the proportionate business profits attributable to the foreign exchange receipts earned by the assessee during the accounting period in question and corresponding assessing year was actually a sum of Rs.8,97,19,225 and not as had been originally allowed at a sum of Rs.13,46,77,185. 26. The actual computation and the method of working of this amount as indicated in the rectification order is as follows :  ....
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.... ground in this appeal that the original assessment order of the Assessing Officer dated March 31, 1999, had got merged with the appellate order of the Commissioner (Appeals) dated June 19, 2000, though the Commissioner was issuing further directions to the Assessing Officer for further verification of facts so far as the question of permitting the claim for deduction or otherwise of the amount quantified proportionate profits as the assessee in respect of its Bay Island Hotel at Port Blair. The appellate order nevertheless had the effect of denuding jurisdiction to the Assessing Officer in dealing with the original assessment order in any manner. 30. The learned representative of the Department of Income-tax joined issue on this and the Appellate Tribunal on hearing the respective learned counsel for the appellant and the Revenue in terms of its order dated October 31, 2001, allowed the appeal of the assessee being of the view that the contention of the assessee of the merger principle coming in the way of the Assessing Officer to exercise the rectification jurisdiction merits acceptance placing reliance on : "9.(i) It is to he noted that the powers of the Comm....
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.... be raised as an independent question of law'. Some of the cases are : (i) CIT v. H. R. Karandikar [1981] 129 ITR 609 (Bom) ; (ii) Harish Chandra Golecha (HUF) v. CIT [1981] 132 ITR 806 (Raj) ; (iii) N. A. Mody v. CIT [1986] 162 ITR 420 (Bom) ; and (iv) CIT v. Anaimugan Transports P. Ltd. [1995] 215 ITR 553 (Mad)" and, therefore, opined the merger principle came in the way. The Tribunal was also of the opinion that the question as to whether the computation of proportionate profits quantifying for the benefit under sub-section (1) of section 80HHD in terms of sub-section (3) of section 80HHD of the Act being of debatable point and for this reason also it cannot be made the subject-matter for a rectification invoking power and jurisdiction under section 154 of the Act. 31. In so far as the appeal of the assessee relating to the proper manner of working of the benefits under section 80HHD of the Act is concerned the Tribunal opined that while the approval of the prescribed authority is a sine qua non, i.e., entry quantification to get into the provisions of section 80HHD of the Act, the provisions of sub-section (3) of secti....
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....a, learned senior standing counsel for the Department is though not elaborate to the point and precise. Mr. Seshachala would submit that in the first instance the determination of the total income of the assessee and the corresponding tax liability for the assessment year for which in return depending upon the proper computation or determination of the benefits the assessee could observe in terms of section 80HHD of the Act had escaped the attention of the Assessing Officer and the assessment proceedings had been concluded even without being aware of the require- ments under section 80HHD of the Act submitted that in the first instance the claim of the assessee for the benefit under section 80HHD had been just not looked into and but allowed to pass as it is only on the limited verification of the hotel which did quantify for claiming the benefit and on notice Bay Island Hotel at Port Blair had not been so approved by the prescribed authority. 35. The submission is that in respect of the balance of the claim, the assessee had virtually overlooked the requirements of working of the benefits in terms of sub-section (3) of section 80HHD of the Act and this is a mistake in la....
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....case, the question as to whether the assessee claimed for deduction of the benefit under section 80HHD of the Act from out of the total income of the assessee which never been made an issue as the Assessing Officer had virtually allowed the claim by his over sight and by overlooking the requirement of sub-section (3) of section 80HHD and the Appellate Commissioner whose order is one which is called in aid for urging the principle did not in any way advert the question of the manner of computation of the benefits of section 80HHD of the method of working under sub-section (3) of section 80HHD as it is not even the subject-matter of appeal and there was no issue before the Appellate Commissioner on this question. A matter which is never a subject-matter of appeal cannot be categorised as an aspect which gets merged with this appellate order and, therefore, the principle of merger is not at all attracted in the present case is a subject-matter of the rectification authority to learned counsel for the Revenue. 38. In this regard while our attention is drawn to the statutory provisions of sub-section (1)(a) of section 154 of the Act which reads as under : "154. Recti....
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.... doing so for such quantification and only in accord- ance with formula envisaged in sub-section (3) of section 80HHD of the Act is required to be adopted. 42. The manner of working of sub-section (3) of section 80HHD of the Act has been demonstrated by the employment of the formula, the actual working of the same and in this regard the learned counsel for the Revenue would submit that the method of applying the formula and working the formula which is also the requirement even for ascertaining the deductible amount under section 80HHD of the Act the subject-matter of appeal before this court but even independent of it the formula should not only be worked, employed in terms of sub-section (3) of section 80HHB of the Act and only in that manner and for the amount arrived at under sub-section (3) of section 80HHD of the Act. 43. Countering such submissions on behalf of the assessee Sri Vikram H. in the first instance and later carried on by Sri Ajay Vohra, learned counsel appearing for the assessee have put forth several forcible contentions in the following manner. 44. Mr. Vikram in the first instance has contended that invoking of section 154 jurisdic....
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.... court permits, the learned counsel would continue arguments from the stage up to which Sri Vikram Huilgol, learned counsel for the respondents, who had argued the matter hitherto and had brought the matter up to this stage. 49. Though this is not normally done not is appreciated, nevertheless as the endeavour is only to find a satisfactory answer to the questions put forth before the court and receiving assistance from any counsel is always to the advantage of the court and if better light can be thrown by any learned member of the Bar who is authorised to appear on behalf of the parties and that being welcomed, that being our attitude, we permitted Mr. Vohra to join midstream and continue the submissions on rest of the issues/questions, i.e., the question relating to the merits of the manner of understanding section 80HHD of the Act as to whether the understanding of the Tribunal as reflected in the order under appeal is the correct understanding or if it is otherwise. 50. Mr. Vohra, learned counsel for the respondent-assessee, has drawn our attention to paragraph 14 of the order of the Tribunal and in this regard has also read us the contents of paragraph 10 ....
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....g services to foreign tourists and with a further rider as stipulated in sub-section (4) indicating the need for application of the funds from the reserve account for the purpose of construction to provide additional facilities to foreign tourists or to increase the capacity of the assessee for providing such hotel services to foreign tourists and if the said amount is not so utilized before the expiry of a period of five years next following the previous year in which the amount had been credited to the reserve account then the amount to be treated as such amount falling short of utilization and to be treated as the income of the year in which the period of five years expires and clause (b) enabling the further deduction from out of the remaining profits, if to that extent the amount from the reserve account is utilized for the purposes of the assessee as provided in sub- section (4) of section 80HHD of the Act actually invested for the developmental activity as indicated in clauses (a) to (e) of sub-section (4) of section 80HHD of the Act and it is submitted that such was the view taken by the Madras Motors' case [2002] 257 ITR 60 (Mad) while interpreting the provisions of sectio....
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....ving been re-framed by the learned counsel for the appellant-Revenue and to which Sri Vikram has no objection are as under : "1. Whether the Tribunal was correct in holding that the issue of deduction under section 80HHD of the Act has merged with the order of the Commissioner of Income-tax (Appeals) and the order passed under section 154 of the Act by the Assessing Officer is with- out jurisdiction ? 2. Whether the Tribunal was correct in holding that the computation of deduction under section 80HHD of the Act as to whether it is to be allowed based on all the branches of hotels of the assessee by taking into account the profit and losses or individual branch hotels by considering only the profit is a debatable issue and, therefore, the order under section 154 of the Act is without jurisdiction ? 3. Whether the Tribunal was correct in holding that the powers under section 154 of the Act is co-terminus with the scope of powers under section 143(1)(a) of the Act as computation of deduction could not have been exercised under section 143(1)(a) of the Act and the rectification could not have been done under section 154 of the Act ? 4. Whether th....
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....ly attracted and we can profitably extract the observations made by this court which reads as under (page 464) : "The doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by the inferior tribunal, and the other by a superior tribunal, passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute as laid down by the Supreme Court in State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 (SC), relied on by Sri Sarangan. In CIT v. Amritlal Bhogilal and Co. [1958] 34 ITR 130 (SC), the Income-tax Officer made a composite order granting registration to the firm and also an order of assessment on the basis of registration. The assessee filed an appeal before the Appellate Assistant Commissioner against the composite order. The court held that the order of registration made by the Income-tax Officer did not merge in the appellate order of the Appellate Assistant Commissioner because the order of registration made by the Income-tax....
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....ise of the jurisdiction for rectification by the assessing authority. 58. As explained, while on a legal principle, the merger doctrine operates only in respect of the subject-matter of the appeal and not on an aspect which was not made the subject-matter, the legal position has also found statutory expression under section 154A of the Act which is also discussed above. 59. In this view of the matter, we reject the argument on behalf of the asses- see that in view of the principle of merger, the assessing authority could not have exercised the jurisdiction of rectification in any way rectifying the original assessment order even in respect of such aspects which were not made the subject-matter of appeal before the first appellate authority. 60. Even the contention urged on behalf of the assessee that apart from the merger principle, the order made the subject-matter of rectification involving questions which were capable of more than one answer and being in the nature of a debatable question. If either view was possible and if earlier the Assessing Officer having taken one view cannot later on change his view on the question to modify the original asse....
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....eligibility criteria for an assessee to claim the benefit of section 80HHD of the Act as to whether a particular unit wherein the assessee was in receipt of foreign exchange from foreign tourists was a unit which would qualify for claiming the benefit or otherwise as to whether it was certified by the competent authority in terms of the provisions of sub-section (1) of section 80HHD of the Act ". . . approved by the prescribed authority in this behalf, etc.," and the assessing authority had only noticed that the unit in Port Blair under the name and style of "Bay Island Hotel" had not been so certified by the competent authority by the end of the accounting period, i.e., March 31, 1996. 6. Therefore, the argument of the question being a debatable point does not even arise, as obviously the requirement of qualifying the amount qualifying for the benefit in terms of sub-section (3) of section 80HHD of the Act for the purpose of sub-section (1) of section 80HHD of the Act had totally been missed by the Assessing Officer in the first instance when the assessment order dated March 31, 1999, was passed. 64. While it is true that if the order is one involving a debatab....
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.... worked out in terms of section 80HHD(3) of the Act, the comparison stops at that and what is not provided for in section 80HHD(3) of the Act cannot be read into that section with reference to the provisions of sub- section (1) of section 80HHD of the Act. 69. By pointing out to sub-section (3) of section 80HHD of the Act, learned standing counsel would submit that the words used in sub-section (3) of section 80HHD of the Act such as "the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession") the same proportion as the receipts specified in sub-section (2)" is indicative of the fact that the phrases such as business should be necessarily understood only in the manner of the word as defined in the Act and as is found in sub-section (13) of section 2 of the Act which, says "business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture" and the phrase "Profits and gains of business or profession" is an expression which is the heading in sub-chapter "D" of Chapter IV which is "D- Profits and gains of business or profession" and submits that ....
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.... State. In interpreting any statutory provision, the first rule is that one should have a look at the enactment, the purpose for which the enactment is made by the Legislature and the object that is sought to be achieved and any interpretation can only be in the light of and in the background of the object of the enactment. If that is so, the Income-tax Act being a legislation for raising revenue and augmenting the coffers of the State cannot be disputed and that the basic fact and purpose looms large like a brooding omnipotent in all further interpretations of various sections of the Act. 74. While understand the beneficial provision, section 80HHD of the Act, it should be so interpreted as to extend the benefit meant for the assessee in terms of section 80HHD of the Act and not to understand it so as to deny the benefit is also settled principle of interpretation, at the same time, in so understanding the limits of such benefit should be confined within the letters of law and cannot by a process of interpretation extended beyond what is actually permitted by the statutory provision is also an equally recognized and accepted mode of interpretation if an exemption provisi....
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....HHD of the Act, then comes second stage of the computation of benefits which the assessee can claim in terms of section 80HHB of the Act. Here again the benefit is qualified in terms of sub-section (3) of section 80HHD of the Act and by applying the formula as discussed above. 79. It is in this context, Sri Seshachala, learned senior standing counsel appearing for the Revenue, has drawn our attention to the particulars furnished by the assessee itself indicating the total receipts from business in the prescribed form, namely, Form No. 10CCAD which is envisaged in terms of rule 18BBA(4) of the Income-tax Rules for the purpose of section 80HHB of the Act and a copy of which forms part of the assessment records which indicated that even the assessee itself had revealed as per this statement that the total income of the assessee from all the units of hotel industries, etc., was a sum of Rs. 146,66,65,995. These figures are available in the return filed by the assessee in the prescribed form 10CCAD which is extracted as under : ITC Hotels Limited-Consolidated 80HHD Calculation Working Windsor RPS Chola Mughal UKP Vadodara Lallgar....
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.... 3,995,431 3,675,954 (1,986,879) 317,346,721 (36,555,156) 280,791,566 Less : Section 43B payments -Taxes/duties etc 270 91,336 131,566 223,172 223,172 -Bonus/interest 313,382 500,000 166,268 330,000 84,588 1,394,238 246,761 1,640,999 Trading receipts 0 0 Payments during the year 0 0 0 Provision reversed 0 0 0 During the year 0 0 313,652 591,....
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....uld necessarily be part of the total receipts from all such units which figure in the denominator portion of the formula. 83. In so far as the reliance placed by the learned counsel for the assessee on the ruling of the Madras High Court in Madras Motors' case [2002] 257 ITR 60 (Mad) is concerned, the judgment can definitely have persuasive value and is not of binding nature, being a judgment on the interpretation of the provisions of section 80HHC of the Act and as we are directly involved in interpreting the provisions of section 80HHD of the Act in the present case, we do not think it necessary to further examine that ratio as discussed therein, particularly, as the interpretation of the provisions of section 80HHC of the Act if not very apt to the situation and as is required under section 80HHD of the Act may not have even persuasive value. It is, therefore, that we refrain from examining the reasoning employed by the Madras High Court for arriving at the conclusion in Madras Motors' case [2002] 257 ITR 60 (Mad) but proceed to examine the question independent of it as the said judgment is not even of persuasive value for the purpose of interpreting section 80HHD of t....