TaxTMI 
TaxTMI 
2005 (6) TMI 560
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....owed in respect of the amount computed under the said proviso, requires reconsideration in view of the subsequent decision of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd. v. Dy. CIT 266 ITR 521, especially considering the observations of the Hon'ble Apex Court recorded therein to the effect that the provisions of section 80HHC are also governed by section 80AB. (2) Whether in any view of the matter, if the figures as computed under clause (a) or (b) or (c) of sub-section (3) is a negative figure, would an assessee be entitled to a deduction under section 80HHC, if after setting off the said negative figure against the amount computed under the proviso to sub-section (3), there remains a positive figure." 2. The above issues have, in fact, arisen from ITA No. 6503/M/2002 filed by M/s. B. Sorabjee against the income-tax assessment order for the assessment year 1999-2000, as upheld by the learned CIT(A). The facts in this case are that the assessee is a manufacturer and exporter of readymade garments. For assessment year 1999-2000, the assessee claimed deduction under section 80HHC of Rs. 1,75,08,996. It had credited Rs. 1,91,93,598 as incentive of exports....
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....sion of the Hon'ble Kerala High Court in the case of CIT v. V.T. Joseph (1997) 225 ITR 731holding that only the actual profit in the export business can be considered for deduction under section 80HHC, was also relied on by the Assessing Officer. As such, the assessee's claim for deduction under section 80HHC was rejected. 3. By virtue of the order dated 22-10-2002, the learned CIT(A) upheld the assessment order. 4. Before us, the following assessees have sought to be impleaded as interveners : S. No. ITA No. Assessee Represented by Asst. yr. 1. 7071/M/2004 Mrs. Arun S. Jain Sh. M. Subramanian 2001-02 2. 4153/M/2001 Indokem Export Ltd. Ms. D.J. Jariwala 1997-98 3. 6380/M2004 M/s SDM International Sh. R.R. Vora 2001-02 4. 2781/M/1999 TATA International Ltd. Withdrawal Appli. 1992-93 5. 2738/M/1999 TATA International Ltd. Withdrawal Appli. 1992-93 6. CO-297/M/99 TATA International Ltd. Withdrawal Appli. 1992-93 7. 2697/M/2000 Tata International Ltd. Withdrawal Appli. 1994-95 8. 2846/M/2000 Tata International Ltd. Withdrawal Appli. 1994-95 9. ....
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....se Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of the export turnover specified in the said certificate bears to the total turnover of the assessee in respect of such trading goods. (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of the profits. (2)(a) This section applies to ....
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....ibutable to such export; (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall, (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation. -For th....
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....ng that the deduction has been correctly claimed on the basis of the profits of the supporting manufacturer in respect of his sale of goods or merchandise to the Export House or Trading House; and (b) a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section : Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts of the Export House or Trading House under the provisions of this Act or under any other law. (4B) For the purposes of computing the total income under sub-section (1) or sub-section (1A), any income not charged to tax under this Act shall be excluded. Explanation. -For the purposes of this section, (a) '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 purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules....
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....e assessee is entitled to deduction of 90 per cent of incentives under the first proviso to section 80HHC(3). Whether loss under the said proviso is to be ignored or whether loss, i.e., negative profit is to be adjusted against positive receipts in the shape of incentives and if after such adjustment there is some positive figure, deduction can be allowed on such figure ? 7. The issue had arisen in a large number of cases before various Benches of the Tribunal. Some Benches held that the assessee is entitled to deduction on incentives even in cases where there is no profit from export in terms of sub-section (1) of section 80HHC. The loss suffered has to be ignored. Other Benches have held that the loss is to be adjusted against incentive receipts and if resultant figure is a positive figure, then deduction under the section is to be allowed on such positive figure. 8. The third situation is the one pleaded and canvassed on behalf of the revenue. As per this situation no deduction to the assessee is permissible if there is no profit from export. According to the revenue the assessee is not entitled to any relief under section 80HHC if there is no profit under sub-section (1) ....
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....not dilute the deduction allowable under the first proviso. 12. Meanwhile, the assessee challenged the decision of the Bombay High Court in the case of IPCA (supra) before the Hon'ble Supreme Court. Their Lordships of the Supreme Court, vide order dated 11-3-2004 in IPCA Laboratory Ltd. v. Dy. CIT (2004) 266 ITR 521, held as under: "We are concerned with the wordings of sub-section (3)(c) of section 80HHC. It would not be denied that the word 'profit' in section 80HHC(1) and sections 80HHC(3)(a) and 80HHC(3)(b) means a positive profit. In other words if there is a loss, no deduction would be available under sections 80HHC(1) or 3(a) or 3(b). In arriving at the figure of positive profit, both the profits and losses will have to be considered. If the net figure is a positive profit, the assessee will be entitled to a deduction. If it is a loss, the assessee will not be entitled be available under sections 80HHC(1) or 3(a) or 3(b). In arriving at the figure of positive profit, both the profits and losses will have to be considered. If the net figure is a positive profit, the assessee will be entitled to a deduction. If it is a loss, the assessee will not be entitled to any....
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.... for further increasing the profits derived from the export and computed in the manner laid down in sub-section (3) of section 80HHC, in terms of the proviso thereto. 14. However, some other Benches of the Tribunal, after considering the abovesaid decision of the Hon'ble Supreme Court, held that loss as negative income was liable to be adjusted against receipt from incentives relief after adjustment there was positive figure. The assessee was entitled to deduction under section 80HHC on such figure. 15. Having regard to the above conflicting views, the Hon'ble President of the Tribunal was once again requested to constitute a larger Bench for considering the impact of the Supreme Court decision in IPCA's case (supra) on the Special Bench decision of the ITAT in the case of Lalsons Enterprises (supra). 16. After considering the matter, the Hon'ble President constituted a Special Bench of 5 Members to consider and decide the questions referred to above. 17. The case was fixed for hearing. Before the matter was heard by this Special Bench, a similar issue was considered by the Hon'ble Bombay High Court in the case of Rohan Dyes & Intermediates Ltd. v. CIT (2004) 270 ITR 35....
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....f incentives. The Hon'ble Bombay High Court was required to interpret the proviso to sub-section (1) to section 80HHC and have not dealt with the proviso to sub-section (3) of section 80HHC. The Hon'ble High Court made certain observations with respect to computation of deduction under sub-section (3) to section 80HHC. However, the applicability of the proviso to sub-section (3) was not dealt with. 22. The Hon'ble Bombay High Court has itself, in Rohan Dyes & Intermediates Ltd. v. CIT (2004) 270 ITR 350held that the Hon'ble Supreme Court, in IPCA's case (supra) was not concerned with the proviso to section 80HHC(3). 23. Reliance has been placed on the following decisions: 1. Goodyear India Ltd. v. State of Haryana (1991) 188 ITR 402(SC); 2. CIT v. K. Ramakrishnan (1993) 202 ITR 997(Ker.); 3. CIT v. Smt. Kamla Devi Rathi (1995) 213 ITR 177(Pat.) (FB); and 4. CIT v. Sudhir Jayantilal Mulji (1995) 214 ITR 154(Bom.). It has further been alleged that the decision in Rohan Dyes & Intermediates Ltd.'s case (supra) is also not applicable to the present facts. In the said case, the assessee had a loss, even after applying the provisions. In that ....
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....nd that the issue under consideration is covered by the decision of the Hon'ble Supreme Court in IPCA's case (supra). It has further been argued that dismissal of Special Leave to appeal in limine does not mean that the Hon'ble Supreme Court has decided the issue on merits. Reference in this regard has been made to Hemalatha Gargya v. CIT (2003) 259 ITR 1(SC), and Kunhayammed v. State of Kerala (2000) 245 ITR 360(SC). It has also been contended that dismissal on merits in respect of the judgment of the Division Bench does not amount to a declaration of law. The decision of Brooke Bond India Ltd. v. CIT (2004) 269 ITR 232(Cal.), in this connection, has been referred to. 27. It has further been submitted that as the appeal was dismissed at the admission stage itself in the case of Rohan Dyes & Intermediates Ltd. (supra) on the ground that no substantial question of law arose from the order, the said order would be binding only on the parties to the appeal and not on others. The decision of the Hon'ble Bombay High Court in IPCA's case (supra) was considered by the Mumbai Tribunal in the case of Vishal Exports Overseas Ltd. v. ITO [IT Appeal No. 1248 (Mum.) of 2002, dated 20-1-2003]....
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....of the case and in law the learned CIT(A) erred in directing the Assessing Officer to ignore the losses suffered by the assessee and calculate the deduction under section 80HHC of the Act on the profit taxable under sub-clauses (iiia), (iiib) and (iiic) of section 28 of the I.T. Act." 32. The Tribunal, following the judgment of the Hon'ble Bombay High Court in the case of IPCA (supra), set aside the order of the learned CIT(A) on this issue and directed the Assessing Officer to compute deduction under section 80HHC at nil. The appeal has been dismissed by the Hon'ble High Court of Bombay, holding that the ITAT did not commit any error in upholding the order of the Assessing Officer, wherein it was stated that the assessee was not entitled to deduction as specified in section 80HHC. 33. It is further submitted that if the resultant figure under sub-section (3)(c) of section 80HHC is a negative figure, there is nothing at hand to further increase, and hence, the proviso does not come into play at all. The moment the working under sections 80HHC(3)(a), (b) or (c) arrives at a loss, there is no further computation needed, as there is no profit 'derived' from export of the specifi....
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.... 80HHC and claim of deduction with reference to the proviso would be of no avail. The profit refers to only a positive profit and not a loss, as held by the Hon'ble Apex Court. 37. Ultimately, the learned Departmental Representatives have sought dismissal of the assessee's challenge. 38. We have given our careful thought to the arguments raised by both the parties and to the material placed on record before us. 39. In IPCA's case (supra), the Hon'ble Supreme Court held that undoubtedly, section 80HHC has been incorporated with a view to providing incentive to export houses. Even though a liberal interpretation has to be given to such a provision, the interpretation has to be as per the wording of the section. If the wording of the section is clear, then benefits, which are not available under the section, cannot be conferred by ignoring or misinterpreting words in the section. Sub-section (3)(a) deals with the case where the export is only of self-manufactured goods. Sub-section 3(b) considers the case where the export is only of trading goods. Thus, when the Legislature wanted to take exports from self-manufactured goods or trading goods separately, it has already so prov....
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....e word 'profit' has the same meaning in section 80HHC(1) and (3). When the Legislature wanted to take exports from self-manufactured goods or trading goods separately, it was already so provided in sub-sections (3)(a) and (3)(b). Sub-section (3)(c) says that 'profit from such exports' has to be profits of exports of self-manufactured goods as well as trading goods. The profit has to be calculated in the manner laid down in sub-section (3). The words 'profits derived from such exports' together with the word 'and' clearly indicate that the profits have to be calculated by counting both the exports. The word 'profits' appearing in the proviso appended to sub-section (3)(c) of section 80HHC has to be given that meaning, and that clearly indicates that the profits have to be calculated by counting both the exports. Even under section 80HHC(3)(c)(i), the profit is to be the adjusted profit of business. The adjusted profit of the business means a profit as reduced by the profit derived from business of exports out of India of trading goods. Thus, in calculating the profits, under sub-section 3(c)(i), one necessarily has to reduce by profits under sub-section (3)(c)(ii). The term 'profit'....
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....idering IPCA's case (supra)(SC), held : "The Supreme Court had a close look at section 80HHC and held that though section 80HHC has been incorporated in the Income-tax Act with a view to provide incentive for earning foreign exchange and a liberal interpretation of such provision may be called for, the plain language of the said section being clear, the benefits which are not available cannot be conferred by ignoring or misinterpreting the words in the section. The Supreme Court, considering the word 'profit' occurring in sub-sections (1) and (3)(a) and (b) of section 80HHC, held that the said word 'profit means a positive profit and that if there is a loss, then no deduction should be available. As regards sub-section (3)(c), the Supreme Court held that 'profits from such exports' has to be profits of exports of self-manufactured goods plus profits of exports of trading good. If there is a loss in either of the two, then that loss has to be taken into account for the purposes of computing profits." 43. After quoting from the decision of IPCA's case (supra), as referred above, Their Lordships further observed that : "The meaning of the word 'profit' occurring i....
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.... Rohan Dyes & Intermediates Ltd.'s case (supra), their Lordships of the Bombay High Court also noted that the submission sought to be advanced before them for the assessee was the same as the one put forward before the Hon'ble Supreme Court, but the Apex Court negatived the same, as per the observations made in the decision and referred to above. In the ultimate conclusion, their Lordships observed as under : "The contention of learned counsel for the assessee, thus, cannot be accepted that negative profit or in other word 'loss' from the export of trading goods arising on computing the deduction under sub-section (3) of section 80HHC has to be taken nil. This is based on misconstruction of the proviso appended to sub-section (3)(c) of section 80HHC. As regards the circular issued by the Central Board of Direct Taxes relied upon by learned counsel for the assessee, suffice it to observe that the said circular also shows that the positive profits can only be considered for the purpose of deduction. This is what the Supreme Court said regarding the said circular in IPCA Laboratory Ltd. (2004) 266 ITR 521." 45. The main contention advanced before us on behalf of t....
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....m export of self-manufactured goods is to be adjusted against the loss from export of trading goods. Likewise, the loss in section 80HHC(3)(c) is to be adjusted against 90 per cent of the export incentives in the proviso and if after adjustment there is any positive profit, the assessee will get deduction under section 80HHC. However, if after such adjustment the ultimate result is a loss, the assessee will not get any deduction under section 80HHC. 47. The department's case, as we understand, is that the Supreme Court decision in IPCA's case (supra) squarely covers the case at hand. This position has been clarified further by the subsequent decision of the Hon'ble Bombay High Court in the case of Rohan Dyes & Intermediates Ltd. (supra). As such, the proviso in question is not an independent provision. 'Profit' in the proviso to section 80HHC(3)(c) means the same as 'profit' in section 80HHC(1) and (3). This profit means a positive profit arrived at after taking into consideration, the losses incurred. Only profits derived from exports can be 'further increased'. That which is absent cannot be increased. So, in the event of the resultant of figure under section 80HHC(3)(c) being....
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.... is the judicial reason on which that decision is founded. It is what that case decides generally or rule of law for which it is an authority. It is of universal application. It binds the subject, the Executive and the subordinate courts alike. The principle decided will be applied whenever a new case comes up for decision. Where the judgment acts against the whole world, that is, in rem, the findings in that case may be conclusive even against third parties. As against persons not party to the suit, the only part of a case which is conclusive is the general rule of law for which it is authority, or the ratio decidendum of the judgment. It is the rule of law applied by and acted on by the court, or the rule which the court regarded as governing the case. Literally, it means reason (ratio) for the decision (decidendum). The nature of ratio decidendi has been discussed in, inter alia : 1. Jagdish Lal v. State of Haryana (1997) 6 SCC 538; and 2. John Martin v. State of West Bengal AIR 1935 SC 772. 53. Opposed to the ratio decidendi stand obiter dicta. Literally, this phrase means things said (dicta) by the way (obiter). Judicial obiter dicta, that is to say, as pe....
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..... 56. Both IPCA's case (supra) and Rohan Dyes & Intermediates Ltd.'s case (supra) are to be treated as binding, for disposing of the two questions referred to this Bench. 57. Incidentally, in a still later decision, CIT v. A.M. Moosa, Bharath Sea Foods (2005) 272 ITR 29(Ker.) it has been held that the word 'profit' has to be given its natural meaning; that the profit mentioned in the proviso to section 80HHC(3) is clearly a profit and not loss; and that when there is no difficulty in understanding the word used in the statute, it is not necessary to find out the nature of the provisions. 58. In view of the above decisions in IPCA's case (supra), Rohan Dyes & Intermediates Ltd.'s case (supra) and A.M. Moosa, Bharath Sea Foods' case (supra), that 'profit' in the proviso to section 80HHC(3) means a positive profit, we need say nothing more than that the Supreme Court decision in IPCA's case (supra) is fully applicable hereto. 59. The two decisions in Rohan Dyes & Intermediates Ltd.'s case (supra) and A.M. Moosa, Bharath Sea Foods' case (supra), are also precedents, and their ratios are fully applicable to the controversy at hand. As already noted above, a ratio is the rule....