TaxTMI 
TaxTMI 
2004 (1) TMI 61
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.... The Department had preferred APO No. 792 of 1999 and the State of West Bengal, which was not a party to the proceeding, sought leave to and preferred APOT No. 229 of 1999 against the said judgment. During the pendency of these appeals, sub-section (4B) was inserted in section 80HHC through the Finance Act, 1999, with effect from April 1, 1992. Mr. P.K. Mullick, learned senior counsel, appearing on behalf of the Department-appellant in APO No. 792 of 1999, had pointed out that the appeal has since become infructuous by reason of the amendment inserting sub-section (4B) in section 80HHC This contention is supported by Mr. Anindya Mitra, learned senior counsel, appearing with Mr. Dipak Shom on behalf of the appellant-State in APOT No. 229 of 1999. However, Dr. Debiprosad Pal, learned senior counsel appearing with Mr. Pranab Kumar Pal and Mr. Chandranath Mukherjee opposed the said contention and pointed out that the amendment has not affected the effect of the decision of the learned single judge under appeal. He had also sought for leave to challenge the vires of sub-section (4B) in relation to its retrospectivity. Upon leave being granted by this court, the writ petition was amended....
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.... is presumed that the position in law was the same as has been sought to be clarified by insertion of sub-section (4B), therefore, in order to determine the vires of the amendment, it is necessary to examine the impact of rule 8 read with section 2(1A) of the Act. Inasmuch as the retrospectivity can be saved if the amendment is clarificatory, seeking to clarify the intent of the Legislature already expressed in the statute as it was held in Channan Singh v. Smt. Jai Kaur, AIR 1970 SC 349 (paras 4 and 5); Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677 (SC); AIR 1997 SC 1361 (para. 13) and for the purpose of removing misunderstanding of the legislative intent behind the law or mistaken interpretation of law on the basis of misappreciation of the legislative intent, since held in Faridabad Ct. Scan Centre v. D.G. Health Services, AIR 1997 SC 3801 (para. 3) or if it is a contemporaneous exposition of law relevant to the interpretation of the statutory provision put forth in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 (SC). This also seems to be supported by the Notes on Clauses of the Finance Bill, 1999, coined in the following expression: "Amendment of section 80HHC: ....
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....nder section 80HHC in computing the total income of the assessee. The assessee claimed that such deduction of profit under section 80HHC is to be made out of the total income derived from the profit out of sale of tea grown and manufactured by it, computed under the Act in terms of rule 8 before apportionment, i.e., composite income. In other words, the assessee claimed that the apportionment of 40 : 60 of the total income, i.e., composite income computed under the Act in terms of rule 8 is to be made after allowing deduction of the profits earned on export of tea grown and manufactured by the assessee. The Central Board of Direct Taxes in its Circular No. 600, dated 23rd May, 1991, had clarified the position that the deduction would be made after apportionment and not before. In the judgment under appeal, this was held by the learned single judge to be incorrect. This is sought to be overcome through the amendment by inserting sub-section (4B) in section 80HHC with retrospective effect from April 1, 1992, namely, the date since when the Central Board of Direct Taxes Circular dated May 23, 1991, was made effective. The answer could be very simple. We could have buried the questio....
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....he Seventh Schedule, respectively, of the Constitution of India. List I, Union List, in entry 82, recites the exclusive power of Parliament in the field of taxes on income other than agricultural income. Whereas entry 46 of List II, the State List, enumerates the exclusive power of the Legislature in the field of taxes on agricultural income. Therefore, Parliament cannot levy tax on agricultural income and similarly the State cannot levy tax on income other than agricultural income. Article 366 in clause (1) defines "agricultural income" to mean "agricultural income as defined for the purposes of the enactments relating to Indian income-tax". Admittedly, agricultural income is not chargeable to tax under the Act. By reason of the fiction created under rule 8 of the Rules, income derived from sale of tea grown and manufactured is liable to be computed under the Act. But out of the total income so computed, the part of the agricultural income (Le., 60 per cent.) cannot be treated to be income under the Act. Section 2(1A) of the Act defines "agricultural income" to mean...(b) any income derived from land used for the agricultural purposes by (i) agriculture; or (ii) the performance b....
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....ion created is limited only to the computation in accordance with the Act as if it were business income up to the stage of computing total income, i.e., composite income and not beyond. For the purpose of deductions mentioned in section 29, deductions are allowed from the income in order to arrive at the total income. The expression "gross total income" has neither been defined nor has been used in section 29 or anywhere in the provisions of sections 30 to 430 of the Act. The expression "gross total income" is being used in Chapter VI-A. The expression "gross total income" defined in section 80B(5), therefore, refers to the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. This definition creates a fiction under which the total income computed in the manner laid down in the Act becomes gross total income from which again total income is computed after allowing deductions under the provisions of Chapter VI-A. Chapter VI-A provides for certain special deduction from the gross total income. After the total income is calculated in terms of section 28 read with section 29 allowing deductions provided in sections 30 to 43....
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....o taxation under the Act and the deduction may be hit by the prohibition contained in sections 10(1) and 80A(2). The deduction under Chapter VI-A is allowed only on income exigible to tax under the Act. By reason of the fiction, the exibility to tax of the agricultural income under the State Act cannot be reduced or affected. If the proposition of Dr. Pal is accepted, then it would be allowing deduction on something which is not exigible to tax under the Act and which is otherwise not taxable under the Act would be allowed to be utilised for allowing higher deduction under the Act, encroaching upon the domain of the State Legislature, reducing the exigibility of agricultural income. There is a distinction between tax relief on account of specified expenditure and payment and income of specified categories qualifying for tax relief. This we will discuss in detail with regard to the various provisions of the Act hereafter. Section 80A in sub-section (1) allows deductions specified in sections 80C to 80U from the gross total income in accordance with and subject to the provisions of Chapter VI-A. Sub-section (2) thereof restricts the deduction under Chapter VI-A in aggregate not exce....
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....which deduction is allowed under Chapter VI-A, if included in the gross total income, notwithstanding anything contained in that section, the amount of that nature as computed in accordance with the provisions of this Act before making deduction under Chapter VI-A shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and included in his gross total income. In the present case, section 80HHC allows deduction of the profits derived by the assessee from the export of goods or merchandise out of the business of export. Thus, section 80HHC deals with business income not with agricultural income. If any deduction is allowed against the agricultural income, in that event, section 80HHC will be hit by the provisions of article 254 of the Constitution of India so far as it would encroach on the field of legislation in relation to entry 46 List n in clause (3) of article 246. In case this deduction is allowed before apportionment, in that event, it would intrude upon the domain of the State List by reducing the amount of tax chargeable to agricultural income-tax in respect of which the competence of Parliament is exclusively excluded. Th....
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....ross total income exigible to tax under the Act since the deduction available on the agricultural income, which is 60 per cent. of the component, might result into an excess of the business income. Since section 80AB confines the deduction only on the nature of the income permissible under the particular section alone, the question has to be looked into on the basis of the construction of that particular section under which the deduction is allowed. The question of the admissibility of the deduction under different sections has been the subject matter of consideration before different High Courts and the Supreme Court from time to time. All these questions were attempted to be answered with reference to the provisions contained in section 80AB. The ratio deciphered from these decisions seems to be now a settled proposition of law: (1) that such deduction is available on net income, (2) of the particular nature specified in the particular section alone, (3) computed in accordance with the provisions of the Act, (4) on the particular component of the income derived from the income referred to in the particular section, (5) depending on the construction of the scheme of the particula....
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....d as such though impose additional burden of tax, yet were held to be intra vires and valid pieces of legislation. In the present case, if we hold that amended sub-section (4B) introduced in section 80HHC is clarificatory in nature, in that event, its retrospectivity is bound to be held intra vires and a valid piece of legislation. In order to arrive at such a conclusion that sub-section (4B) of section 80HHC is clarificatory in nature, we are to examine the intent vis-a-vis the competence of the Legislature from the scheme of section 80HHC itself having regard to sections 80AB and 80A(2) in relation to matters coming under rule 8 involving profit out of business of export of the grown and manufactured by the assessee involving agricultural income in the course of assessment of total income under the Act which otherwise does not apply to agricultural income but for the fiction. But then even if agricultural income is computed under the provisions of this Act by reason of the fiction created under rule 8, there is nothing to permit the authorities under the Act to levy tax on agricultural income since excluded under section 10(1). The computation is to be made under the Act in resp....
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.... It is only the profit derived from the business of export of tea which is eligible for deduction under section 80HHC. Therefore, the nature of the income is an income from business not from agriculture. Therefore, the first step is to determine what is the business from which the profit is being earned and then to ascertain the profit out of such business. In the process if it appears that the profit would also include a component, which is not in the nature of an income derived from business of export of tea then that part of the income the nature whereof is different from the profit out of business cannot be included for being eligible to deduction. The scheme of section 80HHC provides for computation of the quantum exigible for deduction by a system of assessing the proportion of the amount of profit over the total export turnover as we find from sub-section (3). Sub-section (3) provides that where the assessee exports goods or merchandise manufactured or processed, the profit derived from such export shall be the proportion of the profits of the business in relation to the export turnover vis-a-vis the total turnover of the business carried on by the assessee. Whether this to....
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....nufactured and processed. When the Legislature had intended through particular expression to make a distinction between the goods manufactured and processed and trading goods, then we cannot overlook the greater distinction when the same goods which are manufactured and processed include goods or merchandise not manufactured and processed, as in the case of tea, comprising two components, i.e., one is tea grown and the other is tea manufactured and processed. Inasmuch as if the tea is not grown by the assessee, then the cost of purchasing raw tea would have been excluded from the total income and it would not have formed a component of the gross total income and it would not have been exigible to deduction. If the cost of tea when not grown by the assessee does not form a component of the gross total income exigible for deduction under Chapter VI-A, then it would be very difficult to include that component within the gross total income for being exigible for deduction under Chapter VI-A since the assessee itself has grown the tea which it has manufactured and processed and thereby claiming deduction on a component included in the gross total income, which is otherwise not eligible ....
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....which by no stretch of imagination could include the profit derived from agriculture. The Explanation to section 80HHC at the end while defining "export turnover", "total turnover" and "profits of the business" also expresses the legislative intent which leads us to hold that section 80HHC had never intended to include the component of the income derived from agriculture in relation to tea when grown and manufactured by the assessee. Inasmuch as "export turn'" over" and "total turnover" exclude freight, insurance, etc., attributable to the transport of goods or merchandise beyond the custom station. Thus, it confines only to the net profit derived out of the business profit, which cannot include the profit derived out of the growing of tea, which is agricultural profit. While defining "profits of the business" as computed under the head "profits and gains of business or profession" reduced by the sums referred to in section 28 or receipts by way of brokerage, interest, rent, charges or any other receipt of a similar nature included in such profits and the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India. Therefore, the inten....
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....ctured by the assessee. The apportionment postulated in rule 8 is to be made before deduction under section 80HHC is allowed. In other words, the benefit of deduction under section 80HHC would be available only on the income derived from the profit out of the business of export of tea processed and manufactured and not out of the profit of growing tea which is subject to the Agricultural Income-tax Act outside the scope and purview of the Act. Therefore, sub-section (4B) introduced through the amendment under the Finance Act, 1999, is clarificatory in nature. Therefore, its vires with regard to its retrospectivity would not be hit by the provision of the Constitution, we hold the same to be intra vires and constitutionally valid. Dr. Pal relied on the decision in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 (SC); [1985] 2 SCC 197 in order to assail the retrospectivity of the amendment inserting sub-section (4B). According to him, the majority judgment of the five judges' Bench did not deal with the question of retrospectivity. Therefore, the minority decision by hon'ble A.N. Sen J., dealing with the question of retrospectivity would be binding. We need not go into thi....
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....y Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) cited by Dr. Pal does not help us in view of the subsequent decisions in Distributors (Baroda) P. Ltd. [1985] 155 ITR 120 (SC); H.H. Sir Rama Varma [1994] 205 ITR 433 (SC) and CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. [1997] 224 ITR 604 (SC). The apex court had no occasion to deal with the question of the stage of apportionment of agricultural income in respect of sale of tea, grown and manufactured by the assessee in relation to Chapter VI-A and as such the decision in Tata Tea Ltd. v. State of West Bengal [1988] 173 ITR 18 (SC) is distinguishable and cannot come in aid to support the contention of Dr. Pal on the issue involved in this case, as discussed hereinbefore. We are unable to agree with the ratio decided in the decision in CIT v. C.W.S. (India) Ltd. [2000] 246 ITR 278 (Ker) relied upon by Dr. Pal for the reasons we have already given hereinbefore. This decision has also not taken into consideration the impact of various other provisions of the Act itself as discussed hereinbefore. The decision in Assam Co. Ltd. v. State of Assam [2001] 248 ITR 567 (SC) cited by Dr. Pal does not help us in the present conte....