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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 1005 OF 2008
The Commissioner of Income Tax-9 )
Aayakar Bhavan, M.K. Road, )
Mumbai 400 020. ).. Appellant
Versus
M/s. Ajanta Pharma Ltd. ig )
98, Charkop Industrial Estate, )
Kandivali (West),Mumbai 400 061. )...Respondent
Mr. Parag Vyas with Mr.Suresh Kumar with Mr. P.S.
Sahadevan for the Appellant.
Mr.J.D. Mistry with Mr.A.K. Jasani and Mr. T.C.
Tripati for Respondent.
CORAM: FERDINO I. REBELLO &
R.S.MOHITE, JJ.
DATED: 7th May, 2009
ORAL JUDGMENT (Per F.I. Rebello,J.):
. Admit on the following questions:
"1. Whether on the facts and in the
circumstances of the case and in law the
ITAT was justified in approving the Order of
the CIT(A) in allowing Respondent to exclude
export profits for the purpose of section
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115 JB at the figure other than that allowed
u/s. 80 HHC (1B)?
2. Whether in law for the purpose of
calculating book profit under section 115 JB
of the Income Tax Act, 1961 under
Explanation 1 sub clause (iv) the export
profits to be excluded from the book profits
would be the export profits allowed as a
deduction u/s. 80 HHC after restricting the
deduction as per the provisions of sub
section ig 1B of section 80 HHC of the Act or
the export profits calculated as per sub
section 3 and 3A of section 80 HHC before
applying the restriction contained in sub
section 1B of section 80 HHC?"
2. A few facts may be set out :
. The Assessee company was assessed under Section
115 JB of the Income Tax Act for the assessment
year 2001-2002. While computing the book profits,
under Section 115 JB it claimed that the entire
export profits as computed under Section 80 HHC
should be deducted and not percentage deduction as
provided under Section 80 HHC (1B). The Assessing
Officer did not accept the same. The A.O.
restricted the deduction under Section 80 HHC to
80%.
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. The assessee aggrieved, preferred an appeal
before the C.I.T. (Appeals). After considering
the contentions C.I.T.(A) was pleased to hold that
the entire profits from exports are eligible for
deduction in terms of Clause (4) of Explanation (1)
to Section 115JB.
. Revenue aggrieved preferred an appeal before the
I.T.A.T. The learned tribunal after considering
the various contentions as also the order of the
Special Bench in Dy. Commissioner, Range III Vs.
SIMCOM Ltd. ig (2007) 106 ITD 193 (Mum) (SB) was
pleased to dismiss the appeal preferred by the
Revenue by order dated 30.11.2007. It is this
order which is the subject matter of the present
appeal.
3. At the hearing of this appeal on behalf of the
Revenue, it has been submitted as under:- The
export profits to be excluded from the book profits
would be export profits allowed as a deduction
under Section 80 HHC after restricting the
deduction as per the provisions of sub section(1B)
of Section 80HHC of the Act and not export profits
calculated as per sub section 3 and 3A of Section
80HHC without applying the restrictions contained
in sub section 1B of section 80 HHC as contended on
behalf of the assessee. Section 80 HHC sub section
1B was introduced by the Finance Act with effect
from 1.4.2001 so as to phase out the deduction
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completely by assessment year 2005-06.
. Section 115 JB was introduced by Finance Act,
2000 with effect from 1.4.2001 i.e. with effect
from the assessment year 2001-02 replacing the
erstwhile section 115JA. As per memorandum of
Finance Bill 2000, the reason to introduce the said
section was to simplify the Minimum Alternate Tax
(MAT). The said Memorandum clarifying the
provisions of the Finance Bill 2000 sets out
“Export provisions under Section 80 HHC were kept
out of the purview of the provisions during the
period of phasing out of deductions available under
those provisions.” Considering the language of
Explanation (1) of sub clause (iv), the profits
eligible for deduction under Section 80 HHC, as
used in Section 115JB refer to profits allowed as
deduction under Section 80 HHC. Reference is then
made to the meaning of the expression “Eligible”
from dictionaries. The eligible deduction
therefore under Section 80 HHC as per section
115JB, is only that amount which is allowed as a
deduction u/s. 80 HHC under normal provisions of
the Act. The expression “Profits eligible for
deduction under section 80 HHC” can only mean that
the term refers to the export profits actually
allowed as a deduction under section 80 HHC as
otherwise an absurdity is created to the extent
that while no full deduction is allowed of export
profits under section 80 HHC, for the purpose of
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section 115 JB such profits are calculated and
excluded from book profits which was never the
intention of the legislature as brought out from
the Memorandum explaining the Finance Bill 2000.
While construing or interpreting the provisions of
law, an interpretation that results in an absurd
situation is to be avoided and preference is to be
given to a workable interpretation bearing in mind
that MAT was introduced to ensure that companies
which take advantage of deductions available under
normal provisions of the Act are required to pay
some minimum tax. In the alternative it is
submitted that even if the term “profits” eligible
for deduction under section 80 HHC” is referable to
the profits calculated before applying the
limitation specified in sub section 1B of section
80 HHC, one has to bear in mind the expression
“subject to the conditions specified in section 80
HHC”. The dictionary meaning of the word
“condition” is sought to be relied upon. It is
therefore, submitted that sub section 1B is the
restriction and limitation to the deduction under
section 80 HHC and has to be considered while
calculating export profits from the book profits
for the purpose of section 115JB. That also
becomes apparent from the examination of the
provisions of section 115 JA. The entire
provisions of 80 HHC and section 115 JB would have
to be considered while construing the provisions.
The Finance Minister’s speech and the Memorandum
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explaining the clauses cannot by itself be used to
interpret the literal meaning of the Act. Reliance
is placed in the judgment of the Supreme Court in
the case of P.V. Narsimha Rao Vs. State, AIR 1998
SC 2120. It Is, therefore, submitted that
considering the language of the two provisions, it
leads to the only conclusion that what has to be
reduced is the amount of export profits eligible
for deduction in terms of sub section 1B of Section
80 HHC.
4. On the ig other hand on behalf of the assessee the
learned counsel submits that considering the
expression “the profits eligible for deduction
under Section 80HHC, the A.O. ought to have
allowed the entire amount. It is explained that
the purpose of reduction of book profits required
by clause (iv) to explanation to Section 115JB is
to ensure that the export profits are not subjected
to “MAT”. The legislature has repeatedly taken a
conscious decision to exclude export profits from
taxation under the normal provisions of the Act and
from MAT levied under the special provisions of
inter alia section 115JB. This intention of the
legislature it is submitted has been made clear by
the repeated insertion of clauses similar to clause
(iv) and explicit mention of such intention by the
Finance Minister at various times. The policy
adopted by the legislature of encouraging/boosting
exports was considered to be of such importance
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that the legislature wished to forego taxes
thereon, including MAT. The phrase “amount of
profits eligible for deduction under section 80
HHC” used in clause (iv) to describe the export
profits to be excluded from MAT is necessarily
different from the phrases used in the various sub
sections of Section 80 HHC of the Act. The reasons
being the phraseology used in clause (iv) is
required to encompass all the qualitative aspects
of export profits in section 80 HHC i.e. the type
of profit which got benefit under section 80 HHC.
Thus (a) igprofits derived from the export of goods
and merchandise and (b) profits of the permitted
type. The phrase has been used to take into
account the type of profit above mentioned which is
derived from the activity above mentioned. It is
for this reason that even the predecessors to
section 115JB, the same phrase was used to achieve
this purpose. As a matter of construction and
plain English usage the said phrase can never take
within its ambit the quantum of deduction from such
profits. Reference is made to expression
“eligible” in its ordinary dictionary meaning to
which we shall advert latter. Thus it is submitted
that it would be beyond any doubt that the word
“eligible” has to be read to mean type or class or
nature of profits i.e. a qualitative description
of profits and can never take within its ambit a
particular proportion or quantum thereof.
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4(b). The quantum of profits in respect of which a
deduction is allowed under section 80 HHC of the
Act is separately quantified/provided for in
section 80 HHC (1B) of the Act and the resultant
figure on applying this sub section can only be a
sub class or part of the type of profits eligible
which can (if a 100% deduction is allowed) equal
the quantum of the class but must as a matter of
language be something different from the class of
profit. This distinction between the class/type of
profit as well as the quantum/extent of profit
which have ig to be deducted is also clear from a
perusal of section 80 HHC (1) which specifically
allows “…. a deduction to the extent of profits
referred to in sub section 1(B)”. There can be no
doubt therefore, that the extent is different from
the profit. The said distinction between the
class/type and the extent of deduction is also
clear from the opening words of section 80 HHC (1B)
of the Act which clearly specifies the amount of
the deduction by applying a percentage to the
profit eligible for/entitled to deduction. It must
inexorably follow a fortiori that the profit
eligible and the extent of the deduction have to be
two different things. It must also be borne in
mind that Section 80 HHC (1B) of the Act was
introduced at the same time as Section 115JB and if
the legislature intended to reduce only the extent
of the deduction actually allowed when computing
book profit for the purposes of 115JB it would
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simply have done so by using identical phrases in
both the sections. The expression “condition” in
(iv) to Explanation I, would mean conditions as
specified. Quantum as set out in Section 80HHC(1B)
it is submitted is not a condition.
4(c). The intention of the legislature was to
continue the exemption of export profits from MAT
despite the exemption for the said export profits
being gradually phased out when computing taxable
income under the normal provisions of the Act.
Placing reliance
ig on the Finance Minister's speech
it is submitted the exemption from MAT was to
continue until the complete withdrawal of exemption
under the normal provisions of the Act. In an
identical situation when the legislature so
intended, in section 115JA Explanation clause (v)
reduction to the equal in quantum to the quantum of
deduction allowed under the normal provisions of
the Act, explicit wording was used which made the
matter clear beyond any doubt. Such wording is not
used in this case.
. Under the Act, amounts eligible for a deduction
are often different from the quantum of deduction
actually allowed. Reliance is placed on some of
the provisions. Conscious of the distinction, the
legislature has continued the use of these phrases
in the said clause (iv). It is then submitted that
if the interpretation canvassed by the Income Tax
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department is accepted, the words in clause (iv)
i.e. “…. computed under (a), (b) and (c) of
Section 80 HHC(3)……… ” becomes otiose. In
the alternative if the phrase is not to be
considered otiose then in order to apply 80 HHC
(1B) the same should have been mentioned in clause
(iv) and in the absence of such mention the same
cannot be applied. Reliance is then placed on
Heydons’ Rules of construction. Reliance is placed
on the judgment of Kerala High Court in C.I.T. Vs.
GTN Textiles Ltd. 248 ITR 372. It is submitted
that the ig view taken by the Special Bench in DCIT
Vs. Syncone Formulations 106 ITD 193 (Bom) as also
DCIT Vs. Govind Rubber Ltd. 82 TTJ 615 should be
accepted.
4(d). It is lastly submitted that at any rate if
two views are possible of interpretation of clause
(iv), then the view in favour of the tax payer
ought to be adopted.
5. With the above background, let us now consider
the provisions. What the Legislature ought to have
done or what language or words or expression ought
to have been used, is not for the courts to
consider. The duty of the court, in the event,
where literal interpretation would defeat the
intent of the Legislature or lead to an absurdity
or the like would be to ascertain the parliamentary
intent, by applying the rules of statutory
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interpretation as followed in our jurisdiction. A
word of caution, it is only in the event when the
literal interpretation would lead to an absurdity
or defeat the object or intent of the Legislation
and not otherwise. The principle of all fiscal
legislation is that if the person sought to be
taxed comes within the letter of the law he must be
taxed, however, great the hardship may appear to
the judicial mind to be. On the other hand, if the
State, seeking to recover the tax, cannot bring the
subject within the letter of the law, the subject
is free, however,
ig apparently within the spirit of
the law the case might otherwise appear to be.
Taxing statutes cannot be interpreted on any
presumptions or assumptions. The court must look
squarely at the words of the statue and interpret
them. It must interpret a taxing statute in the
light of what is clearly expressed; it cannot
imply anything which is not expressed, it cannot
import provisions in the statutes so as to supply
any assumed deficiency (CST vs. Modi Sugar Mills
Ltd. AIR 1961 SC 1047.
6. It would therefore, be gainful to refer to some
relevant provisions of Section 80HHC.
“80HHC.(1) Where an assessee, being an
Indian company or a person (other than a
company) resident in India, is engaged in
the business of export out of India of any
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-12-goods or merchandise to which this section
applies, 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 to the extent
of profits, referred to in sub-section (1B)
derived by the assessee from the export of
such goods or merchandise:
Provided……….
(1A) …………….
(1B) For the purposes of sub-sections (1)
and (1A), the extent of deduction of the
profits shall be an amount equal to–
(i) eighty per cent thereof for an
assessment year beginning on the 1st day of
April, 2001;
(ii) seventy per cent thereof for an
assessment year beginning on the 1st day of
April, 2002;
(iii) fifty per cent thereof for an
assessment year beginning on the 1st day of
April, 2003;
(iv) thirty per cent thereof for an
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assessment year beginning on the 1st day of
April, 2004, and no deduction shall be
allowed in respect of the assessment year
beginning on the 1st day of April, 2005 and
any subsequent assessment year.
(2)(a)............
(3). ..............
(3A) .............
(4) The deduction under sub-section (1)
shall not be admissible unless the assessee
furnishes in the prescribed form, along with
the return of income, the report of an
accountant, as defined in the Explanation
below sub-section (2) of Section 2888,
certiying that the deduction has been
correctly claimed in accordance with the
provisions of this section.
Provided....................
(4A) .........................
(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.
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(4C) ...................
(emphasis supplied).
. Sub section (1B) was introduced by the
Finance Act, 2000 with effect from 3.4.2001. That
section was applicable to all, engaged in the
business of export. By virtue of insertion of sub
section (1B) i.e. The sun set clause, the
deductions of export profits was to be discontinued
from the ig beginning of 1.4.2005. The deductions
available from 1st April, 2001 was percentagewise
as set out beginning with 80% for 2001 and ending
with 30% for assessment year beginning on 1.4.2004.
No deduction is available after 1-4-2005 and
subsequent years.
7. Section 115JB was inserted by the Finance
Act,2000 with effect from 1.4.2001.
“115JB(1) Notwithstanding anything contained
in any other provision of this Act, where in
the case of an assessee, being a company,
the income-tax payable on the total income
as computed under this Act in respect of any
previous year relevant to the assessment
year commencing on or after the 1st day of
April, 2007, is less than ten per cent of
its book profit, such book profit shall be
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-15-deemed to be the total income of the
assessee and the tax payable by the assessee
on such total income shall be the amount of
income-tax at the rate of ten per cent.
(2) Every assessee, being a company, shall,
for the purposes of this section, prepare
its profit and loss account for the relevant
previous year in accordance with the
provisions of Parts II and III of Schedule
VI to the Companies Act, 1956 (1 of 1956).
igProvided ………….
Explanation (1) For the purposes of this
section, “book profit” means the net profit
as shown in the profit and loss account for
the relevant previous year prepared under
sub-section (2), as increased by–
(a) ……
(b) ……
(c) ……
(d) ……
(e) ……
(f) …….
(g)…….
(h) the amount of deferred tax and the
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-16-provision therefor, if any amount referred
to in clauses (a) to (h) is debited to the
profit and loss account, and as reduced by–
(i) ………..
(ii)………..
(iii) ………
(iv) the amount of profits eligible for
deduction under section 80HHC, computed
under clause (a) or clause (b) or clause (c)
of ig sub-section (3) or sub-section (3A), as
the case may be, of that section, and
subject to the conditions specified in that
section.” (emphasis supplied).
8. Section 115J is contained in Chapter XII-B
which was inserted by Finance Act, 1987 with effect
from 1.4.1988. When section 115J was introduced by
Act of 1957 reduction of export profits under the
provisions of Section 80 HHC was not available to
companies covered by Chapter XII-B. However, by
Direct Tax Laws Amendment Act, 1989 it was brought
into effect from 1.4.1989, by introducing (iii) to
the explanation and which reads as under :
“the amounts as arrived at after increasing
the net profit by the amounts referred to
in clauses (a) to (f) and reducing the net
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-17-profit by the amounts referred to in clause
(i) and (ii) attributable to the business,
the profits from which are eligible for
deduction under section 80 HHC or section 80
HHD; so, however, that such amounts are
computed in the manner specified in sub
section (3) or sub section (3A) of section
80 HHC or sub section (3) of section 80 HHD,
as the case may be, or ….” (emphasis
supplied) .
. The Legislature, therefore, in case of MAT
Companies choose not to initially give them the
benefit of reduction of export profits.
9. Section 115JA was introduced by the Finance
Act,1996 with effect from 1.4.1997. The language
of section 115JA(1) is also similar to language
used in Section 115J. In so far as reduction of
export profits under Section 80 HHC they were not
available when the Section was first introduced.
But by the Finance Act, 1997 it was introduced with
effect from 1.4.1998 and which reads as under:
“the amount of profits eligible for
deduction under section 80 HHC,computed
under clause (a), (b) or (c) of sub section
(3) or sub section (3A), as the case may be,
of that section, and subject to the
condition specified in sub sections (4) and
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-18-(4A) of that section.” (emphasis supplied).
10. Section 115JB was inserted by Finance Act,
2000 w.e.f. 1.4.2001. It contained (iv) to the
Explanation. We have reproduced the provisions in
the earlier part of the judgment.
11. In so far as MAT companies are concerned,
that reduction of export profit while computing
book profits was not available when Section 115 J
was introduced from 1-4-1988. The benefit was
given subsequently
ig from 1-4-1989. Similarly the
reduction was not available in the case of section
115JA which was introduced w.e.f. 1-4-1997. The
benefit was extended only from 1-4-1998. This
intent of the Legislature, must be considered while
interpreting the provisions. The other aspect
would be that if sub-section (1B) is not read while
computing the book profits and which contains the
sun-set clause it would mean that even after
1-4-2005, MAT Companies could claim deduction of
export profits, While computing book profits which
would be an absurdity.
12. It would thus be clear that whether it be
section 115J, 115JA or 115JB the express language
used is eligible for deduction under Section 80 HHC
and computed under clause (a) or clause (b) or
clause (c) of sub section (3) or sub section (3A)
as the case may be. What this means is that
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sub-section (3) and (3A) provide for the method for
computation of profits. Once the profits are
worked out, then only the profit which is eligible,
can be deducted. Section 80HHC(1) allows
deductions of profits to the extent referred to in
sub- section (1B).
13. Another aspect of the matter. Companies other
than MAT companies could claim deductions of export
profits calculated in the manner provided under
section 80 HHC from the very inception and after
(1B) to the igextent provided by (1B). MAT companies
who were in the business of export were not allowed
to claim reduction while computing book profits
under section 115J or 115JD for some of the periods
as earlier set out. Accepting the argument on
behalf of the MAT companies would be that they must
be treated more advantageously than other export
companies, though the other export companies were
continuously enjoying 100% deduction of export
profits until introduction of sub section 1B of
section 80 HHC.
14. For interpreting the statutory provisions let
us refer to some decided case law. In K.P.
Varghese Vs. Income Tax Officer and another, 1981
(131) ITR 597 (SC), it was observed that it is well
recognized rule of construction that the statutory
provisions must be so construed if possible that
absurdity and mischief may be avoided. If the
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situation arises where the construction suggested
on behalf of the Revenue would lead to wholly
unreasonable and unjust result which could never
have been intended by the Legislature, then it must
be avoided. An interpretation must be arrived at,
which avoids absurdity and mischief and makes the
provisions rational and sensible unless of course
the courts hands are tied and it is not possible to
find escape from the tyranny of the literal
interpretation. It is now a well settled rule of
construction that where the plain literal
interpretation ig of a statutory provision produces a
manifestly absurd and unjust result which could
never have been intended by the Legislature, the
court may modify the language used by the
Legislature or even “do some violence” to it, so as
to achieve the obvious intention of the Legislature
and produce a rational construction. The court may
also in such a case read into the statutory
provision a condition which, though not expressed,
is implicit as constituting the basic assumption
underlying the statutory provision. For that
purpose the courts may use aids for fixing out the
mischief the enactment seeks to avoid as also the
object of the legislation. In Gurudevdatta
V.K.S.S.S. Maryadit & Ors. vs. State of
Maharashtra & Ors. AIR 2001 S.C., the same view
was explained as under:-
” Further we wish to clarify that it is a
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-21-cardinal principle of interpretation of
statute that the words of a statute must be
understood in their natural, ordinary or
popular sense and construed according to
their grammatical meaning,unless such
construction leads to some absurdity or
unless there is something in the context or
in the object of the statute to suggest to
the contrary. The golden rules is that the
words of a statute must prima facie be given
their ordinary meaning. It is yet another
rule ig of construction that when the words of
the statute are clear, plain and unambiguous
then the Courts are bound to give effect to
that meaning, irrespective of the
consequences. It is said that the words
themselves best declare the intention of the
law giver. The courts have adhered to the
principle that efforts should be made to
give meaning to each and every word used by
the Legislature and it is not a sound
principle of construction to brush aside
words in a statute as being inaposite
surpluses, if they can have a proper
application in circumstances conceivable
within the contemplation of the statue….”
15. Whether speeches made on the floor of the
House were admissible in interpreting the
provisions. Speeches made by the Members of the
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Legislature on the floor of the House when a Bill
for enacting a statutory provision is being debated
are inadmissible for the purpose of interpreting
the statutory provision but the speech made by the
mover of the Bill explaining the reason for the
introduction of the Bill can certainly be referred
to for the purpose of ascertaining the mischief
sought to be remedied by the legislation and the
object and purpose for which the legislation was
enacted. The Supreme Court in K.P. Varghyese
(supra) said that this is in accord with the recent
trend in juristic
ig thought not only in Western
countries but also in India that interpretation of
a statute being an exercise in the ascertainment of
meaning, everything which is logically relevant
should be admissible. The Finance Minister’s
speech, therefore, can be relied upon by the court
for the purpose of ascertaining what was the reason
for introducing that clause.
. Reference also may be made to the judgment
in P.V. Narsimha Rao (supra) for the same purpose.
The court addressing itself to the canons of
construction noted that the view which prevailed
earlier, with Courts in England, was that reference
to Parliamentary material as an aid to statutory
constructions is not permissible. The said
exclusionary rule precluded the court from looking
even at reports made by Commissioners on which
legislation was based. The rigidity of the said
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rule was relaxed in later decisions so as to permit
reports of Commissioners, including Law
Commissioners and white papers to be looked at for
the purpose solely of ascertaining the mischief the
statute is intended to cure but not for the purpose
of discovering the meaning of the words used by
Parliament to effect such cure. Parliamentary
debates were, however, not looked at as an aid to
construction. The statement of the Minister who
moved a bill in the Parliament could be looked at
to ascertain the mischief sought to be remedied by
the legislation and the object and purpose for
which the legislation is enacted.
16. Can the statement of object and reasons be
looked int. In Gurudevdatta VKSSS Maryadit and
others Vs. State of Maharashtra and Others, AIR
2001 S.C. 1980 the Supreme Court observed :
“The Statements of objects and reasons need
to looked into though not by itself a
necessary aid as an aid to construction
only, if necessary. To assessee the intent
of the Legislature in the event of there
being any confusion, statement of objects
and reasons may be looked into and no
exception can be taken therefor- this is not
an indispensable requirement but when faced
with an imperative need to appreciate the
proper intent of the Legislature, statement
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-24-may be looked into but not otherwise….”
. The Court then observed :
“While the statements of objects and reasons
in the normal course of event cannot be
termed to be the main or principal aid to
construction but in the event it is required
to discern the reasonableness of the
classification. ….”
. Proceeding further the Court observed that :
“For the limited purpose of appreciating the
background and the antecedents factual
matrix leading to the legislation, it is
permissible to look into the Statement of
objects and Reasons of the Bill which
actuated the step to provide a remedy for
the then existing malady.”
17. Gurudevdatta V.K.S.S. Maryadit (supra) also
dealt with the explanatory memorandum to the Bill.
Reliance was placed on the Australian Judgment in
CIC Insurance Limited Vs. Bankstown Football Club
Ltd. 1997 (187) CLR 384. The Supreme Court noted
that the High Court of Australia permits Reference
to the Memorandum of Bill in order to ascertain the
mischief which the Statute was intending to
remedy. The court recorded its
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-25-
unhesitent
concurrence to the proposition.
18. Before we apply the principles of statutory
interpretation let us refer to the documents placed
before us. The budget speech of Prime Minister and
minister of Finance for 87/88 (165) ITR 13 was
referred to point out that Section 115J was
introduced so that MAT companies will pay tax of at
least 30% of its book profits. Reference was then
made to C.B.D.T. Circular No. 435 dated 22.9.1987
to point ig out the manner in which the book profit
has to be worked out. Circular No. 559 dated
4.5.1990 with reference to Direct Tax Laws
(Amendment) Bill 1988, notes that Section 115J of
the Income Tax Act levies minimum tax on “book
profits” of a company. Section 115J took away the
100% exemption which was to be allowed in respect
of export profits earned by the exports and tourism
related industry and thus watered down the
encouragement which was to be provided to such
foreign exchange earning activities. It was
decided that the profits, which are exempt under
sections 80 HHC and 80 HHD should be excluded from
the purview of section 115J w.e.f. August 1, 1989.
Reference then is made to the Budget speech of
Finance Minister 1996-97 introducing Section 115JA
which speaks about introduction of MAT In the
Budget speech of 1997-98 it was noted that the
export profits which were not eligible for tax will
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-26-
be exempt from the MAT and will be eligible for
full deduction under Section 80 HHC. That was when
section 115JA was introduced and the benefit under
Section 80HHC was not available to MAT companies.
This was done as a large number of representations
had been received. The Memorandum, explaining the
provisions of the Finance Bill 1997 was that the
bill proposed to exempt the export profits under
Section 80 HHC from the purview of Minimum
Alternate Tax. CBDT Circular No.763 dated
18.2.1998, sets out MAT was introduced w.e.f. 1st
April, 1997 igand the Finance Act, 1997 exempts the
export profits which are eligible under section
80HHC or under section 80 HHG from the purview of
minimum alternate tax.
19. Then we have the budget speech of Finance
Minister dated 29.2.2000 while introducing section
115JB. Referring to Clause 49 in the notes of
clauses it was provided as under :
“The book profit shall mean the net profit
as shown in the profit and loss account
prepared in accordance with the provisions
of Parts II and III of Schedule VI to the
Companies Act, 1956, as reduced by certain
adjustments, as specified. The profits
received in convertible foreign exchange and
eligible for deduction under Section 80 HHC
or section 80 HHE or section 80 HHF or the
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-27-Income referred to in section 10 or section
10A or section 10B shall be excluded while
working out “book profits”. (emphasis
supplied).
. In the Memorandum explaining the provisions in
the Finance Bill it was provided as under :
” However, export profits under section 80
HHC, 80 HHE and 80 HHF are kept out of the
purview of this provision during the period
of phasing
ig out of deductions available underthose provisions….”
20. The meaning of some expressions, must also be
considered. The Oxford Dictionary defines
“eligible” to mean fit or entitled to be chosen.
In Stroud’s Judicial Dictionary, 7th Edn. Page 824
“eligible” means “legally qualified or fit to be
chosen”. In Justice L.P. Singh’s Judicial
Dictionary, 3rd Edn. the word “eligible” means
“fit or entitled to be chosen”.
21. Similarly word “Condition” in Oxford
Dictionary means “stipulation; thing on fulfilment
of which something else depends”.
22. The principles elucidated earlier of statutory
construction can now be considered for interpreting
the provisions of Section 115JB vis-a-vis Section
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-28-80HHC. Does a literal reading of section 80 HHC
read with section 115JB(2) Explanation (1)(iv),
lead to an absurdity and/or does not make clear the
Parliamentary intent considering the law as it
stood before section 115JB was introduced. In
Sections 115J and 115JA the expression used were
profits eligible for deduction under section 80
HHC. Section 115JB also uses the expression
“profits eligible for deduction”. There really can
be no difficulty in understanding what this means.
Only those profits which are eligible and computed
in terms ig of sub-section (3) or (3a) and quantified
in terms of sub-section (1B). The computation
whether under sub-section (3) or (3a) are for the
purpose of sub-section (1) or (1A). Section
80HHC(1) permits a deduction to the extent or
profits referred to in sub-section (1B). The only
question is whether the expression in clause (a),
(b) or (c) to sub-section (3) consequent on
introduction of section 1B to Section 80 HHC will
have a meaning different from the meaning then what
was originally understood, Considering (iv)
to Explanation-I of Section 115JB.
23. Until section 115JB was introduced, the whole
of the profits computed under Section 80 HHC was
eligible for reduction for computing the book
profits. Pursuant to section 1B of section 80 HHC
The deduction available to the extent provided in
Section (1B) and after 1-4-2005 the deduction of
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-29-export profits is discontinued. The assessees
argument is that only in case of companies not
covered by section 115JB to then Section 1B of
section 80 HHC would apply. In so far as MAT
companies are concerned, the profits eligible for
deduction are as computed under sub-section (3) or
(3A) of Section 80HHC without applying sub-section
(10). This argument is based on the expression
“computed under sub-section (3) or sub-section (3A)
as the case may be.
24. For that purpose, we will have to examine the
true scope and effect of section 80HHC.
. Section 80 HHC, the relevant provisions to which
we have earlier reproduced is sub-section (1),
which provides, that in computing the total income
of the assessee, a deduction is to be made to the
extent of profits referred to in sub section (1B)
derived by the assessee from the export of such
goods. The section as amended has brought in the
words “deduction to the extent of profits” referred
to in sub-section (1B) by Finance Act,2000 with
effect from 1.4.2001. If the construction sought
to be given by Counsel for assessee is accepted it
would make sub- section (1B) irrelevant for the
purpose of Section 115JB. Sub-Section 1B provides
for deduction in terms set out therein. Sub
section (3) sets out the method of computation of
profits. The computation of profits is, therefore,
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-30-for the purpose of working out the deduction of
profits available under Section 80 HHC (1B).
Earlier it was in terms of sub-section (1). Now
Section 80 HHC (1) in term refers to section (1B).
All the provisions are inter-related and cannot be
read de hors one and other. If (1B) is not read in
(1) then the expression “no deduction shall be
allowed in respect of the assessment beginning on
the first day of April, 2005 and any subsequent
year, shall be rendered otiose.
25. In ig so far as section 115JB(2) Explanation
1(iv) is Concerned, in computing the book profits
the export profits under Section 80HHC had to be
reduced. The object of Section 115JB was to impose
tax on companies which are known as zero tax
companies. These companies though making huge
profits and paying handsome dividends, were not
paying any tax. The object of the Section was,
therefore, that they pay tax not in a manner of
total income computed by other companies, but on
the book profits which had to be calculated in
terms of sub-section 115 JB (2). The assessees do
not dispute this. Their argument is that reduction
must be the whole of the book profits computed
under sub-section (3) or (3A) of Section 80HHC.
The object of Section 80HHC as originally
introduced was to exempt the whole of the export
profits. By virtue of Sub-section (1B) introduced
w.e.f. 1.4.2001 the deduction is only a percentage
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-31-of the export profits as allowed therein and no
reduction after 1-4-2005. This benefit of
reduction was initially not made available to MAT
Companies, but the benefit was extended from
1-4-1989.
26. It is then sought to be contended that the
expression conditions in (iv) of Explanation 1 of
Section 115JB cannot be referable to sub section
(1B) of Section 80HHC as (1B) is not a condition
but in the nature of computation. We have referred
to the dictionary
ig meaning of the word “Conditions”.Even if we accept that (1B) of Section 80HHC is not
a condition and proceed on that footing,
nevertheless it is impossible of reading section
80HHC (3) or (3A) independent of section 80 HHC
(1B). To our mind, the language is clear. The
literal meaning does not in any way defeat the
object of the section and/or lead to an absurdity.
The object of Section 115JB is to allow even MAT
companies to avail of the benefit of deduction. If
we consider the assessee’s arguments that MAT
companies are entitled to full deduction of export
profits it will lead to anomaly, whereby the
companies which are paying tax on total income
under the normal rules, for them the deduction of
export profits will be lessor than what MAT
companies are entitled to. Is this a possible
view. When section 115J was originally introduced,
MAT companies were not entitled to deduction of
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-32-profits under section 80 HHC while working out the
book profits. That came to be introduced by Direct
Tax Laws Amendment Act, 1989 w.e.f. 1.4.1989. A
year Later. Parliament, therefore, initially had
even denied to MAT companies deduction under
section 115J. When Section 115JA was introduced
w.e.f. 1-4-1997, Section 80HHC benefits were once
again not available for MAT Companies. The
amendment by Finance Act 1997 to give the benefit
was w.e.f. 1.4.98. Can it now be argued that MAT
companies considering section 115JB(2) Explanation
1 (iv) are ig entitled to be placed in a better
position than the other companies entitled to the
export deduction under section 80 HHC though
earlier they constituted one class. No rule of
construction nor the language of the section 80HHC
read with Section 115JB, in our opinion will permit
such construction. If such construction is not
possible then both the classes of companies will be
entitled to the same deduction. This would
contemplate that both would be entitled to
deductions of profits in terms of section
80HHC(1B). So read, it would be a harmoneous
construction. A class of companies covered by
Section 80HHC cannot be sub-classfied into two
classes, when more so, for intermittent preriods
Parliament had even denied the benefit of Section
80HHC to MAT Companies. If the argument of the
assessee is to be accepted, what then is the
mischief, that Section 115JB sought to avoid. What
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-33-Section 115JB did was to continue the deductions
also to the MAT Companies. The only difference was
that instead of calculating tax at 30% of the book
Profits as in the case of Section 115J, 115JA, it
was made 7.5% and from 1st April, 2007 it is 10%.
The language used in (iii) to explanation 1 to
sub-section (2) of Section 115J or (vii) to
Explanation 1 of Section 115JA(2) or (iv) of
Explanation 1 of Section 115JB (2) is eligible for
deduction.
27. The ig argument of the assessee is basically
based on the memorandum of understanding in the
Finance Bill 2000 which we have earlier reproduced.
It only says that export profits under section 80
HHC and others are kept out of the purview of the
provision during the period of phasing out of
deductions available under the provisions. At the
same time, in the notes of clauses it is clearly
stated that the profits will be as reduced by the
certain adjustments which are eligible for
deduction under Section 80 HHC. The profits
eligible for deduction are export profits in terms
of section 80 HHC (1B). There is nothing in the
Finance Minister’s speech of 29.2.2000, (242) ITR
2000 to hold otherwise. We have earlier referred
to rules of construction as set out in the
judgments earlier quoted. The Notes of objects and
reasons is only an aid to construction. That aid
to construction is only when the literal reading
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-34-leads to ambiguous result or absurdity. To our
mind considering the literal language there is no
absurdity or ambiguity being caused or any mischief
sought to be remedied. The language used in
section 115JB is deduction available under section
80 HHC. It is difficult to conceive of any
rational reason as to why the legislature should
have thought to give MAT companies additional
benefits than the other companies who are paying
tax on total income and not the tax based on book
profit as calculated under section 115JB. Is it
possible to ig conceive of any degree of fairness
and/or justice that MAT companies, who for some
periods were denied the benefit of section 80 HHC,
because of the introduction of section 115(JB)
Explanation 1 (iv) are entitled to have their
entire export profits reduced. The object of
section 15JB or for that matter section 115J or 115
JA was to impose tax on those companies which
otherwise considering various exemptions or
deductions available under the Act, though making
huge profits and paying large dividends were not
paying any tax. It is therefore, not possible to
accept the construction as sought to be advanced on
behalf of the assessee, that they should be treated
on a different footing in computing export profits
under Section 80HHC, for the purpose of Section
115JB.
28. We have had the benefit of going through
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-35-reasoning and the orders in ITAT Vs. SIMCOM
(supra) as also in the case of D.C.I.T. Vs.
Govind Rubber. It is not possible to agree with
the view taken by the Benches. Those decisions in
view of this judgment stand overruled.
29. Our attention was also invited to the Judgment
of the Kerala High Court in the case of
Commissioner of Income Tax Vs. GTN (2001) 248 ITR
372. In the first instance, the Kerala High Court
was considering the provisions of Section 115J.
Section 115JB ig was not under consideration. The
High Court noted that original section 115J of the
Act did not contain exemption under Section 80 HHC.
That section as we have noted, did not originally
include exemption allowed to exporters under
Section 80HHC. By the virtue of the Explanation
and clause 3 thereto, which came into effect from
1.4.1989, the reduction under section 80 HHC became
available. The issue before the Kerala High Court
was, what is profit that should be taken into
consideration considering the accounting system
that have to be followed while working out the book
profits. Therefore, the judgment would be of no
assistance in considering the question framed for
consideration.
30. It was also sought to be then contended that
if two views are possible then the construction of
Section 115JB Explanation 1 (iv) considering the
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-36-decided law, the view in favour of the assessee
should be accepted. The question is whether there
are two views possible. In our opinion, no two
views are possible. The only view as explained
earlier is that the MAT company are entitled to the
same deduction of export profits under Section
80HHC as any other company involved in export in
terms of section 80 HHC (1B). Once that be the
case, this argument is also devoid of merit.
31. Having so answered, in our opinion, this appeal will have ig to be allowed. The questions of law as farmed will have to be answered in thenegative in favour of the revenue and against the
assessee.
32. Appeal disposed of accordingly.
(R.S.MOHITE, J.) (F.I.REBELLO, J.)
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