-1- 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. ) 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: CORAM: CORAM: FERDINO I. REBELLO & FERDINO I. REBELLO & FERDINO I. REBELLO & R.S.MOHITE, R.S.MOHITE, R.S.MOHITE, JJ. JJ. JJ. DATED: DATED: DATED: 7th May, 2009 7th May, 2009 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 -2- 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 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%. -3- . 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. (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 -4- 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 -5- 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 -6- 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 P.V. Narsimha Rao Vs. State, AIR 1998 P.V. Narsimha Rao Vs. State, AIR 1998 SC SC SC 2120. 2120. 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 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 -7- 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) profits 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. -8- 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 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 -9- 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 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 -10- 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. C.I.T. Vs. C.I.T. Vs. GTN GTN GTN Textiles Ltd. 248 ITR 372. Textiles Ltd. 248 ITR 372. Textiles Ltd. 248 ITR 372. It is submitted that the 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 -11- 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, 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 (CST vs. Modi Sugar Mills (CST vs. Modi Sugar Mills Ltd. Ltd. Ltd. AIR 1961 SC 1047. AIR 1961 SC 1047. 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 -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 -13- 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. -14- (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 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 -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). Provided ............. 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 -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 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 -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 -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 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 -19- 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 extent 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 -20- 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