Case: P.R. Prabhakar Vs. Commissioner of Income Tax, Coimbatore

thereof, which is as under: "This amendment takes effect retrospectively from 1st April, 1986, the day on which the substituted section 80HHC took effect. It will, accordingly, apply in relation to assessment year 1986-87 and subsequent years." 8. The aforementioned circular dated 19th December, 1991 issued by the CBDT is binding on the Department. [See Mercantile Bank Ltd., Bombay v. Commissioner of Income Tax, Bombay City - III, 2006 (5) SCALE 244 and Union of India and Another v. Azadi Bachao Andolan and Another, (2004) 10 SCC 1.] 9. Once it is held that the amendment carried out in 1991 by reason of Finance Act (No. 2), Act, 1991 was prospective in nature, ex facie the High Court committed a serious error in opining that the same being clarificatory in character would apply to the assessment year in question. By reason of the purported clarification issued by the CBDT in terms of the said circular, the area of exemption had not been widened. It has, in effect and substance as would appear from paragraph 32.11, been curtailed.10. By reason of such amendment, the Parliament did not intend that the income derived by way of brokerage/commission by the assessee should not be reckoned for the purpose of computing profit or loss earned by a person engaged in the business of export but by reason thereof the deduction to the extent of 10% held to be allowable thereby. We, therefore, cannot accept the submission of Mr. Dutta that the income derived by way of commission and/or brokerage by an assessee carrying on business of export became eligible to exemption to the extent of 10% for the first time with effect from 1.4.1992.11. The purport and reason for enacting Section 80HHC of the Income Tax Act indisputably was to provide incentive to export houses. It is now a well-settled principle of law that although the exemption provisions are to be construed strictly as regards the applicability thereof to the case of the assessee but once it is found that the same is applicable, the same are required to be interpreted liberally. [See Tata Iron & Steel Co. Ltd. v. State of Jharkhand and Others (2005) 4 SCC 272 , Government of India and Ors. v. Indian Tobacco Association, (2005) 7 SCC 396 and Commissioner of Central Excise, Raipur v. Hira Cement, JT 2006 (2) SC 369 .] It is also trite law that an exemption is to be granted unless it is expressly taken away. [See Adityapur Industrial Area Development Authority v. Union of India & Ors., 2006 (5) SCALE 321 ]. The expression "income arising out of business of export" brings within its sweep not only the export of any goods or merchandise manufactured or possessed by the assessee but also of trading goods. The Parliament, therefore, intended to provide incentive when a positive profit is earned by a exporter. [See IPCA Laboratory Ltd. v. Dy. Commissioner of Income Tax, Mumbai, (2004) 12 SCC 742.] The question again came up for consideration before a Division Bench of this Court in Income Tax Officer, Bangalore v. M/s. Induflex Products (P) Ltd. [2005 (10) SCALE 132], wherein it was opined: "... It is no doubt true that the term `profit implies positive profit which has to be arrived at after taking into consideration the profit earned from export of both self-manufactured goods and the trading goods and the profits and losses in both the trades have, thus, to be taken into consideration....." 12. Indeed the question as to whether earning of income by way of commission/brokerage would attract Section 80HHC of the Act or not, precisely came up for consideration before a Special Bench of the Income Tax Appellate Tribunal, Delhi Bench in International Research Park Laboratories Ltd. v. Assistant Commissioner of Income Tax [212 ITR 1 ] wherein interpreting the CBDT circular, it was stated: "Now, we come to whether the commission received could form part of export profits. Here again, we are unable to see it differently. It is no doubt true that this commission is not turnover but it is a profit relatable to exports. Coming back to section 80HHC(1), if the assessee is an exclusive exporter without having any local sales, then the profit on commission is admittedly includible as profit of the business computed under the heard "Profits and gains of business or profession" and the whole of it would be eligible for exemption under clause (a) of sub-section (3) of section 80HHC. When such commission could be regarded as profit derived from export for the purpose of clause (a), how can the same be excluded for the purpose of clause (b) unless it amounted to discrimination. The interpretation of clauses (a) and (b) must be harmonious and not discriminatory, cutting against each other. What is sauce for the goods is also sauce for the gander. Secondly, we have just mentioned that this profit is profit derived from export and export is the basis or the foundation or the nexus. The argument of Shri B.B. Ahuja and all his effort to show to us that it has no reference to the export is, therefore, unacceptable to us. In our opinion, the argument advanced by Shri Ahuja overlooks the fact that the commission would not have come to the assessee had he not been engaged in the export business. He sought to justify his argument by referring to subsequent amendments made from April 1, 1992, where under as we have pointed out above by adding clause (baa) to the Explanation at the end of sub-section (4A) with effect from April 1, 1992, 90 per cent of this commission etc. is not to be regarded as profits derived from export business and this amendment as explained in the Memorandum of Bill was only to clarify the position." 13. It is stated at the Bar that the Revenue did not prefer any appeal there against. We, for the reasons stated hereinbefore, agree with the law laid down by the Tribunal. 14 .

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]9. Once it is held that the amendment carried out in 1991 by reason of Finance Act (No. 2), Act, 1991 was prospective in nature, ex facie the High Court committed a serious error in opining that the same being clarificatory in character would apply to the assessment year in question. By reason of the purported clarification issued by the CBDT in terms of the said circular, the area of exemption had not been widened. It has, in effect and substance as would appear from paragraph 32.11, been curtailed.10. By reason of such amendment, the Parliament did not intend that the income derived by way of brokerage/commission by the assessee should not be reckoned for the purpose of computing profit or loss earned by a person engaged in the business of export but by reason thereof the deduction to the extent of 10% held to be allowable thereby. We, therefore, cannot accept the submission of Mr. Dutta that the income derived by way of commission and/or brokerage by an assessee carrying on business of export became eligible to exemption to the extent of 10% for the first time with effect from 1.4.1992.11. The purport and reason for enacting Section 80HHC of the Income Tax Act indisputably was to provide incentive to export houses. It is now aprinciple of law that although the exemption provisions are to be construed strictly as regards the applicability thereof to the case of the assessee but once it is found that the same is applicable, the same are required to be interpretedis stated at the Bar that the Revenue did not prefer any appeal there against. We, for the reasons stated hereinbefore, agree with the law laid down by the Tribunal.