Calcutta H.C : Identical facts and questions of law are involved in both the reference cases being IT Ref. No. 131 of 1995 and IT Ref. No. 136 of 1995.

High Court Of Calcutta

CIT vs. Chloride India Ltd.

Tarun Chatterjee & Asit Kumar Bisi, JJ.

IT Ref. Nos. 131 & 136 of 1995

19th December, 2001

Counsel Appeared

P.K. Mallick, P.K. Bhowmick, M.P. Agarwal & J.C. Saha, for the Revenue : Dr. D. Pal with Miss M. Seal, for the Assessee

JUDGMENT

ASIT KUMAR BISI, J. :

Identical facts and questions of law are involved in both the reference cases being IT Ref. No. 131 of 1995 and IT Ref. No. 136 of 1995. IT Ref. No. 131 of 1995 relates to the asst. yr. 1986-87 and IT Ref. No. 136 of 1995 relates to the asst. yr. 1987-88. The assessee is a private limited company engaged in the manufacturing of automobile batteries. It also exports the batteries and it is entitled to deduction in respect of the exports under s. 80HHC of the IT Act, 1961 (hereinafter referred to as “the Act”). The dispute involved in the appeal before the Tribunal was whether the octroi, sales-tax and excise duty should be excluded from the total turnover while computing the deduction under s. 80HHC of the Act. As contended by the assessee, these three items should be excluded from the total turnover since they are excluded from the export turnover and the exports are not liable to such levies. The deduction under s. 80HHC of the Act is granted on the proportion which the export turnover bears to the total turnover. The contention of the Revenue, on the other hand, is that the said three items have to be included in the total turnover. If the contention of the Revenue is accepted, the assessee would get a smaller proportion of the total profit as export profit and consequently there would be a smaller deduction under s. 80HHC of the Act. If the assessees’ contention is accepted the total turnover would be reduced by the octroi, sales-tax and excise duties which would increase the proportion of the export profits and consequently the deduction under s. 80HHC of the Act would be increased.

2. Applying the principles of interpretation of the statutory provision granting a deduction, the Tribunal was of the view that while working out the ratio or proportion both the export turnover and the total turnover should consist of the same components or ingredients. According to the Tribunal uniformity or harmony between the export turnover and the total turnover must be sought to be achieved and in doing so the three statutory levies, viz.,octroi, sales-tax and excise duties, must be excluded from the expression “total turnover” since such levies do not form part of the expression “export turnover”. Thus, the Tribunal accepted the assessee’s contention and directed the computation of the deduction under s. 80HHC of the Act by excluding the said statutory levies from theexpression “total turnover”. On the aforesaid facts, at the instance of the Revenue, the following question of law is referred by the Tribunal to this Court under s. 256(1) of the Act: Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that octroi, sales-tax and excise duty should be excluded from the figure of “total turnover” while computing the deduction under s. 80HHC of the Act.

3. Mr. Mallick, appearing on behalf of the Revenue, in IT Ref. No. 131 of 1995 had raised the following contention. The definition of “total turnover” in Expln. (bb) at the end of sub-s. (4A) of s. 80HHC was brought on the statute book for the first time by the Finance Act, 1990, w.e.f. 1st April, 1991. However, it was replaced by a new cl. (ba) by the Finance (No. 2) Act, 1991, with retrospective effect from 1st April,1987, i.e., asst. yr. 1987-88. By virtue of Expln. (ba), the freight and insurance charges had been excluded from the purview of the “total turnover”. It had been done, admittedly, in order to remove an anomaly in view of Expln. (b), on the statute book defining “export turnover” as excluding freight and insurance. Accordingly, it would be observed that before induction of Expln. (ba) defining “total turnover” the result was that, while the “total turnover” included freight and insurance, they were statutorily excluded from the ambit of “export turnover”. It is in order to bring the definition of “total turnover” in congruency with the statutory definition of “export turnover” that freight and insurance were excluded from the scope of “total turnover”. This would show that, but for the definition of “total turnover”, freight and insurance though excluded from the definition of “export turnover” would have still formed part and parcel of the “total turnover”. Hence, there was necessity for the legislature to step in. Therefore, it would be observed that octroi, sales-tax, excise duty and customs duty were and are includible in the concept of the “total turnover” as the legislature had not considered it expedient to remove an anomaly imagined by the assessee. Thus Mr. Mallick had advanced his argument in support of the contention of the Revenue that octroi, sales-tax and excise duties cannot be excluded from the total turnover under s. 80HHC of the Act. Mr. Agarwal, appearing for the Revenue, in IT Ref. No. 136 of 1995 supported the above noted contentions raised by Mr. Mallick on this score. Furthermore it had been contended both by Mr. Mallick and Mr. Agarwal in the course of their argument that there was no express provision in the relevant section of the Act excluding sales-tax, octroi and excise duty from the purview of the total turnover. It had further been pointed out by them that the expression “total turnover” as understood in the commercial world and as defined in the Bengal Finance (Sales-tax) Act included those three items, namely, sales-tax, octroi and excise duty, and there cannot be any reason to hold that the same interpretation cannot be given effect to the expression “total turnover” under the IT Act. Our attention had been drawn by them to the judgment of the Supreme Court in McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) in support of their contention that the word “turnover” should be understood in the manner in which the commercial world understood the same. Dr. Pal, appearing for the assessee, in both the reference cases, submitted that keeping in view the purpose and object of s. 80HHC, viz., to boost the exports of the country the exemption allowed under s. 80HHC must receive a liberal interpretation.

He contended that the expression appearing in a particular statute must take its colour and meaning in the context of that statute and for the purpose and the object for which the statute had been introduced. He cited the case of Workmen of Dimakuchi Tea Estate vs. Management of Dimakuchi Tea Estate (1958-59) 14 FJR 41 : AIR 1958 SC 353; New India Sugar Mills Ltd. vs. CST AIR 1963 SC 1207 and S. Mohan Lal vs. R. Kondiah AIR 1979 SC 1132, in this regard. It was further contended by Dr. Pal that a provision in a taxing statute granting incentive for promoting growth and development should be construed liberally. As contended by him, the purposive theory of interpretation of a statute would have to be followed instead of a technical or literal view of the provisions of this statute. To buttress up his contention Dr. Pal referred to the case of CGT vs. N. S. Getti Chettiar (1972) CTR (SC) 349 : AIR 1971 SC 2410, para. 14, K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : AIR 1981 SC 1922, and Bajaj Tempo Ltd. vs. CIT (1992) 104 CTR (SC) 116 : AlR 1992 SC 1622. Dr. Pal had drawn our attention to cl. (b) of the Explanation to s. 80HHC wherefrom it appears that “export turnover” is defined to mean the sale proceeds of any goods or merchandise which are exported out of India but which would not include freight or insurance. “Total turnover” as defined in cl. (ba) does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station. As contended by Dr. Pal, a combined reading of the said two clauses would reveal that both the export turnover and total turnover include anything which has a nexus with the sale proceeds and they excluded everything which has no nexus in the sale proceeds. He drew our attention to the formula which finds place in s. 80HHC(3) as it stood at the relevant time. He argued that the export ‘turnover was the numerator in the above formula whereas the total turnover was the denominator and the said formula was prescribed to arrive at the profits from exports. It is further the contention of Dr. Pal that if the denominator was to include the items like sales-tax, excise duty and octroi duty and if the numerator would exclude the above items, the formula would become unworkable and the proportion would be disturbed and unbalanced. Dr. Palemphasised the point that the profits derived from exports would be the amount which bears to the profits of the business as computed under the head “Profits and gains of business” the same proportion as the export turnover bears to the total turnover and, therefore, weightage must be given to such profits. He further contended that the turnover should be restricted to such receipts which would have an element of profit in it and it is only the actual sale price which would be relevant and anything charged by way of octroi, excise duty and sales-tax must not be taken into account as they do not have any element of profit. The case of CIT vs. Sudarshan Chemicals Industries Ltd. (2000) 163 CTR (Bom) 596 : (2000) 245 ITR 769 (Bom) was cited by Dr. Pal in support of his above contention. Having regard to the rival contentions raised by Mr. Mallick and Mr. Agarwal, appearing for the Revenue, and Dr. Pal, appearing for the assessee, and the relevant provisions of the Act and the principles of law as laid down in the matter we find merit in the contention raised by Dr. Pal on behalf of the assessee. On a combined reading of cl. (b) and cl. (ba) of the Explanation to s. 80HHC we find that both the export turnover and total turnover include anything which has a nexus with the sale proceeds and they excluded everything which has no nexus with the sale proceeds. It is the intention of the legislature that under s. 80HHC the profits from export should not be taxed and for that purpose a formula was introduced whereby in case the business is of composite nature the proportionate profit relatable to the export business would be found out by multiplying the profits of a business by the export turnover and dividing the product by the total turnover. This formula was introduced in s. 80HHC(3) of the Act as it stood at the relevant time. In the above formula the export turnover is the numerator whereas the total turnover is the denominator. There can hardly be any room for scepticism that the said formula had been prescribed to arrive at the profits from exports. It was rightly contended by Dr. Pal that if the denominator was to include octroi, sales-tax and excise duty and if the numerator excluded those items the formula would certainly become unworkable. In the case of CIT vs. Sudarshan Chemicals Industries Ltd. (supra) the Division Bench of the Bombay High Court clearly held that in order to ascertain the export profits, the aforesaid items cannot be introduced to inflate the total turnover artificially in order to reduce the benefit which an assessee is entitled to. In this context it is significant to note that s. 80HHC(1) of the Act provides, inter alia, that where an assessee engaged in the business of exports out of India of any goods or merchandise, there shall be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise. So in the matter of computing the total income of such assessee, profits derived by the assessee from the exports are clearly deductible. Sec. 80HHC (3)(a) lays down that where the export is of goods, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. So the emphasis should be laid on the words “profits derived from the exports” and as such weightage must be given to such profits which cannot be reduced artificially by including statutory levies in the total turnover. In the case of CIT vs. Sudarshan Chemicals Industries Ltd. (supra), the Division Bench of the Bombay High Court clearly held that the turnover should be restricted to such receipts which have an element of profit in it and it is only the actual sale price which is relevant. We find no reason to differ from the view of the Division Bench of the Bombay High Court expressed in the abovenoted case. In our view octroi, excise duty and sales-tax cannot have any element of profit and as such those items cannot be included in the total turnover. If contrary view is taken that will make the object sought to be achieved by the legislature nugatory.

The case of McDowell & Co. Ltd. vs. CTO (supra) had been cited by Mr. Mallick and Mr. Agarwal in support of the contentions raised on behalf of the Revenue. In the said decision it was pointed out by the Supreme Court that the turnover is defined in s. 2(s) of the Sales-tax Act to mean “the total amount set out in the bill of sale (or if there is no bill of sale, the total amount charged) as the consideration for the sale or purchase of goods (whether such consideration be cash, deferred payment or any other thing or value) including any sums charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description, name or object thereof”. It was in such context the Supreme Court observed that the said definition which would clearly indicate that the total amount charged as the consideration for the sale would have to be taken into account for determining the turnover. In our view the interpretation of the word “turnover” as defined under the Sales-tax Act cannot be given effect to while interpreting the expression “total turnover” under the IT Act. It is settled law that the words of a statute, where there is a doubt about their meaning, are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the legislature has in view. This principle of law was laid down by the Supreme Court in the case of Workmen of Dimakuchi Tea Estate (supra) and other subsequent decisions. In the case of S. Mohan Lal (supra), the Supreme Court observed as follows : “It is not a sound principle of construction to interpret expressions used in one Act with reference to their use in another Act; more so if the two Acts in which the same word is used are not cognate Acts. Neither the meaning, nor the definition of the term in one statute affords a guide to the construction of the same term in another statute and the sense in which the term has been understood in the several statutes does not necessarily throw any light on the manner in which the term should be understood generally. On the other hand, it is a sound, and, indeed, a well-known principle of construction that meaning of words and expressions used in an Act must take their colour from the context in which they appear”. Viewed in this perspective it can well be held that the case of McDowell & Co. Ltd. (supra) which deals with separate enactments has got no manner of application to interpretation of the words “total turnover” which find place in the relevant provision of the IT Act. It is to be borne in mind in this context that the sales-tax, octroi and excise duties are levied under the separate enactments which have different objects and as such the general definition of the word “turn-over” or the case law dealing with the said definition under the Salestax Act can in noway be imported into s. 80HHC of the IT Act with which we are presently concerned.

8. For the foregoing reasons, we hold that on the facts and in the circumstances of the case, the Tribunal was right in law in holding that octroi, sales-tax and excise duty should be excluded from the figure of “total turnover” while computing the deduction under s. 80HHC of the Act. The question of law referred to us by the Tribunal is answered in the affirmative, in favour of the assessee and against the Revenue. Both the reference cases being IT Ref. Nos. 131 of 1995 and 136 of 1995 are disposed of accordingly. The parties to bear their own costs.

TARUN CHATTERJEE, J. : I agree

[Citation : 256 ITR 625]

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