High Court Of Calcutta
Britannia Industries Ltd. vs. JCIT & Ors.
Section 32AB
Asst. Year 1988-89
D.K. Seth & R.N. Sinha, JJ.
IT Appeal No. 59 of 1999
23rd September, 2004
Counsel Appeared
Debiprosad Pal with Ms. Manisha Seal, for the Appellant : M.P. Agarwal, for the Respondents
JUDGMENT
D.K. Seth, J. :
The point : The relevant assessment year involved in this case is 1988-89. The question that has arisen has to be answered on the basis of the law, as it stood for the previous year relevant for the assessment year. The question raised in this case relates to the eligibility of deduction under s. 32AB of the IT Act, 1961. Having regard to s. 32AB as it stood then whether the income derived under the head “Income from business or profession” only would be eligible for deduction under s. 32AB(1)(ii) or this deduction would be allowable on the income of the eligible business contemplated under sub-s. (3) of s. 32AB. In other words, whether this 20 per cent income is to be allowed on the income of the eligible business contemplated under sub-s. (3) of s. 32AB irrespective of the fact that it might include income from sources other than income from business or profession. The Tribunal had held against the assessee that the income derived under the head “Profits and gains of business or profession” only would be eligible following the decision in Asstt. CIT vs. Northern India Theatre (P) Ltd. (1996) 54 TTJ (Del)(TM) 652 : (1996) 56 ITD 42 (Del)(TM) and CIT vs. Dinjoye Tea Estate (P) Ltd. (1997) 141 CTR (Gau) 146 : (1997) 224 ITR 263 (Gau). Appellant’s contention :
2. Dr. Pal, appearing on behalf of the assessee/appellant, had pointed out that s. 32AB has two components in sub- s. (1). One component is the eligibility criteria for availing of the deduction contemplated under s. 32AB and the second component is the eligibility to deduction after the assessee qualifies under the first component. These two components are different and cannot be intertwined or interlaced. These two components are completely distinct, different and independent of each other. Once the eligibility criteria for deduction is qualified under s. 32AB(1)(a)(b), then the eligibility of deduction under s. 32AB(1)(i) and (ii) would crop up. This eligibility under cl. (ii) is to be computed in the manner contemplated under s. 32AB(3) through the process of s. 32AB(5). The reference to s. 32AB(3) clearly indicates the extent of the eligibility criteria for deduction, something distinct from the qualification for being eligible to deduction. According to him, the decision of the Gauhati High Court in CIT vs. Dinjoye Tea Estate (P) Ltd. (supra) and that of the Calcutta High Court in CIT vs. Warren Tea Ltd. (2001) 170 CTR (Cal) 327 : (2001) 251 ITR 382 (Cal) are distinct and contrary to the ratio laid down in Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC) and CIT vs. Nawn Estate (P) Ltd. (1972) 86 ITR 300 (Cal). According to Dr. Pal, once the assessee is eligible by satisfying the condition that he has qualified on account of the deposit in terms of sub-s. (1) of s. 32AB, he would be entitled to the deduction contemplated under cls. (i) and (ii) of s. 32AB(1) as computed on the basis of sub-s. (5) thereof. According to him, the profits of eligible business cannot be equated to the profits of the business chargeable under the head “Profits and gains of the business”. Profits of the eligible business would be an amount arrived at after deduction of the amounts of depreciation from the amount of profits contemplated in accordance with the provisions of Part II and Part III of Sch. VI to the Companies Act in terms of sub-s. (3). The computation of the profits of the eligible business cannot be made in accordance with the provisions of the IT Act. The bifurcation of the profits of the business into different heads like “Profits and gains of business and profession” is not relevant for the purpose of computation of income eligible for deduction under Part II and Part III of Sch. VI to the Companies Act. He relied on the decision of the Division Bench in Assam Brook Ltd. vs. CIT (2004) 189 CTR (Cal) 347 : (2004) 267 ITR 121 (Cal) rendered by the Calcutta High Court following Apollo Tyres Ltd. (supra). He also elaborately referred to the ratio decided in Apollo Tyres Ltd. (supra) and led us through the said decision. He had also drawn our attention between comparison of the provisions of s. 32AB and those of s. 115J for the purpose of referring to book profit and support his contention with regard to the distinction sought to be made by him in the matter of qualification and eligibility. Dr. Pal in his erudite style had elaborated his submission in order to explain the situation with utmost clarity. Department’s contention :
3. Mr. Agarwal, we must admit, appearing on behalf of the CIT, had ably and aptly clarified his stand. According to him, the factors that are to be examined for the present purpose for applying the tests in relation to s. 32AB are to be found out from the scheme of the Act as contemplated in Chapter IV. The provisions comprised in Chapter VI-A cannot be read in isolation and without reference to Chapter IV. Since the qualification clause provides eligibility in respect of the amount deposited or spent out of the income under the head “Profits and gains of business and profession”, therefore, the eligibility for deduction within cls. (i) and (ii) has to be read ejusdem generis so as to be applicable in relation to the income under the head “Profits and gains of business or profession” alone. It cannot be stretched to incomes derived by the assessee from other sources like capital gains and income from other sources or dividend income. To support his contention, he had pointed that the manner of computation of profits of business or profession has been laid down in sub-s. (1) and sub-s. (3) of s. 32AB. This would not govern the eligibility. It is only after the eligible business is ascertained, the manner of computation of profits from such business comes into play; the manner of computation laid down in sub-s. (3) cannot override the provisions contained in sub-ss. (1) and (2) regarding the eligibility of business or profession for deduction. The legislature had designedly used the expression “profits and gains of business and profession” in s. 32AB. The words “income” and “total income” do not find place there. Therefore, the decisions of the Gauhati High Court and the Calcutta High Court in Dinjoye Tea Estate (P) Ltd. (supra) and Warren Tea Ltd. (supra) interpreted the law correctly. He sought to distinguish the decision in Apollo Tyres Ltd. (supra) and Assam Brook Ltd. (supra). According to him, those decisions proceeded on the basis of the findings of the Tribunal to the extent as to whether those incomes constitute part and parcel of the business carried on by the assessee. In those decisions, it was found that those incomes were also part and parcel of the income of the assessee under the head “Profits and gains of business and profession”. The finding of fact by the Tribunal is conclusive. In the present case, the Tribunal had found that the assessee was not entitled to deduction under s. 32AB in respect of income from house property, dividend income, bank interest and long-term capital gains as these incomes did not form part and parcel of the business carried on by the assessee. The finding of the learned Tribunal being the final finding of facts, the ratio decided in Apollo Tyres Ltd. (supra) and Assam Brook Ltd. (supra) has no manner of application. With regard to the comparison of the provisions of s. 32AB(3) and those of ss. 115J and 115JA, he contended that the Explanation in ss. 115J and 115JA to the effect that the book profit means the net profit as laid down therein whereas under s. 32AB the word “means” is conspicuously absent. Therefore, it is only the amount of the profits eligible under sub-ss. (1) and (2), which could be computed in accordance with the requirement of the relevant provisions of the Companies Act as stipulated in sub-s. (3) of s. 32AB. Sub-s. (3) of s. 32AB is only a manner of computation of the eligible income. It does not qualify the eligible business. Therefore, this appeal should fail. Sec. 32AB as it stood for the asst. yr. 1988-89 :
4. In order to find the answer, we are to depend on the provisions of s. 32AB as it stood and applicable to the asst. yr. 1988-89. In order to appreciate the situation, we may better quote the said provision as applicable in the asst. yr. 1988-89 so far as it is necessary for our present purpose. “32AB. (1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head ‘Profits and gains of business or profession’, has, out of such income,— (a) deposited any amount in an account (hereafter in this section referred to as deposit account) maintained by him with the development bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or (b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under cl. (a), (i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or (ii) a sum equal to twenty per cent of the profits of eligible business or profession as computed in the accounts of the assessee audited in accordance with sub-s. (5), whichever is less : (2) For the purposes of this section,— (i) ‘eligible business or profession’ shall mean business or profession, other than— (a) the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule carried on by an industrial undertaking, which is not a small- scale industrial undertaking as defined in s. 80HHA; (b) the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a small-scale industrial undertaking as defined in s. 80HHA, engaged in the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule; ……… (3) The profits of eligible business or profession of an assessee for the purposes of sub-s. (1) shall, (a) in a case where separate accounts in respect of such eligible business or profession are maintained, be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-s. (1) of s. 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956 (1 of 1956), as increased by the aggregate of— (i) the amount of depreciation; (ii) the amount of income-tax paid or payable, and provision therefor; ……..shall be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under s. 72) of— (iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964); (iv) the amounts carried to any reserves, by whatever name called; (v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; (vi) the amount by way of provision for losses of subsidiary companies; and (vii) the amount or amounts of dividends paid or proposed, if any debited to the P&L a/c; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the P&L a/c; and (b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the provisions of sub-s. (1) of s. 32, the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipts of the business or profession carried on by the assessee……….. (5) The deduction under sub-s. (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below subs. (2) of s. 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant : Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business or profession audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section ……..” Eligibility to deduction vis-a-vis eligibility of deduction :
5. Before we refer to the various decisions, we may try to find out the answer from the provisions of s. 32AB. Subs. (1) of s. 32AB makes it clear when the benefit of that section would be available to an assessee; it specifically provides the particular deposit of amount or utilisation of amount for the purposes mentioned in cls. (a) and (b) made out of the income under the head “Profits and gains of business and profession”. Once the assessee is qualified under s. 32AB(1)(a) and (b), then the income will be eligible for deduction as contemplated in cls. (i) and (ii) whichever is less. We are concerned with cl. (ii) in the present case. answer is hidden within the scope and ambit of this cl. (ii) as expressed by the legislature. The qualification clause in sub-s. (1)(a) and (b) refers to profits and gains of business and profession. The eligibility criteria provided in sub-s. (1) governs the rest of the said sub- section and any contradiction thereto could have been ignored on the principle of interpretation of statute unless the legislature had intended otherwise through clear expression making a distinction from the first part of eligibility criteria for being entitled to deduction and the second part governing eligibility of the deduction. There is a distinction between being eligible for deduction and the eligibility of the deduction. The legislature has not used the same expression in the part governing eligibility to deduction (qualification part) and eligibility of deduction (the deduction part). In the qualification part, it has referred to the deposit or utilisation of amount out of the income under the head “Profits and gains of business and profession”, whereas in the deduction part, the deduction is allowed on the profits of eligible business or profession as computed in the return of the assessee audited by an accountant in terms of sub-s. (5). This has been made clear in sub-s. (2) where eligible business or profession has been defined. The definition is exclusionary, it excludes the business mentioned in cls. (a) and (b) of sub-s. (2)(i). This is further supported by sub-s. (3) which provides that profits of eligible business or profession for the purpose of sub-s. (1) shall be as provided in cl. (a) and its sub-clauses and (b), namely, in accordance with the requirements of Part II and Part III of the Sixth Schedule to the Companies Act, 1956, as indicated in the sub-clauses, viz., cl. (a), where separate accounts were maintained, and cl. (b) where separate accounts are not maintained or are not available. It would be such amount, which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with s. 32(1) at the same proportion as the total sales turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or the gross receipts of the business or profession carried on by the assessee. Thus, by reason of sub-ss. (2) and (3) the eligibility of deduction has been classified to be distinct from the eligibility to deduction.
We are not required to answer as to what would be the position after this Finance Act, 1989, which came into force w.e.f. 1st April, 1991, inasmuch as the word “eligible” in cl. (ii) before the word “business” in sub-s. (1) and the definition of “eligible business” in sub-s. (2) and cl. (b) of sub-s. (3) was omitted. Once the distinction between the eligibility to deduction and the eligibility of deduction is removed by the Finance Act, 1989, the position stood clear as has been contended by Dr. Pal inasmuch as after the amendment brought about in the Finance Act, 1989, the word “eligible” from the phrase “profits of eligible business or profession” having been omitted, it bears a different meaning and stands qualified by the qualification clause and the distinction between the qualification and the eligibility has since been removed. It is not the eligible business on the profits whereof the deduction is now allowed but on the income from the head “Profits and gains of business and profession.” Thus, on a reconciled reading of s. 32AB, sub-s. (1), sub-s. (2)(i) and sub-s. (3)(a) clearly indicate that once the assessee becomes eligible to the deduction under s. 32AB(1)(a) and (b), it would be entitled to the eligibility of deduction of the profits out of the eligible business defined in sub-s. (2) (i) computed in accordance with the provisions contained in sub-s. (3)(a), namely, in accordance with Part II and Part III of Sch. VI to the Companies Act, 1956, which includes the profits of the eligible business irrespective of the head under which it is derived and that such income is to be computed and conceived according to the provision contemplated in sub-s. (3). The eligibility is not dependent on the computation under the IT Act, but on sub-s. (3). The eligibility to and eligibility of have been made distinct by reason of these provisions when read with sub-s. (2)(i) and sub-s. (3)(a) and (b), the omission whereof by the Finance Act, 1989, is a clear expression of the legislative intendment in removing the distinction.
Precedents : Citation and its application :
6. We may note that such a view was taken by the Calcutta High Court in Nawn Estate (P) Ltd. (supra), wherein it was held that the rental income of the assessee-company can also be taken into consideration for the purpose of deduction claimed under s. 32AB of the IT Act. This view can find support from the decision in O. RM. M. SP. SV. Firm vs. CIT (1967) 63 ITR 404 (SC). To support our above contention, we may also depend on the ratio decided in CIT vs. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC) cited by Dr. Pal. There it was held that (headnote) “though for the purpose of computation of the income, interest on securities is separately classified, income by way of interest from securities does not cease to be part of the income from business if the securities are part of the trading assets”. The Madras High Court in CIT vs. Tamil Nadu Mercantile Bank Ltd. (2002) 175 CTR (Mad) 391 : (2002) 255 ITR 205 (Mad) had held that the computation of income under the provisions of the IT Act is of no relevance for the purpose of determining the extent of benefit under s. 32AB(1) or (2). The computation under the IT Act is relevant after the ascertainment of the amount of the deposit and the 20 per cent of the profits of the business calculated in accordance with s. 32AB(3) and the amount to be allowed in the computation under the IT Act is the lower of the two figures. In Apollo Tyres Ltd. (supra), the apex Court had held that the dividend income earned by the assessee-company from its investment in the UTI should be included in computing the profits of eligible business under s. 32AB of the Act.
Conclusion :
7. While applying a particular provision of the statute in a particular fact, the statute has to be given its due; we cannot ignore any expression used in the statute. It has to be reconciled and given its due meaning. The word “eligible” qualifying the business in cl. (ii) of s. 32AB(1) since defined in s. 32AB(2)(i) seems to be the determining factor which cannot be ignored. Income from eligible business does not qualify as to under what head the income from eligible business would be eligible for deduction. In the absence of any qualification clause and use of the expression “eligible business” defined in s. 32AB(1) makes a clear distinction and expresses the intention of the legislature which deviated from the expression used in ss. 32AB(1)(a) and (b). The distinction sought to be made by Mr. Agarwal to support the views taken by the Gauhati High Court and the Calcutta High Court in Dinjoye Tea Estate (P) Ltd. (supra) and Warren Tea Ltd. (supra) do not seem to be a sound proposition. The decision of the Calcutta High Court in Warren Tea Ltd. (supra) following the decision of the Gauhati High Court in Dinjoye Tea Estate (P) Ltd. (supra) is no more a good law in view of the decision in Apollo Tyres Ltd. (supra), following which the Calcutta High Court had expressed its opinion in Assam Brook Ltd. (supra). The apex Court was clear in laying down the principle in Apollo Tyres Ltd. (supra) which cannot have a different meaning.
Order :
8. In these circumstances, this appeal succeeds and the order of the learned Tribunal is hereby modified to the extent that the assessee would be entitled to the deduction of 20 per cent of the profits of eligible business computed in the accounts of the assessee computed under sub-s. (3) in accordance with Part II and Part III of Sch. VI to the Companies Act, 1956, audited under sub-s. (5). In other words, the income as computed under Parts II and III of the 1956 Act in respect of the income out of the eligible business would be the basis on which this deduction is allowed irrespective of the fact as to under what head a particular income will fall for the purpose of computation of income under the 1961 Act. In the result, the appeal succeeds and is allowed as above. There will, however, be no order as to costs. R.N. sinha, J. I agree.
[Citation : 271 ITR 123]
