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Judgment
F.I. Rebello, J.—Admit on the following questions:
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 115JB at the figure other than that allowed u/s 80HHC(1B)?
Whether in law for the purpose of calculating book profit u/s 115JB 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 80HHC after restricting the deduction as per the provisions of Sub-section 1B of Section 80HHC of the Act or the export profits calculated as per Sub-section 3 and 3A of Section 80HHC before applying the restriction contained in Sub-section 1B of Section 80HHC?
A few facts may be set out:
The Assessee company was assessed u/s 115JB of the Income Tax Act for the assessment year 2001-2002. While computing the book profits, u/s 115JB it claimed that the entire export profits as computed u/s 80HHC should be deducted and not percentage deduction as provided u/s 80HHC (1B). The Assessing Officer did not accept the same. The A.O. restricted the deduction u/s 80HHC to 80%.
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. (2007) 106 ITD 193 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.
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 u/s 80HHC 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 80HHC as contended on behalf of the assessee. Section 80HHC Sub-section 1B was introduced by the Finance Act with effect from 1.4.2001 so as to phase out the deduction completely by assessment year 2005- 06. Section 115JB 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 u/s 80HHC 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 u/s 80HHC, as used in Section 115JB refer to profits allowed as deduction u/s 80HHC. Reference is then made to the meaning of the expression "Eligible" from dictionaries. The eligible deduction therefore u/s 80HHC as per Section 115JB, is only that amount which is allowed as a deduction u/s 80HHC under normal provisions of the Act. The expression "Profits eligible for deduction u/s 80HHC" can only mean that the term refers to the export profits actually allowed as a deduction u/s 80HHC as otherwise an absurdity is created to the extent that while no full deduction is allowed of export profits u/s 80HHC, for the purpose of Section 115JB 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 u/s 80HHC" is referable to the profits calculated before applying the limitation specified in Sub-section 1B of Section 80HHC, one has to bear in mind the expression "subject to the conditions specified in Section 80HHC". 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 u/s 80HHC 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 115JA. The entire provisions of 80HHC and Section 115JB would have to be considered while construing the provisions. The Finance Minister''s speech and the Memorandum 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 (CBI/SPE), . 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 80HHC.
On the other hand on behalf of the assessee the learned Counsel submits that considering the expression "the profits eligible for deduction u/s 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 that the legislature wished to forego taxes thereon, including MAT. The phrase "amount of profits eligible for deduction u/s 80HHC" 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 80HHC 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 80HHC i.e. the type of profit which got benefit u/s 80HHC. 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.
4 (b). The quantum of profits in respect of which a deduction is allowed u/s 80HHC of the Act is separately quantified/provided for in Section 80HHC(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 80HHC(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 80HHC(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 80HHC(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 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 department is accepted, the words in Clause (iv) i.e. "...computed under (a), (b) and (c) of Section 80HHC(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 Commissioner of Income Tax Vs. G.T.N. Textiles Ltd., . It is submitted that the view taken by the Special Bench in DCIT v. Syncone Formulations 106 ITD 193 (Bom) as also DCIT v. 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.
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 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 Commissioner of Sales Tax, Uttar Pradesh Vs. The Modi Sugar Mills Ltd., .
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 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 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, certifying 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 subsection (1A) any income not charged to tax under this Act shall be excluded.
(4C) ...
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 percentage wise 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.
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 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 subsection
(2), as increased by-
(a) ...
(b) ...
(c) ...
(d) ...
(e) ...
(f) ...
(g) ...
(h) the amount of deferred tax and the provision therefore ,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 u/s 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.
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 80HHC 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 profit by the amounts referred to in Clause (i) and (ii) attributable to the business, the profits from which are eligible for deduction u/s 80HHC or Section 80HHD; so, however, that such amounts are computed in the manner specified in Sub-section (3) or Sub-section (3A) of Section 80HHC or Sub-section (3) of Section 80HHD, as the case may be, or ....
The Legislature, therefore, in case of MAT Companies choose not to initially give them the benefit of reduction of export profits.
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 u/s 80HHC 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 u/s 80HHC, 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 (4A) of that section.
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.
In so far as MAT companies are concerned, that reduction of export profit while computing book profits was not available when Section 115J 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.
It would thus be clear that whether it be Section 115J, 115JA or 115JB the express language used is eligible for deduction u/s 80HHC 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 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).
Another aspect of the matter. Companies other than MAT companies could claim deductions of export profits calculated in the manner provided u/s 80HHC 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 u/s 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 80HHC.
For interpreting the statutory provisions let us refer to some decided case law. In K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, , 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 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 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 and Ors. v. State of Maharashtra and Ors. AIR 2001 S.C. the same view was explained as under:
Further we wish to clarify that it is a 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 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 inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statue....
Whether speeches made on the floor of the House were admissible in interpreting the provisions. Speeches made by the Members of the 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. Varghese (supra) said that this is in accord with the recent trend in juristic 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 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.
Can the statement of object and reasons be looked into. In Gurudevdatta VKSSS Maryadit and Others Vs. State of Maharashtra and Others, 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 therefore this is not an indispensable requirement but when faced with an imperative need to appreciate the proper intent of the Legislature, statement 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.
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 v. 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 unhesitant concurrence to the proposition.
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 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 80HHC and 80HHD 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 be exempt from the MAT and will be eligible for full deduction u/s 80HHC. That was when Section 115JA was introduced and the benefit u/s 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 u/s 80HHC from the purview of Minimum Alternate Tax. CBDT Circular dated 18.2.1998, sets out MAT was introduced w.e.f. 1st April, 1997 and the Finance Act, 1997 exempts the export profits which are eligible u/s 80HHC or u/s 80HHG from the purview of minimum alternate tax.
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 u/s 80HHC or Section 80HHE or Section 80HHF or the Income referred to in Section 10 or Section 10A or Section 10B shall be excluded while working out "book profits".
In the Memorandum explaining the provisions in the Finance Bill it was provided as under:
However, export profits u/s 80HHC, 80HHE and 80HHF are kept out of the purview of this provision during the period of phasing out of deductions available under those provisions....
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".
Similarly word "Condition" in Oxford Dictionary means "stipulation; thing on fulfilment of which something else depends".
The principles elucidated earlier of statutory construction can now be considered for interpreting the provisions of Section 115JB vis-a-vis Section 80HHC. Does a literal reading of Section 80HHC 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 u/s 80HHC. 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 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 subsection (1B). The only question is whether the expression in Clause (a), (b) or (c) to subsection (3) consequent on introduction of Section 1B to Section 80HHC will have a meaning different from the meaning then what was originally understood, Considering (iv) to Explanation-I of Section 115JB.
Until Section 115JB was introduced, the whole of the profits computed u/s 80HHC was eligible for reduction for computing the book profits. Pursuant to Section 1B of Section 80HHC The deduction available to the extent provided in Section (1B) and after 1-4-2005 the deduction of 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 80HHC 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.
For that purpose, we will have to examine the true scope and effect of Section 80HHC. Section 80HHC, the relevant provisions to which we have earlier reproduced is subsection (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, for the purpose of working out the deduction of profits available u/s 80HHC(1B). Earlier it was in terms of Sub-section (1). Now Section 80HHC(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.
In so far as Section 115JB(2) Explanation 1(iv) is Concerned, in computing the book profits the export profits u/s 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 115JB(2). The assessees do not dispute this. Their argument is that reduction must be the whole of the book profits computed under subsection (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 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.
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 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 80HHC(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 profits u/s 80HHC 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 u/s 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 entitled to be placed in a better position than the other companies entitled to the export deduction u/s 80HHC 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-classified into two classes, when more so, for intermittent periods 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 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.
The 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 u/s 80HHC 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 u/s 80HHC. The profits eligible for deduction are export profits in terms of Section 80HHC(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 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 u/s 80HHC. 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 u/s 115JB. Is it possible to conceive of any degree of fairness and/or justice that MAT companies, who for some periods were denied the benefit of Section 80HHC, 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 u/s 80HHC, for the purpose of Section 115JB.
We have had the benefit of going through reasoning and the orders in ITAT v. SIMCOM (supra) as also in the case of D.C.I.T. v. Govind Rubber. It is not possible to agree with the view taken by the Benches. Those decisions in view of this judgment stand overruled.
Our attention was also invited to the Judgment of the Kerala High Court in the case of Commissioner of Income Tax Vs. G.T.N. Textiles Ltd., . In the first instance, the Kerala High Court was considering the provisions of Section 115J. Section 115JB was not under consideration. The High Court noted that original Section 115J of the Act did not contain exemption u/s 80HHC. That section as we have noted, did not originally include exemption allowed to exporters u/s 80HHC. By the virtue of the Explanation and Clause 3 thereto, which came into effect from 1.4.1989, the reduction u/s 80HHC 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.
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 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 u/s 80HHC as any other company involved in export in terms of Section 80HHC(1B). Once that be the case, this argument is also devoid of merit.
Having so answered, in our opinion, this appeal will have to be allowed. The questions of law as farmed will have to be answered in the negative in favour of the revenue and against the assessee.
Appeal disposed of accordingly.