GEM GRANITES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The appellant exports granite. According to the appellant the granite is cut and polished before export. The appellant claims deduction under Section 80 HHC of the Income tax Act 1961 (hereinafter referred as 'the Act') in respect of profits from its export business.

(2.) The assessment year in question is 1987-1988. Section 80-HHC as it then t stood read as follows: 80 HHC Deduction in respect of profits re-tained for export business.- (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 the 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 of the profits derived by the assessee from the export of such goods or merchandise. 2 (a) This section applies to all goods or merchandise, other than those specified in clause (b) , if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange. (b) This section does not apply to the following goods or merchandise, namely:- (i) mineral-oil; and (ii) minerals and ores".

(3.) Thus an exporter of minerals could not avail of the benefit of Section 80 HHC. According to the appellant although granite is a mineral, there was a distinction between granite in its raw form and granite in its finished form or granite which has been subjected to the process of cutting and polishing. It is the appellant's case that when granite is so processed it ceases to be a mineral. It is also argued that the history of Section 80 HHC would indicate that the object of the introduction of Section 80-HHC was to develop foreign markets and to earn foreign exchange. With this object a distinction had been made between raw mineral and processed mineral at all material times. Reference has been made to Circular issued by the Central Board of Direct taxes (CBDT) being Circular No. 178/206/ 83 dated 22.5.1984 which inter alia stated that the export of cut and polished diamonds and gems would not amount to export of minerals and ores and hence would qualify for relief under Section 80-HHC of income tax Act 1961. It is further submitted that in 1991 the position was clarified by an amendment to Section 80-HHC. The amended Section in so far as it is relevant reads: