COMMISSIONER OF INCOME TAX Vs. AJANTA PHARMA LTD

JUDGEMENT

(1.) ADMIT on the following questions: 1. 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 115 JB at the figure other than that allowed under Section 80 HHC (1B)?

(2.) WHETHER in law for the purpose of calculating book profit under Section 115 JB 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 under Section 80 HHC after restricting the deduction as per the provisions of Sub -section 1B of Section 80 HHC of the Act or the export profits calculated as per Sub -section 3 and 3A of Section 80 HHC before applying the restriction contained in Sub -section 1B of Section 80 HHC? 2. A few facts may be set out: The Assessee company was assessed under Section 115 JB of the Income Tax Act for the assessment year 2001 -2002. While computing the book profits, under Section 115 JB it claimed that the entire export profits as computed under Section 80 HHC should be deducted and not percentage deduction as provided under Section 80 HHC (1B). The Assessing Officer did not accept the same. The A.O. restricted the deduction under Section 80 HHC 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. Commissioner, Range III v. SIMCOM Ltd. 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.

(3.) ON the other hand on behalf of the assessee the learned Counsel submits that considering the expression 'the profits eligible for deduction under Section 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 under Section 80 HHC' 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 80 HHC 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 80 HHC i.e. the type of profit which got benefit under Section 80 HHC. 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 under Section 80 HHC of the Act is separately quantified/provided for in Section 80 HHC (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 80 HHC (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 80 HHC (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 80 HHC (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 80 HHC(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 Kerala High Court in C.I.T. v. GTN Textiles Ltd. : [2001]248ITR372(Ker) . 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.