1988-VIL-60-ITAT-

Equivalent Citation: ITD 029, 227, TTJ 033, 384,

Income Tax Appellate Tribunal MADRAS

Date: 19.12.1988

NB. ABDUL GAFOOR.

Vs

INCOME-TAX OFFICER.

BENCH

Member(s)  : R. RANGAYYA., T. N. C. RANGARAJAN.

JUDGMENT

Per Shri T.N.C. Rangarajan, Judicial Member --- These appeals relate to the claim of the assessee for deduction under section 80HH of the Income-tax Act, 1961.

2. The admitted facts are as follows. The assessee is a registered firm. The assessee was engaged in export business and had exported mosaic tiles in the preceding year to the extent of Rs. 2,24,375. In the current previous year ended 31-12-1983, corresponding to the assessment year 1984-85, the assessee exported tendu leaves and the net turnover after excluding freight and insurance came to Rs. 56,36,617. The assessee claimed deduction of 1 per cent of the turnover of tendu leaves as well as an additional deduction of 5 per cent on the increase of the total export turnover for this year over the total export turnover of last year. The ITO rejected both the claims on the ground that firstly, tendu leaf was an agricultural primary commodity and therefore not eligible for the deduction and secondly, the additional deduction was available only on the increase in the turnover of the same goods and not with reference to export of other goods. On appeal, the CIT (Appeals) accepted the contention of the assessee that tendu leaves are not agricultural primary commodity but rejected the other claim for additional deduction on the ground that the increase in the turnover should be with reference to the same commodity.

3. The assessee has appealed further to contend that the additional deduction is to be given with reference to the export turnover and not with reference to the goods exported. While opposing this contention the revenue has also filed an appeal to press the ground that tendu leaves are primary agricultural commodities and, therefore, the assessee is not entitled to any deduction at all under section 80HHC.

4. On a consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed. Sec. 80HHC was inserted by the Finance Act, 1983 with effect from 1-4-1983. Introducing this scheme, the Finance Minister stated as follows -:

"In respect of exports the scheme announced by me last year provided some tax relief to exporters whose export turnover for any year exceeded that of the immediately preceding year by more than 10 per cent. The total relief available under last year's scheme was also subject to a maximum of 10 per cent of tax payable. I now propose to simplify and liberalise the scheme and remove both the minimum qualifying amount and limit of relief. Exporters will be entitled to deduct 5 per cent of their incremental turnover in computing their taxable income. Thus, under the new scheme all increments in export turnover will be entitled to relief. Exports of all goods will qualify for this concession excepting a few specified items."

The Notes on Clauses stated as under :

"Clause 24 seeks to Insert a new section 80HHC in the Income-tax Act relating to deduction in respect of export turnover.

Sub-section (1) of the now section provides that a taxpayer being an Indian company or a person (other than a company) who is resident in India exports out of India during the previous year any goods or merchandise to which this section applies, will be allowed deduction of an amount equal to five per cent of the amount by which the export turnover of such goods or merchandise during the previous year exceeds the export turnover of the goods or merchandise during the immediately preceding previous year.

Sub-section (2) of the new section provides that the new section applies to all goods or merchandise other than agricultural primary commodities, not being produce of plantations ; mineral oil ; minerals and ores and such other goods are merchandise as the Central Government may by notification in the Official Gazette specify in this behalf. This sub-section further provides that this concession will apply to sale proceeds of such goods or merchandise exported out of India as are receivable by the taxpayer in convertible foreign exchange.

Sub-section (3) of the new section provides that no deduction will be allowed under the new section unless the taxpayer had, during the immediately preceding previous year, exported out of India goods or merchandise to which this section applies."

The memorandum explaining this provision in the Act stated as follows -- in Circular No. 372, dt. 8-12-1983 :

"(xxxiii) Tax incentives for export --- Section 80HHC.

42.1 With a view to encouraging larger exports of certain goods, the Finance Act, 1982, had inserted section 89A in the Income-tax Act with effect from 1st June, 1982, for providing tax relief to Indian companies and non-corporate taxpayers resident in India whose export turnover for a year exceeds the export turnover for the immediately preceding year by more than 10 per cent thereof.

42.2 The Finance Act, 1983, has omitted the aforesaid provision with effect from 1st April, 1983. Simultaneously, a new section 80HHC has been inserted with effect from the same date for providing a deduction with reference to the export turnover. The broad features of the new section are as follows :

(i) The tax concession will be available to Indian companies and non-corporate taxpayers resident in India who have exported out of India any qualifying goods are merchandise during the relevant accounting year.

(ii) The tax concession consists of deductions in the computation of taxable profits, calculated as under :

(a) A deduction of an amount equal to one, per cent of the export turnover of the qualifying goods are merchandise during the accounting year ; plus

(b) A deduction of an amount,equal to five per cent of amount by which the export turnover of the qualifying goods or merchandise during the previous year exceeds the export turnover of such goods or merchandise during the immediately preceding previous year.

(iii) The tax concession at (b) above will be available only if the assessee has exported out of India any qualifying goods or merchandise during the previous year immediately preceding the relevant previous year for which the deduction is claimed. In other words if an assessee, newly enters the export trade during a particular year, he will be entitled for that year only to the concession contained at (a) and not the concession at (b) above.

(iv) The tax concession will be available in relation to the export of all goods or merchandise other than (a) agricultural primary commodities (not being produce of plantations) ; (b) mineral oil ; (e) minerals and ores; and (d) such other goods are merchandise as the Central Government may by notification in the Official Gazette specify in this behalf.

(v) To qualify for the tax concession, the sale proceeds of the goods or merchandise exported out of India must be receivable by the assessee in convertible foreign exchange."

5. Section 80HHC allows the deduction equal to 1 per cent of the export turnover of such goods to which the section applies. Sub-section (2)(a) states that the section applies to all goods or merchandise other than those specified in clause (b) and clause (b) lists "agricultural primary commodities not being produce of plantations" as one of the items of goods to which the section is not applicable. The expression "agricultural primary commodity" has not been defined in the Act. But a reading of this phrase clearly refers to two aspects of the commodity, viz., that it should be agricultural and that it should be primary in the sense that it should not be processed. "Agricultural" denotes that the commodity is the product of agricultural operations on land. It is not in dispute that the assessee has acquired the tendu leaves under a forest contract and had not grown tendu leaves by application of any agricultural operations. The only decision which is of some assistance in deciding this issue is the case of Haji Latif Abdullah CIT [1963] 48 ITR 242 (Cal.) where it was held that the plucking, tendu leaves from the forest cannot be regarded as an agricultural activity and, therefore, the income derived by the leasing out of tendu leaves will not be classified as agricultural income. Thus, we find that the tendu leaves are not agricultural primary commodities and, therefore, the section clearly applies to these commodities and the assessee is entitled to the deduction of 1 per cent on the turnover of tendu leaves.

6. With regard to the claim for deduction on the increased turnover, a reading of the Finance Minister's speech as well as the memorandum explaining the section extracted above (with emphasis supplied) indicate that it was always intended that the additional deduction should be given as an incentive on the increased turnover without reference to the commodity exported. The section also states that the deduction of amount equal to 5 per cent of the amount by which export turnover of such goods exceeds the export of such goods during the immediately preceding year will be granted. The expression "such goods" refers to the main clause of sec. 80HHC, viz., the goods to which the section applies, i.e., qualifying goods and not to particular goods exported in this particular assessment year. The meaning of the section is self-evident and is in no way ambiguous. We, therefore, accept the claim of the assessee for the additional deduction also. We accordingly direct the ITO to grant both the deductions under section 80HHC and recompute the total income. He is also authorised to amend the assessments of the partners as a consequence.

7. In the result, the appeal of the assessee is allowed and the appeal of the revenue is dismissed.

 

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