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Hindustan Lever Ltd. Vs. Commissioner of Income-tax, Bombay City-i - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 57 of 1970
Judge
Reported in(1979)12CTR(Bom)55; [1980]121ITR951(Bom); [1980]3TAXMAN390(Bom)
ActsIncome Tax Act, 1961; Finance Act, 1962 - Sections 2(5); Income Tax (Determination of Export Profits) Rules, 1962 - Rule 2(3)
AppellantHindustan Lever Ltd.
RespondentCommissioner of Income-tax, Bombay City-i
Appellant AdvocateB.A. Palkhivala, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
(i) direct taxation - assessment - income tax act, 1961, section 2 (5) (i) of finance act, 1962 and rule 2 (3) of income tax (determination of exports profits) rules, 1962 - whether savings effected by assessee in importing articles on strength of import licences granted to assessee for exporting goods formed part of profit on export under section 2 (5) (i) - savings effected from imports made pursuant to import licences not to be taken into consideration in computing profits derived by export of goods. (ii) export profits - section 2 (5) of finance act, 1962 - whether benefit of section 2 (5) on export profits be allowed provided all export sales have resulted in overall profit or can be allowed on export sales individually on which profit has been earned - benefit of section 2 (5) on.....desai, j.1. the assessee-company before us is m/s. hindustan lever ltd. and in the assessment years under consideration, viz., 1962-63 and 1963-64, the assessee-company effected exports out of india of various products manufactured by it during the previous year for a total price of rs. 74,00,000 approximately. it claimed deduction out of income-tax and super-tax payable by it on the profits and gains claimed to have been derived by it from these exports under s. 2(5)(i) of the finance (no. 2) act, 1962. when the ito called upon the assessee-company to establish that it had made profit on the export sales as required by the relevant provisions under which the claim for deduction out of the tax payable had been made, the company expressed its inability to establish the same on the ground.....
Judgment:

Desai, J.

1. The assessee-company before us is M/s. Hindustan Lever Ltd. and in the assessment years under consideration, viz., 1962-63 and 1963-64, the assessee-company effected exports out of India of various products manufactured by it during the previous year for a total price of Rs. 74,00,000 approximately. It claimed deduction out of income-tax and super-tax payable by it on the profits and gains claimed to have been derived by it from these exports under s. 2(5)(i) of the Finance (No. 2) Act, 1962. When the ITO called upon the assessee-company to establish that it had made profit on the export sales as required by the relevant provisions under which the claim for deduction out of the tax payable had been made, the company expressed its inability to establish the same on the ground that no separate accounts of the export sales had been maintained. It was accordingly urged on its behalf that under r. 2(3) of the Income-tax (Determination of Export Profits) Rules, 1962, which were applicable the profits on export sales was to be taken as a proportionate fraction of the profits and gains of the whole business of which such exports formed a part. On the quantum of profits in respect of which a deduction had been claimed, it was urged by the company that, in consideration of the company having exported its products, the Government had issued import entitlements on the strength of import licences to the company. It was pointed out that, on the strength of these licences, the company had imported large quantities of palm oil and other products at a rate cheaper than the rates prevailing in the home market. It was submitted that the savings so effected by it should be deemed to form a part of the profit derived by it from the export of goods. The contention, in other words, was that if the profit, both actual and notional, derived by the company was taken as part of the profit from such export of goods, the company would be found to have derived profit from such export of goods and it was thus qualified for the deduction of the prescribed amount of tax payable by it under s. 2(5)(i) of the Finance (No. 2) Act, 1962. In the alternative and without prejudice to these general submissions, it was finally contended that even if the earlier submissions were not accepted, the assessee was entitled to deduction in respect of profit made by it on the export of such goods, which fetched a price higher than its cost price. In other words, the submission was that it was not necessary to consider whether in totality the export had yielded any profit to the company and the company could claim the benefit of s. 2(5)(i) in respect of a part of the export which had in fact yielded profits expressly.

2. The ITO rejected all the alternative stands of the assessee-company, but in his orders, which are annexs.'A' and 'B' to the statement of the case, we do not find much discussion.

3. The assessee carried the matter in further appeal to the AAC, and before the AAC all the grounds, which had been urged earlier, were reiterated. The AAC worked out the figures on the footings urged by the company. It was found that 702 tones of groundnut oil had been exported by the company for Rs. 12.64 lakhs against the sale proceeds of Rs. 9.20 lakhs. Thus, on this item there was an apparent loss of Rs. 3.44 lakhs. It was noted further that in accordance with the export incentive scheme in force, the assessee-company had become entitled to import equal quantities of palm oil in respect of the identical quantity of groundnut oil exported by the assessee. The prices at which the palm oil was imported by the company which was subsequently used up by the company itself were compared with the prices prevailing in the home market and the advantage of the assessee-company or the savings available from the permitted import was worked out at Rs. 5.06 lakhs, a figure which was greater than the figure of the apparent loss by Rs. 1.62 lakhs. It was this difference which was claimed by the company as its net profit arising from the exports of the groundnut oil made by it. As regards certain other products, the ITO himself has held that the company had made actual profits. In the view of the AAC, the assessee was entitled to claim the benefit of the provisions of s. 2(5)(i) of the Finance (No. 2) Act, 1962, in respect of these actual profits plus the benefit obtained on the import of palm oil. The AAC accepted further the contention of the assessee that since no books of account had been maintained as regards the export business of the assessee-company, the export profits would be required to be worked out as provided in r. 2(3) of the Income-tax (Determination of Export Profits) Rules, 1962. Necessary directions were given to the ITO to work out these details. In other words, by his order (annex.'D') the AAC fully accepted all the several contentions of the assessee-company. The ITO carried the matter in further appeal to the Income-tax Appellate Tribunal. The Tribunal was of the view that it was principally concerned with the question of proper construction of s. 2(5)(i) of the Finance (No. 2) Act, 1962. In the view of the Tribunal, the essential condition for claiming the benefit of this provision was that the assessee's 'total income includes any profits and gains derived from the export of any goods or merchandise out of India'. In the view of the Tribunal the words 'derived from the export of any goods' refer to profits and gains directly connected with the export of goods and the savings effected by the assessee-company on the import of palm oil, which was utilized by it in its own operations, could not be treated as profit derived by it from the export of groundnut oil. According to the Tribunal, it was significant to note that the word 'derived' was not possible to read such expression 'directly or indirectly' and it was not possible to read such qualifying words by any necessary implication. The Tribunal was of the view further that import entitlement was merely an advantage or privilege conferred on an exporter of goods. It was open to him to avail of the privilege or take advantage of the entitlement and it could not be concluded that both activities, viz., export and import, formed one integrated inseparable activity. In the view of the Tribunal the position could have been different if the goods had been exported under a barter agreement and the assessee had received certain raw materials at rates lesser than the market rates in exchange for the goods exported. The Tribunal was thus of the view that the profit derived by the exporter is principally determined by the price realised by him from the foreign purchaser.

4. The Tribunal derived support from the view of the Kerala High Court in CIT v. Saraf Trading Corporation : [1968]69ITR62(Ker) , in which decision the Kerala High Court has dealt with the words 'derived profits and gains from the export of goods'. In its decision the Kerala High Court has considered the decision of the Privy Council in CIT v. Kamakhya Narayan Singh [1948] 16 ITR 325 and the observations of Isaacs A.C.J. in Federal Commissioner of Taxation v. Clarke [1927] 40 CLR 246. In its view the word 'derived' had a specific connotation which had been accepted and applied by courts of law and in that connotation the assessee's case was liable to be rejected.

5. The Tribunal also considered sub-r(3) of r. 2 of the Income-tax (Determination of Export Profits) Rules, 1962. It was contended on behalf of the assessee that the provision made in this rule lends support to the contention advanced on behalf of the assessee, viz., that the savings effected from imports made pursuant to import licences were to be taken into consideration in computing the profits derived by the export of goods. The Tribunal's view was that on the available material, r. 2(3) would not apply and the case was covered by sub-r. (2) of r. 2.

6. The Tribunal finally considered the question whether the assessee is entitled to allowance of deduction in respect of the profits derived by it on specified export sales. The contention of the revenue was that the totality of all export sales should be considered. In its submission, export should be regarded or accepted as constituting one business and unless the assessee was able to establish that profit was derived from such export business, considered as a whole, the assessee would not be entitled to claim the benefit of s. 2(5)(i) of the Finance (No. 2) Act, 1962. The Tribunal rejected this submission made by the ITO on the basis of the language of the provision under consideration. The phraseology employed was 'from the export of any goods' and not 'from the business of export of goods. In the view of the Tribunal, the language of the provision was capable of extending the benefit granted thereunder to individual export sales in case the other conditions set out were satisfied. There was no warrant, according to the Tribunal, nor any logical reason advanced as to why the legislature should have intended to confer the benefit provided the export sales collectively produce a profit. On behalf of the revenue reliance was placed before the Tribunal on the language of sub-r. (2) of r. 2 and the Tribunal observed that nothing said in the rule could be accepted as a guide or clue to the proper construction of s. 2(5)(i) which provision must be construed on its own language, uncontrolled and unaffected by the rules. If the language was clear, then the rules which are meant to subserve the main purpose could not be called into service to restrict the main statutory provision. It was accordingly held that the assessee-company was entitled to the benefit of the deduction under the provision in respect of such export sales made during the assessment year in question which it can establish to have directly resulted in a profit.

7. Thus, from this order of the Tribunal we find two questions being referred to us under s. 256(1) of the I.T. Act, 1961, of which the first question is at the instance of the assessee and question No. 2 is at the instance of the revenue. The two questions on which our opinion is sought may now be set out and they read as follows :

'(1) Whether, on the facts and in the circumstances of the case, the profit earned or the savings effected by the assessee in importing articles on the strength of the import licences granted to it for exporting the goods formed a part of its profits on export within the meaning of section 2(5)(i) of the Finance (No. 2) Act, 1962

(2) Whether the benefit of the provision of section 2(5) of the Finance (No. 2) Act, 1962, on export profits can be allowed subject to other conditions being satisfied, provided all the export sales during the previous year have resulted in an overall profit, or can be allowed on export sales individually on which profit has been earned ?'

8. The Finance (No. 2) Act, 1962, as well as the Income-tax (Determination of Export Profits) Rules, 1962, are to be found in Vol. II of Kanga and Palkhivala, Income-tax Act (6th edn.). The statutory provision is to be found at page 911 and we are concerned with the provision contained in s. 2(5)(i) and (ii). The provision may be fully set our and the same reads as under :

'2. Income-tax and super-tax. - (1) Subject to the provisions of sub-sections (2), (3), (4) and (5), for the assessment year commencing on the 1st day of April, 1962, - ...

(5) (i) An assessee being an Indian company or any other company which has made the prescribed arrangements for the declaration and payment of dividend within India or an assessee other than a company, whose total income includes any profits and gains derived from the export of any goods or merchandise out of India, shall be entitled to a deduction, from the amount of income-tax and super-tax with which he is chargeable for the assessment year commencing on the 1st day of April, 1962, of an amount equal to the income-tax and super-tax calculated respectively at one-tenth of the average rate of income-tax and of the average rate of super-tax on the amount of such profits and gains included in the total income.

(ii) The Central Board of Revenue may make rules for computing the amount of such profits and gains.'

9. The Rules, which were framed by Notification No. S.O. 2738, dated the 1st September, 1962, and which were expressly in exercise of the powers conferred by s. 2(5)(ii) of the main statutory provision, are to be found at page 627 of the very volume (See also [1962] 46 ITR 43 and sub-rr. (2), (3) and (4) of r. 2 may be fully extracted and the same read as under :

'2. Computation of qualifying income. - (1)....

(2) Where in the opinion of the Income-tax Officer it is possible to ascertain the profits and gains on such exports, the amount of qualifying income shall be taken as the excess of the amount of the profits and gains so ascertained in accordance with the provisions of the Income-tax Act, 1961 (XLIII of 1961) (hereinafter referred to as the Act), and included in the total income over the aggregate of the amount of any portion thereof on which income-tax or super-tax is not payable and the amount in respect of which a deduction of income-tax or super-tax has been granted under any provision of the Act.

(3) Where in the opinion of the Income-tax Officer the profits and gains on such exports cannot be ascertained, the amount of qualifying income shall be taken as a fraction of the profits and gains of the whole business of which such exports form a part and included in the total income (as reduced by the aggregate of the amount of any portion thereof on which income-tax or super-tax is not payable and the amount in respect of which a deduction of income-tax or super-tax has been granted under any provision of the Act), the fraction being proportional to the value of the turnover of such exports in relation to the total turnover of the business of which such exports form a part.

(4) Where in the opinion of the Income-tax Officer the computation of such profits and gains in the manner indicated in sub-rule (3) presents exceptional difficulties, the amount of qualifying income shall be taken as the excess of such profits and gains ascertained by the Income-tax Officer on any other reasonable basis on the data available and included in the total income over the aggregate of the amount of any portion thereof on which income-tax of super-tax is not payable and the amount in respect of which a deduction of income-tax or super-tax has been granted under any provision of the Act.'

10. It was pointed out at the Bar that apart from the decision of the Kerala High Court on which reliance has been placed by the Tribunal, viz., CIT v. Saraf Trading Corporation : [1968]69ITR62(Ker) , there were two direct decisions, on the point under consideration, of the Kerala and Madras High Courts respectively; but it was mentioned that the two courts had taken divergent stands, the Madras High Court in favour of the contentions advanced on behalf of the assessee before us and the Kerala High Court in favour of the revenue. Before adverting to these decisions and indicating our preference, we may briefly indicate the submission advanced for our consideration on behalf of the learned counsel for the assessee. It was submitted that the word 'derived', to give to it its plain dictionary meaning would mean 'acquired, got, obtained, gathered'. Our attention was drawn in this connection to the definitions given of the verb 'derive' and adjective 'derive' to be found in Webster's Third New International Dictionary (unabridged), Vol.I. at page 608. Similarly, in the Oxford English Dictionary (1961 reprint), 'derived' has been explained as 'drawn, obtained, descended or deducted from a source' (Vol.III, at page 230) and it was pointed out that this meaning of 'derived' was obviously based on the 6th meaning of the verb 'derive' to be found at page 229 of the dictionary which was 'to draw, fetch, get, gain, obtain'. It was submitted that if there was any pecuniary benefit which the assessee had got or obtained from effecting the exports, then that pecuniary benefit, whether obtained directly or indirectly, must be regarded as derived from the export sales. It was submitted further that it makes no difference whether the consideration or benefit received by the assessee from the export sales was received in cash or in kind and it equally makes no difference whether it was received from the foreign purchaser or from the Government or any other semi-governmental body. In the same manner, according to counsel, the benefit could be by way of cash subsidy or by way of raw materials made available to the assessee at prices less than the home market prices. Whether it was an enhanced price or a price supported by a cash subsidy or a price supported by furnishing raw materials at less than market prices, made, according to the learned counsel for the assessee, not the slightest difference and all these benefits would be required to be taken into account when computing the profits derived by the assessee from its export sales. In his view, the Tribunal was in clear error in coming to the conclusion that the profit derived from exports was such as was directly derived from the export sales effected and from the price paid by the foreign purchaser. It was pointed out that the Tribunal itself had indicated that if against exports sales the foreign buyers had supplied the raw materials at favourable prices, then, according to the Tribunal, that difference could perhaps be taken into consideration. If that was so, then in the submission made by the learned counsel for the assessee, it made no difference whether subsidy by way cash or in the form of cheap raw materials emanated from the foreign purchasers or from the Government of India or from the State Government or bodies such as Export Promotion Councils or accrued to the assessee from sale or utilisation of import entitlement given to it against the exports effected by it. It was pointed out to us that this view was in consonance with the decision of the Madras High Court in CIT v. Wheel and Rim Co. of India Ltd. : [1977]107ITR168(Mad) , which may now be considered. The assessee before the Madras High Court was a company carrying on business in the manufacture and sale of cycle rims. Some of the goods manufactured by it were exported abroad and the court was considering two schemes which the Government had introduced for promoting exports. Under the first one, the assessees became entitled to a sum of Rs. 1,60,717 from the Engineering Export Promotion Council which amount, according to the court, was paid to the assessee by way of compensating the loss it suffered by exporting goods abroad. The sum was included in the receipts which were taken into account for arriving at the income of the assessee for the year. Under another scheme the assessee had become entitled to import licence which it sold and made a profit of Rs. 4,83,856 from such sale. In the course of the assessment year 1966-67, the assessee claimed rebate on the value of the exported goods and on the two receipts referred to above based on the provisions of s. 2(5)(a) of the Finance Act, 1966. The provisions of this Act, which are set out at page 170 of the report, are in pari materia with the provisions which we are called upon to consider and construe in our reference. In the Madras case the assessee lost before the ITO and the AAC but succeeded before the Tribunal which held that the cash subsidy and sale proceeds of import entitlements were profits from export business on which the assessee was entitled to the rebate under the provisions of the Finance Act, 1966. The matter was then carried to the High Court and the High Court was of the view that the profits and gains derived from the export of any goods or merchandise were required to be ascertained in accordance with the provisions of the I.T. Act, 1961. In the view of the High Court if the profits and gains were so ascertained, the two amounts referred to above, viz., cash subsidy and the sale proceeds of the import licences, will necessarily constitute business receipts referable to, or derived from, the export of cycle rims. If that were so, then, according to the High Court, there was no escape from the conclusion that these two receipts will be required to be taken into account in computing the profits of the assessee derived from the export of cycle rims. On behalf of the revenue it was urged before the Madras High Court that the statutory provisions clearly restricted the scope of the profits and gains to such profits or gains of which the export was the proximate cause. The Madras High Court observed that the argument was without substance. In its view, therefore, the two receipts were required to be treated as profits referable to and hence derived from the exports effected by the assessee.

11. A directly contrary view is that of the Kerala High Court in Cochin Company v. CIT : [1978]114ITR822(Ker) . The Kerala High Court was also considering an identical provision as was being considered by the Madras High Court, viz., s. 2(5)(a)(i) of the Finance Act, 1966, and in the decision question No. (ii) (to be found at page 824 of the report) was the question with which we are concerned. The assessee had made certain profits by the sale of import entitlements and the question, inter alia, being considered by the High Court was whether such profits could be regarded and considered to be profits derived from the export of any goods or merchandise out of India within the meaning of s. 2(5)(a)(i) of the Finance Act, 1966. The argument advanced on behalf of the assessee was that the assessee had become eligible for the import entitlements only on account of his having exported goods out of India. If that was so, then, according to the assessee, the income derived by it by conversion of the import entitlements into money by a process of sale should be regarded as profits and gains derived from the said activity, viz., the export of goods. The Kerala High Court was unable to accept this contention. In its view (p. 830) :

'Profit or gain can be said to have been 'derived' from an activity carried on by a person only if the said activity is the immediate and effective source of the said profit or gain. There must be a direct nexus between the activity and the earning of the profit or gain. The income, profit or gain cannot be said to have been 'derived' from an activity merely by reason of the fact that the said activity may have helped to earn the said income or profit in an indirect or remote manner.'

12. The Kerala High Court referred to the decision of the Privy Council in CIT v. Kamakhya Narayan Singh [1948] 16 ITR 325, which has also been noted in Saraf Trading Corporation's case : [1968]69ITR62(Ker) . It also considered the decision of the Supreme Court in Mrs. Bacha F. Guzdar v. CIT : [1955]27ITR1(SC) . It also followed its earlier unreported decision in I.T. Ref. No. 99 of 1971 which was concluded in favour of the revenue by a judgment dated 9th May, 1973.

13. In CIT v. Kamakhya Narayan Singh [1948] 16 ITR 325, the Privy Council was considering whether interest on arrears of rent payable in respect of land used for agricultural purposes was agricultural income within the definition of that phrase contained in s. 2(1) of the Indian I.T. Act, 1922, and was, therefore, exempt from income-tax. In the opinion of the Privy Council this was neither rent, nor revenue derived from land. In connection with this branch of the argument it was observed (p. 328) :

'Equally clearly the interest is revenue, but in their Lordships' opinion it is not revenue derived from land. It is no doubt true that without the obligation to pay rent - and rent is obviously derived from land - there could be no arrears of rent and without arrears of rent there would be no interest. But the affirmative proposition that interest is derived from land does not emerge from this series of facts. All that emerges is that as regards the interest, land rent and non-payment of rent stand together as causess sine quibus non. The source from which the interest is derived has not thereby been ascertained.

The word 'derived' is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition.

There is no commercial connection between the interest and the rented land and an effective source - not land - has become apparent.

These considerations supply a negative answer to the question posed, subject to an entirely different point taken by the respondents.'

14. It is thus clear that the Privy Council restricted the effect and the meaning to be ascribed to the word 'derived'. In its view, if an inquiry was to be made as to the genealogy of the item under consideration, the inquiry was required to be stopped as soon as the effective source is discovered. To translate the principle and apply the same to the facts of the case before us, the answer to the inquiry, viz., what is the source of the savings effected by the assessee-company on the palm oil, would have to be ended by giving the answer that the source was the import entitlements or the licence which permitted the assessee-company to import this palm oil at international prices which were lower than those prevailing in the home market. This then must be considered to be the source of the saving and the further inquiry as to how or why the assessee-company got the import entitlements or licence is not permitted in the view taken by the Privy Council. This decision of the Privy Council as also the rather piquant language used by Lord Uthwatt, who delivered the judgment of the Privy Council, has been noted and applied by the Supreme Court in Mrs. Bacha F. Guzdar's case : [1955]27ITR1(SC) .

15. In a given situation and under the various schemes in force to promote exports it is possible to envisage several different types of benefits which may be given to an exporter : (1) cash subsidy or allowance by a Government or a semi-Government agency such as the export promotion council; (2) an import entitlement or import licence which is expressly made transferable or saleable which may result in realisation of a price for the same; (3) an import entitlement or import licence which is not transferable and, therefore, not saleable but which could be utilized by the assessee to import scarce items or commodities or to import items and raw materials at prices which are less than the ruling home market prices and, therefore, result in savings to the assessee, which are capable of being measured in terms of money. It is pertinent to point out that both the Kerala and the Madras High Courts were considering the benefits of types (1) and (2) and in neither case was the court required to extend the applicability of the principle to the third types as has arisen in this case.

16. We do not wish to express any opinion in this matter on the question whether an export subsidy or cash allowance given to an assessee who effects export sales could or could not be taken by him to compute the profits derived by him from the export business. For such subsidy or allowance it should be held that there was a direct connection with the exports effected and perhaps the case of the assessee that the amount of the subsidy or allowance be taken into consideration in ascertaining profits from the exports may be required to be accepted. We, however, do not propose to express any final opinion on this point which does not arise directly before us.

17. It may be pointed out that even on the proceeds realised from sale of import entitlements the Madras High Court has held in favour of the assessee on the plea that the amount received by the assessee would have to be disclosed in its business income as income referable to its export business. It is perhaps on that limited footing that the Madras High Court upheld the assessee's contention as regards the inclusion of this amount for the purposes of obtaining the benefit of a comparable provision in the Finance Act, 1966. By no stretch of imagination can a similar argument be made available to the savings effected by the assessee in the case before us which, it was submitted, was its notional profit. However, we do not propose to rest our decision on this limited point, viz., that whatever be the position for items similar to items (1) and (2), i.e., for cash subsidies and sale proceeds of import entitlements, the notional savings resulting from the third type of case cannot be regarded as profits derived from export. In our view, the point would be required to be decided and concluded against the assessee by reason of the fact that the word 'derived', as far as income-tax law is concerned, has been given a narrow meaning - a strict meaning by courts and not understood in the broad sense as equivalent to derived directly or indirectly. In other words, we have only to consider the proximate source and not the source to which it may ultimately be referable. This is the view of the Privy Council in CIT v. Kamakhya Narayan Singh [1948] 16 ITR 325 which was approved by the Supreme Court in Mrs. Bacha F. Guzdar v. CIT : [1955]27ITR1(SC) and followed by the Kerala High Court in Cochin Company v. CIT : [1978]114ITR822(Ker) . In our view, the word 'derived' to be found in s. 2(5)(i) of the Finance (No. 2) Act, 1962, will have to be given a meaning consistent with what was decided in these cases and the words 'derived from exports' cannot be accepted as equivalent to 'referable to exports'.

18. The learned counsel for the assessee had submitted that the view which he canvassed for our acceptance was borne out by the rules framed by the CBR in exercise of the powers conferred by clause (ii) of sub-s. (5) of s. 2 of the Finance (No. 2) Act, 1962. It was submitted that sub-rr. (3) and (4) of r. 2 were required to be framed only because the word 'derived' was required to be given the enlarged meaning as contrasted with the narrower meaning which has appealed to us. It must be pointed out that the construction to be put on the statutory provision cannot either be enlarged or restricted by the rules framed which are for purposes of computation of the qualified income. We have to consider and understand de hors the rules what income falls within the statutory provision and it is only thereafter that the rules providing for computation of such income will be required to be considered and applied.

19. This brings us to the consideration of the next contention of the assessee which was rejected by the Tribunal, viz., that the assessee could take advantage of. r 2(3). The assessee has based its case on the footing that it did not keep separate accounts pertaining to its export business. According to the Tribunal, the absence of separate accounts cannot mean that the profits of export could not be ascertained. It seems to us that this argument was advanced before the Tribunal without any basis for the same by the learned advocate who appeared on behalf of the assessee before the Tribunal. It is not open to an assessee to say that in its view the profits and gains on exports effected by it could not be ascertained and that if it just makes such a statement the revenue authorities are bound to accept the bald statement and apply sub-r. (3) of r. 2 on the basis thereof. It is not possible to accept the assessee's contention that it will have to be held that profits of such export nut be ascertained merely because the assessee says so. This is precisely what the assessee has sought to do in the present case. We are inclined to agree with the Tribunal that it is difficult to believe that the assessee-company with the help of the chartered accountant and cost accountants, whose services were available to it, could not ascertain the profits derived by it from the export sales. It is difficult to add anything to what has been said by the Tribunal in para. 16 of its order which deals with this aspect of the question. We agree with the Tribunal that the case is covered by sub-r. (2) and not by sub-r. (3).

20. This only leaves for consideration the question referred to us at the instance of the Commissioner. It was submitted by Mr. Joshi that the intendment of the provision was to give allowance on profits on exports which must be on exports as a whole and considered in their entirety. It was submitted, therefore, that the assessee could not claim the benefit for profits made on sales of specific or individual items when the total computation on the export business revealed a loss.

21. As stated earlier, the Tribunal rejected this submission made on behalf of the revenue by reference to the phraseology employed in the statutory provision under consideration. It laid special emphasis and stressed the portion of the statutory provision which made the allowance applicable to profits and gains derived from the export of any goods or merchandise and in the view of the Tribunal this phraseology was so obvious that the submission on behalf of the revenue was required to be rejected. We are of an identical view. The statutory provision when clear cannot be given a meaning different from the obvious one merely because of considerations of intendment or policy or of possible reasons which might have motivated the legislature in enacting the provision or similar considerations. If the assessee has derived profit from the export of any goods and if such profit has been carried to its total income, then in respect of such profits it would be entitled to claim the allowance given by the legislature although its total export business may not have yielded a profit and in fact may have resulted, considered in totality, in a loss. In our opinion, the words are so clear, so unambiguous that no further aid to construction or interpretation is called for. In that view of the matter, the submission made on behalf of the revenue on question No. 2 will be required to be rejected.

22. In the result, the two question referred to us in this reference are answered as follows :

Question No. (1) : In the negative and against the assessee.

Question No. (2) : In our opinion, the benefit of the provisions of s. 2(5) of the Finance (No. 2) Act, 1962, on export profits can be allowed, subject to other conditions being satisfied, on export sales individually on which profits has been earned, although all the export sales did not result in an overall profit.

23. As there is partial success and failure, the fair order as to costs which must be made is to direct the parties to bear their own costs of this reference.

24. There will be an order accordingly.


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