IMPORTANT POINT
It is now a well settled principle of law that although the exemption provisions are to be construed strictly as regards the applicability thereof to the case of the assessee but once it is found that the same is applicable, the same are required to be interpreted liberally.

Headnote:Income Tax Act, 1961 — Section 80HHC — Claim of deductions under — Assessment year 1990-1991 — Appellant carrying on business of export of its own products as also procuring export contracts for other exporters on commission — In assessment year 1990-1991 he derived an income of Rs. 56,69,321/- by way of commission — As an exporter of goods, appellant incurred a loss of Rs. 6,372/- — Value of total exported goods outside India by the appellant during the said assessment year was Rs. 3,67,600/- — Appellant claimed deduction in respect of that income in terms of Section 80HHC of the Act — Exemption claimed was disallowed by the Assessing Officer — High Court held that income derived by appellant towards commission/brokerage for placing orders of export for others is not eligible to exemption from tax u/s 80HHC of the Act — It was held that although the said provision was amended with effect from 1-4-1992 by inserting an explanation, the same being clarificatory in nature, would have retrospective effect — Whether CBDT circular having clarified that the amendment would have a prospective application w.e.f. 1-4-1992, High Court committed a serious error in holding the same would operate retrospectively being clarificatory in nature — (Yes).
       Held : Once it is held that the amendment carried out in 1991 by reason of Finance Act (No. 2), Act, 1991 was prospective in nature, ex facie the High Court committed a serious error in opining that the same being clarificatory in character would apply to the assessment year in question. By reason of the purported clarification issued by the CBDT in terms of the said circular, the area of exemption had not been widened. It has, in effect and substance as would appear from paragraph 32.11, been curtailed.(Para 11)
       By reason of such amendment, the Parliament did not intend that the income derived by way of brokerage/commission by the assessee should not be reckoned for the purpose of computing profit or loss earned by a person engaged in the business of export but by reason thereof the deduction to the extent of 10% held to be allowable thereby. We, therefore, cannot accept the submission of Mr. Dutta that the income derived by way of commission and/or brokerage by an assessee carrying on business of export became exigible to exemption to the extent of 10% for the first time with effect from 1.4.1992.(Para 12)
       The purport and reason for enacting Section 80HHC of the Income Tax Act indisputably was to provide incentive to export houses. It is now a well-settled principle of law that although the exemption provisions are to be construed strictly as regards the applicability thereof to the case of the assessee but once it is found that the same is applicable, the same are required to be interpreted liberally.(Para 13)
       The expression “income arising out of business of export” brings within its sweep not only the export of any goods or merchandise manufactured or possessed by the assessee but also of trading goods. The Parliament, therefore, intended to provide incentive when a positive profit is earned by an exporter.(Para 15)

JUDGMENT

S.B. Sinha, J. — The Appellant carries on business of export of its own products as also procuring export contracts for other exporters on commission. In the assessment year 1990-1991, he derived an income of Rs. 56,69,321/- by way of commission, whereas as an exporter of goods incurred a loss of Rs. 6,372/-. The value of the total exported goods outside India by the Appellant during the said assessment year was Rs. 3,67,600/-. He claimed a deduction in respect of aforementioned income in terms of Section 80HHC of the Income Tax Act, 1961 (for short “the Act”). Exemption claimed under the aforementioned provision was disallowed by the Assessing Officer on the premise that they having incurred loss in respect of export business were not entitled thereto. An appeal preferred thereagainst was rejected by the Commissioner of Income Tax (Appeal). The Income Tax Appellate Tribunal, however, on further appeal preferred by the Appellant opined that the commission received by the Appellant from the other exporters is to be taken into consideration for the said purpose.

2. The Respondent aggrieved by and dissatisfied with the said decision filed an application for reference to the High Court and by an order dated 13.9.1996 the following questions were referred by the Tribunal :

“1. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the assessee is entitled to deduction under section 80HHC of the Income-tax Act even though the export business resulted in a loss of Rs. 6,372/-?

2. Whether on the facts and in the circumstances of the case the Tribunal is right in law in holding that commission and brokerage for procuring export contracts for other exporters is exempt under section 80HHC of the Act on the ground that the same is export profits?”

3. By reason of the impugned judgment, the High Court opined that income derived by the Appellant towards commission/brokerage for procuring orders of export for others is not eligible to exemption from tax under Section 80HHC of the Act. Referring to the circulars issued by the Central Board of Direct Taxes (CBDT), the High Court held that although the said provision was amended with effect from 1.4.1992 by inserting an explanation whereby and whereunder the profit derived out of such commission/brokerage was confined to 10% of the income, the same, being clarificatory in nature, would have retrospective effect. On the said findings, answers to both the questions were rendered in the negative and in favour of the Revenue.

4. Mr. C.A. Sundaram, learned senior counsel appearing on behalf of the Appellant principally raised two contentions before us :

(i)The CBDT circular having clarified that the amendment would have a prospective application with effect from 1.4.1992, the High Court committed a serious error in holding that the same would operate retrospectively being clarificatory in nature.

(ii)Earning of commission being a part of the export business, the income derived therefrom should be calculated for the purpose of computing profit or loss in regard to the applicability of Section 80 HHC of the Act.

5. Mr. Rajiv Dutta, learned senior counsel appearing on behalf of the Respondents, on the other hand, would submit that on a plain reading of the said provision it would be evident that income from commission/brokerage could not have been given any exemption for the purpose of invoking the provision of Section 80HHC of the Act as it received statutory recognition only by reason of the said amendment which came into force with effect from 1.4.1992.

6. Sub-sections (1) and (3) of Section 80HHC of the Income Tax Act read as under

“(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

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2006 Supreme(SC) 628

IMPORTANT POINTIt is now a well settled principle of law that although the exemption provisions are to be construed strictly as regards the applicability thereof to the case of the assessee but once it is found that the same is applicable, the same are required to be interpreted liberally.

Cases Referred (7)

IMPORTANT POINT
It is now a well settled principle of law that although the exemption provisions are to be construed strictly as regards the applicability thereof to the case of the assessee but once it is found that the same is applicable, the same are required to be interpreted liberally.