2004 Supreme(Cal) 32

High Court Of Calcutta
D. K. SETH, R. N. SINHA
UNION OF INDIA - Appellant
Versus
WARREN TEA LTD. - Respondent
G. A.  1232  Of  1997
Decided On : 01/15/2004

Deduction under Section 80hhc - Computation of mixed income derived from sale of tea grown and manufactured by the seller and exported out of India - Deduction under Section 80hhc in respect of profits derived from export of tea out of India - Allowed as a permissible deduction before apportionment of non-agricultural income and agricultural income under Rule 8 of the IT Rules, 1962 - NO

Headnote:

INCOME TAX - Deduction under Section 80hhc - Computation of mixed income derived from sale of tea grown and manufactured by the seller and exported out of India - Whether deduction under Section 80hhc in respect of profits derived from export of tea out of India should be allowed as a permissible deduction before apportionment of non-agricultural income and agricultural income under Rule 8 of the IT Rules, 1962? - YES - Amendment of Section 80hhc by insertion of sub-section (4b) by Finance Act, 1999 with retrospective effect from 1st April, 1992 - Whether law laid down by the High Court in Warren Tea Ltd. and Anr. v. Union of India and Ors. is in any way affected or altered? - NO - Retrospective operation of Sub-section (4b) of Section 80hhc introduced by the Finance Act of 1999 with retrospective effect from 1st April, 1992 - Whether violative of Article 14 and Article 19 (1) (g) of the Constitution and is, therefore, ultra vires? - NO

Fact of the Case:

The respondents had filed WP No. 1232 (W) of 1997 challenging the vires of Circular No, 600, dt. 23rd May, 1991, issued by the Central Board of Direct Taxes (CBDT) so far as it was inconsistent with and repugnant to Rule 8 of the IT Rules, 1962 (Rules) r/w Section 2 (1a) of the IT Act, 1961 (Act) in relation to deduction under Section 80hhc of the Act. By a judgment and order dt. 24th Sept. , 1998, the learned Single Judge was pleased to hold that the interpretation of CBDT in construing the provisions of Section 80hhc and Rule 8 through Circular No. 600, dt. 23rd May, 1991, was incorrect and accordingly a declaration was issued that the said circular was not attracted in the case of the petitioners.

Finding of the Court:

The fiction created by Rule 8 of the Rules would not permit us to extend the assessment under the Act for computing total income beyond gross total income for the purpose of being exigible for deduction under Section 80hhc in respect of profit out of business of export of tea grown and manufactured by the assessee. The apportionment postulated in Rule 8 is to be made before deduction under Section 80hhc is allowed. In other words, the benefit of deduction under Section 80hhc would be available only on the income derived from the profit out of the business of export of tea processed and manufactured and not out of the profit of growing tea which is subject to Agrl. IT Act outside the scope and purview of the Act.

Issues: 1. Whether in computation of mixed income derived from sale of tea grown and manufactured by the seller and exported out of India under Section 2 (1a) of the IT Act, 1961, r/w Rule 8 of the IT Rules, 1962, the deduction under Section 80hhc in respect of profits derived from export of tea out of India should be allowed as a permissible deduction before apportionment of non-agricultural income and agricultural income under Rule 8 of the IT Rules, 1962? 2. Whether on the introduction of Sub-section (4b) in Section 80hhc by the Finance Act of 1999 with retrospective effect from 1st of April, 1992, the law laid down by the High Court in Warren Tea Ltd. and Anr. v. Union of India and Ors. is in any way affected or altered? 3. Whether the retrospective operation of Sub-section (4b) of Section 80hhc introduced by the Finance Act of 1999 with retrospective effect from 1st April, 1992, is violative of Article 14 and Article 19 (1) (g) of the Constitution and is, therefore, ultra vires?

Ratio Decidendi: 1. The deduction under Section 80hhc is allowed only on the net income of the amount on which deduction is allowed. Such deduction under a particular section would not be available on an income other than the nature of the income admissible under that particular section. 2. The scheme of Section 80hhc had never intended to include the component of the income derived from agriculture in relation to tea when grown and manufactured by the assessee. 3. The intention of the legislature being clear as it appears from the scheme of Section 80hhc, we cannot put a construction different than that which will come into conflict with the intention of the legislature expressed as we find from our above discussion in relation to Section 80hhc. 4. Sub-section (4b) introduced through amendment under the Finance Act, 1999, is clarificatory in nature. Therefore, its wres with regard to its retrospectivity would not be hit by the provision of the Constitution; we hold the same to be intra vires and constitutionally valid.

Final Decision: Appeal succeeds to the extent as indicated above and the vires of Sub-section (4b) introduced through Finance Act, 1999, is upheld and the writ petition to that extent stands dismissed. So far as the other part relating to the challenge thrown to the circular in the writ petition is concerned, the same requires no decision in view of the introduction of Sub-section (4b) by way of amendment through Sub-section (4b) clarifying the law, as it existed. The deduction under Section 80hhc is allowed after apportionment on the 40 per cent component exigible under the Act.