The ACIT,(OSD) Range-8, Ahmedabad V. Shilp Gravures Ltd., Ahmedabad

ITA 2444/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9161 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 19-08-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 28-11-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S GEHLOT
• Assessee Lawyers: R T SHAH
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 80HHC; 80IB; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' [BEFORE SHRI R V EASWAR VICE-PRESIDENT] [AND SHRI P K BANSAL ACCOUNTANT MEMBER) ITA NO.2444/AHD/2005 WITH C O NO.233/AHD/2005 (ASSESSMENT YEAR: 2002-03) THE ASSISTANT COMMISSIONER OF INCOME- TAX (OSD), RANGE-8, AHMEDABAD V/S SHILP GRAVURES LIMITED, 101, KASHI PAREKH COMPLEX, B/H BHAGWATI CHAMBERS, C G ROAD, AHMEDABAD [APPELLANT] [RESPONDENT] PAN NO.: AABCS 0868 G APPELLANT BY :- SHRI B S GEHLOT, CIT DR RESPONDENT BY:- SHRI R T SHAH O R D E R PER P K BANSAL (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A ) DATED 01- 09-2005 BY TAKING THE FOLLOWING EFFECTIVE GROUNDS O F APPEAL:- 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING THE AO TO INCLUDE JOB WORK RECEIPT OF RS.3,35,900/- IN EXPORT TURNOVER EVEN THOUGH IT DID NOT INVOLVE ANY EXPORT OF GOODS / MER CHANDISE OUTSIDE INDIA. 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING THE AO TO EXCLUDE AMOUNT OF EXCISE DUTY AND SALES-TAX FROM TO TAL TURNOVER WHILE WORKING OUT DEDUCTION U/S 80HHC OF THE ACT. 2 3 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING THE AO TO ALLOW DEDUCTION U/S 80IB & U/S 80HHC OF THE ACT IND EPENDENTLY. 2 GROUND NO.1 RELATES TO THE INCLUSION OF JOB WORK RECEIPT AMOUNTING TO RS.3,35,900/-IN EXPORT TURNOVE R WHILE COMPUTING THE BENEFIT U/S 80HHC. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE A RE OF THE VIEW THAT NOW THIS ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT V K RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC) , IN WHICH IT WAS HELD AS UNDER: CLAUSE (BAA) OF THE EXPLANATION STATES THAT 90 PER CENT. OF THE INCENTIVE PROFITS OR RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT CHARGES OR ANY OTHER RECEIPT OF LIKE NATURE INCLUDED IN BUSINESS PROFITS HAVE TO BE DEDUCTED FROM BUSINESS PROFITS COMPUTED IN TERMS OF SECTION 28 TO 44D. IN OTHER WORDS, RECEIPT S CONSTITUTING INDEPENDENT INCOME HAVING NO NEXUS WITH EXPORTS WER E REQUIRED TO BE DEDUCTED FROM BUSINESS PROFITS UNDER CLAUSE (BAA). A BARE READING OF CLAUSE (BAA)(1) INDICATES THAT RECEIPTS BY WAY OF B ROKERAGE, COMMISSION, INTEREST, RENT CHARGES, ETC. FORMED PAR T OF THE GROSS TOTAL INCOME BEING BUSINESS PROFITS. BUT FOR THE PURPOSE OF WORKING OUT THE FORMULA AND IN ORDER TO AVOID DISTORTION IN ARRIVIN G AT THE EXPORT PROFITS CLAUSE (BAA) STOOD INSERTED TO SAY THAT ALTHOUGH IN CENTIVE PROFITS AND INDEPENDENT INCOMES CONSTITUTED PART OF THE GROSS TOTAL INCOME, THEY HAD TO BE EXCLUDED FROM GROSS TOTAL INCOME BECAUSE SUCH RECEIPTS HAD NO NEXUS WITH THE EXPORT TURNOVER. IN VIEW OF THE AFORESAID DECISION OF THE HON'BLE SU PREME COURT, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO NOT TO INCLUDE JOB WORK RECEIPTS IN THE EXPORT TURNOVER FO R THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC ALTHOUGH THE SAME RECEIPTS MAY BE TAKEN AS PART OF THE TOTAL TURNOVER . ACCORDINGLY, 3 THE AO IS DIRECTED TO EXCLUDE IN VIEW OF CLAUSE (BA A) OF EXPLANATION TO SECTION 80HHC, 90% OF THE JOB WORK R ECEIPTS WHILE COMPUTING THE DEDUCTION U/S 80HHC. THUS, THIS GROUND IS ALLOWED IN ACCORDANCE WITH THE AFORESAID DECISION O F THE HON'BLE SUPREME COURT. 3 GROUND NO.2 IN THE REVENUES APPEAL RELATES TO CENTRAL EXCISE AND SALES-TAX. IN THIS REGARD, WHETH ER THEY WILL FORM PART OF THE TOTAL TURNOVER OR NOT, THE LEARNED AR RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF CIT V LAXMI MACHINE WORKS 290 ITR 667 (SC) TO WHICH THE D R ALSO AGREED. THEREFORE, WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO EXCL UDE THE AMOUNT OF EXCISE DUTY AND SALES-TAX FROM THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION U/S 80HHC. WE, ACCORD INGLY, UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD. THUS , THIS GROUND OF THE REVENUES APPEAL STANDS DISMISSED. 4 GROUND NO.3 IN THE REVENUES APPEAL RELATES TO DEDUCTION U/S 80IB AND 80HHC INDEPENDENTLY. AFTER H EARING THE RIVAL SUBMISSIONS, WE NOTED THAT THIS ISSUE IS NOW DULY COVERED BY THE DECISION OF THE ITAT SPECIAL BENCH IN THE CA SE OF ACIT V HINDUSTAN MINTS & AGRO PRODUCTS (P) LTD. [2009] 119 ITD 107 (DELHI) (SB) , WHEREIN IT HAS BEEN HELD AS UNDER:- IN VIEW OF THE ABOVE SUBMISSIONS THE FIRST QUESTION TO BE DECIDED WAS AS TO WHETHER THE DECISION IN THE CASE OF SCM CREAT IONS (SUPRA) HAS IMPLIEDLY OVERRULED THE SPECIAL BENCH S DECISION O F ROGINI GARMENTS CASE (SUPRA), NOTWITHSTANDING PROVISION O F SECTION 80- IA(9). 4 PERUSAL OF THE DECISION OF SCM CREATIONS (SUPRA) SH OWED THAT APPLICABILITY OF SECTION 80-IA(9) OR SIMILAR PROVIS ION UNDER SECTION 80- 18 WAS NOT CONSIDERED BY THE HIGH COURT IN THE SAID CASE. THOUGH THE CASE PERTAINED TO AN ASSESSMENT YEAR AFTER 1-4-1999 , YET THE PRE- AMENDED LAW WAS APPLIED. IN SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT DECIS ION OF THE MADRAS HIGH COURT IN SCM CREATIONS (SUPRA) IS AN AUTHORITY FOR THE PROPOSITION AS TO HOW PROVISIONS OF SECTION 80-!A(9 ) MADE APPLICABLE WITH EFFECT FROM THE ASSESSMENT YEAR 1999-2000 ARE TO BE APPLIED. EFFECT AND IMPLEMENTATION OF ABOVE PROVISIONS WERE NEITHER RAISED, NOR EXAMINED NOR DECIDED BY THE MADRAS HIGH COURT. IN THE LATER DECISION OF THE MADRAS HIGH COURT IN THE CASE OF GE NERAL OPTICS (ASIA) LTD. V. DCIT(A) DECIDED ON 2 7-12-2008 WHERE IN SIMILAR QUESTION WAS RAISED, THE TRIBUNAL, AFTER FOLLOWING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ROGINI GARMENTS (SUPRA ), HAD ALLOWED DEDUCTION UNDER SECTION 8OHHC AFTER DEDUCTING RELIE F ALLOWED UNDER SECTION 80-IA(9). [PARA 20.1] IT IS CLEAR FROM ABOVE THAT APPLICATION OF RESTRICT IONS AS UPHELD BY THE SPECIAL BENCH IN THE CASE OF ROGINI GARMENTS (SUPRA ) WAS HELD TO BE APPLICABLE FROM THE ASSESSMENT YEAR 1999-2000 ONWAR DS. IN THE LIGHT OF ABOVE DISCUSSION, IT WAS TO BE HELD THAT DECISIO N OF THE MADRAS HIGH COURT IN THE CASE OF SCM CREATIONS (SUPRA) DID NOT IMPINGE UPON THE RATIO OF THE SPECIAL BENCH IN THE CASE OF ROGINI GA RMENTS (SUPRA). IT WAS, ACCORDINGLY, HELD THAT THE BENCHES OF THE TRIB UNAL, WHICH HAVE TAKEN A VIEW CONTRARY TO THE VIEW OF ROGINI GARMENT S CASE (SUPRA) DID NOT CORRECTLY APPRECIATE THE LEGAL POSITION. ON CONSIDERATION OF PROVISIONS OF SECTION 80-IA (9) , IT IS FOUND THAT THERE ARE TWO RESTRICTIONS IN THE STATUTORY PROVISI ON UNDER CONSIDERATION. THESE ARE (A) WHERE AN ASSESSEE IS ALLOWED DEDUCTION UNDER TH IS SECTION (I.E., 80- IA OR 80-IB), DEDUCTION TO THE EXTENT OF SUCH PROFI T AND GAIN SHALL NOT BE ALLOWED UNDER ANY OTHER PROVISION OF THIS CHAPTE R (HEADING C - DEDUCTION IN RESPECT OF CERTAIN INCOMES ), AND (B) DEDUCTION SHALL IN NO CASE EXCEED THE PROFIT AN D GAIN OF THE UNDERTAKING OR HOTEL, AS THE CASE MAY BE. 5 THE CONTENTION OF THE ASSESSEE WAS THAT TOTAL DEDUC TIONS UNDER VARIOUS SECTIONS SHOULD NOT EXCEED PROFITS AND GAINS OF AN UNDERTAKING. IT WAS NOT POSSIBLE TO ACCEPT THIS CONTENTION. IT IS SEEN THAT THE CBDT CIRCULAR NO. 772, DATED 23-12-1998 CLARIFIED AND ON LY DEALT WITH (B) ABOVE AND DID NOT DEEM IT NECESSARY TO MAKE REFEREN CE TO RESTRICTION (A). IN ORDER TO ACCEPT THE CONTENTION OF THE ASSES SEE, ONE HAS TO EXCLUDE PORTION OF THE PROVISION COVERED BY (A) AND IGNORE THE RESTRICTION PLACED THEREIN. WHY SUCH COURSE SHOULD BE ADOPTED WHEN WORDS USED BY THE LEGISLATURE, CLAIMED AND ALLOWED UNDER THIS SECTION FOR ANY ASSESSMENT YEAR, DEDUCTION TO THE E XTENT OF SUCH PROFITS AND GAINS SHALL NOT BE ALLOWED UNDER ANY OTHER PROV ISIONS ARE QUITE CLEAR AND UNAMBIGUOUS AND ARE TO BE GIVEN EFFECT TO AS RIGHTLY CONTENDED BY THE REVENUE. THE PROFITS OR GAINS OF A N INDUSTRIAL UNDERTAKING, WHICH HAS ALREADY BEEN ALLOWED AS A DE DUCTION UNDER SECTION 80- IA, SUCH PROFIT (TO THE EXTENT) CANNOT BE TAKEN INTO CONSIDERATION FOR ALLOWING DEDUCTION UNDER ANY OTHE R PROVISION OF THIS CHAPTER C IF PROFIT, WHICH HAS ALREADY BEEN ALLOWE D AS A DEDUCTION, IS AGAIN TAKEN INTO CONSIDERATION FOR COMPUTING DEDUCT ION UNDER ANY OTHER PROVISION REFERRED TO ABOVE, THEN RESTRICTION (A) ABOVE IS DISREGARDED AND IGNORED. IT CANNOT BE DONE WITHOUT DOING VIOLENCE TO THE LANGUAGE OF THE PROVISION. THERE IS NO JUSTIFIC ATION FOR ADOPTING A COURSE PROHIBITED BY THE LEGISLATURE. IT IS NOT POS SIBLE TO IGNORE THE RESTRICTION PLACED AS (A) NOR IT IS POSSIBLE TO ACC EPT THAT IN CIRCULAR NO. 772, THERE IS A SUGGESTION TO IGNORE RESTRICTION (A ) MENTIONED ABOVE. AS PER THE SETTLED LAW, THE COURTS AND THE TRIBUNALS M UST SEE THE MANDATE OF THE LEGISLATURE AND GIVE EFFECT TO IT, AS RIGHTL Y ARGUED BY THE REVENUE. THEREFORE, RESTRICTION (A) ABOVE HAS TO BE RESPECTED AND FOLLOWED. THE STATUTORY PROVISION OF SECTION 8OAB, NO DOUBT, PROVIDES THAT DEDUCTION UNDER EACH SECTION OF CHAPTER VI-A IS TO BE COMPUTED INDEPENDENTLY. BUT, NOT ONLY THE TOTAL SCHEME OF TH E STATUTE BUT SCHEME OF EVERY SECTION IS TO BE READ AND INTERPRETED AND EVERY WORD IS TO BE GIVEN PROPER MEANING. IN SEVERAL SECTIONS UNDER CHA PTER VI-A, IT IS PROVIDED THAT IF DEDUCTION IS ALLOWED UNDER THAT SE CTION, THEN NO DEDUCTION UNDER ANY OTHER SECTION UNDER CHAPTER VI- A WOULD BE ALLOWED. THUS, WHERE DEDUCTION UNDER SUCH SPECIFIC SECTION HAS BEEN CLAIMED AND ALLOWED, THERE IS NO NEED TO COMPUTE DE DUCTION PERMISSIBLE UNDER OTHER SECTIONS OF CHAPTER VI-A. I T WOULD BE A FUTILE AND USELESS EXERCISE. THEREFORE, NO QUESTION OF COM PUTING DEDUCTION IN ABOVE CIRCUMSTANCES WOULD ARISE AND SECTION 8OAB WOULD HAVE NO APPLICATION. THE SAID SECTION PROVIDES NO SOLUTION TO THE PROBLEM 6 WHERE DEDUCTION IS TO BE COMPUTED UNDER MORE THAN O NE SECTION OF CHAPTER VIA. IT CANNOT FOLLOW THAT OTHER SECTIONS P ROVIDING MODIFICATION OR CHANGE IN MANNER OR MODE OF COMPUTA TION ARE TO BE IGNORED. THERE ARE SEVERAL SECTIONS LIKE SECTIONS 8 OHHA, 8OHHA(5), 8OHHA(6) PROVIDING MANNER OF DEDUCTIONS OR PREFEREN TIAL TREATMENT TO ONE DEDUCTION OVER ANOTHER WHEN THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER MORE THAN ONE SECTION OF CHAPTER VI -A. IT IS PROVIDED THAT EFFECT SHALL FIRST BE GIVEN TO A PARTICULAR SE CTION. ALL THE SECTIONS ARE TO BE READ TOGETHER HARMONIOUSLY. THE FACT THAT SECTION 8OAB STARTS WITH A NON OBSTANTE CLAUSE DOES NOT MAKE ANY DIFFERENCE, AS THERE IS NO CONFLICT IN VARIOUS PROVISIONS. RESTRIC TION PLACED ON DOUBLE DEDUCTION OF SAME ELIGIBLE PROFIT CANNOT BE READ AS AN ABSURDITY OR CONFLICT. HAVING REGARD TO ABOVE PROVISIONS, PUTTIN G BAN ON ALLOWABILITY OF DEDUCTION UNDER OTHER SECTIONS, COM PUTATION OF DEDUCTION UNDER THOSE SECTIONS WOULD SERVE NO PURPO SE. IT CANNOT FOLLOW FROM ABOVE THAT RESTRICTION OF THOSE SECTION S ARE NOT TO BE GIVEN EFFECT TO AS SCHEME IN THOSE SECTIONS IS DIFFERENT FROM SCHEME OF SECTION 8OAB WHICH STARTS WITH A NON OBSTANTE CLAUS E NOTWITHSTANDING ANYTHING.. ARGUMENTS OF THE ASSESSEE, IF ACCEPTED, WOULD LEAD TO COMPLICATIONS NOT ENVISAGED BY THE LEGISLATURE. THEREFORE, IN A C ASE WHERE DEDUCTION UNDER SECTION 80-IA HAS BEEN ALLOWED, THEN IN THE L IGHT OF PROVISIONS OF SUB-SECTION (9), SUCH PROFITS AND GAINS (TO THE EXTENT) SHALL NOT BE ALLOWED UNDER ANY OTHER PROVISION OF THE RELEVANT C HAPTER. FOR EXAMPLE, IF TOTAL PROFIT OF UNDERTAKING IS RS.100 A ND 20 PER CENT IS ALLOWED AS A DEDUCTION UNDER SECTION 80-IA OR 80-IB , THEN FOR PURPOSES OF OTHER PROVISIONS LIKE SECTION 8OHHC, ON SUCH 20 PER CENT OF PROFIT, NO DEDUCTION CAN BE ALLOWED. THE DEDUCTI ON UNDER OTHER SECTIONS HAS TO BE COMPUTED AFTER REDUCING SUCH PRO FIT OF 20 PER CENT. IN OTHER WORDS, IT WILL BE COMPUTED WITH REFERENCE TO 80 PER CENT OF THE PROFIT. SUCH DEDUCTION CANNOT BE GOVERNED BY SECTIO N 8QAB ALONE, AS IT IS A CASE IN WHICH DEDUCTIONS UNDER MORE THAN ON E SECTION OF CHAPTER VI-A ARE TO BE ALLOWED; ADJUSTMENT OF DEDUC TIONS UNDER VARIOUS SECTIONS IS TO BE MADE. IT IS NOT A CASE WH ERE PROVISION BEFORE MAKING ANY DEDUCTION UNDER CHAPTER VIA IS APPLICABL E. THEREFORE, PROVISION OF SECTION 8OAB IS OF NO ASSISTANCE IN RE SOLVING THE PROBLEM IN HAND. THE ASSESSEE FURTHER CONTENDED THAT WHERE THE LEGIS LATURE INTENDED TO DEDUCT THE AMOUNT OF DEDUCTION OUT OF SOME OTHER DE DUCTION, A DIFFERENT PHRASEOLOGY WAS USED. BY REFERRING TO SUB SECTION (5) OF 7 SECTION 8OHHB; SUB-SECTION (4) OF SECTION 8OHHBA; A ND SUB-SECTION (4) OF SECTION 80-IE, THE ASSESSEE FURTHER SUBMITTE D THAT IN ALL THESE PROVISIONS, THE LEGISLATURE HAS SPECIFICALLY USED N ON-OBSTANTE CLAUSE WHEREAS NO OVERRIDING EFFECT HAS BEEN GIVEN IN SECT ION 80-IA OR 80-LB. THE DIFFERENCE IN LANGUAGE CLEARLY POINTED OUT THAT THE LEGISLATURE DID NOT IN TEND THAT DEDUCTION ALLOWED UNDER ABOVE PROV ISIONS SHOULD BE DEDUCTED FROM RELIEF PERMITTED BY OTHER SECTIONS. THERE WAS NO SUBSTANCE IN THE ABOVE ARGUMENT. IT IS A SETTLED LAW THAT LEGISLATURE ADOPTS DIFFERENT WAYS AND MEANS IN ORDE R TO ACHIEVE ITS GOAL AND THERE IS NO JUSTIFICATION FOR INSISTENCE O N IDENTICAL LANGUAGE. WHAT IS REQUIRED TO BE SEEN IS THE LANGUAGE EMPLOYE D, WHICH, IF CLEAR AND UNAMBIGUOUS, IS TO BE GIVEN EFFECT TO. IT WAS CONTENDED THAT PROVISION OF SECTION 8OHHC WA S A SPECIAL PROVISION PROVIDING AN INCENTIVE TO EXPORTERS EARNI NG PRECIOUS FOREIGN EXCHANGE FOR THE COUNTRY WHEREAS SECTION 80-IA OR 8 0-LB COVERS A TOTALLY DIFFERENT FIELD. THEREFORE, READING OF PROV ISION OF SECTION 80- IA(9) IN SECTION 8OHHC WOULD ONLY LEAD TO AN APPARE NT CONFLICT. THERE WAS NO FORCE IN ABOVE SUBMISSIONS. OF COURSE ALL THE PROVISIONS SHOULD BE READ TOGETHER AND GIVEN A HARMONIOUS CONS TRUCTION. ALL PROVISIONS ARE INTER-RELATED AND CANNOT BE READ DE HORS, ONE AND OTHER. THE SPECIAL BENCH IN THE CASE OF ROGINI GARMENTS (S UPRA) HAS HELD THAT THE RESTRICTION IMPOSED BY SUBSECTION (9) ON A CCOUNT OF SECTION 80-IA IS TO BE READ IN ALL THE PROVISIONS OF CHAPTE R VI-A AND IT IS NOT POSSIBLE TO IGNORE THE RESTRICTION THAT PROFIT AND GAINS CLAIMED AND ALLOWED AS EXEMPT UNDER SUB-SECTION (9), (TO THE EX TENT ALLOWED) CANNOT BE ALLOWED UNDER ANY OTHER PROVISION OF CHAP TER C ABOVE CONSTRUCTION IN READING RESTRICTION IN ALL RELEVANT PROVISIONS UNDER CHAPTER C IS LEADING TO NO CONTRADICTION OR ABSUR DITY AND IS REASONABLE. IT IS THE LEGISLATIVE POLICY NOT TO ALL OW REPEATED DEDUCTION OF SAME PROFIT UNDER SECTIONS OF DEDUCTIONS IN CHAP TER VI-A. THEREFORE, THERE IS NO CONFLICT OR CONTRADICTION IN GIVING EFFECT TO THE LEGISLATIVE MANDATE. DOING OTHERWISE WOULD, NO DOUB T, BE DOING VIOLENCE TO THE CLEAR LANGUAGE. THE ARGUMENT WAS, A CCORDINGLY, TO BE REJECTED. THE ASSESSEE ALSO LAID STRESS TO NOTES OF OBJECTS A ND REASONS PERTAINING TO INTRODUCTION OF SUB-SECTIONS (9) AND (13) IN SEC TIONS 80-IA AND 80- LB. ATTENTION WAS ALSO DRAWN TO CIRCULAR OF THE CBD T NO. 772, DATED 23-12-1998 TO EMPHASIZE THAT THE LEGISLATURE ONLY I NTENDED TO LIMIT 8 DEDUCTION UNDER ALL THE PROVISIONS TO 100 PER CENT OF ELIGIBLE PROFIT. IT WAS NOT INTENDED TO IMPOSE RESTRICTION OR DEDUCT PR OFIT ALLOWED UNDER SECTION 80-IA /80-LB FROM DEDUCTION PERMISSIBLE UND ER SECTION 8OHHC. THE NOTES ON OBJECTS AND ACCOMPANYING REASONS ARE O NLY AIDS TO CONSTRUCTION. SUCH AIDS TO CONSTRUCTION ARE NEEDED WHEN LITERAL READING OF PROVISION LEADS TO AMBIGUOUS RESULTS OR ABSURDIT Y. WHERE LANGUAGE IS CLEAR AND THERE IS NO AMBIGUITY OR ABSURDITY, NO TES ON CLAUSES NEED NOT BE REFERRED TO. THEREFORE, ON FACTS, THERE WAS NO SUPPORT FOR THE ASSESSEE FROM NOTES ON CLAUSES OF THE FINANCE ACT. AS REGARDS CIRCULAR NO. 772, DATED 23-12-1998, AS ALREADY HELD THAT THE SAID CIRCULAR WAS DEALING WITH RESTRICTION (B) WHICH PROVIDED THAT DE DUCTION (UNDER OTHER PROVISION WITH HEADING C), SHALL IN NO CASE EXCE ED PROFITS AND GAINS OF BUSINESS OR HOTEL, AS THE CASE MAY BE THE ABOVE PORTION OF THE SECTION IS SEPARATED FROM THE OTHER PORTION OF THE SUB-SECTION BY WORD AND IT IS, THEREFORE, CLEAR THAT THERE ARE TWO RES TRICTIONS IN THE SUB- SECTION AND CIRCULAR OF THE BOARD IS DEALING ONLY W ITH THE SECOND RESTRICTION. IT IS DIFFICULT TO ACCEPT THAT CIRCULA R WAS ISSUED TO DO AWAY WITH FIRST RESTRICTION INCORPORATED IN THE PROVISIO NS. THERE IS ABSOLUTELY NO JUSTIFICATION FOR ALLOWING REPEATED DEDUCTIONS O N PROFIT AND GAIN ON WHICH DEDUCTION HAS BEEN ALLOWED UNDER SECTION 80-I A OR 80-LB OF THE ACT. THE LANGUAGE USED IN SECTION 80-IA (9)/80-IB(9A) IS CLEAR AND UNAMBIGUOUS AND IS REQUIRED TO BE GIVEN EFFECT TO. DEDUCTION OF PROFITS AND GAINS ALLOWED UNDER SECTION 80-IA /80-L B IS NOT TO BE ALLOWED AGAIN UNDER ANY OTHER PROVISION. THERE IS T HEN FURTHER RESTRICTION ON TOTAL DEDUCTION NOT EXCEEDING ELIGIB LE PROFIT OF THE UNDERTAKING. FURTHER RESTRICTION CONTAINED IN SECTION 80-IA OR 8 0-LB NOT TO ALLOW REPEATED DEDUCTIONS ARE APPLICABLE TO SAME PROFIT. THIS IS MORE THAN CLEAR FROM USE OF WORDS SUCH PROFIT IN SECTION 80 -IA/ 80-LB. IN OTHER WORDS, THERE HAS TO BE IDENTITY OF PROFITS ON WHICH DEDUCTION UNDER MORE THAN ONE PROVISION UNDER SCHAPTER VI-A IS CLAI MED BY THE ASSESSEE. THE PROVISIONS ARE APPLICABLE WHERE ON TH E PROFIT OF THE UNDERTAKING OR ENTERPRISE, DEDUCTION IS CLAIMED UND ER SECTION 80-IA OR 80-18 AND THEN ON THE SAME PROFIT OF THE UNDERTAKIN G DEDUCTION UNDER OTHER PROVISIONS LIKE 8OHHC IS CLAIMED. IN SUCH CAS ES, RESTRICTION CONTAINED IN ABOVE PROVISIONS WOULD APPLY. IF PROFI TS ARE DERIVED FROM 9 SEPARATE UNDERTAKINGS, RESTRICTION CONTAINED IN ABO VE PROVISION WOULD NOT BE APPLICABLE. THE ASSESSEE FURTHER CONTENDED THAT SECTION 80-IA(9 ) CANNOT CONTROL THE MECHANISM OF COMPUTING THE DEDUCTION UNDER SECT ION 8OHHC(3). IT FURTHER SUBMITTED THAT WHERE IT WAS FOUND THAT P ROVISION ALLOWING DEDUCTION ON ASSUMPTION IS APPLICABLE, THEN THOSE P ROVISIONS ARE TO BE INTERPRETED LIBERALLY. SAID CONTENTION COULD NOT BE ACCEPTED AS ALL STATUT ORY PROVISIONS ARE INTER-RELATED AND ARE PARTS OF ONE SCHEME. THIS CAN NOT BE READ DE HORS ONE AND OTHER. RESTRICTION IMPOSED IN SECTION 80-IA (9)/ 80-IB(9.4) IS TO BE READ IN ALL SECTIONS AND GIVEN EFFECT TO. THI S WOULD ONLY GIVE A HARMONIOUS READING. THUS, DEDUCTION TO BE ALLOWED UNDER ANY OTHER PROVI SION OF CHAPTER VI-A WITH THE HEADING C (WHICH INCLUDES SECTIONS 8 0H, 8OHHC, ETC.) IS TO BE REDUCED BY AN AMOUNT OF DEDUCTION AL LOWED UNDER SECTION 80-IA/80-IB. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E ITAT SPECIAL BENCH, THE GROUND TAKEN BY THE REVENUE STAN DS ALLOWED. 5 THE ONLY GROUND TAKEN BY THE ASSESSEE IN ITS CRO SS OBJECTION READS AS UNDER:- SOFTWARE EXPENSES OF RS.35,26,948/- CLAIMED BY DEB IT TO AUDITED PROFIT AND LOSS ACCOUNT (INCLUDED IN THE FIGURE OF RS.4417179/- COPY ENCLOSED) ARE REVENUE EXPENDITURE AND BE ALLOWED IN FULL. THE APPELLANT RELIES ON REASONS STATED IN REP. LETTERS DT. 03-03-2005 AND 14-03-2005 ADDRESSED TO ADDL. CIT RANGE-8, AHMEDABA D (COPIES ENCLOSED) . THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF T HE DELHI BENCH OF ITAT IN THE CASE OF AMWAY INDIA ENTERPRISES V DC IT (2008) 301 ITR (AT) 1 (DELHI). WE FIND THAT IN THIS CASE THE ITAT HAS HELD AS UNDER: 10 THERE CANNOT BE ANY SPECIFIC OR PRECISE TEST, WHIC H CAN BE APPLIED CONCLUSIVELY OR UNIVERSALLY FOR DISTINGUISH ING BETWEEN CAPITAL AND REVENUE EXPENDITURE. THE CARDINAL RULE IS THAT THE QUESTION WHETHER A CERTAIN EXPENDITURE IS ON CAPITA L OR REVENUE ACCOUNT SHOULD BE DECIDED FROM THE PRACTICAL AND BU SINESS VIEW POINT AND IN ACCORDANCE WITH SOUND ACCOUNTANCY PRIN CIPLES AND THIS RULE IS OF SPECIAL SIGNIFICANCE IN DEALING WIT H EXPENDITURE ON EXPANSION AND DEVELOPMENT OF BUSINESS. THREE TESTS GENERALLY APPLIED TO DECIDE THE NATURE OF EXPENDITURE AS TO WHETHER IT IS CAPITAL OR REVENUE, ARE THE TES T OF ENDURING BENEFIT, THE OWNERSHIP TEST AND THE FUNCTIONAL TEST . APPLYING THESE TESTS, EXPENDITURE IS TREATED AS CAPITAL EXPE NDITURE EITHER WHEN IT RESULTS IN ACQUISITION OF A CAPITAL ASSET B Y THE ASSESSEE AS OWNER THEREOF OR WHEN IT RESULTS IN ACCRUAL OF AN A DVANTAGE OF ENDURING NATURE TO THE ASSESSEE IN THE CAPITAL FIEL D. IF THE EXPENDITURE RESULTS MERELY IN ACQUISITION OR CREATI ON OF ASSET WITHOUT THE ASSESSEE BECOMING THE OWNER THEREOF, IT CANNOT BE SAID THAT THE SAID EXPENDITURE IS A CAPITAL EXPENDI TURE. THE COMING INTO EXISTENCE OF AN ASSET AS A RESULT OF IN CURRING EXPENDITURE ALONE THUS IS NOT SUFFICIENT TO TREAT T HE SAID EXPENDITURE AS OF CAPITAL NATURE UNLESS THE ASSET C OMING INTO EXISTENCE IS ALSO OWNED BY THE ASSESSEE. EXPENDITURE CAN BE TREATED AS CAPITAL EXPENDITURE O NLY WHEN IT RESULTS IN ACCRUAL OF AN ADVANTAGE OF ENDURING NATU RE TO THE ASSESSEE IN THE CAPITAL FIELD. THE RELEVANT TESTS A PPLIED TO DETERMINE THE NATURE OF EXPENDITURE IN SUCH A SITUA TION ARE THE FUNCTIONAL TEST AND THE TEST OF ENDURING BENEFIT. A N ADVANTAGE IS TO BE CONSIDERED AS OF ENDURING BENEFIT IF THE BENE FIT ACCRUING IS NOT OF A TRANSIENT NATURE BUT IS OF SUCH DURABILITY AS TO JUSTIFY IT BEING TREATED AS A CAPITAL ASSET. ON THE QUESTION WHETHER COMPUTER SOFTWARE WAS GOODS , THE SUPREME COURT IN TATA CONSULTANCY SERVICES [20041 2 71 1TR 401 TOOK INTO ACCOUNT THE VIEW OF AMERICAN COURTS O N THE ISSUE AS WELL AS ITS OWN DECISION RENDERED IN THE CASE OF ASSOCIATED CEMENT CO. [2001] 124 STC 59 IN THE CONTEXT OF 1 TH E CUSTOMS ACT WHEREIN THE DEFINITION OF THE TERM GOODS GIVE N WAS NOT AS WIDE OR EXHAUSTIVE AS THE DEFINITION OF THE TERM G OODS IN THE A. P. SALES TAX ACT, TO HOLD THAT SOFTWARE, WHETHER CUSTOMISED OR NON-CUSTOMISED, SATISFIES ALL THE ATTRIBUTES OF BEING A GOODS 11 AND AS SUCH, IS CAPABLE OF BEING BOUGHT AND SOLD AN D BECOMES AN OBJECT OF TRADE AND COMMERCE CAN ONLY LEAD TO TH E CONCLUSION THAT PURCHASE OF SUCH DISC IS ACQUIRING A TANGIBLE ASSET. IF THE DISC, TAPE OR FLOPPY OR OTHER ELECTRONIC MEDIUM IN WHICH THE SOFTWARE IS STORED IS BY ITSELF GOODS, THEN THE ASS ESSEE WHO ACQUIRES THE SAME, ACQUIRES A TANGIBLE ASSET. COMPU TER SOFTWARE HAS NOT BEEN DEFINED IN THE INCOME-TAX ACT, 1961, B UT IN NOTE 7 TO APPENDIX I TO THE INCOME-TAX RULES, 1962, IT HAS BEEN EXPLAINED TO INCLUDE COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. THEREFORE COMPUTER SOFTWARE (WHETHER IN CANNED FORM OR UN- CANNED FORM) IS GOODS AND A TANGIBLE ASSET BY ITSEL F. THE QUESTION WHETHER AN ASSESSEE BY PURCHASE OF A DISC CONTAINING SOFTWARE HAS PURCHASED A. CAPITAL ASSET OR NOT SHOU LD NOT, THEREFORE, BE VIEWED FROM THE ANGLE OF ACQUISITION OF ANY COPYRIGHT OR ANY OF THE BUNDLE OF RIGHTS COMPRISED IN SUCH COPYRIGHT. AN ASSESSEE PURCHASING SUCH A SOFTWARE B ECOMES THE OWNER THEREOF. TATA CONSULTANCY SERVICES V. STATE OF ANDHRA PRADESH [2004] 137 STC 620; [2004] 271 ITR 401 (SC) FOLLOWED. BUT THE QUESTION WHETHER EXPENDITURE FOR ACQUISITIO N OF COMPUTER SOFTWARE OR REVENUE CANNOT BE DECIDED ON T HE BASIS OF THE OWNERSHIP TEST ALONE FROM THE POINT OF ITS UTIL ITY TO A BUSINESSMAN AND HOW IMPORTANT AN C OR FUNCTIONAL RO LE IT PLAYS IN HIS BUSINESS, BECAUSE OF THE PECULIAR NATURE OF A COMPUTER SOFTWARE AND ITS POSSIBLE USE IN DIFFERENT AREAS OF BUSINESS. THE FACT THAT GENERALLY COMPUTER SOFTWARE IS ACQUIRED O N A LICENCE BY ITTSELF WILL NOT BE SUFFICIENT TO CONCLUDE THAT THE EXPENDITURE IS REVENUE EXPENDITURE, IF IT IS FOUND THAT THE EXPEND ITURE OPERATES TO CONFER A BENEFIT IN THE CAPITAL FIELD. ON THE OT HER HAND, SOME COMPUTER SOFTWARE MAY HAVE A VERY ECONOMIC LIFE SO AS TO BE TREATED AS CAPITAL EXPENDITURE, THOUGH OWNED BY AN ASSESSEE. FOR ASCERTAINING AS TO WHETHER EXPENDITURE ON COMPU TER SOFTWARE GIVES AN ENDURING BENEFIT TO AN ASSESSEE, THE DURATION OF TIME FOR WHICH THE ASSESSEE RIGHT TO USE THE SOF TWARE BECOMES RELEVANT. HAVING REGARD TO THE FACT THAT SOFTWARE B ECOMES OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEM ENT WITHIN A SHORT SPAN OF TIME, IT CAN BE SAID THAT WHERE THE LIFE OF THE 12 COMPUTER SOFTWARE IS SHORTER (SAY LESS THAN 2 YEARS ), IT MAY BE TREATED AS REVENUE EXPENDITURE. ANY SOFTWARE HAVING ITS UTILITY TO THE ASSESSEE FOR A PERIOD BEYOND TWO YEARS CAN B E CONSIDERED AS ACCRUAL OF BENEFIT OF ENDURING NATURE. HOWEVER, THAT BY ITSELF WILL NOT MAKE THE EXPENDITURE INCURRED ON SOFTWARE AS CAPITAL IN NATURE AND THE FUNCTIONAL TEST AS DISCUSSED ABOVE A LSO NEEDS TO BE SATISFIED. THE PERIOD OF ADVANTAGE IN THE CONTEX T OF COMPUTER SOFTWARE SHOULD NOT BE VIEWED FROM THE POINT OF VIE W OF DIFFERENT ASSETS OR ADVANTAGE LIKE TENANCY OR USE O F KNOW-HOW BECAUSE SOFTWARE IS A BUSINESS TOOL ENABLING A BUSI NESSMANS ABILITY TO RUN HIS BUSINESS. THE NATURE OF THE ADVANTAGE WHICH THE ASSESSEE DERI VES HAS TO BE SEEN IN A COMMERCIAL SENSE. SOFTWARE NORMALLY FU NCTIONS AS A TOOL ENABLING BUSINESS TO BE CARRIED ON MORE EFFICI ENTLY. THE SCOPE, POWER, LONGEVITY OF SUCH A TOOL AND ITS CENT RALITY TO THE FUNCTIONS OF THE BUSINESS WILL ALL BEAR ON ITS TREA TMENT. WHERE THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINE SS OF SOFTWARE DEVELOPMENT AS WELL AS RUNNING A TRAINING CENTRE TO IMPART SPECIALIZED TRAINING TO THE STUDENTS IN SOFT WARE TECHNOLOGY, F THE SOFTWARE IS USED IN SUCH BUSINESS TO IMPART TRAINING TO THE STUDENTS, IT WOULD BE PART OF THE P ROFIT-MAKING APPARATUS OF THE ASSESSEE AND CONSEQUENTLY EXPENDIT URE ON SOFTWARE, CAPITAL. WHERE THE SAID SOFTWARE HELPS IN COMPRESSION OF SIZ E OF E-MAILS AND IT INCLUDES LICENCES FOR 150 USERS AND IT IS LI MITED TO FACILITATE MERELY AN EFFECTIVE AND FAST COMMUNICATI ON IN ORDER TO INCREASE IN ITS ORGANIZATIONAL EFFICIENCY IT CANNOT BE TREATED AS FORMING PART OF THE PROFIT-MAKING APPARATUS. OF THE ASSESSEE. ON THE OTHER HAND, F SUCH SOFTWARE IS BEING USED BY AN ASSESS ENGAGED IN THE BUSINESS OF PLACEMENT AGENCY WHERE T HE APPLICATIONS FROM PER- SONS SEEKING JOBS ARE INVITE D THROUGH E- MAIL AND ARE ALSO FORWARDED TO T CONCERNED CLIENTS THROUGH E- MAIL, IT MAY FORM PART OF THE PROFIT-MAKING APPARAT US OF THE ASSESSEES BUSINESS OF PLACEMENT AGENCY AND CAN BE TREATED AS CAPITAL ASSET. I AS A GENERAL RULE THE MORE EXPENSIVE THE COMPUTER S OFTWARE THE MORE IT A LIKELY TO BE A CENTRAL TOOL OF THE BUSINE SS AND THE MORE ENDURING IS LIKELY TO ITS EFFECT ADDING TO THE PROF IT EARNING 13 APPARATUS. IF THERE IS ASSOCIATED CAP EXPENDITURE L IKE PURCHASE OF NEW COMPUTER EQUIPMENT FOR RUNNING THE WARE DEVELOP ED UNDER A PROJECT, IT CAN BE CONSIDERED AS CAPITAL EXPENDIT URE. THIS IS ESPECIALLY THE CASE WHERE THE NEW HARDWARE IS NOT M ERELY DESIRABLE NECESSARY FOR THIS PURPOSE. SIMILARLY THE DEGREE OF CHANGE INTENDED IN THE WAY OPERATIONS ARE CARRIED OUT AS A RESULT OF THE COMPUTER SOFTWAR E, FOR EXAMPLE, SAVINGS IN THE NUMBER, AND CHANGES IN THE LOCATION, OF STAFF USED TO PROVIDE SERVICES TO CUSTOMERS WILL HA VE A BEARING. THE MORE RADICAL THE CHANGES, THE MORE LIKELY THAT THE EXPENDITURE WILL BE CAPITAL. THESE CHANGES ARE LIKE LY TO BE MOST RADICAL WHEN OPERATIONS PREVIOUSLY CARRIED ON MANUA LLY ARE COMPUTERIZED. THE PRESENCE OF AN ELEMENT OF UPGRADING WILL NOT NE CESSARILY CAUSE THE EXPENDITURE IN QUESTION TO BE CAPITAL. WITH EFFECT FROM APRIL 1, 1999, COMPUTERS WERE TREA TED AS A DIFFERENT CLASS OF ASSET FALLING WITHIN THE DESCRIP TION OF PLANT AND DEPRECIATION WAS ALLOWED AT 60 PER CENT. WITH EFFEC T FROM APRIL 1, 2003, COMPUTER SOFTWARE WAS ALSO INCLUDED ALONG WITH COMPUTERS. THE AMENDMENT IS PROSPECTIVE. IT IS NOT CLARIFICATORY FOR THE REASON THAT COMPUTER AND COMPUTER SOFTWARE ARE TWO D4FFERENT ITEMS OF ASSETS. IF THE LEGISLATURE WANTE D TO ALLOW DEPRECIATION AT 60 PER CENT. WITH EFFECT FROM APRIL 1, 1999, ON COMPUTER SOFTWARE, IT WOULD HAVE SAID SO SPECIFICAL LY BY MAKING THE PROVISIONS RETROSPECTIVE. DEPRECIATION CAN BE A LLOWED AT 25 PER CENT. UNDER SECTION 32W(I) READ WITH APPENDIX I , PART A, DIVISION 111(1) TO THE INCOME-TAX RULES, 1962 AND W ITH EFFECT FROM APRIL 1, 2003, COMPUTER SOFTWARE HAVING BEEN C LASSIFIED AS A TANGIBLE ASSET UNDER THE HEADING PLANT IN APPEN DIX ITO THE RULES, IS ENTITLED TO DEPRECIATION AT 60 PER CENT. MARUTI UDYOG LTD. V. DEPUTY CIT [2005] 92 LTD 119 (DELHI) FOLLOWED. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THIS TRIBUNAL, WE HOLD THAT THE EXPENSES INCURRED BY THE ASSESSEE ON SOFTWARE CAN BE REGARDED TO BE THE REVENUE EXPENDITURE. WE, THER EFORE, REVERSE 14 THE ORDER OF THE CIT(A) IN THIS REGARD. THUS, THE G ROUND TAKEN BY THE ASSESSEE IN CROSS OBJECTION STANDS ALLOWED. 6 IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 04-09-2 009 SD/- SD/- (R V EASWAR) VICE-PRESIDENT (P K BANSAL) ACCOUNTANT MEMBER DATE : 04-09-2009 COPY OF THE ORDER FORWARDED TO : 1. THE ASSISTANT COMMISSIONER OF INCOME-TAX (OSD), RANGE-8, AHMEDABAD 2. THE ACIT (OSD) RANGE-8, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XIV, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA