THE COMMISSIONER OF INCOME TAX -9 ,MUMBAI vs. M/S AJANTA PHARMA LTD.

-1-

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL NO. 1005 OF 2008

The Commissioner of Income Tax-9 )

Aayakar Bhavan, M.K. Road,

Mumbai 400 020.

).. Appellant

Versus

M/s. Ajanta Pharma Ltd.

98, Charkop Industrial Estate,

Kandivali (West),Mumbai 400 061. )...Respondent

Mr. Parag Vyas with Mr.Suresh Kumar with Mr. P.S.

Sahadevan for the Appellant.

Mr.J.D. Mistry with Mr.A.K. Jasani and Mr. T.C.

Tripati for Respondent.

CORAM: CORAM: CORAM: FERDINO I. REBELLO & FERDINO I. REBELLO & FERDINO I. REBELLO &

R.S.MOHITE, R.S.MOHITE, R.S.MOHITE, JJ. JJ. JJ.

DATED: DATED: DATED: 7th May, 2009 7th May, 2009 7th May, 2009

ORAL JUDGMENT (Per F.I. Rebello,J.):

Admit on the following questions:

"1.

Whether

the

facts

and

the

circumstances

the case and in

law

the

ITAT was justified in approving the Order of

the CIT(A) in allowing Respondent to exclude

export

profits

for the purpose of

section CNR No : HCBM020084572008 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

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115 JB at the figure other than that allowed

u/s.

80 HHC (1B)?

Whether

law

for

the calculating book profit under section 115 JB

the

Income

Tax

Act,

1961

under

Explanation

sub clause (iv)

the

export

profits to be excluded from the book profits

would

the export profits allowed

deduction u/s.

80 HHC after restricting the

deduction

per

the sub

section

1B of section 80 HHC of the Act

the

export

profits calculated as

per

sub

section

and 3A of section 80 HHC

before

applying

the

restriction contained in

sub

section 1B of section 80 HHC?"

The Assessee company was assessed under Section

115

of the Income Tax Act for

the

assessment

year

2001-2002.

While computing the book profits,

under

Section

115 JB it claimed that

the

entire

export

profits

as computed under Section

HHC

should

be deducted and not percentage deduction as

provided

under Section 80 HHC (1B).

The Assessing

Officer

did

not

accept

the

same.

The

A.O.

restricted the deduction under Section 80 HHC to

80%. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-3-

The

assessee

aggrieved, preferred

appeal

before

the

C.I.T.

(Appeals).

After

considering

the

contentions C.I.T.(A) was pleased to hold that

the

entire

profits from exports are eligible

for

deduction in terms of Clause (4) of Explanation (1)

to Section 115JB.

Revenue aggrieved preferred an appeal before the

I.T.A.T.

The

learned tribunal after

considering

the

various

contentions as also the order of

the

Special

Bench in Dy.

Commissioner, Range III

Vs.

SIMCOM

Ltd.

(2007)

106 ITD 193 (Mum)

(SB)

was

pleased

dismiss

the appeal preferred

the

Revenue

order

dated 30.11.2007.

this

order which is the subject matter of the present

appeal.

At the hearing of this appeal on behalf of the

Revenue,

has

been submitted

under:-

The

export profits to be excluded from the book profits

would

export

profits allowed as

deduction

under

Section

HHC

after

restricting

the

deduction

as per the provisions of sub section(1B)

Section 80HHC of the Act and not export profits

calculated

as per sub section 3 and 3A of

Section

80HHC

without applying the restrictions

contained

in sub section 1B of section 80 HHC as contended on

behalf of the assessee.

Section 80 HHC sub section

was

introduced by the Finance Act with

effect

from 1.4.2001 so as to phase out the deduction Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-4-

completely by assessment year 2005-06.

. Section 115 JB was introduced by Finance Act,

2000 with effect from 1.4.2001 i.e. with effect

from the assessment year 2001-02 replacing the

erstwhile section 115JA. As per memorandum of

Finance Bill 2000, the reason to introduce the said

section was to simplify the Minimum Alternate Tax

(MAT).

The said Memorandum clarifying the

provisions of the Finance Bill 2000 sets out

"Export provisions under Section 80 HHC were kept

out of the purview of the provisions during the

period of phasing out of deductions available under

those provisions." Considering the language of

Explanation (1) of sub clause (iv), the profits

eligible for deduction under Section 80 HHC, as

used in Section 115JB refer to profits allowed as

deduction under Section 80 HHC. Reference is then

made to the meaning of the expression "Eligible"

from dictionaries.

The

eligible deduction

therefore under Section 80 HHC as per section

115JB, is only that amount which is allowed as a

deduction u/s. 80 HHC under normal provisions of

the Act. The expression "Profits eligible for

deduction under section 80 HHC" can only mean that

the term refers to the export profits actually

allowed as a deduction under section 80 HHC as

otherwise an absurdity is created to the extent

that while no full deduction is allowed of export

profits under section 80 HHC, for the purpose of Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

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section 115 JB such profits are calculated and

excluded from book profits which was never the

intention of the legislature as brought out from

the Memorandum explaining the Finance Bill 2000.

While construing or interpreting the provisions of

law, an interpretation that results in an absurd

situation is to be avoided and preference is to be

given to a workable interpretation bearing in mind

that MAT was introduced to ensure that companies

which take advantage of deductions available under

normal provisions of the Act are required to pay

some minimum tax. In the alternative it is

submitted that even if the term "profits" eligible

for deduction under section 80 HHC" is referable to

the profits calculated before applying the

limitation specified in sub section 1B of section

80 HHC, one has to bear in mind the expression

"subject to the conditions specified in section 80

HHC".

The dictionary meaning of the word

"condition" is sought to be relied upon. It is

therefore, submitted that sub section 1B is the

restriction and limitation to the deduction under

section 80 HHC and has to be considered while

calculating export profits from the book profits

for the purpose of section 115JB. That also

becomes apparent from the examination of the

provisions of section 115 JA.

The entire

provisions of 80 HHC and section 115 JB would have

to be considered while construing the provisions.

The Finance Minister’s speech and the Memorandum Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

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explaining the clauses cannot by itself be used to

interpret the literal meaning of the Act. Reliance

is placed in the judgment of the Supreme Court in

the case of P.V. Narsimha Rao Vs. State, AIR 1998 P.V. Narsimha Rao Vs. State, AIR 1998 P.V. Narsimha Rao Vs. State, AIR 1998

SC SC SC 2120. 2120. 2120. It Is, therefore, submitted that

considering the language of the two provisions, it

leads to the only conclusion that what has to be

reduced is the amount of export profits eligible

for deduction in terms of sub section 1B of Section

80 HHC.

On the other hand on behalf of the assessee the

learned

counsel

submits

that

considering

the

expression

"the

profits

eligible

for

deduction

under

Section

80HHC,

the

A.O.

ought

have

allowed

the

entire amount.

It is explained

that

the

purpose of reduction of book profits

required

clause (iv) to explanation to Section 115JB

to ensure that the export profits are not subjected

"MAT".

The legislature has repeatedly taken

conscious

decision to exclude export profits

from

taxation under the normal provisions of the Act and

from

MAT

levied under the special inter

alia

section 115JB.

This intention of

the

legislature

it is submitted has been made clear by

the repeated insertion of clauses similar to clause

(iv)

and explicit mention of such intention by the

Finance

Minister

various times.

The

policy

adopted

by the legislature of encouraging/boosting

exports

was

considered to be of

such

importance Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-7-

that

the

legislature

wished

forego

taxes

thereon,

including

MAT.

The phrase

"amount

profits

eligible

for deduction under

section

HHC"

used

in clause (iv) to describe

the

export

profits

excluded from MAT

necessarily

different

from the phrases used in the various sub

sections of Section 80 HHC of the Act.

The reasons

being

the

phraseology

used

clause

(iv)

required

to encompass all the qualitative

aspects

export profits in section 80 HHC i.e.

the type

profit which got benefit under section 80

HHC.

Thus

(a) profits derived from the export of

goods

and

merchandise

and (b) profits of the

permitted

type.

The

phrase

has

been used

take

into

account the type of profit above mentioned which is

derived

from the activity above mentioned.

for

this

reason

that even

the

predecessors

section

115JB, the same phrase was used to achieve

this a matter of

construction

and

plain

English usage the said phrase can never take

within its ambit the quantum of deduction from such

profits.

Reference

made

expression

"eligible"

its ordinary dictionary meaning

which we shall advert latter.

Thus it is submitted

that

would be beyond any doubt that

the

word

"eligible"

has to be read to mean type or class or

nature

of profits i.e.

a qualitative

description

of profits and can never take within its ambit a

particular proportion or quantum thereof. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-8-

4(b).

The quantum of profits in respect of which a

deduction

allowed under section 80 HHC of

the

Act

separately

quantified/provided

for

section

HHC (1B) of the Act and the

resultant

figure

on applying this sub section can only be

sub

class or part of the type of profits

eligible

which

can

(if a 100% deduction is allowed)

equal

the

quantum

of the class but must as a matter

language

be something different from the class

profit.

This distinction between the class/type of

profit

well

as the quantum/extent

profit

which

have

be deducted is also clear

from

perusal

section 80 HHC (1) which

specifically

allows

"....

a deduction to the extent of profits

referred

to in sub section 1(B)".

There can be no

doubt

therefore, that the extent is different from

the

profit.

The

said

distinction

between

the

class/type

and

the

extent of deduction

also

clear from the opening words of section 80 HHC (1B)

the

Act which clearly specifies the amount

the

deduction

applying a

percentage

the

profit eligible for/entitled to deduction.

It must

inexorably

follow

fortiori

that

the

profit

eligible and the extent of the deduction have to be

two

different

things.

It must also be

borne

mind

that

Section

HHC (1B) of

the

Act

was

introduced at the same time as Section 115JB and if

the

legislature intended to reduce only the extent

the

deduction actually allowed when

computing

book

profit

for

the purposes of 115JB

would Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-9-

simply

have done so by using identical phrases

both

the sections.

The expression "condition"

(iv)

Explanation I, would mean

conditions

specified. Quantum as set out in Section 80HHC(1B)

it is submitted is not a condition.

4(c).

The

intention

of the legislature

was

continue

the exemption of export profits from

MAT

despite

the exemption for the said export

profits

being

gradually phased out when computing

taxable

income

under

the

normal provisions of

the

Act.

Placing

reliance on the Finance Minister’s

speech

submitted

the exemption from

MAT

was

continue until the complete withdrawal of exemption

under

the

normal

provisions of the Act.

identical

situation

when

the

legislature

intended,

in section 115JA Explanation clause

(v)

reduction to the equal in quantum to the quantum of

deduction

allowed

under the normal provisions

the

Act, explicit wording was used which made

the

matter clear beyond any doubt. Such wording is not

used in this case.

Under the Act, amounts eligible for a deduction

are

often different from the quantum of

deduction

actually

allowed.

Reliance is placed on some

the Conscious of the distinction, the

legislature

has continued the use of these phrases

in the said clause (iv).

It is then submitted that

the interpretation canvassed by the Income

Tax Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-10-

department

accepted, the words in clause

(iv)

i.e.

"....

computed under (a), (b) and

(c)

Section

80 HHC(3).........

" becomes otiose.

the

alternative

the

phrase

not

considered

otiose

then in order to apply

HHC

(1B)

the same should have been mentioned in clause

(iv)

and

in the absence of such mention the

same

cannot

applied.

Reliance is then

placed

Heydons’ Rules of construction.

Reliance is placed

on the judgment of Kerala High Court in C.I.T.

Vs. C.I.T.

Vs. C.I.T.

Vs.

GTN GTN GTN

Textiles

Ltd.

248 ITR 372.

Textiles

Ltd.

248 ITR 372.

Textiles

Ltd.

248 ITR 372.

It is

submitted

that

the

view taken by the Special Bench in

DCIT

Vs.

Syncone Formulations 106 ITD 193 (Bom) as also

DCIT Vs. Govind Rubber Ltd. 82 TTJ 615 should be

accepted.

4(d).

It is lastly submitted that at any rate

two

views are possible of interpretation of clause

(iv), then the view in favour of the tax payer

ought to be adopted.

With the above background, let us now consider

the provisions.

What the Legislature ought to have

done

or what language or words or expression ought

have

been

used,

is not

for

the

courts

consider.

The

duty of the court, in

the

event,

where

literal

interpretation

would

defeat

the

intent

of the Legislature or lead to an

absurdity

or the like would be to ascertain the parliamentary

intent,

applying

the

rules

statutory Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-11-

interpretation

as followed in our jurisdiction.

word

of caution, it is only in the event when

the

literal

interpretation would lead to an

absurdity

defeat the object or intent of the

Legislation

and

not

otherwise.

The principle of

all

fiscal

legislation

that

if the person sought

taxed comes within the letter of the law he must be

taxed,

however,

great the hardship may appear

the judicial mind to be.

On the other hand, if the

State, seeking to recover the tax, cannot bring the

subject

within the letter of the law, the

subject

free, however, apparently within the spirit

the

law

the

case might otherwise appear

be.

Taxing

statutes

cannot

interpreted

any

presumptions

or assumptions.

The court must

look

squarely

at the words of the statue and

interpret

them.

must interpret a taxing statute in

the

light

what

is clearly expressed;

cannot

imply

anything

which is not expressed, it

cannot

import

provisions in the statutes so as to

supply

any assumed deficiency (CST vs. Modi Sugar Mills (CST vs. Modi Sugar Mills (CST vs. Modi Sugar Mills

Ltd. Ltd. Ltd. AIR 1961 SC 1047. AIR 1961 SC 1047. AIR 1961 SC 1047.

relevant provisions of Section 80HHC.

"80HHC.(1)

Where

assessee,

being

Indian

company

or a person (other

than

company)

resident

in India, is engaged

the

business of export out of India of

any Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-12-

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 income

of the assessee, a deduction to the extent

of profits, referred to in sub-section (1B)

derived by the assessee from the export of

such goods or merchandise:

Provided..........

(1A) ................

(1B)

For

the purposes of sub-sections

(1)

and

(1A),

the extent of deduction

the

profits shall be an amount equal to--

(i)

eighty

per

cent

thereof

for

assessment

year beginning on the 1st day of

April, 2001;

(ii)

seventy

per

cent

thereof

for

assessment

year beginning on the 1st day of

April, 2002;

(iii)

fifty

per

cent

thereof

for

assessment

year beginning on the 1st day of

April, 2003;

(iv)

thirty

per

cent

thereof

for

an Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-13-

assessment

year beginning on the 1st day of

April,

2004,

and

deduction

shall

allowed

respect of the assessment

year

beginning

on the 1st day of April, 2005 and

any subsequent assessment year.

(2)(a)............

(3). ..............

(3A) .............

(4)

The

deduction

under

sub-section

(1)

shall

not be admissible unless the assessee

furnishes in the prescribed form, along with

the

return

income, the

report

accountant,

defined in the

Explanation

below

sub-section

(2)

Section

2888,

certiying

that

the

deduction

has

been

correctly

claimed

in accordance

with

the

provisions of this section.

Provided....................

(4A) .........................

(4B) For the purposes of computing the total

income

under sub-section (1) or sub-section

(1A)

any

income not charged to

tax

under

this Act shall be excluded. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-14-

(4C) ...................

(emphasis supplied).

Sub section (1B) was introduced by the

Finance

Act, 2000 with effect from 3.4.2001.

That

section

was

applicable

to all,

engaged

the

business

of export.

By virtue of insertion of sub

section

(1B)

i.e.

The

sun

set

clause,

the

deductions of export profits was to be discontinued

from

the

beginning of 1.4.2005.

The

deductions from 1st April, 2001 was

percentagewise

set out beginning with 80% for 2001 and

ending

with 30% for assessment year beginning on 1.4.2004.

No deduction is available after 1-4-2005 and

subsequent years.

Act,2000 with effect from 1.4.2001.

"115JB(1) Notwithstanding anything contained

in any other provision of this Act, where in

the

case

of an assessee, being a

company,

the

income-tax payable on the total

income

as computed under this Act in respect of any

previous

year

relevant to

the

assessment

year

commencing on or after the 1st day

April,

2007,

is less than ten per cent

its

book profit, such book profit shall

be Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-15-

deemed

the

total

income

the

assessee and the tax payable by the assessee

such total income shall be the amount of

income-tax at the rate of ten per cent.

(2) Every assessee, being a company, shall,

for the purposes of this section, prepare

its profit and loss account for the relevant

previous year in accordance with the

provisions of Parts II and III of Schedule

VI to the Companies Act, 1956 (1 of 1956).

Provided .............

Explanation

(1)

For the purposes

this

section,

"book profit" means the net profit

shown in the profit and loss account for

the

relevant

previous year prepared

under

sub-section (2), as increased by--

(a) ......

(b) ......

(c) ......

(d) ......

(e) ......

(f) .......

(g).......

(h) the amount of deferred tax and the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-16-

provision therefor, if any amount referred

to in clauses (a) to (h) is debited to the

profit and loss account, and as reduced by--

(i) ...........

(ii)...........

(iii) .........

(iv)

the

amount

of profits

eligible

for

deduction

under

section

80HHC,

computed

under clause (a) or clause (b) or clause (c)

sub-section (3) or sub-section (3A),

the

case

may

be,

that

section,

and

subject

to the conditions specified in that

section."

(emphasis supplied).

Section

115J

is contained in

Chapter

XII-B

which was inserted by Finance Act, 1987 with effect

from 1.4.1988.

When section 115J was introduced by

Act

of 1957 reduction of export profits under

the of Section 80 HHC was not available

companies

covered

by Chapter XII-B.

However,

Direct

Tax Laws Amendment Act, 1989 it was brought

into effect from 1.4.1989, by introducing (iii) to

the explanation and which reads as under :

"the amounts as arrived at after increasing

the net profit by the amounts referred to

in clauses (a) to (f) and reducing the net Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-17-

profit by the amounts referred to in clause

(i) and (ii) attributable to the business,

the profits from which are eligible for

deduction under section 80 HHC or section 80

HHD; so, however, that such amounts are

computed in the manner specified in sub

section (3) or sub section (3A) of section

80 HHC or sub section (3) of section 80 HHD,

as the case may be, or ...." (emphasis

supplied) .

The Legislature, therefore, in case of MAT

Companies choose not to initially give them the

benefit of reduction of export profits.

Section

115JA was introduced by the

Finance

Act,1996

with effect from 1.4.1997.

The

language

section

115JA(1) is also similar

language

used

Section 115J.

In so far as reduction

export

profits under Section 80 HHC they were

not when

the Section was first

introduced.

But by the Finance Act, 1997 it was introduced with

effect from 1.4.1998 and which reads as under:

"the

amount

profits

eligible

for

deduction

under

section

HHC,computed

under

clause (a), (b) or (c) of sub section

(3) or sub section (3A), as the case may be,

that

section,

and

subject

the

condition

specified in sub sections (4) and Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-18-

(4A) of that section." (emphasis supplied).

10.

Section

115JB was inserted by

Finance

Act,

2000

w.e.f.

1.4.2001.

It contained (iv) to

the

Explanation. We have reproduced the provisions in

the earlier part of the judgment.

11.

In so far as MAT companies are concerned,

that

reduction

of export profit

while

computing

book

profits was not available when Section 115

was

introduced

from

1-4-1988.

The

benefit

was

given

subsequently

from 1-4-1989.

Similarly

the

reduction

was not available in the case of section

115JA

which was introduced w.e.f.

1-4-1997.

The

benefit

was

extended

only from

1-4-1998.

This

intent of the Legislature, must be considered while

interpreting

the The

other

aspect

would be that if sub-section (1B) is not read while

computing

the book profits and which contains

the

sun-set

clause

would

mean

that

even

after

1-4-2005,

MAT

Companies could claim deduction

export profits, While computing book profits which

would be an absurdity.

12.

would

thus be clear that whether

section

115J, 115JA or 115JB the express

language

used is eligible for deduction under Section 80 HHC

and

computed

under

clause (a) or clause

(b)

clause

(c) of sub section (3) or sub section

(3A)

the

case

may

be.

What this

means

that Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-19-

sub-section (3) and (3A) provide for the method for

computation

profits.

Once

the

profits

are

worked out, then only the profit which is eligible,

can

deducted.

Section

80HHC(1)

allows

deductions of profits to the extent referred to in

sub- section (1B).

13.

Another aspect of the matter.

Companies other

than MAT companies could claim deductions of export

profits

calculated

in the manner

provided

under

section

HHC from the very inception and

after

(1B) to the extent provided by (1B).

MAT companies

who were in the business of export were not allowed

claim

reduction while computing

book

profits

under section 115J or 115JD for some of the periods

earlier

set

out.

Accepting the

argument

behalf of the MAT companies would be that they must

treated

more advantageously than other

export

companies,

though the other export companies

were

continuously

enjoying

100%

deduction

export

profits until introduction of sub section 1B of

section 80 HHC.

14.

For interpreting the statutory provisions let

refer

some

decided

case

law.

K.P.

Varghese

Vs.

Income Tax Officer and another, 1981

(131) ITR 597 (SC), it was observed that it is well

recognized

rule of construction that the statutory must

be so construed if possible

that

absurdity

and

mischief

may be avoided.

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-20-

situation

arises where the construction

suggested

behalf

the Revenue would

lead

wholly

unreasonable

and

unjust result which could

never

have been intended by the Legislature, then it must

avoided.

An interpretation must be arrived at,

which

avoids absurdity and mischief and makes

the rational and sensible unless of

course

the courts hands are tied and it is not possible to

find

escape

from

the

tyranny

the

literal

interpretation.

It is now a well settled rule

construction

that

where

the

plain

literal

interpretation

of a statutory provision produces a

manifestly

absurd

and unjust result

which

could

never

have

been intended by the Legislature,

the

court

may

modify

the

language

used

the

Legislature or even "do some violence" to it, so as

to achieve the obvious intention of the Legislature

and produce a rational construction.

The court may

also

such

case

read

into

the

statutory

provision

a condition which, though not expressed,

implicit

as constituting the basic

assumption

underlying

the

statutory

provision.

For

that the courts may use aids for fixing out the

mischief

the enactment seeks to avoid as also

the

object

the

legislation.

Gurudevdatta

V.K.S.S.S.

Maryadit

Ors.

vs.

State

Maharashtra & Ors. AIR 2001 S.C., the same view

was explained as under:-

Further

we wish to clarify that it is

a Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-21-

cardinal

principle

interpretation

statute

that the words of a statute must be

understood

their natural,

ordinary

popular

sense

and construed

according

their

grammatical

meaning,unless

such

construction

leads

some

absurdity

unless

there is something in the context or

the object of the statute to suggest

the

contrary.

The golden rules is that the

words of a statute must prima facie be given

their

ordinary meaning.

It is yet

another

rule

of construction that when the words of

the statute are clear, plain and unambiguous

then

the Courts are bound to give effect to

that

meaning,

irrespective

the

consequences.

is said that

the

words

themselves best declare the intention of the

law

giver.

The courts have adhered to

the

principle

that

efforts should be

made

give

meaning to each and every word used by

the

Legislature

and

not

sound

principle

construction to

brush

aside

words

statute

being

inaposite

surpluses,

they

can

have

proper

application

circumstances

conceivable

within the contemplation of the statue...."

15.

Whether

speeches

made on the floor

the

House

were

admissible

interpreting

the Speeches

made by the Members of

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-22-

Legislature

on the floor of the House when a

Bill

for enacting a statutory provision is being debated

are

inadmissible

for the purpose of

interpreting

the

statutory provision but the speech made by the

mover

the Bill explaining the reason

for

the

introduction

of the Bill can certainly be referred

for

the purpose of ascertaining

the

mischief

sought

be remedied by the legislation and

the

object

and

purpose for which the legislation

was

enacted.

The

Supreme

Court in

K.P.

Varghyese

(supra) said that this is in accord with the recent

trend

juristic

thought not

only

Western

countries

but also in India that interpretation of

a statute being an exercise in the ascertainment of

meaning,

everything

which is

logically

relevant

should

admissible.

The

Finance

Minister’s

speech,

therefore, can be relied upon by the court

for the purpose of ascertaining what was the reason

for introducing that clause.

Reference also may be made to the judgment

in P.V.

Narsimha Rao (supra) for the same purpose.

The

court

addressing

itself

the

canons

construction

noted

that the view which

prevailed

earlier, with Courts in England, was that reference

Parliamentary

material as an aid to

statutory

constructions

not

permissible.

The

said

exclusionary

rule precluded the court from looking

even

reports

made by Commissioners

which

legislation

was

based.

The rigidity of the

said Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-23-

rule was relaxed in later decisions so as to permit

reports

Commissioners,

including

Law

Commissioners

and white papers to be looked at for

the purpose solely of ascertaining the mischief the

statute is intended to cure but not for the purpose

discovering

the meaning of the words

used

Parliament

effect

such

cure.

Parliamentary

debates

were, however, not looked at as an aid

construction.

The

statement of the Minister

who

moved

a bill in the Parliament could be looked

ascertain the mischief sought to be remedied by

the legislation and the object and purpose for

which the legislation is enacted.

16.

Can

the statement of object and

reasons

looked

int.

In Gurudevdatta VKSSS

Maryadit

and

others Vs. State of Maharashtra and Others, AIR

2001 S.C. 1980 the Supreme Court observed :

"The

Statements of objects and reasons need

looked

into

though

not

itself

necessary

aid

an aid

construction

only,

if necessary.

To assessee the intent

the

Legislature in the event

there

being

any

confusion, statement of

objects

and

reasons

may

looked

into

and

exception can be taken therefor- this is not

indispensable requirement but when faced

with

imperative need to appreciate

the

proper

intent of the Legislature, statement Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-24-

may be looked into but not otherwise...."

. The Court then observed :

"While the statements of objects and reasons

the

normal

course of event

cannot

termed

be the main or principal aid

construction but in the event it is required

discern

the

reasonableness

the

classification.

...."

. Proceeding further the Court observed that :

"For the limited purpose of appreciating the

background

and

the

antecedents

factual

matrix

leading

to the legislation,

permissible

look into the Statement

objects

and

Reasons

the

Bill

which

actuated

the

step to provide a remedy

for

the then existing malady."

17.

Gurudevdatta V.K.S.S.

Maryadit (supra)

also

dealt

with the explanatory memorandum to the Bill.

Reliance

was placed on the Australian Judgment

CIC

Insurance Limited Vs.

Bankstown Football Club

Ltd.

1997 (187) CLR 384.

The Supreme Court noted

that

the High Court of Australia permits Reference

to the Memorandum of Bill in order to ascertain the

mischief which the Statute was intending to

remedy. The court recorded its Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-25-

unhesitent

concurrence to the proposition.

18.

Before

we apply the principles of

statutory

interpretation let us refer to the documents placed

before us.

The budget speech of Prime Minister and

minister

Finance

for 87/88 (165) ITR

was

referred

point

out

that

Section

115J

was

introduced so that MAT companies will pay tax of at

least

30% of its book profits.

Reference was then

made to C.B.D.T.

Circular No.

435 dated 22.9.1987

point

out the manner in which the book

profit

has

worked out.

Circular No.

559

dated

4.5.1990

with

reference

Direct

Tax

Laws

(Amendment)

Bill 1988, notes that Section 115J

the

Income

Tax

Act levies minimum tax

"book

profits"

of a company.

Section 115J took away the

100%

exemption which was to be allowed in

respect

of export profits earned by the exports and tourism

related

industry

and

thus

watered

down

the

encouragement

which

was

to be provided

such

foreign

exchange

earning

activities.

was

decided

that

the profits, which are exempt

under

sections

80 HHC and 80 HHD should be excluded from

the purview of section 115J w.e.f.

August 1, 1989.

Reference

then

made to the Budget

speech

Finance

Minister 1996-97 introducing Section 115JA

which

speaks

about

introduction of

MAT

the

Budget

speech

1997-98 it was noted

that

the

export profits which were not eligible for tax will Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

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exempt

from the MAT and will be

eligible

for

full deduction under Section 80 HHC.

That was when

section

115JA was introduced and the benefit under

Section

80HHC was not available to MAT

companies.

This

was done as a large number of representations

had

been received.

The Memorandum, explaining the the Finance Bill 1997 was that

the

bill

proposed

to exempt the export profits

under

Section

HHC

from

the

purview

Minimum

Alternate

Tax.

CBDT

Circular

No.763

dated

18.2.1998,

sets out MAT was introduced w.e.f.

1st

April,

1997 and the Finance Act, 1997 exempts

the

export

profits

which are eligible

under

section

80HHC or under section 80 HHG from the purview of

minimum alternate tax.

19.

Then

have the budget speech

Finance

Minister

dated 29.2.2000 while introducing section

115JB. Referring to Clause 49 in the notes of

clauses it was provided as under :

"The book profit shall mean the net profit

as shown in the profit and loss account

prepared in accordance with the provisions

of Parts II and III of Schedule VI to the

Companies Act, 1956, as reduced by certain

adjustments, as specified. The profits

received in convertible foreign exchange and

eligible for deduction under Section 80 HHC

or section 80 HHE or section 80 HHF or the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-27-

Income referred to in section 10 or section

10A or section 10B shall be excluded while

working out "book profits". (emphasis

supplied).

. In the Memorandum explaining the provisions in

the Finance Bill it was provided as under :

However, export profits under section

HHC,

80 HHE and 80 HHF are kept out of

the

purview

of this provision during the period

of phasing out of deductions available under

those provisions...."

20.

The meaning of some expressions, must also be

considered.

The

Oxford

Dictionary

defines

"eligible"

mean fit or entitled to be

chosen.

In Stroud’s Judicial Dictionary, 7th Edn.

Page 824

"eligible"

means

"legally qualified or fit to

chosen".

Justice

L.P.

Singh’s

Judicial

Dictionary, 3rd Edn. the word "eligible" means

"fit or entitled to be chosen".

21.

Similarly

word

"Condition"

Oxford

Dictionary means "stipulation; thing on fulfilment

of which something else depends".

22.

The principles elucidated earlier of statutory

construction can now be considered for interpreting

the

provisions of Section 115JB vis-a-vis

Section Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

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80HHC.

Does

a literal reading of section 80

HHC

read

with

section 115JB(2)

Explanation

(1)(iv),

lead to an absurdity and/or does not make clear the

Parliamentary

intent

considering

the law

stood

before

section

115JB was

introduced.

Sections

115J

and 115JA the expression used

were

profits

eligible

for deduction under

section

HHC.

Section

115JB

also

uses

the

expression

"profits eligible for deduction".

There really can

no difficulty in understanding what this means.

Only

those profits which are eligible and computed

terms of sub-section (3) or (3a) and quantified

terms

sub-section (1B).

The

computation

whether

under sub-section (3) or (3a) are for

the sub-section

(1)

(1A).

Section

80HHC(1)

permits

deduction to

the

extent

profits

referred to in sub-section (1B).

The only

question

is whether the expression in clause

(a),

(b)

(c)

sub-section

(3)

consequent

introduction

of section 1B to Section 80 HHC

will

have a meaning different from the meaning then what

was originally understood, Considering (iv)

to Explanation-I of Section 115JB.

23.

Until section 115JB was introduced, the whole

the

profits computed under Section 80 HHC

was

eligible

for

reduction

for

computing

the

book

profits.

Pursuant to section 1B of section 80 HHC

The

deduction available to the extent provided

Section

(1B)

and after 1-4-2005 the deduction

of Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

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export

profits

discontinued.

The

assessees

argument

that

only in case of

companies

not

covered

section

115JB to then Section

section

HHC

would apply.

In so

far

MAT

companies

are concerned, the profits eligible

for

deduction

are as computed under sub-section (3) or

(3A)

of Section 80HHC without applying sub-section

(10).

This

argument is based on

the

expression

"computed under sub-section (3) or sub-section (3A)

as the case may be.

true scope and effect of section 80HHC.

Section 80 HHC, the relevant provisions to which

have

earlier

reproduced is

sub-section

(1),

which

provides, that in computing the total income

the assessee, a deduction is to be made to

the

extent

of profits referred to in sub section

(1B)

derived

the assessee from the export

such

goods.

The section as amended has brought in

the

words "deduction to the extent of profits" referred

sub-section (1B) by Finance

Act,2000

with

effect

from 1.4.2001.

If the construction

sought

be given by Counsel for assessee is accepted it

would

make

sub- section (1B) irrelevant

for

the of Section 115JB.

Sub-Section 1B provides

for

deduction

terms

set

out

therein.

Sub

section

(3) sets out the method of computation

profits.

The computation of profits is, therefore, Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-30-

for

the

purpose of working out the

deduction

profits under

Section

HHC

(1B).

Earlier

was in terms of sub-section (1).

Now

Section

80 HHC (1) in term refers to section (1B).

All

the provisions are inter-related and cannot be

read de hors one and other.

If (1B) is not read in

(1)

then

the

expression "no deduction

shall

allowed

in respect of the assessment beginning

the first day of April, 2005 and any subsequent

year, shall be rendered otiose.

25.

far as section

115JB(2)

Explanation

1(iv)

is Concerned, in computing the book

profits

the

export

profits under Section 80HHC had to

reduced.

The object of Section 115JB was to impose

tax

companies

which

are known

zero

tax

companies.

These

companies

though

making

huge

profits

and

paying handsome dividends,

were

not

paying

any

tax.

The object of the

Section

was,

therefore,

that

they pay tax not in a

manner

total

income

computed by other companies, but

the

book

profits

which had to be

calculated

terms

of sub-section 115 JB (2).

The assessees do

not dispute this.

Their argument is that reduction

must

the

whole of the book

profits

computed

under

sub-section

(3) or (3A) of

Section

80HHC.

The

object

Section

80HHC

originally

introduced

was

to exempt the whole of the

export

profits.

By virtue of Sub-section (1B) introduced

w.e.f.

1.4.2001 the deduction is only a percentage Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-31-

the

export profits as allowed therein

and

reduction

after

1-4-2005.

This

benefit

reduction

was initially not made available to

MAT

Companies, but the benefit was extended from

1-4-1989.

26.

is then sought to be contended

that

the

expression

conditions in (iv) of Explanation 1

Section

115JB

cannot be referable to sub

section

(1B)

Section 80HHC as (1B) is not a

condition

but in the nature of computation.

We have referred

to the dictionary meaning of the word "Conditions".

Even if we accept that (1B) of Section 80HHC is not

condition

and

proceed

that

footing,

nevertheless

is impossible of reading

section

80HHC

(3)

or (3A) independent of section

HHC

(1B).

our mind, the language is

clear.

The

literal

meaning

does

not in any way

defeat

the

object

of the section and/or lead to an absurdity.

The

object

of Section 115JB is to allow even

MAT

companies to avail of the benefit of deduction.

consider

the

assessee’s

arguments

that

MAT

companies

are entitled to full deduction of export

profits

will

lead

anomaly,

whereby

the

companies

which

are

paying tax on

total

income

under

the normal rules, for them the deduction

export

profits

will

lessor

than

what

MAT

companies

are

entitled

to.

Is this

possible

view.

When section 115J was originally introduced,

MAT

companies

were not entitled to

deduction

of Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-32-

profits

under section 80 HHC while working out the

book profits.

That came to be introduced by Direct

Tax

Laws Amendment Act, 1989 w.e.f.

1.4.1989.

year

Later.

Parliament, therefore, initially

had

even

denied

MAT

companies

deduction

under

section

115J.

When Section 115JA was

introduced

w.e.f.

1-4-1997, Section 80HHC benefits were once

again

not for

MAT

Companies.

The

amendment

by Finance Act 1997 to give the

benefit

was

w.e.f.

1.4.98.

Can it now be argued that MAT

companies

considering section 115JB(2) Explanation

(iv)

are

entitled

to be placed

better

position

than the other companies entitled to

the

export

deduction

under

section

HHC

though

earlier

they

constituted one class.

rule

construction

nor the language of the section 80HHC

read with Section 115JB, in our opinion will permit

such

construction.

If such construction

not

possible then both the classes of companies will be

entitled

the

same

deduction.

This

would

contemplate

that

both

would

entitled

deductions

profits

terms

section

80HHC(1B).

read,

it would

harmoneous

construction.

class

of companies

covered

Section

80HHC

cannot

be sub-classfied

into

two

classes,

when

more so, for intermittent

preriods

Parliament

had even denied the benefit of

Section

80HHC

MAT Companies.

If the argument

the

assessee

accepted, what

then

the

mischief, that Section 115JB sought to avoid.

What Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-33-

Section

115JB

did was to continue the

deductions

also to the MAT Companies.

The only difference was

that

instead of calculating tax at 30% of the book

Profits

as in the case of Section 115J, 115JA,

was

made 7.5% and from 1st April, 2007 it is

10%.

The

language

used

in (iii) to explanation

sub-section

(2)

Section

115J

(vii)

Explanation

Section

115JA(2)

(iv)

Explanation 1 of Section 115JB (2) is eligible for

deduction.

27.

The

argument

of the assessee

basically

based

the memorandum of understanding

the

Finance Bill 2000 which we have earlier reproduced.

only says that export profits under section

HHC

and others are kept out of the purview of

the

provision

during

the

period of

phasing

out

deductions

available under the provisions.

At the

same

time,

in the notes of clauses it is

clearly

stated

that the profits will be as reduced by

the

certain

adjustments

which

are

eligible

for

deduction

under

Section

HHC.

The

profits

eligible

for deduction are export profits in terms

section

80 HHC (1B).

There is nothing in

the

Finance

Minister’s speech of 29.2.2000, (242)

ITR

2000

to hold otherwise.

We have earlier

referred

rules

construction

set

out

the

judgments earlier quoted.

The Notes of objects and

reasons

is only an aid to construction.

That

aid

construction

is only when the literal

reading Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-34-

leads

ambiguous result or absurdity.

our

mind

considering the literal language there is

absurdity or ambiguity being caused or any mischief

sought

remedied.

The

language

used

section

115JB is deduction available under section

HHC.

difficult

conceive

any

rational

reason

as to why the legislature

should

have

thought

give

MAT

companies

additional

benefits

than

the other companies who are

paying

tax

on total income and not the tax based on

book

profit

calculated under section 115JB.

possible

conceive

of any degree

fairness

and/or

justice

that MAT companies, who

for

some

periods

were denied the benefit of section 80 HHC,

because

the

introduction of

section

115(JB)

Explanation

(iv)

are entitled

have

their

entire

export

profits

reduced.

The

object

section 15JB or for that matter section 115J or 115

was

impose tax on

those

companies

which

otherwise

considering

various

exemptions

deductions

available under the Act, though

making

huge

profits

and paying large dividends were

not

paying

any tax.

It is therefore, not possible

accept the construction as sought to be advanced on

behalf of the assessee, that they should be treated

a different footing in computing export profits

under Section 80HHC, for the purpose of Section

115JB.

28.

have

had the benefit

going

through Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-35-

reasoning

and

the

orders

ITAT

Vs.

SIMCOM

(supra)

also

the case

D.C.I.T.

Vs.

Govind

Rubber.

It is not possible to agree

with

the view taken by the Benches. Those decisions in

view of this judgment stand overruled.

29.

Our attention was also invited to the Judgment

the

Kerala

High

Court

the

case

Commissioner

of Income Tax Vs.

GTN (2001) 248 ITR

372.

In the first instance, the Kerala High Court

was

considering

the provisions of

Section

115J.

Section

115JB

was not under

consideration.

The

High

Court noted that original section 115J of the

Act did not contain exemption under Section 80 HHC.

That

section as we have noted, did not

originally

include

exemption

allowed

exporters

under

Section

80HHC.

By the virtue of the

Explanation

and

clause 3 thereto, which came into effect

from

1.4.1989, the reduction under section 80 HHC became The issue before the Kerala High Court

was,

what

profit that should

taken

into

consideration

considering

the

accounting

system

that have to be followed while working out the book

profits.

Therefore,

the judgment would be of

assistance in considering the question framed for

consideration.

30.

It was also sought to be then contended

that

two views are possible then the construction of

Section

115JB

Explanation 1 (iv) considering

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:44

-36-

decided

law,

the view in favour of

the

assessee

should

be accepted.

The question is whether there

are

two

views possible.

In our opinion,

two

views

are

possible.

The only view

explained

earlier is that the MAT company are entitled to the

same

deduction

export profits

under

Section

80HHC

any other company involved in export

terms of section 80 HHC (1B). Once that be the

case, this argument is also devoid of merit.

31.

Having

answered, in

our

opinion,

this

appeal

will have to be allowed.

The questions

law

farmed

will have to be

answered

the

negative in favour of the revenue and against the

assessee.

(R.S.MOHITE, (R.S.MOHITE, (R.S.MOHITE, J.) J.) J.)

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