Hon'ble Aditya Nath Mittal, J.
1. This Income Tax Appeal of M/s Modi Zerox Ltd-assessee appellant under 260-A of the Income Tax Act, 1961 (in short, the Act) arises out of order dated 23.7.1999 passed by the Income-Tax Appellate Tribunal, Delhi Bench 'C', New Delhi in ITA No. 6444/Del of 1992 for the assessment year 1989-90. The Tribunal confirmed the order passed by the Appellate Authority.
2. The assessee-appellant is a Public Limited Company. It is engaged in the business of manufacturing photocopying machines and consumables. For the assessment year 1989-90 the relevant accounting period was between 1.5.1987 to 31.3.1989 (i.e. 23 months). The assessee appellant declared income of Rs. 5, 90, 95, 734/-, with brought forward losses under various heads amounting to Rs. 8, 36, 62, 936/-. The income under Section 115-J of the Act was declared at Rs. 7, 66, 47, 675/-. The assessment was made under Section 143 (3) of the Act at profits of Rs. 7, 66, 47, 675/- under Section 115-J of the Act. The Deputy Commissioner of Income Tax (Assessment), Special Range, Meerut by his order dated 20.2.1992 computed net profits as per profit and loss account at Rs. 10, 08, 78, 955/-. After allowing depreciation and misc. deferred revenue expenses the net profit was calculated at Rs. 8, 97, 55, 440/-. The inadmissible expenses were computed at Rs. 1, 32, 07, 321/- and after allowing deductions of the claim of bad debts, custom duty, excise duty, duty disallowed in the previous year, Section 35D and depreciation and taking into account the brought forward loss at Rs. 6, 90, 92, 303/-, the appellant assessee was assessed at Nil income.
3. The assessee-appellant preferred an appeal, which was allowed on 14.7.1992.
4. The Deputy Commissioner of Income Tax (Assessment) Special Range-I, Meerut filed an appeal against the appellate order, which was partly allowed on 23.7.1999. The assessee has preferred this appeal on the following substantial questions of law:-
"1. Whether the Tribunal was right in law in holding that the appellant was not entitled to claim of investment allowance under Section 32-A of the Act with reference to the actual cost of assets as enhanced by the sum of Rs. 48, 83, 326?
2.Whether the Tribunal was right in law in holding that the claim of investment allowance under Section 32-A read with Section 43-A of the Act was not allowable on increase in the actual cost of assets due to foreign exchange fluctuations taking place subsequent to the year (s) in which the assets had been installed and put to use?
3.Whether the Tribunal was right in law in holding that deduction under Section 80 HHC is to be allowed with reference to section 80 AB and not as per the calculation under Section 80 HHC (3) read with Explanation (iii) of Section 115-J of the Act?
4.Whether the Tribunal was right in not accepting the contention that in view of the overriding effect of section 115-J, section 80AB had no application in determining the amount deductible under Explanation (iii) of section 115-J of the Act?
5. Whether the Tribunal was right in law in holding that interest under section 234-B and 234-C was leviable on the appellant even though its taxable income was determined under section 115-J and it had no taxable income under the normal provisions of the Act in view of brought forward losses?
Question nos. 1 and 2
5. Shri Rupesh Jain, assisted by Shri R.R. Agarwal submits that the Assessing Officer did not accept the assessee's claim for investment allowance on increase in the actual cost of assets due to foreign exchange fluctuation taken place during the relevant previous year amounting to Rs. 48, 83, 326/- on the reasoning that Section 43A (2) of the Act restricts the grant of investment allowance on the increased cost of assets, due to foreign exchange fluctuation, and since the assets in respect of which fluctuation had already been taken place, were already installed and put to use in earlier years, there was no question of allowing the investment allowance on foreign exchange fluctuation taking place subsequently in the relevant previous years. The CIT (A) followed Southern Asbestos Cement Ltd vs. DCIT, 38 ITD 449 by Madras Tribunal and directed the AO to allow investment allowance on the actual cost of the assets arising out of fluctuation in the foreign exchange in the year under consideration, provided other formalities as per Act are complied with. The Tribunal reversed the order of CIT (A) and restored the order of AO on the ground that the issue was decided by Ahmedabad Special Bench of the Tribunal in the case of Lakhanpal International vs. ITO, 69 ITR 9 in which the decision of Andhra Pradesh High Court in CIT vs. Windsor Foods Ltd 99 Taxman 355 was followed.
6. Shri Jain has relied upon a Full Bench decision of Gujarat High Court in CIT v. Gujarat State Fertilizers 259 ITR 526 (Guj) (FB); CIT v. Gujarat Siddhi Cement Ltd 307 ITR 393 (SC). He submits that the provisions of Section 32-A do not provide that investment allowance cannot be allowed beyond the object of acquisition/installation/first put to use, where the actual cost stands modified due to the application of Section 43-A. The Scheme of Section 32-A goes to show that an assessee can claim deduction of a higher amount of investment allowance on fulfillment of statutory conditions prescribed. The scheme of Section 32-A did not envisage relating back to the year of acquisition/installation/first user, but has provided for creation of reserve and allowance in a subsequent year, being aware of the settled legal position that reopening of accounts is unknown to income tax. Section 43-A overrides other provisions of the Act. It operates on an event, which happens after the deduction of acquisition of the estate and takes into account the increase/reduction in the liability for making payment towards the whole or part of the cost of the estate. The amount, by which the liability is increased or reduced, should go on to add or to reduce from the actual cost of the asset under Section 43 (1). Such changed figure is to be taken the actual cost of the asset. The increase or reduction in the liability has to take place only in the year of fluctuation and it does not relate back to the year of acquisition/installation/first user. The Full Bench of the Gujarat High Court, overruled the opinion expressed in CIT v. Windsor Foods Ltd (1999) 235 ITR 249 (Guj) on this point. The Full Bench observed at page 545 of the report as follows:-
"The scope and ambit of sub-section (1) of section 43A has been made very clear by the Supreme Court in the case of CIT v. Arvind Mills Ltd (1992) 193 ITR 255, wherein the Supreme Court referred to the Notes on Clauses of the Finance Bill by which section 43-A was introduced and also the clarificatory letter dated January 4, 1967, issued by the Ministry of Finance. After considering all the relevant aspects, the apex court has held that the increase or decrease in liability arising on account of the fluctuation in the foreign exchange rate should be taken into account to modify the figure of actual cost and that such adjustment should be made in the year in which the increase or decrease in the liability arises on account of fluctuation in the rate of exchange. The apex court specifically observed that the adjusted actual cost is to be taken as the actual cost for all purposes other than for grant of development rebate. In our view, therefore, the decision of the apex court in CIT v. Arvind Mills Ltd (1992) 193 ITR 255, far from helping the case of the Revenue, supports the case of the assessee on the limited issue that additional investment allowance is allowable if the cost of the asset increases on account of fluctuation in foreign exchange rate in subsequent years.
We also find considerable force in the submission of learned counsel for the assessee that sub-section (1) of section 43A also grants the benefit of adjusted cost on account of fluctuation in the foreign exchange rate even in case of some other one time allowances like those for scientific research under section 35 (1) (iv) or for acquisition of patent rights under section 35A."
7. Shri Jain also relies upon CIT v. Gujarat Siddhi Cement Ltd (supra) in which the Supreme Court held as follows:-
"8. On a bare reading of the provision i.e. Section 43A(1) the position is clear that it relates to the fluctuation in the previous year in question. If any extra benefit is taken the same has to be taxed in the year when the liability is reduced as provided in terms of Section 41(1)(a) Explanation 2. Therefore, whenever there is fluctuation in any previous year, Section 43A (1) comes into play. Section 43A(1) as it stood at the relevant point of time reads as follows:
"43A. Special provisions consequential to changes in rate of exchange of currency- (1) Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange at any time after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency for making payment towards the whole or a part of the cost of the asset or for repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset (being in either case the liability existing immediately before the date on which the change in the rate of exchange takes effect), the amount by which the liability aforesaid is so increased or reduced during previous year shall be added to, or, as the case may be, deducted from, the actual cost of the asset as defined in clause (I) of section 43, or the amount of expenditure of a capital nature referred to in clause (iv) of sub- section (1) of section 35 or in section 35A or in clause (ix) of sub-section (1) of section 36, or, in the case of a capital asset (not being a capital asset referred to in section 50), the cost of acquisition thereof for the purposes of section 48, and the amount arrived at after such expenditure or a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid.
Explanation 1- In this sub-section, unless the context requires:-
(a) 'rate of exchange' means the rate of exchange determined or recognised by the Central Government for the conversion of Indian currency into foreign currency or foreign currency into Indian currency;
(b) foreign currency' and 'Indian currency' have the meanings respectively assigned to them in section 2 of the Foreign Exchange Regulation Act, 1947 (7 of 1947).
Explanation 2- Where the whole or any part of the liability aforesaid is met, not by the assessee, but directly or indirectly, by any other person or authority, the liability so met shall not be taken into account for the purposes of this sub-section.
Explanation 3- Where the assessee has entered into a contract with an authorized dealer as defined in section 2 of the Foreign Exchange Regulation Act, 1947 (7 of 1947), for providing him with a specified sum in a foreign currency on or after a stipulated future date at the rate of exchange specified in the contract to enable him to meet the whole or any part of the liability aforesaid, the amount, if any, to be added to, or deducted from, the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset under this sub-section shall, in respect of so much of the sum specified in the contract as is available for discharging the liability aforesaid, be computed with reference to the rate of exchange specified therein."
10. After the substitution by Finance Act, 2002 w.e.f. 1.4.2003 the position is quiet different."
8. Shri Shambhu Chopra appearing for the revenue submits that Section 43-A of the Act restricts the grant of investment allowance on the increased cost of assets due to foreign exchange fluctuation. He submits that the assets, in respect of which fluctuation had taken place, were already installed and put to use in earlier years, and thus there was no question of allowing the investment allowance subsequently in the relevant previous years.
9. We respectfully agree with the reasoning of the Full Bench of Gujarat High Court based on the clarificatory letter dated January 4, 1967 issued by Ministry of Finance, and the judgment in CIT v. Arvind Mills (1992) 193 ITR 255, in which it was held that the increase or decrease in liability arising on account of fluctuation in the foreign exchange rate should be taken into account to modify to figure of actual cost and that such adjustment should be made in the assessment year in which the increase or decrease in the liability arises on account of fluctuations in the rate of exchange. The adjusted actual cost is to be taken as the actual cost for all purposes other than for the grant of development rebate. Clause (1) of Section 43-A of the Act grants the benefit of adjusted cost on account of fluctuation in the foreign exchange rate.
10. The question nos. 1 and 2 are thus decided in favour of assessee-appellant and against the revenue.
Question nos. 3 and 4
11. Shri Bhupesh Jain submits that the assessee-appellant claimed deductions under Section 80 HHC amounting to Rs. 1, 48, 05, 072/- while calculating book profit under Section 115-J of the Act based on clause (iii) of Explanation to that section. The AO disallowed the claim while calculating the book profit on the ground that there was no export profit under Section 80 HHC, after taking into account the provisions of Section 80AB of the Act. In appeal it was submitted that Section 80 HHC provides in itself the basis of computation of deduction, and thus the provisions of Section 80AB would have no application while working out the deductions and that the deduction under Section 80 HHC was available even if the assessee had no income from business. Section 115-J is a complete code in itself; it opens with a non obstante clause. Clause (iii) of Explanation to Section 115-J (1A) provides for reduction of book profits by the amount of deduction eligible under Section 80 HHC as calculated under sub-section (3) of that Section. The book profit under Section 115-J is not subject to limit of gross total income under Section 80A (2). The concept of gross total income is not relevant for determining the book profits under section 115-J, which is a complete code in itself. It is submitted that the deduction under Section 80 HHC computed in a manner as laid down in sub-section (3), but on the basis of book profit, would be admissible to the appellant against the book profits under Section 115-J, even though there is no gross total income computed under the normal provision of the Act. The CIT (A) considered the submissions and directed the AO to allow deduction under Section 80 HHC calculated as per sub-section (3) of that Section without reference to section 80AB or any other provisions of the Act while arriving at the book profits under Section 115-J of the Act.
12. It is submitted that the Tribunal erroneously held that the restriction of deduction under Section 80 HHC as provided under Section 80AB was valid and proper. The Tribunal relied on a judgment of Supreme Court in Mettur Chemical and Industrial Corporation Ltd vs. Commissioner of Income Tax 217 ITR 768 , which was rendered in the context of Section 84 of the Act, without appreciating that the same was not applicable to Section 115-J which has overriding effect vis-a-vis other provisions of the Act.
13. Shri Jain has relied on C.B.D.T. Circular No. 680 dated 21.2.1994 published in 206 ITR (25) 297 and the opinion of Supreme Court in Ajanta Pharma Ltd vs. Commissioner of Income Tax (2010) 327 ITR 305 (SC) in which it was held that Section 115-JA was a self-contained code, and applied notwithstanding any provision in the Act. Section 115JB is the successor section to section 115JA which also continues to remain a self-contained code. The Supreme Court held that all assessable entities were not eligible for deduction under Section 80HHC (1B). Similarly, only eligible goods were entitled to such special deduction under section 80HHC (1). Section 80HHC (3) was obligatory to exports, whereas the levy under Section 115JB, was on the deemed income. The object was to exclude export profits from the computation of book profits under Section 115JB. The Supreme Court further held that if the dichotomy between eligibility of profits and deductibility of profits was not kept in mind Section 115JB would cease to be a self-contained code.
14. Shri Shambhu Chopra appearing for the revenue, on the other hand, relies upon Joint Commissioner of Income Tax v. Rolta India Ltd (2011) 330 ITR 470 (SC) and submits that all the provisions of the Act shall apply to a MAT company including sections 115-JA (4), and section 115JB (5). He has referred to IPCA Laboratory Ltd v. Deputy Commissioner of Income Tax (2004) 266 ITR 521 in which it was held that Section 80 HHC has been incorporated with a view to providing incentive for earning foreign exchange. In arriving at profits earned from export of both self manufactured goods and trading goods, the profits and losses in both trades have to be taken into consideration. If after such adjustments there is a positive profit, the assessee would be entitled to deduction under Section 80 HHC (1). If there is a loss, then no deduction would be available under sub-sections (1) and (3) (a) and (b). Section 80 AB has been given an overriding effect over all other sections, in Chapter VI-A. Section 80 HHC does not provide that its provisions are to prevail over Section 80AB or any other provision of the Act. The Circular No. 636 dated August 31, 1992 of the C.B.D.T does not provide for negative profits. It also shows that only positive profits can be considered for purposes of deduction under Section 80 HHC.
15. Shri Chopra has relied upon A.M. Moosa v. Commissioner of Income-Tax (2007) 294 ITR 1 (SC) in which the Supreme Court held that the word "profit" in section 80 HHC (1) and (3) of the Act means a positive profit. Sub-section (3) (c) hows that "profits from such exports" has to be profits from exports of self-manufactured goods plus profits from exports of trading goods. The deductions are permitted only if there is a positive profit in the exports of both self-manufactured goods as well as trading goods. If there is a loss in either of the two, then that loss has to be taken into account for the purposes of computing the profits. The Supreme Court further held that Section 80AB has been given an overriding effect over all other sections in Chapter VI-A. Section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provisions of the Act. Section 80HHC would thus be governed by section 80AB.
16. In Commissioner of Income-Tax v. Bhari Information Tech. Sys. P. Ltd. (2012) 340 ITR 593 (SC) the Supreme Court upheld the order of the Tribunal which had come to the conclusion that deduction claimed by the assessee under Section 80 HHE has to be worked out on the basis of adjusted book profits under Section 115JA and not on the basis of the profits computed under the regular provisions of law applicable to the computation of profits and gains of business.
17. In this case the AO determined the profit of the year at Rs. 6,90,92,303/- under the normal provisions of the Act, before setting out the brought forward losses and other allowances. The book profits under Section 115J were worked out at Rs. 2, 56, 10, 184/-. The AO while adopting the book profit under Section 115J as the total income allowable to tax, reduced the profit for the year amounting to Rs. 6, 90, 92, 303/- to Nil after setting out the brought forward losses/allowances to that extent. The balance brought forward allowance was carried forward to the subsequent years. In appeal it was held that the unabsorbed business losses, unabsorbed depreciation and unabsorbed investment allowance should be taken to be set off only to that extent which is sufficient to bring down the income computed under the normal provisions of the Act to the level of Section 115J income. In other words, the AO was directed to increase the amounts of unabsorbed losses by the income computed under Section 115J income. The Tribunal upheld the order.
18. We do not agree with the submissions of Shri Chopra appearing for revenue, that Section 80AB has overriding effect and will prevail over Section 80HHC. Section 80AB provides for deductions to be made with reference to the income included in the gross total income. Section 80HHC provides for deduction in respect of profits retained for export business. Although both the sections fall in Chapter VIA, they have to be applied independently.
19. The question nos. 3 and 4, are thus decided in favour of the assessee-appellant, and against the revenue.
Question no.5
20. On this question, reliance is placed by Shri Bhupesh Jain on judgment of Karnataka High Court in Kwality Biscuits Ltd v. CIT (2000) 243 ITR 519 (Karn) against which the appeals were dismissed by the Supreme Court in Commissioner of Income Tax v. Kwality Biscuits Ltd (2006) 284 ITR 434 (SC). The Karnataka High Court reconsidered and distinguished its own decision in Jindal Thermal Power Co Ltd vs. CIT (2006) 154 Taxman 547 (Kar), which has been affirmed by Supreme Court in CIT v. Rolta India Ltd (2011) 2 SCC 408. The Supreme Court held in paragraphs 8 to 11, as follows:-
"8. So far as interest leviable under Section 234B is concerned, the section is clear that it applies to all companies. The pre-requisite condition for applicability of Section 234B is that assessee is liable to pay tax under Section 208 and the expression "assessed tax" is defined to mean the tax on the total income determined under Section 143(1) or under Section 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of Section 115-J/115-JA in the levy of interest under Section 234-B. The expression "assessed tax" is defined to mean the tax assessed on regular assessment which means the tax determined on the application of Section 115-J/115-JA in the regular assessment.
9.The question which remains to be considered is whether the assessee, which is a MAT Company, was not in a position to estimate its profits of the current year prior to the end of the financial year on 31st March. In this connection the assessee placed reliance on the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. v. CIT reported in (2000) 243 ITR 519 and, according to the Karnataka High Court, the profit as computed under the Income Tax Act, 1961 had to be prepared and thereafter the book profit as contemplated under Section 115-J of the Act had to be determined and then, the liability of the assessee to pay tax under Section 115-J of the Act arose, only if the total income as computed under the provisions of the Act was less than 30% of the book profit.
10. According to the Karnataka High Court, this entire exercise of computing income or the book profits of the company could be done only at the end of the financial year and hence the provisions of Sections 207, 208, 209 and 210 (predecessors of Sections 234-B and 234-C) were not applicable until and unless the accounts stood audited and the balance sheet stood prepared, because till then even the assessee may not know whether the provisions of Section 115J would be applied or not. The Court, therefore, held that the liability would arise only after the profit is determined in accordance with the provisions of the Companies Act, 1956 and, therefore, interest under Sections 234-B and 234-C is not leviable in cases where Section 115J applied.
11. This view of the Karnataka High Court in Kwality Biscuits Ltd. was not shared by the Gauhati High Court in Assam Bengal Carriers Ltd. v. CIT reported in (1999) 239 ITR 862 and Madhya Pradesh High Court in Itarsi Oil and Flours (P.) Limited v. CIT reported in (2001) 250 ITR 686 as also by the Bombay High Court in the case of CIT v. Kotak Mahindra Finance Ltd. reported in (2003) 130 TAXMAN 730 which decided the issue in favour of the Department and against the assessee. It appears that none of the assessees challenged the decisions of the Gauhati High Court, Madhya Pradesh High Court as well as Bombay High Court in the Supreme Court. However, it may be noted that the judgment of the Karnataka High Court in Kwality Biscuits Ltd. was confined to Section 115-J of the Act. The Order of the Supreme Court dismissing the Special Leave Petition in limine filed by the Department against Kwality Biscuits Ltd. is reported in (2006) 284 ITR 434. Thus, the judgment of Karnataka High Court in Kwality Biscuits stood affirmed. However, the Karnataka High Court has thereafter in the case of Jindal Thermal Power Company Ltd. v. Dy. CIT reported in (2006) 154 TAXMAN 547 distinguished its own decision in case of Kwality Biscuits Ltd. (supra) and held that Section 115-JB, with which we are concerned, is a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies and, therefore, where such companies defaulted in payment of advance tax in respect of tax payable under Section 115JB, it was liable to pay interest under Sections 234-B and 234-C of the Act. Thus, it can be concluded that interest under Sections 234-B and 234-C shall be payable on failure to pay advance tax in respect of tax payable under Section 115-JA/115-JB. For the aforestated reasons, Circular No. 13/2001 dated 9.11.2001 issued by CBDT reported in 252 ITR(St.)50 has no application. Moreover, in any event, para 2 of that Circular itself indicates that a large number of companies liable to be taxed under MAT provisions of Section 115-JB were not making advance tax payments. In the said circular, it has been clarified that Section 115-JB is a self-contained code and thus, all companies were liable for payment of advance tax under Section 115JB and consequently provisions of Sections 234-B and 234-C imposing interest on default in payment of advance tax were also applicable."
21. The Income Tax Appeal is partly allowed. The question nos.1, 2, 3 and 4 are decided in favour of the appellant-assessee and against the revenue. The question no. 5 is decided against the appellant-assessee and in favour of revenue. The department will proceed accordingly.
Dt.16.10.2012 RKP/