Smt. Sujata Grover v. Deputy Cit

R.S. Syal, A.M.

This appeal by the assessed is directed against the order passed by Commissioner under section 263 on 27-2-2001, in relation to assessment year 1994-95.

2. The grievance of the assessed as projected in grounds of appeal is as under:

(i) The learned Commissioner, Delhi VII, has erred in law and on facts in invoking the provision of section 263 of the Income Tax Act, 1961, to the facts of the present case.

(ii) Without prejudice to the above, the learned Commissioner (Appeals) has erred on facts and in law in holding that the foreign exchange difference was to be excluded to the extent of 90 per cent from the profit of business in terms of clause (baa) to the Explanation to section 80HHC of the Income Tax Act, 1961.

(iii) In any case, he erred in law in failing to note and give effect to the provision of the proviso to sub-section (3) of section 80hhc.

3. The factual matrix of the case : The assessing officer while framing assessment under section 143(3) varied the amount of deduction under section 80HHC inter alia, on two counts. First he reduced 90 per cent of interest income from the profits of the business; and second he included a sum of Rs. 48,38,274 being the amount received on account of exchange fluctuation in relation to sales effected in earlier years in total turnover and not forming part of export turnover. The assessed challenged the second item before the Commissioner (Appeals) contending that such foreign exchanges fluctuation ought to have been included in the export turnover as well. The Commissioner (Appeals) concurred with the assessed's contention in this regard. However, it was noticed by the Commissioner that the assessing officer while calculating deduction under section 80HHC had not excluded 90 per cent of the foreign exchange gain of Rs. 48,38,274 and interest income of Rs. 1,52,807 from the 'profits of the business' as defined in Explanation (baa) below section 80HHC(4B). It was noted that this amount received as foreign exchange difference during the present assessment year related to export sales made in the earlier years and, therefore, could not be treated like foreign exchange difference relating to exports made during the current year. It was further noted by him that since the issue of including the same amount in export turnover and total turnover was considered and decided by the Commissioner (Appeals), against which the department had filed appeal before the Tribunal, that could not form the basis of revision under section 263. As the assessing officer did not reduce 90 per cent of the aforesaid two receipts from the profits of business for the purposes of calculating deduction under section 80HHC the Commissioner held the order to be erroneous and prejudicial to the interests of the revenue. According to the Commissioner, the amount of Rs. 48,38,274 was in the nature of "any other receipts of a similar nature" as contemplated by Explanation (baa). He, therefore, directed the assessing officer to modify the calculation of deduction under section 80HHC and deduct 90 per cent of difference of foreign exchange and interest income for calculating "profit of the business".

4. Before us the learned counsel for the assessed contended that the assessing officer while computing deduction under section 80HHC had already deducted, inter alia, 90 per cent of interest income to the tune of Rs. 1,52,807 and thus there was no point in the Commissioner again directing the assessing officer to exclude the same. As regards the other item of foreign exchange fluctuations income, it was contended on behalf of the assessed that the Commissioner had fallen in error in passing order under section 263 which was beyond his competence in view of the fact that the original order of the assessing officer on the issue of deduction under section 80HHC was considered and decided by the Commissioner (Appeals) and hence got merged with the order of the Commissioner (Appeals). Therefore, the Commissioner could not have revised the order which already stood merged with the order of the first appellate authority. It was also submitted that the deduction under section 80HHC involved four variables, namely, export turnover, total turnover, profits of the business and 90 per cent of the sums referred to in Explanation (baa) below section 80HHC(4B). It was stated that the computation of deduction under section 80HHC without all these four variables is not possible. It was stated that when the assessing officer varied the amount of deduction, which was agitated in appeal before the Commissioner (Appeals), who in turn adjudicated upon the matter, it was all the aspects of deduction under section 80HHC which stood considered by him. While inviting our attention towards Explanation (c) to section 263(1), the learned counsel pleaded that the matter of deduction under section 80HHC in whole was considered by the Commissioner (Appeals) and thus the order of assessing officer got merged with his order and hence the Commissioner was not justified in revising the order of the assessing officer insofar as any part of the deduction under section 80HHC was concerned. For this proposition, reliance was placed on various decisions including Oil India Ltd. v. CIT (1982) 138 TR 836 (Cal), Remex Constructions/Remex Electricials v. First Income Tax Officer & Ors. (1987) 166 ITR 18 (Bom), CIT v. Goodricke Group Ltd. (1994) 116 CTR (Cal) 625 and unreported decisions of the Allahabad Bench of Tribunal in ITA No. 509 (All) of 1999 (since reported as Sahara India Mutual Benefits Co. Ltd. v. Assistant Commissioner (2002) 74 TTJ (All) 67-Ed) the copy of which was also placed on record for our consideration.

5. On merits the learned counsel submitted that the Commissioner misdirected himself in considering the foreign exchange fluctuation income of sales effected in earlier years as falling in "any other receipts of a similar nature" as per Explanation (baa) below section 80HHC(4B). It was submitted that this Explanation referred to receipts by way of brokerage, commission, interest and rent, etc., and the expression "any other receipts of similar nature" referred to such type of receipts only and the foreign exchange rate fluctuation income could not be considered as falling in that category.

6. On the other hand, the learned Departmental Representative strongly supported the order of the Commissioner by contending that only the issue as regards the inclusion of income from fluctuation in foreign currency amount, in export turnover was considered by the Commissioner (Appeals). She submitted that the Commissioner had not touched that aspect but only considered the aspect of "profits of the business" as defined in Explanation (baa). It was submitted that Explanation (c) to section 263(1) was applicable insofar as the inclusion of the foreign exchange fluctuation amount in export turnover was concerned. The aspect of "profits of the business" was neither challenged before the Commissioner (Appeals) nor adjudicated upon by him and as a result of that this could have been the basis for invoking power under section 263, if the order of the assessing officer on this aspect of the matter was found to be erroneous and prejudicial to the interests of the revenue. Referring to the provisions of section 250, the learned Departmental Representative pleaded that the Commissioner (Appeals) was entitled only to deal with the issues which were considered by the assessing officer in his order. As the computation of "profits of the business" in accordance with the Explanation (baa) was not considered by the assessing officer hence that could not form the basis for making any adjudication by the Commissioner (Appeals) suo motu. It was further submitted that since the assessing officer had not correctly applied the provisions of the Act while allowing deduction under section 80HHC, the Commissioner was justified in resorting to revisionary power under section 263 in as much as the order of the assessing officer was erroneous and prejudicial to the revenue's interest and also to that extent did not merge with the order of the Commissioner (Appeals). On merits the learned Departmental Representative submitted that the expression "any other receipts of a similar nature" included the receipt of the nature which was considered by the Commissioner in his order under section 263. In her final submissions, she stated that there was no infirmity in the order of the Commissioner calling for any interference.

7. We have considered the rival submissions in extenso and perused the relevant material on record in the light of precedents relied upon. The undisputed facts are that the assessing officer included a sum of Rs. 48,38,274 representing foreign exchange fluctuation in respect of sales made in earlier years in the total turnover while allowing deduction under section 80HHC. The first appellate authority directed the assessing officer to include the same amount in the figure of export turnover as well. On the other hand, the learned Commissioner invoked his revisionary power under section 263 on the ground that the assessing officer should have deducted 90 per cent of income on account of the difference in foreign exchange of Rs 48,38,274 and interest income of Rs. 1,52,807 while calculating "profits of the business". Insofar as the interest income of Rs. 1,52,807 is concerned, it is seen from the assessment order that the assessing officer had considered this figure while deducting 90 per cent from the net profit for arriving at the figure of the "profits of the business". Therefore, to this extent there was unanimity between assessing officer and Commissioner and hence could not have been the subject-matter of revision under section 263. Insofar as the other item of income from difference of foreign exchange rate is concerned, the Commissioner was of the opinion that 90 per cent of the same ought to have been reduced from the net profits to arrive at the "profits of business" on the ground that this amount received on account of foreign exchange fluctuation did not relate to the sales effected during the year under consideration but to the sales effected in earlier years.

8. First of all, we have to decide as to whether the Commissioner was competent to deal with this aspect of deduction under section 80HHC when another aspect of deduction under section 80HHC hads already been considered and decided by the Commissioner (Appeals). For this purpose, it would be relevant to note down the language of section 263(1) Explanation (c) which reads as under :

(c) where any order referred to in this sub-section and passed by the assessing officer had been the subject-matter of any appeal filed on or before or after the 1-6-1998, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as has not been considered and decided in such appeal.

A perusal of this provision reveals that the power of the Commissioner under section 263 extends to all the matters which have not been considered and decided in the appeal. The word used in this expression is "matters". A "matter" may involve one or more aspects. Where there is only one aspect of the matter and that was the subject of appeal before the first appellate authority, the Commissioner cannot invoke revisionary power on that matter. A confusion may arise when there are various aspects of one matter and one or more aspects of that matter are already considered and decided in first appeal and the Commissioner wants to use revisionary power on another aspect which was not considered and decided in appeal.

9. Section 251 states the powers of the Commissioner (Appeals), which include confirming, reducing, enhancing or annulling the assessment. Explanation to this section provides that in disposing of an appeal the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed notwithstanding that such matter was not raised before him. This shows that any matter arising out of the proceedings before the assessing officer is open before the Commissioner (Appeals) and he is competent to consider all such matters. Powers of Commissioner (Appeals) are co-terminus with that of the assessing officer and he can do all that which assessing officer is competent to do and can also direct him to do what he has failed to do. This is a settled legal position in view of the judgments of the Apex Court in the cases of Jute Corpn. of India Ltd. v. CIT & Anr. (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) and CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC). There is also no dispute about the fact that the Commissioner (Appeals) has also got the power of enhancement.

10. A survey of the aforecited legal position reveals that the Commissioner (Appeals) is competent to consider all the aspects of the matter which is agitated before him. It is not only the right but the duty of the Commissioner (Appeals) to examine various aspects of the issue which is the subject-matter of controversy before him. When a particular matter is disputed by the assessed before the first appellate authority and he gives his findings on some aspects of the matter, it is implied that he has examined all aspects of that matter before adjudicating upon the matter and is satisfied as regards the correctness of the findings of the assessing officer on all other aspects of that matter. This is obvious from his power of enhancement, which has the effect of increasing the income by setting right the lacunas left over by the assessing officer while framing the assessment.

11. The view canvassed by the learned Departmental Representative on the overlapping of the powers of the Commissioner (Appeals) under section 251 and that of Commissioner under section 263, in our considered opinion is not based upon the correct interpretation of the scope of the powers of the two authorities. Whereas section 251 stipulates that the Commissioner (Appeals) has all the powers of the assessing officer and is competent to do all what assessing officer could have done, section 263 operates on all those matters which have not been considered and decided by the Commissioner (Appeals) and in the opinion of the Commissioner, the assessing officer has passed erroneous order which is prejudicial to the interests of the revenue. This can be illustrated by way of example in which M/s X Ltd., a company-assessed, claims deduction under sections 80-I as well as 80L in its return of income. The assessing officer while framing assessment reduces the quantum of deduction under section 80-I but grants deduction under section 80L as claimed. The assessed agitates the reduction in section 80-I deduction before the Commissioner (Appeals), who in turn allows partial relief lowering the reduction made by the assessing officer. The Commissioner while exercising his revisionary power under section 263 can revise the order of the assessing officer to the extent of deduction under section 80L because a company assessed is not entitled to deduction under section 80L. It is axiomatic that the Commissioner (Appeals), by virtue of the provisions of section 251(1) and explanation to section 251 has ample powers in regard to all the matters arising out of the proceedings before the assessing officer. This would include the consideration of allowability of deduction under section 80L also, in the above example, along with the issue of deduction under section 80-I which is specifically challenged before him. If he does not take up the matter of section 80L deduction in his order to that extent the order of the assessing officer does not merge with his order because he has not considered and decided this issue in his order, leaving it wide open to the Commissioner to exercise his revisionary power under section 263. But as far as deduction under section 80-I is concerned, it is to be noted that when the assessed agitates the quantum of reduction under section 80-I by the assessing officer, it is not only the reduction in deduction but the entire issue of deduction under that section which becomes the subject-matter of his consideration. Having got the power of enhancement also if he finds any error having been committed by the assessing officer in the computation of any part of deduction under section 80-I allowing excessive claim, he becomes duty-bound to set that mistake right by lowering the amount of deduction. This means that when the Commissioner (Appeals) enhances the quantum of deduction on one aspect without tinkering with any other aspect of deduction under section 80-I, it leads to presumption that he has applied his mind on the deduction as a whole and found no infirmity in the orders of the assessing officer on all other aspects of that deduction. This shows that the order of the assessing officer on the issue of deduction under section 80-I gets merged with that of the Commissioner (Appeals) leaving the Commissioner powerless to revise that part of the order. At the same time, albeit the order of the assessing officer is appealed against before the Commissioner (Appeals), but since the issue of deduction under section 80L is not considered and decided by the latter, the Commissioner is under his jurisdiction to exercise his revisionary power under section 263 pro tanto.

12. Our view is fortified by the decision of the Calcutta High Court in the case of Oil India Ltd. v. CIT (supra). In this case, the appeal before the first appellate authority related to the rate of depreciation of a building to be taken into account for purposes of disallowance under section 40(a)(v) and the question whether depreciation should be calculated on the basis of user of the building for 12 months or of 11 months was not a specific aspect which was agitated before the Appellate Assistant Commissioner nor was it one on which he gave any direction. In this case, it was held that as the quantum of depreciation was the subject-matter of appeal, the Commissioner had no jurisdiction under section 263 to revise the order with reference to this aspect.

13. Reverting to the facts of the instant case, it is noted that the assessing officer included the income of foreign exchange fluctuation relatable to exports of earlier years in the total turnover for allowing deduction under section 80HHC. The Commissioner (Appeals) in the appeal filed before him held that this amount should also be included in the export turnover. Now when the Commissioner (Appeals) has considered and decided this aspect of deduction under section 80HHC, it goes out of the competence of Commissioner to revise the order of the assessing officer on the question of reduction of 90 per cent of such foreign exchange fluctuation income from the "net profits" for calculating the deduction under this section. The obvious reason for this is that the entire issue of deduction under section 80HHC was open in appeal before the Commissioner (Appeals). He was within his power to consider any aspect of deduction. When he reversed the finding of the assessing officer on one aspect of the deduction, it means that he applied his mind on all the aspects of that deduction as a whole and did not find any infirmity in any other aspect of the computation of deduction. That being the position, the order of the assessing officer, insofar as the deduction under section 80HHC is concerned, gets merged with the order of the Commissioner (Appeals). Hence, the Commissioner was ousted to revise the order of the assessing officer on the question of deduction under section 80HHC.

14. Now, we would deal with the issue on merits. The Commissioner in his order under section 263 directed the assessing officer to deduct 90 per cent of the difference of foreign exchange fluctuation gain for calculating 'profits of the business' in terms of Explanation (baa) on the ground that the amount realised related to the sales effected in the earlier years and not in the year under consideration. Before going into this controversy it is imperative to note down the provisions of Explanation (baa) below section 80HHC(4B).

(baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by :

(1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessed situated outside India.

15. By means of this Explanation, the "profits of the business" have been defined as the amount arrived at by deducting from the income under Chapter IV-D, the 90 per cent of the sums referred to sections 28(iiia), (iiib) and (iiic) or receipts by way of brokerage, commission, interest, rent, charges or any other receipts of a similar nature. Clause (2) of the Explanation (baa) is not relevant for our purpose. Now the short question that falls for our consideration is whether the foreign exchange rate fluctuation gain pertaining to exports effected in earlier years can be said to form "any other receipts of a similar nature". If it is held to be falling in this category, then the viewpoint canvassed by the Commissioner on this issue, apart from legal ground, would be correct and vice versa.

16. It is not uncommon to find words like "and also", "et cetera", "and like" and "of such nature" in every statute. The ejusdem generis is the rule of generis words following more specific ones. It means general words following specific words would derive colour from the specific words preceding them. Per contra, the meaning of the general words would have to be seen in the light of the words in whose company such general words fall. The reason being that such general words are used to provide completeness to the specific words in the statute and to avoid the possibility of anything of that nature being excluded. In such circumstances, these general words should not be seen independent of the words accompanying them. The object of the inclusion of such general words is only to supplement the scope of the independent words used in the language of the section. It implies that such words occurring in provisions of the Act be read in the light of the words accompanying them.

17. In CIT v. A. P. Parukutty Mooppilamma (1984) 149 ITR 131 (Ker) it was laid down : "In this connection, it should be added that the rule of interpretation by context is the rule of ejusdem generis or noscitur a soclis and is a well accepted principle of interpretation.................s When two or more words which are susceptible of analogous meaning are employed together "nosciture a soclis" they are understood to be used in their cognate sense. They take, as it were, their colour from each other, that is, the more general is restricted to a sense analogous to the less general".

18. The Hon'ble Supreme Court in Stone Craft Enterprises v. CIT (1999) 153 CTR (SC) 86, while dealing with the meaning of the word "minerals" in section 80HHC held that it must be read in the context of "mineral ore" and "ores" with which it is associated and while reading so all the minerals extracted from the earth including granite must be held to be covered by the provisions of section 80HHC(2)(b).

19. Similarly, in Aravinda Paramila Works v. Commissioner Of Income Tax. (1999) 153 CTR (SC) 205, in the context of section 35B of the Income Tax Act, the Supreme Court held that the words "branch, office or agency" in the clause draw colour from each other and that word "agency" should, therefore, be interpreted in the light of the word "branch and office".

20. By applying the said rule to the present situation, it is seen that the expression "any other receipt of a similar nature" as used in Explanation (baa) is accompanied by the receipts of brokerage, commission, interest and rent, etc. Therefore, this expression should mean only such item which are of the nature of brokerage, commission, etc. and do not directly add to the export turnover. The foreign exchange fluctuation income, the subject of contention before us is related to the exports effected in earlier years. There is no dispute and naturally cannot be, insofar as the amount representing foreign exchange rate fluctuations income in relation to exports effected during the current year is concerned because that cannot be considered for exclusion to the extent of 90 per cent for computing 'Profits of the business' and the Commissioner has himself left out the same. We fail to understand as to how the exchange rate fluctuation income relating to exports effected in the earlier years can be differentiated from the exchange rate difference in relation to exports effected in the current year. Basically exchange rate fluctuation difference is nothing but part of sales. When the goods are exported to a country outside India, the invoice has to be raised in terms of the foreign currency prevalent in that country and at the time of making exports. The exporter converts that currency into Indian rupees at the exchange rate prevalent at that time and accordingly takes cognizance of that amount as its export figure in its books of accounts. However, when the invoice is actually realised from foreign country and the amount is remitted to India, the exchange rate prevalent on that date may be equal to or more or less than the one recorded in the books of accounts at the time of making the sales. If the exchange rate is more it results into income from the exchange rate fluctuation and in the reverse case it becomes loss on that account. Under all circumstances, the basic character of the receipt of foreign currency remains the same, i.e., it remains attributable to the export effected by the assessed. Whether there is a profit or a loss, it ultimately goes to increase or reduce the figure of export turnover recorded initially by the assessed in its books of accounts. It, therefore, shows that the income from the foreign currency fluctuation is nothing but part of export turnover and is a sort of additional sales price. Now when we read the Explanation (baa) below section 80HHC(4B) it is noted that 90 per cent of the sums referred to are of the nature of brokerage and commission, etc. In other words, these sums are in no way part of export turnover and hence do not contribute to the making of exports. These items are independent receipts and are in the nature of income and not turnover or its part. So to place income from exchange rate fluctuation in relation to exports of earlier years in this category by classifying it under the expression "any other receipts of a similar nature" is not in accordance with rule of ejusdem generis a discussed above.

21. However, it is important to bear in mind that the rule of ejusdem generis as not universally applicable. Some courts have added a word of caution in this regard by holding that this rule of interpretation is not to be applied where the meaning of a word or phrase is clear and unambiguous. Seen in the context of the situation under consideration, we do not find any hesitation in applying this rule for the reason that the legislature has itself broadened the expression "any other receipt" with "of similar nature" to put beyond doubt the possibility of taking any view in law other than the one taken by us.

22. We, therefore, find no justification in the view adopted by Commissioner holding that the income from foreign exchange fluctuation resulting from export turnover of earlier years would fall in the category of "any other receipt of a similar nature". Under these circumstances, we are of the considered opinion that the order of the Commissioner deserves to be quashed not only on the legal ground but on merits as well.

23. In the result, the appeal is allowed.